I just read the article “Does trading in an SUV for a gas-efficient car make economic sense?” on ProducersWEB.com. The article states, “Whatever your politics are, it seems clear that the president has no short-term energy policy when it comes to dealing with the prices of oil.” It goes on further to say, “His idea for those who drive SUVs was simple — get rid of them and buy fuel-efficient cars like the Chevy Volt. This shows how truly out of touch the president is and that he lives in some sort of green energy fantasy land.”
The main thrust of the article is comparing the costs of keeping the SUV versus buying a new, more gas-efficient car. The article ends with: "...they should keep the gas hog, enjoy life, and still save more money than if they had bought the car the president and other green crusaders are trying to guilt them into buying.”
There is very little our president or our so-called representatives in Washington, D.C. can do in the near future to control the price of oil while we continue to import 70 percent of the oil we use in the United States.
In 2000, the facts were:
“Currently, the United States consumes 19.6 million barrels of oil per day, which is more than 25 percent of the world's total. As a result, the U.S produces one fourth of the world's carbon emissions. Despite predictions that the U.S. will exhaust its supply of oil in as little as 40 years, the demand is on the increase, and is predicted to continue increasing, because of our ever increasing population. Increase in resource consumption is caused by three factors:
Note: Today, U.S. oil consumption is approximately 21 million barrels per day, and domestic production is only six million barrels per day. Thus, the vast majority of oil we consume in the U.S. must be imported. In 2010, two-thirds of total petroleum consumption was for transportation. Almost two-thirds of transportation consumption was gasoline.
“The rate of consumption for oil is increasing at a rate of about 2 percent yearly.”
- Population growth
- New uses found for a resource
- Heightened demand for a resource to increase living standards
- Jason J. Churchill, October 25, 2000, Revised and submitted November 13, 2000.
Dependence on imported oil is the major problem
Our dependence on imported oil is the major problem, as this directly impacts our economy.
Research at my company suggests that today some economists are scaling back their estimates for growth this year, (2011) in part because flat wages and reduced social security income has left households struggling to pay higher gasoline prices. Oil has topped $108 a barrel, the highest price since 2008. Regular unleaded gasoline now goes for an average $3.69 a gallon, according to AAA's daily fuel gauge survey, up 86 cents from a year ago.
“Could the current spike in oil prices cause another catastrophic meltdown of the U.S. economy? In April of 2009, economist James Hamilton presented a hypothesis at the Brookings Institute stating that the huge spike in oil prices is what caused the U.S. economy to collapse in 2008.”
We all need to do our part if we want the U.S. economy to improve. We need to raise our thermostats in the coming summer months, do more car pooling, drive more gas-efficient cars, drive less and take other steps to cut our dependence on imported oil.
“In Hamilton's report (on www.econbrowser.com), he states that high crude oil and gasoline prices hit the U.S. auto industry like a tsunami, causing a shockwave that rippled through large swathes of the rest of the economy, causing consumers to cut back on spending. Energy prices also devastated consumers' discretionary income and eroded their confidence. The housing meltdown did play a huge part in the 2008 recession that crippled the U.S. economy, but that too can be blamed on higher oil prices: Cheaper homes build deep in the suburbs, lost their value and went underwater when gasoline hit $4 a gallon.”
- High Oil Prices Expected to Crash U.S. Economy, by Russell W. Dickson 4/18/11
More important and pressing issues
As a nation we are now some of the worst savers in the world
The savings rate in the U.S. has deteriorated overtime from a high of 14 percent in 1974 to reach a low of 0 percent in 2004.
“One out of three working Americans does not have retirement saving beyond Social Security, and about 35 percent of those over 65 rely almost totally on Social Security alone. Of the remaining two-thirds of working Americans that have some retirement savings, 27 percent report less than $1,000, 16 percent between $1,000 and $9,999, 11 percent between $10,000 and $24,999, 12 percent between $25,000-$49,999, and 36 percent $50,000 or more."
- Dallas Salisbury, president of the Alliance for Investor Education and the Employee Benefit Research Institute (EBRI).
Perhaps the most shocking number is that about 60 percent of working Americans have $1,000 or less saved for retirement.
Consumer debt is out of control
The problem is most people have been too busy pursuing the American dream to worry about putting away anything for their future. And, they are now drowning in debt. The Federal Reserve surveys (Jan 2010) suggest that about 75 percent of households have at least one credit card, and 25 percent have none. If we count only those households that report actually having one or more credit cards, the average household credit card debt would be $9,858.
The latest 2010 statistics from the Federal Reserve indicate that the total amount of consumer debt (credit cards, auto loans, etc.) in the United States stands at nearly $2.4 trillion. We're talking about consumer credit, which does not include mortgage debt.
Based on the 2010 Census statistics, that works out to be nearly $7,800 in debt for every man, woman and child that lives here in the United States.
"Our nation's system of retirement security is imperiled, headed for a serious train wreck. That wreck is not merely waiting to happen; we are running on a dangerous track that is leading directly to a serious crash that will disable major parts of our retirement system."
When are we going to stop telling our clients what they want to hear and start helping them to address these serious financial problems?
- John Bogle, Feb. 24, 2009
When are we as financial advisers going to help people to establish better financial priorities and set their long-term financial goals?
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