Wednesday, August 31, 2005

Bracing Against A Tipping Point

Of course these are just theoretical propositions, but what happens when:

1) Energy prices jump 10%, 15% or 20% or higher in the span of one month due to a hurricane,

2) Consumers begin to feel a pinch from marked inflation and non-existent wage growth,

3) Feeling this tightening, the housing market suffers a contraction in its fevered pace and with it, a solid source of economic "growth" closes,

4) Throughout all of these phases, a war in Iraq continues without an end in sight on borrowed money.

It may be that the hurricane that has completely devastated the Gulf Coast states won't have as great an impact on energy prices that it currently has, but there is definitely a hint of how much damage the category 5 storm had on the refineries on and off shore in the area. The production and the distribution of gasoline from this area will directly affect the cost of gas as far north as Virginia, and this swath of the United States holds many, many businesses that will be forced to pass along these greater expenses to every consumer.

If such a dramatic spike occurs, consumers may be prompted to save (or in America - spend just a bit less) some money due to the costs of energy hitting the pocketbook. Let us presume that the average price for a gallon of 87 octane gas hits $3.60. A 15 gallon fill costs $54. That will get any consumer's attention, especially if that trip to the pump occurs twice or more a week.

Destabilize consumer confidence, and maybe that purchase of a home for $700,000 can wait a bit longer. Or maybe the idea of inflationary pressures on the economy will cause the same result. Either way, the very idea of Americans not spending money that they don't have might scare those who wish to retire comfortably to K Street after two or three election cycles.

And what of the war? Are there signs that the U.S. and Iraq are turning the corner? Well, no not really. The U. S. Ambassador Khalilzad suggests that the Iraqi Constitution "has not yet been, or the edits have not been, presented yet." It seems that the occupier still has some clout even if the drafting of a supposedly sovereign nation's primary document was completed the week prior. And of course, the 965 (and quite possibly counting) dead on the bridge leading to the Kadhimiya mosque will probably burn in many Iraqi minds that security and control are not part of the language whether it is imposed by American forces or nascent Iraqi ones.

Things are just not changing. Quite possibly, things will get a whole lot worse.

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