$5 a gallon for gas? Get ready, experts say

On 2011-03-24, Vic Smith > wrote:
> On Thu, 24 Mar 2011 17:31:27 +0000 (UTC), Brent
> wrote:
>>
>>Say you live in a state that has a 6% income tax rate and have a salary
>>of 75K/yr. Another guy lives in another state with no income tax, he
>>also has a salary of 75k/yr. Does he make more money than you?
>>
>
> He takes home more because I pay 6% in taxes.

That wasn't the question. His employer has the same cost for his
labor as your employer pays for yours.

> Guy in Europe pays 8 bucks a gallon, I pay 3 1/2 bucks a gallon.

He pays a lot more tax on gasoline because that is part of how the
social engineering through taxes is done there. The pump price, which
includes taxes, is irrelevant to subject of inflation in the USA.
Inflation will increase the costs to make gasoline, it effects the
gasoline portion of the price, the tax rates remain the same.

> Who pays more to put gas in his tank?

So you'll be fine with a $1/gal increase in the federal gas tax because
it will be less than what is paid in europe? Or if there is a major
breakthrough in refining that lowers the cost of making gasoline you
wouldn't mind if the government raised taxes to take all of that
savings? If oil went back down to $20/bbl you'd be fine if taxes were
raised to keep gasoline prices at $3.50? If all you do is look at the
final cost to you, you'll never be able to deal with the issues behind
pump prices for gasoline, which is what was being discussed.

"jim" > wrote in message >
> So the fed is what blew the bubble? Do you claim this was by design or
> accident?

The government, IMO, made borrowing to buy homes and cars too
easy, and people bought beyond their means to repay. I believe the
bubble was blown as a result of some in government trying to bribe the
lower economic segments of society .

It wasnt by accident by it was by short sightedness.

On 2011-03-24, jim <"sjedgingN0Sp"@m> wrote:
> Brent wrote:
>
>>
>> And when you operate in that manner, to discourage savings and encourage
>> debt, you undermine the entire economy and society. People become very
>> present focused. Also, a low savings rate should mean high interest
>> rates. Interest rates are the cost of borrowing money. The time
>> preference of money. Flooding in new money to rig interest rates shifts
>> the time preference to the present.

> "Undermine the entire economy" means not the way you like it to be. But
> your views are not necessarily popular.

Look around and see what has happened thanks to artifically low
interest rates in the last decade plus. Where things are going is hardly
an improvement for most people. Although it is desirable for some.

>> As to the price of one's home, it falls in the bust
>> phase of the inflationary boom-bust cycle (when the new money went into
>> homes). You have to live somewhere. The only thing that really matters
>> is the price relative to other homes. If the price falls below what you
>> owe, well there's a chance to walk away and stick the bank with it.
>> That's part of the hazard of blowing bubbles with large supplies new and
>> cheap money.

> Yeah except that you also tend to have massive unemployment during these
> housing busts.

Then perhaps you should be against the central bank inflating the money
supply to create a boom/bubble that leads to the bust.

>> Now had the fed never blown a bubble in the first place, if there was a
>> forced discipline on the money supply, there would not have been a
>> problem. Prices would go down on goods and services every year as people
>> became more productive. This doesn't hurt electronics or any other
>> industry that has a productivity increase rate higher than the fed's
>> inflation rate.

> So the fed is what blew the bubble?

Where do you think the money came from to create the extremely low
interest rates for mortgages? What created an environment where money
was very cheap for the banks to get?

> Do you claim this was by design or accident?

Depends if your world view is one of people in certain places acting for
their self interest or your world view is one where the "experts" are
actually very stupid people who make huge mistakes. (Because it is
simply impossible for central planning to function long term.) Or
perhaps a bit of both.

>> >> > I would be glad if it cost just $5, here in Europe it is around $8 already.

>> >> There is no way to compare pump price to pump price because of the
>> >> different tax models. What should be compared is the cost of the
>> >> gasoline itself, not the price at the pump. Each time I've done this the
>> >> difference between the US and europe isn't very big.

>> > Why would a consumer of gasoline not compare pump prices?

>> I suppose if he doesn't care who/what is stealing from him he wouldn't
>> look any further than the pump price.

> Maybe he prefers the govt to steal from his gas tank rather than
> confiscate from his pay check.

So then he would care to know the breakdown of that pump price, so as to
get what he wants on his neighbor's dime.

>> People notice the tax differences
>> on other goods where the tax isn't rolled into the price and go to lower
>> tax territories to make their purchases.

> People tend to not do that when gas is $8/gal

Create a low tax territory within a couple miles of some of them where
they can freely cross the border and open a gas station there and find
out.

>> People are attracted to buy
>> gasoline in other states and counties nearby because of a lower tax
>> rate, most seem to understand it's a tax difference locally but have
>> difficulty grasping it when the two locations are far from each other.

> Some people tend to arrange their life to need less fuel consumption.

You live in a big city. You rarely use your car except to go on longer
trips into a neighboring county where gasoline taxes are $0.20 a gallon
less. A tank will last you from one trip to the next and then some.
Where do you purchase gasoline? At the gas station on corner a
1/8mi from your home or at your destination in the neighboring county?

"Brent" > wrote in message
...
> On 2011-03-24, jim <"sjedgingN0Sp"@m> wrote:
>> Brent wrote:
>>
>>>
>>> And when you operate in that manner, to discourage savings and encourage
>>> debt, you undermine the entire economy and society. \\

***
Actual story.. A young man here in my town had a situation where he
facilitated loans for people just a few years ago. As one example, he
helped a man from the Houston area get a loan for $200,000.

His commission was $70,000 on this loan.

The banks wanted this loan to consolidate into an instrument they could
sell. He clearly wanted the 70K. The man wanting the loan clearly
could not qualify for this level of loan on his own.

VOODOO!!!

jim wrote:
>
> You say that as if you assume people have savings. The vast majority of
> Americans are deeply in debt. For someone heavily in debt inflation
> works in their favor and falling prices would be disastrous. The most
> blatant example is what happens when you have a mortgage that equals
> half the value of your home and home prices start to fall.

If I my mortgage is fixed rate and term, and I have no plans to sell my
home any time soon, it makes no difference to me if my theoretical home
value which used to be 2X my mortgage drops to 1X my mortgage or even
less. My payments stay the same, my roof stays over my head and all is
just fine. Indeed I will likely benefit from the lower theoretical home
value in the form of lower property taxes. Unless you are trying to sell
your house the theoretical value is just that, theory.

"Pete C." wrote:
>
> jim wrote:
> >
> > You say that as if you assume people have savings. The vast majority of
> > Americans are deeply in debt. For someone heavily in debt inflation
> > works in their favor and falling prices would be disastrous. The most
> > blatant example is what happens when you have a mortgage that equals
> > half the value of your home and home prices start to fall.
>
> If I my mortgage is fixed rate and term, and I have no plans to sell my
> home any time soon, it makes no difference to me if my theoretical home
> value which used to be 2X my mortgage drops to 1X my mortgage or even
> less. My payments stay the same, my roof stays over my head and all is
> just fine. Indeed I will likely benefit from the lower theoretical home
> value in the form of lower property taxes. Unless you are trying to sell
> your house the theoretical value is just that, theory.

Your situation may or may not be dire, but statistically speaking people
in the same boat are in trouble. If you are under water (your debt
exceeds assets) then you have limited means to deal with emergencies. So
if you lose your job, get flooded, or break your leg or car you may have
troubles you wouldn't have had if your home equity was in the black.

There have been an estimated 2 million foreclosures in the last couple
of years that wouldn't have happened if the property values behind those
mortgages had not decreased. And there are another 10-15 million home
mortgages that are still at risk for the same reason. If too many houses
are forced on the market by foreclosures then housing prices drop even
further and that means an even larger pool of martgages become negative
equity - that has the potential of turning into a vicious
self-reinforcing cycle producing massive collapse in prices. Something
like 12% of mortgages are behind in their payments while a few years ago
it was around 3% behind.

Also another aggravating problem is the huge amount of US household debt
besides mortgage debt. A lot of that debt was acquired based on the
belief that the value of one's home would always increase or atleast
hold steady.

-jim