While Washington (and the Fed) Fiddle…..

Sorry about the hiatus.  We’ve been working on a special project that could be big and will share when and if possible.

Thought we’d start by re-posting our gas price sensitivity analysis to show the cost of the U.S. government’s dithering over addressing the country’s  fiscal deficit.  While they fiddle in Washington, the dollar continues tank and the dollars you put into your tank continues to soar.

Make no mistake (it least we haven’t in our minds) this is not about Libya or Nigeria.   Nigeria is the excuse for the specs to take it up with the fuel of negative real rates and the money created to finance the huge U.S. fiscal deficit, which now looks intractable as the Congress and Administration can’t seem to even agree to a small fraction of cuts.

If the deficit was under control (lower than nominal GDP growth) and real short-term rates at 1 percent,  for example,  the dollar wouldn’t be as weak and crude oil would be $40-50  and gas $1.50 per gallon lower, in our opinion.   So while they debate over such issues which may save the average American $25.00 per year, the dollar melts down sending oil over $113 per barrel and gas prices to the moon.

Use the following matrix to calculate the your additional cost of gasoline this year based on average miles driven per day and  assuming your car gets 17.4 mpg, which is the national average.    We’re now paying about $4.25 per gallon in California and drive about 70 miles per day (family) and get pretty close to the assumed 17.4 mpg.  So as Washington fiddles,  we’ll be paying an additional $2,534.48 for gas this,  if today’s price is the average for the year, and that, our friends,  may be wishful thinking.   We may need another tax cut to offset the loss of purchasing power!   How’s that for an unstable feedback loop?

(click here if matrix is not observable)

This entry was posted in Black Swan Watch, Bonds, Budget Deficit, Commodities, Muni Bonds and tagged , , , , , . Bookmark the permalink.

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