Is Oil Bubble Popping? Both Gold, Oil Drop

The key, from my perspective, of reawakening the economy is the increase in value of the dollar as well as the decrease in fuel prices.

I wrote a few weeks ago that the "oil bubble" has to pop and the price of gasoline must decrease substantially to get the spending going again. Say the price of oil were to drop 35% to, say, $70 a barrel. The corresponding drop in gasoline prices would effectively give every car owner a tax break--in effect putting more money into peoples pockets. If gas goes down to about an average of say $2.70 (it's about $3.03 in New Jersey right now, among the lowest in the nation), that would be $0.33 per gallon not spent on fuel. That would be about a $5.61 savings when people fill up based on a 17-gallon tank. Double or triple that $5.61 taking into account two or three cars per family and you're looking at an extra $16 being spent elsewhere for every household. Not insignificant.

The scenario above doesn't even take into account the substantial effect it would have on businesses who spend millions on fuel every day. A trucking company now paying $4.00+ for diesel would save thousands per week thus allowing them to retain workers or reduce rates, which would translate to lower consumer prices.

Think a $30 drop is unlikely? Check this out:

Oil futures lost 4.5% to end at $104.48 a barrel on the New York Mercantile Exchange, its biggest daily loss since 1991. See more on oil.

Plus an extra 2%+ 3%+today for a nearly 7% 8% drop in two days.

That's the beginning as I noted before, it is a speculative bubble, not a demand-inspired one. It comes from financial firms taking their money out of the dollar and putting it into commodities.

Is this a sure thing? No, it isn't but it is a bit encouraging. If mortgage rates drop as expected, the housing market will then pick up and we can inch our way out of the recession that every one is afraid to call a recession.

Update: Rep. John Dingell is either a complete idiot or has the tinnest political ear of anyone in Congress. My guess is somewhere in between:

A Michigan congressman wants to put a 50-cent tax on every gallon of gasoline to try to cut back on Americans' consumption.

Polls show that a majority of Americans support policies that would reduce greenhouse gases. But when it comes to paying for it, it's a different story.

Rep. John Dingell, D-Mich., wants to help cut consumption with a gas tax but some don't agree with the idea, according to a new poll by the National Center for Public Policy Research.

The poll, scheduled to be released on Thursday, shows 48 percent don't support paying even a penny more, 28 percent would pay up to 50 cents more, 10 percent would pay more than 50 cents and 8 percent would pay more than a dollar.

Nothing would deflate an economic upturn like this proposal. Please, please, please allow this to go up for a vote. The GOP would be dancing in the aisles and the Dems would be laughed at.