Investing to Wealth

Filed under: Forecasts, Consumer experience, Russia, Oil, Recession

Gas prices are now as low as they have been in almost five years. The well-know nationwide Lundberg survey showed that regular gas dropped to $1.66 last week. Last summer it topped out at over $4.

The price of gas may be one of the few "recession busters" of this downturn. The most obvious reason is that families who drive even modest distances for work will save several hundreds dollars a month. That leaves more cash to pay for mortgages and to lower credit card balances. That in turn helps arrest falling housing prices as fewer home fall into default and then foreclosure. The ability to make credit card payments should cut bank losses. In other words, low gas prices send a positive ripple though the economy and may boost consumer spending or at least keep it from falling further.

The impact on businesses may be even greater. The largest beneficiary of low fuel prices is airlines which were nearly driven to bankruptcy earlier this year as jet fuel price spiked. But, industries from newspapers to overnight delivery to trucking could be significantly helped as gas drops.

Could the aid be short-lived? That is possible. With OPEC countries and Russia watching their national deficits rise as oil falls, there could be another huge production cut by the cartel early next year. That means falling fuel prices could have a perverse effect. Just as Americans feel comfortable using more gas, OPEC may push oil prices way up again.

Douglas A. McIntyre is an editor at 247wallst.com.

Will low gas prices help recovery from recession? originally appeared on BloggingStocks on Mon, 22 Dec 2008 03:49:00 EST. Please see our terms for use of feeds.