Gas Prices Won’t Kill The Economy This Time!
As much as I hate high gas prices (so what if Europe has $9.00 a litre petrol…I’ve gotten used to gas prices here!), I think we are finally getting to a point where the effect of high gas prices on everyone’s wallet will not kill the economy like it did last time.
In 2007, when the economy went belly up, many people pointed to a variety of factors for it’s demise. Sub-Prime mortgages were blamed much of the time and the overall actions of banks and financial institutions also received a bunch of the blame.
These reasons contributed to the problems but I believe high gas prices broke our back. Yes, Americans had many financial flu symptoms. In addition to mortgages that were way over many of our heads, we decided credit was a great way to fund our lifestyles. We borrowed on our home’s equity, we leaned on credit cards, and continued to believe economy would sail along and our incomes might eventually catch up.
But, with all the symptoms, high gas prices took whatever chance we had of getting through that mess, and threw it out the window. High gas prices took whatever room we had for error in our family budgets and left many of us no choice. When we looked at our monthly budget, something had to give. There just wasn’t enough money to pay all the bills.
Once the family budget went upside down, the wheels fell off the car. All of the credit and bad mortgages started to expose themselves and eventually, we all remember what happened.
So, with high gas prices the way they are, are we destined to repeat 2007? Frankly, we might someday but this latest attempt at economic stability will not be harmed by gas prices. As Americans, we’ve made dramatic improvement in several areas. First, our credit/debt collectively as Americans (not government!) is much lower than it has been. Second, the banks have made it much harder to qualify for loans. While this has been painful for small business, it’s made bank balance sheets better (Recently, most of the big banks did fairly well on government stress tests). Third, employment is up and more people are finding jobs. The opposite was true in 2007. Fourth, people have saved more and gotten more conservative. Family budgets can withstand the increased pressure of higher gas prices better this time around and many have ditched the big gas guzzling cars for more fuel efficient models.
That’s my argument for why higher gas prices will not kill the economy this time around. As I’ve watched speculation drive crude oil higher, It’s been on my mind allot. Let’s hope it comes true!