Sunday, April 27, 2008

$4 gas is here already

With apologies to the Europeans who were paying $6 for petrol last year, I can now whine about paying $4 for gas here. My next fill-up in my premium gas fired sedan will likely be at $4.09 per gallon, which is actually a bit better than some other local stations here in suburban NY. Regular is at 3.79 and up.

The real shocker was seeing diesel between 4.59 and 4.79! Now, I don't drive a truck or a bus but a lot of people make their livings doing just that, whether it be transportation or simply doing a job that requires hauling of stuff. Where do you think that cost is going to be passed? That's right - back to me and everyone else around here who eats, travels, hires construction and buys products that are shipped in. In other words, everyone.

What would rah, rah American capitalists say now? We can grow our way out of this mess?

Now, I am an American capitalist myself but I am also a realist. There are times when the cheer leading and meddling has to stop as we let the capitalist system correct itself. And it will. And it will come out even better on the other side.


Anonymous said...

As you mentioned, we the European drivers - paying about 50% more than our US colleagues per gallon of gas - can hardly feel sorry for the US drivers paying $4.

However, the effect on the consumer hasn't been as profound as in the USA. The price development of oil has been tempered and largely offset by the currency appreciation versus the dollar. There are other issues at play: higher density and usage of public transportation, shorter distances to cover, lower fuel consumption of European cars etc.

But this may change now as the dollar seems to be regaining ground, while there is no visible slowdown in the oil price rally.

The notion that the ECB will follow a similar monetary path as the one pursued by the FED has been faulty right from the beginnig. Had that happened, the overall inflation effect would have been totally devastating to the European economy.

Should the FED signal this week any change in its monetary policy, the ECB won't be far behind with rate hikes. From this perspective, the sudden appreciation of the USD seems somewhat overdone.

The global economic growth cannot sustain this massive increase in oil prices for much longer. One or the other has to give in. I fear that the Keynesian approach of Mr. Bernanke has opened the Pandora's box.

Thanks God we have a decent bicycle road system and willingness to cycle. :-)

Time to get a bicycle?

Anonymous said...

Drive the Japanese made car, it saved a lot of fuel, their engine is really smoothe!

Michael Kahn said...

I already drive two Japanese cars - a minivan and a sedan.

Interesting that the ECB will look at Fed hikes as an excuse to raise their rates further.

Anonymous said...

Michael, I wouldn't exactly put it as an excuse to hike rates - I would call it an opportunity. The inflation pressures in Europe are far more intense than those in the USA (mainly wages and food). Unlike the FED, The ECB has never had any other mandate but keeping price levels steady. The Austrian School of Thought (or its modern version) is the predominant vibe here.

The only reason why the rates haven't been hiked yet has been the FED, as such a move (causing even wider rate differencial) would have eliminated a large portion of European exports.

BTW: When I wrote about our willingness to cycle - when I was in the University in Amsterdam, the former head of the ECB, Mr. Duisenberg (back then still just the boss of the Dutch Central Bank) came to our University to give us a lecture. Guess what means of transportation he used to get there. :-)