Have you noticed the price of gas lately?
No no, not unleaded. I’m talking about Diesel fuel. Let’s go to the chart from the gubment.
I’m talking about that 75 cent spike in just the last two months. Here in Cincy, Diesel fuel is now $4.19 a gallon this weekend. In the last 15 months, we’ve gone from $2.40 a gallon to over $4.
Now keep in mind everything you buy at a store comes by truck and is processed by factories that rely on materials that are largely trucked in.
The price of getting those items to your store has been jacked up by 25% in just the last two months alone. What do you think is going to happen to the already rising prices for these goods?
They’ll go up. They will go up big time and already have started to rise. In the short term we’re going to see some egregious inflation this summer.
Then demand will drop. People will stop buying these items altogether. In the short term, inflation. In the long term, deflation.
Those on the edge, the owner-operator truckers, the smaller grocery store chains, the local bodegas and Asian food stores and Quickie Marts selling gas, they’ll go under first.
The edge will get readjusted. Then new people will be on the edge, and then the people laid off from these higher fuels costs will continue to depress demand.
The edge will keep getting pushed forward more. And every time, the people at the edge will go over.
Massive inflation leads to sharply lowered demand. In the cases where people can’t afford the higher fuel costs, they’ll go out of business.
Yes, this means fuel prices will start dropping as demand lowers. But there’s only so much that demand can lower. Your store is still X miles from the delivery warehouse no matter what the price is, and with truckers going out of business they have even fewer options to choose a trucking company to make those deliveries.
So fuel prices will drop…and those drops will not be passed on to the customer. The trucking companies that are left can’t afford to do so, because they now have fewer customers to deliver to and have their own overhead to meet.
Massive, sharp shocks to the system like a 75 cent increase in Diesel fuel nationwide in 60 days are things that the system would have trouble handling even in a good economy. In our current economy, where things are largely unregulated, where businesses are told to police themselves and do so by taking as much slack out of the system as possible for maximum profit, those shocks can be enough to break the system.
If you pull sharply on a rubber band that has slack in it, it stretches.
If you pull sharply on a rubber band that’s already stretched to the limit, it snaps.
It’s bad now. It’s going to get worse on a number of fronts very quickly. Everything you buy is influenced by the cost of diesel fuel. Diesel fuel has jumped almost a $1.20 nationwide since last year. Almost all of that increase has come within the last 3 months…in other words, 1Q of 2008.
We’re a consumer economy. We’re going to consume a lot less this summer. And it’s going to get brutal out there.
Unleaded is bad right now. But diesel? That’s a whole lot worse and a whole lot more important to you overall bills every month, even if you bike or walk or take public transportation.
Everything in America runs on just in time delivery. Just in time delivery runs on Diesel. Right now, we’re all about to get a nasty case of Diesel disease.
Keep an eye on the price of Diesel fuel. Watch prices at your local stores as a result.
Be prepared.
Tuesday the Momcat and I had to go to the airport to meet Navy Son’s flight. He’s home on leave right now. On the Interstate we passed by the big Love’s store on the way. You know, the one with the 100 foot tall sign with the giant LCD fuel prices. I happened to notice that diesel was substantially higher than gas. It has been a little bit higher for a good while now, but the difference on the sign Tuesday was remarkable. I couldn’t help but think of all those people who started buying diesel powered vehicles a few years ago because diesel was cheaper than gasoline. Betcha no one could have foreseen that increased demand for diesel might push the price up.
Last night we were watching network news go on and on about all the grounded American Airlines flights and all the affected passengers scrambling to make other arrangements. Something like a quarter million folks affected. As it happened, Navy Son booked his round trip flight on American. He dodged that bullet by 24 hours or so. The Momcat and I were speculating about whether American would have their safety inspection issues sorted out by the time Navy Son has to go back.
As we were talking, a little light came on back in the fog. I wonder if this is the first visible manifestation of The Crash of ’08. After all the shit that has come to light about the economy in just the last few months, I wonder if the dominoes are starting to fall.
My fiancee and I both drive diesel cars. While the high prices may seem like they would be a pain, I get nearly 50 mpg in the thing, and can go 3 weeks to a tank, so it isn’t like the cost is a huge burden on my budget.
Keep in mind that winter is peak season for diesel as it is essentially the same as home heating oil.
Not all means of shipping freight are the same. Rail can move a ton of freight far more efficiently than can a truck. Rail can also be electrified, meaning that freight can be moved without burning any oil, and once electricity from renewable sources is more widely available we can move freight without any greenhouse gasses. Unfortunately our rail infrastructure is in pretty sad shape right now.
I should also add that in the years ahead I expect that oil and gas will become even more expensive. We will have a long and painful transition from using oil to figuring out how to make do without.
I know I probably don’t need to remind people here, but this is one more reason to buy local whenever possible. Not only are you supporting your local economy, but you are also going to be hit less by rising transportation costs for the goods you buy. And, you’re lessening the demand for goods that are transported by truck.