Friday, August 5, 2011

The key to economic recovery, cheap gasoline.

So why did the stock market correct itself today. Well if I had to guess at one thing, I'd say that the steady ramping up of gasoline prices since the last price crash during the 2008 recession has become a speed governor on the recovery.   The initial big jolt from the dramatic drop in the price of gasoline helped start the recovery by restoring some confidence and optimism.  But over the last few years the steady price increase has squeezed off enough of the budding recovery that investors are spooked again and bailing out.

Here is a good site to look at gasoline and oil price trends.

And here is a good site to look at Dow Jones Industrial Average trends

The corresponding trends demonstrate correlation but which is cause and which is effect? I say that the price of fuel drives the business indicators that the stockwatchers observe so it is an indicator of stock market trends. So find ways to make fuel cheaper and that will not only increase stock market capitalization, it will reduce our trade deficit and give American consumers more money to spend on other things. The price of fuel affects the price of every other product, so cheaper fuel will drive down all consumer prices. This is how to grow the economy. Make gasoline cheaper.

How to do that?  Simple.  Reduce demand and increase the supply.  

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