High Gas Prices Created the Severity and the Sharpness of the Recession and Electric Cars Will Lead us Out of it.

The view of our recent housing values is varied but research shows that one half of the most severely depressed housing areas are in only 35 counties nation wide and one fourth of them are in only 8 counties in the entire nation. Falling housing values and foreclosures can not account for the severe shock delivered by the sudden decrease in consumer purchasing in the fall of 2008.

Because of the very high real estate values in larger cities especially on the east and west coasts the average American must commute long distances and spends nearly all his income on his house payment and on gas for commuting. This situation coupled with American credit card debt averaging an astounding $8000 per person. Then add an extremely low savings rate 0%, it is not difficult to determine that the average American has virtually no discretionary spending funds. Now we introduce $4 Gas prices and the same average American goes in debt and can’t meet his mortgage payment and he ceases to make discretionary purchases forcing the economy to go south after only a few months.

How did this happen? The middle class those who bought the SUVs that get 8 to 15 miles per gallon are the same group that eats out in restaurants and takes the family on short weekend vacations. They found themselves with a problem. Suddenly all their extra cash was being pumped into their SUV which they drove to work.

The occasional market forces that drive up commodity prices such as copper can immediately impact the Construction segment of industry. The price of corn can drive up the price of cereal in the super market. But the price of gasoline impacts all Americans and American industry everywhere instantly killing the economy. Why has this not happened before? It has but went unnoticed because the impact was not as sever and Americans were driving cars getting 18 miles per gallon not 8 and 10. So what does it take to get Americans to start spending money again? That is the way we get out of recessions. Stimulus packages are not nearly enough to end a recession the American consumer must have enough faith in the economy to start buying again.

Here is how I see the end of the recession happening. Middle class Americans will lead us out of this mess. We come out of most recessions when the middle class starts buying automobiles. They will start buying plug-in electric commuter cars by the millions. Detroit may not be able to deliver these cars but the Chinese will and are poised to deliver millions of electric cars to the US. The buyers will keep their SUVs as a second car for shopping and week end trips. Suddenly they will have extra cash to spend for vacations and for eating out. The middle class has always led us out of every recession. They are the ones that start spending the money that enables industry to start up production and hire back workers. Politicians are worried that the stimulus packages will cause interest rates to rise and slow the recovery. But that’s not the way that it works industry waits until they see the consumer demand and that does not depend so much on interest rates.

The question is why didn’t we see this coming? For one thing we don’t believe in interfering in the market place we want the market to set prices. But market fluctuations caused by real or imagined situations can do enormous damage to segments of the economy and can in the case of oil prices deliver a death blow to the nation’s economy.
The second reason is that the automotive industry has been dragging their feet on electric car development for years. The reason is that the auto industry makes much of its money by servicing the internal combustion engine. Electric cars can be serviced by anyone including Walmart and Kmart. This spells the death of the auto dealership service business. In fact the big-box discount store Costco and Walmart could be selling Chinese-designed and Mexican-built vehicles in the US says one auto exec. The CEO of GS Motors — Kathleen Ligocki — told the Hybrid Cars website that she thinks the US will follow in Mexico’s footsteps. GS Motors sold 4,000 China-made vehicles in Mexico last year at…Costco and Wal-Mart.

The auto industry even developed the hydrogen fuel cell and announced it as the future of the auto industry all in an effort to save its dealership service business. Even Governor Schwarzenegger was taken in by the ruse by installing hydrogen service stations in California. As you might have guessed hydrogen is a dangerous gas and the cost of infrastructure for dispensing it dwarfs the cost of quick charging stations for electric cars. The fuel Cell engine and hydrogen service stations are dead on arrival.

There is one thing President Obama must do: he must keep gas prices below the two dollar level. I see this as the Achilles heel to convincing the public that the severity of the recession has passed. A significant rise in gas prices instantly affects all Americans and delivers the message: “efforts to slow the recession has failed”. High gas prices blew the economy out the window and it won’t come back till prices are stable at a lower level or until electric cars arrive to drive down the price.