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What the *%&^$ is going on?!?!?

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Pain in the pocketbook

The price of gas keeps rising. Food costs are through the roof. Consumers are getting squeezed.By Tami Luhby, CNNMoney.com senior writer

February 28 2008: 7:29 AM EST

NEW YORK (CNNMoney.com) -- As anyone who's been to the gas station or supermarket lately knows, the prices of fuel and food are on the rise.

And you haven't seen anything yet, some experts say.

Gasoline now costs an average of $3.15 a gallon, seven cents shy of the record set last May, according to AAA.

But with crude oil prices setting a new trading high of $102.08 a barrel on Wednesday, it's only a matter of time before drivers see it hit another record at the pump.

Within a few weeks, gas could cost $3.50 a gallon and, by spring, the price could hit $4 in some locations, said Peter Beutel, an oil analyst at the consultancy Cameron Hanover.

The high cost of gas is helping fuel a surge in food prices. Higher transportation expenses, along with growing demand for agricultural exports from the United States and increasing need for corn-based ethanol for gas supplies, has sent commodity costs soaring.

Last week, the federal government reported that the Consumer Price Index rose a greater-than-expected 0.4% in January and 4.3% over the past 12 months, mainly because of higher food and energy costs. Food and beverages jumped 4.8% for the year and transportation soared 9.4%.

A bushel of yellow corn, for instance, cost an average of $5.12 in January, up 41% from a year earlier, according to U.S. Department of Agriculture statistics. Not only does this contribute to the higher prices of food made from corn, but it increases farmers' cost of feeding cattle and pigs.

Though prices have been climbing for the last few years, consumers didn't feel it as much in the past because their home values were soaring.

"But now, with housing prices having gone down, credit becoming tighter and prices of necessities like food and energy going up sharply, it's created quite a squeeze on consumers' disposable income," said Maria Fiorini Ramirez, head of economic consulting firm MFR Inc.

The surge in gas prices has forced Kenny Khan to cut back his weekly 100-mile visits to his sister in Cherry Hill, N.J., to once a month.

"It costs me $50 in gas to visit her, said Khan, 52, who lives in Teaneck, N.J., and manages a gas station in midtown Manhattan. "As a salaried consumer, I can't afford that much for recreation."

Economists fear a continued slowdown in consumer spending will further weaken the economy.

The Federal Reserve's rate cuts won't lessen this inflation, said food price expert John Norris, managing director at Oakworth Capital Bank. As long as the dollar remains weak, the global demand for American exports will remain high.

"Consumers should build into their budgets continued increases," Norris said.

Later in the year, however, oil prices could ease since supplies from both OPEC and non-OPEC sources are expected to increase, said Sara Banaszak, senior economist at the American Petroleum Institute.

** We, as a country, need to find a cheaper fuel alternative! Everything is going to continue to rise if we as consumers, turn a blind eye to what's going on. I mean a possible 4.00 per gallon for 87 octane this summer?! Are you ******* serious?!?! 10 years ago it was .99 a gallon! So in the next 4 to 5 years, gas could hit the 6.00 per gallon mark!!

I find it inexcusable/unforgivable that U.S. automakers still haven't found a cheaper alternative. You mean, to tell me, that we can put people in space, create 3,000 songs on a disc that's 2" wide, able to cook food in 30 seconds, but still can't figure out a cheaper alternative to move our transportaion needs?! Someone's getting paid under the table to keep quiet, and we're the ones getting screwed.....

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It's a very peculiar time here in the States right now. I honestly don't think it will get any better. Keep in mind that in Europe and the UK, they've been paying over $6.00 a gallon for years.

I could get into the whole economics of it all, but would probably sound slightly uninformed so I'll leave it to the experts.

Personally, I'm starting to seriously watch my spending and save as much as I can in various places in preparation for the impending doom. No new president can save us. There is a bigger problem and it's called the Federal Reserve.

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Cars are not fuel efficient because consumers don't buy them. Really, just look at sales figures for cars/trucks.

My '91 - yes that was 17 years go - Ford Escort LX got 40 mpg. So it's not a technology problem.

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It's a very peculiar time here in the States right now. I honestly don't think it will get any better. Keep in mind that in Europe and the UK, they've been paying over $6.00 a gallon for years.

I could get into the whole economics of it all, but would probably sound slightly uninformed so I'll leave it to the experts.

Personally, I'm starting to seriously watch my spending and save as much as I can in various places in preparation for the impending doom. No new president can save us. There is a bigger problem and it's called the Federal Reserve.

Agreed Mike! Everytime they drop the interest rates it makes our dollar worth a whole lot less, so its helping noone. So to counter it, they just print more and more money thats honestly not worth anything!

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It seems to make a difference that the US consumes like 1/3 of the world oil production and only makes up like roughly 5% of the world population. For years we have been at the top of the world food chain but now with the increases in industrialization of China and India, the demand for oil has increased. Also, basically for the first time in the existence of both of those countries they are now seeing a middle class. That means more consumers with more income to buy cars with.

I hate to say it but when oil starts to become REALLY hard to find you will start to see wars breaking out. It's a crappy thing to say but we are so dependent on oil when we get to a point that we don't have any at all, people aren't going to care where it came from or how we got it as long as we have it. The guy with the biggest club will win. Start throwing in the prospect of going to war with China, or nuclear missles from USSR, or dirty bombs from one of the dozens of countries that already hate the US and it's pretty grim looking.

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I've asked DuneSoldat to drop in on this conversation. He's a Certified Financial Planner and may have some economic insight and suggestions.

He's knows I told him this, but I've invested a little in Gold, simply because as the dollar's value decreases, the cost of gold rises. If you're not familiar with the economic term 'gold standard', look into it. It's what all the worlds economies were built upon before the great depression. After that, the US Government had the Federal Reserve begin printing our money. Problem is, they are nothing more than a bank and are no more Federal than Federal Express. They literally create money out of thin air, whereas before the great depression, every dollar was backed by gold. The first sign of a failing economy is massive foreclosures. The next is rising costs of commodities like fuel and food. Sound familiar?

If you have 40min. to spare, watch this for a refresher on how our economy works: http://video.google.com/videoplay?docid ... &plindex=0

Lastly, I think this economic stimulus package our government is issuing later this year is the wrong thing to do. For one, they're essentially creating MORE debt by borrowing that money from the Federal Reserve (with interest) and most Americans are going to blow it on things like TVs, etc. items which are made OUTSIDE of the US, essentially fueling other economies, not our own.

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And for the record, US isn't tops in much anymore. Look at current data on the amount of commodities India and China are consuming, and where they are getting it from. Funny that they're not invading anyone to get it, and their economies are booming.

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And for the record, US isn't tops in much anymore.

The Euro is a prime example. For every 1 Euro you spend, it costs $1.50. Just a few years ago, they were about equal.

We've been wanting to take a trip to France or elsewhere in Europe, but with inflation the way it is, no way. Too expensive.

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Good points from a lot of troopers here. What kills me is that we have our own oil here in the States. 300 years worth on the last estimate. Yet, we import oil from countries, that if we decided to stop, would charge us a lot less than 102.00 per barrel!

We need to focus on energy that is not derived from fossil fuels. We have the means, but as long as big oil, OPEC and the other oil producing companies keep paying politicians and those that CAN control as to what is currently going into a tailspin, we will be at the losing end of the battle.

I have a feeling that we will see something whether it be horrific or liberating, within this next decade. It concerns me that my children will be alive when the world suddenly wakes up to the realization that there are those that are continually making a profit at our expense and demise.....

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Hmmm... Quick calculation: Here in Norway we pay about $2.5 per litre... No idea what that'll be per gallon though

One US Gallon equals 3.7 Liters. So you're paying roughly $9.25 a gallon. Correct if I'm wrong, I suck at math.

The big difference between European and US driving habits is, we drive EVERYWHERE. Even if we live 1/2 mile from a restaurant or store, we drive there. Americans are lazy and fat because they don't walk. Our suburban sprawl is also counter-conducive to walking, with communities spread out and poor urban planning. By comparison, Europeans walk everywhere and use well-designed public transportation. They also drive smaller, more fuel efficient vehicles that are required to navigate the small streets of older towns and cities, many that pre-date the US and certainly the automobile.

Personally, I love to walk and try to everyday. Right now, I'm peeved with my commute which is roughly 50 miles a day. With a six-cylinder engine, getting about 21 miles a gallon highway, it's costs me roughly $7.50 a day to go to work. I can tell you, that's FAR cheaper than using public transportation in this area (combined parking fees, bus and Metro tickets). Gas in the US would have to be over $6.00 or $9.00 a gallon to spur outrage and drastic change.

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Hmmm... Quick calculation: Here in Norway we pay about $2.5 per litre... No idea what that'll be per gallon though

One US Gallon equals 3.7 Liters. So you're paying roughly $9.25 a gallon. Correct if I'm wrong, I suck at math.

The big difference between European and US driving habits is, we drive EVERYWHERE. Even if we live 1/2 mile from a restaurant or store, we drive there. Americans are lazy and fat because they don't walk. Our suburban sprawl is also counter-conducive to walking, with communities spread out and poor urban planning. By comparison, Europeans walk everywhere and use well-designed public transportation. They also drive smaller, more fuel efficient vehicles that are required to navigate the small streets of older towns and cities, many that pre-date the US and certainly the automobile.

Personally, I love to walk and try to everyday. Right now, I'm peeved with my commute which is roughly 50 miles a day. With a six-cylinder engine, getting about 21 miles a gallon highway, it's costs me roughly $7.50 a day to go to work. I can tell you, that's FAR cheaper than using public transportation in this area (combined parking fees, bus and Metro tickets). Gas in the US would have to be over $6.00 or $9.00 a gallon to spur outrage and drastic change.

You're right Mike. I think most estimates I've seen indicate gas would have to get to and maintain at $5/gallon before people changed their driving habits.

You know, people complain about the price of gas yet seem to vote against most any package that increases mass transit. How does that work?

A bigger problem as you note is housing subdivisions. Older neighborhoods in America are designed on grids in many places which are conducive to running buses, etc. But with housing divisions, the design forces people to drive.

But truly, we bring this on ourselves. We vote to allow this kind of development to continue, and we vote to allow housing to go up before the transportation systems are in place to handle the additional traffic. We choose to buy cars that have low gas mileage.

We can rant all we want about the politicians, but they are only in power because we elected them.

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In today's news-

Other markets. U.S. light crude oil for April delivery rose $2.95 to settle at $102.59 a barrel on the New York Mercantile Exchange, a record close. The price of oil also hit a record trading high of $102.97 a barrel during the session.

COMEX gold for April delivery rose $6.50 to settle at $967.50 an ounce.

Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.70% from 3.84% late Wednesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar touched a fresh all-time low versus the euro and also declined against the yen.

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Americans need to start living differently, bottom line. We've got 200+ years of a "wide open spaces" attitude coupled with the idea that we are somehow top dog and could care less about the long term ramifications of our actions. In typical fashion we just now start talking about things that forward-thinking people were talking about in the 1960's. Maybe if we had changed our lifestyles over the course of a few decades rather than ignoring the problems we wouldn't be facing such a crunch in the coming years.

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Interesting article today...

http://www.cnn.com/2008/US/02/28/beck.c ... index.html

...Professor Roubini recently laid out what he called the "12 steps to financial disaster." Unfortunately, they were really complicated, and I have severe ADD, so I've boiled them down into five phases that even a rodeo clown like me can understand.

I think of these like our military's "DEFCON" -- or defense readiness condition -- scale, except that this countdown could end in the meltdown of your bank account:

• DEFCONOMY FIVE

How you'll know we're here: The housing downturn turns into a free fall, making it the worst collapse in our country's history. That not only triggers massive numbers of foreclosures and lost household wealth, but it also sets off another large wave of bank write-downs.

Odds we get here: Roubini told me that it's "extremely likely, even unavoidable" that we hit this stage because "the excess supply of new homes in the market is like we've never seen before." Prices, he believes, "need to fall another 10 to 20 percent before that clears."

• DEFCONOMY FOUR

How you'll know we're here: Americans upside-down on their mortgages and unable to pay their home equity loans begin defaulting on other debt, like credit cards, car loans and student loans. In addition, bond insurance companies lose their perfect credit ratings, forcing already troubled banks to write down another $150 billion.

Odds we get here: High. Roubini says that 8 million households are already upside-down on their mortgages and he thinks we could see that number go to between 16 million and 24 million by the end of 2009. A lot of those people, he believes, will simply walk away from their homes and send their keys back to the bank.

• DEFCONOMY THREE

How you'll know we're here: Some banks begin to crack under the pressure of continuing write-downs and mounting defaults by consumers. A national or large regional bank finally collapses, triggering hedge fund failures and general chaos on Wall Street, potentially leading to a 1987-style market crash.

Odds we get here: Very good. Roubini says that we'll likely socialize the losses, "effectively nationalizing the mortgages or the banks." It would be, he told me, "like Northern Rock (the large bank in England that was recently taken over by the British government) times three." He thinks the stock market will head south throughout the year as fears about a severe recession are confirmed.

• DEFCONOMY TWO

How you'll know we're here: Most forms of credit (both to consumers and businesses) become virtually nonexistent. That results in a "vicious circle" of additional write-downs, stock market losses, and bank collapses, which leads to even less credit being available.

Odds we get here: Good. Roubini says that credit conditions are becoming worse everyday across a variety of markets and won't be getting better anytime soon. Without extra credit available, people might have to actually (gasp!) live within their means.

• DEFCONOMY ONE

How you'll know we're here: Welcome back to 1929. A full economic meltdown results in a complete failure of the underlying financial system. What will be known to future generations as "The Greater Depression" has arrived.

Odds we get here: Not likely. Roubini believes that this will be a "very painful and severe recession" that could last for 18 months or more, but it will be more like 1981 than 1929. Families may be eating soup again, but at least it'll be in their own kitchens.

Now, do I think any of what you just read will happen?

I have no idea, and that's exactly the problem. I'm not an economist or a stockbroker; I'm just a guy trying to make the best decisions I can, and picking the brains of real experts helps me do that.

But I do know one thing for sure: Depressions aren't advertised in advance. Last time around we went from the Roaring '20s to bread lines in a matter of just a few years.

Anyone who says that can't happen again either doesn't know history, doesn't understand how interconnected the world's economies have become, or is lying to you. While that doesn't mean you should panic, it does mean you should prepare -- something my grandfather would've done a long time ago.

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if you've invested in gold then youre a genius. honestly. As some fo you know i work in a International jewelry company and we have to check the old lock every day (going off the london second gold lock). Today's Second London Gold fix was $959.75. do you know how much it was last year around this time? $664.20. Can you believe that? BTW that is exactly for Feb 28 2007. Right now the jewelry industry is getting hit REAL hard. We have no less then 20 cuts within our main company quarters and i dont even know how many cuts over seas. Zales had themselves some big cuts too and i know this form some friends who work there. Certain Retailers are closing down stores (unfortunately i cant say who) and quite honestly according to figures, people just dont want or need jewelry right now. Personally i dont own a car but take public transportation every day (2 trains and a bus). But theyre rasing the fare for that too. Its getting tough now. and some people (such as myself) have still not recovered from the holiday expenditures). I agree that things do look bad where they are.

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if you've invested in gold then youre a genius.

Off to buy more Gold bullion. In less than five weeks, I made over $40 on 1/2 once.

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Interesting article today...

http://www.cnn.com/2008/US/02/28/beck.c ... index.html

...Professor Roubini recently laid out what he called the "12 steps to financial disaster." Unfortunately, they were really complicated, and I have severe ADD, so I've boiled them down into five phases that even a rodeo clown like me can understand.

I think of these like our military's "DEFCON" -- or defense readiness condition -- scale, except that this countdown could end in the meltdown of your bank account:

• DEFCONOMY FIVE

How you'll know we're here: The housing downturn turns into a free fall, making it the worst collapse in our country's history. That not only triggers massive numbers of foreclosures and lost household wealth, but it also sets off another large wave of bank write-downs.

Odds we get here: Roubini told me that it's "extremely likely, even unavoidable" that we hit this stage because "the excess supply of new homes in the market is like we've never seen before." Prices, he believes, "need to fall another 10 to 20 percent before that clears."

• DEFCONOMY FOUR

How you'll know we're here: Americans upside-down on their mortgages and unable to pay their home equity loans begin defaulting on other debt, like credit cards, car loans and student loans. In addition, bond insurance companies lose their perfect credit ratings, forcing already troubled banks to write down another $150 billion.

Odds we get here: High. Roubini says that 8 million households are already upside-down on their mortgages and he thinks we could see that number go to between 16 million and 24 million by the end of 2009. A lot of those people, he believes, will simply walk away from their homes and send their keys back to the bank.

• DEFCONOMY THREE

How you'll know we're here: Some banks begin to crack under the pressure of continuing write-downs and mounting defaults by consumers. A national or large regional bank finally collapses, triggering hedge fund failures and general chaos on Wall Street, potentially leading to a 1987-style market crash.

Odds we get here: Very good. Roubini says that we'll likely socialize the losses, "effectively nationalizing the mortgages or the banks." It would be, he told me, "like Northern Rock (the large bank in England that was recently taken over by the British government) times three." He thinks the stock market will head south throughout the year as fears about a severe recession are confirmed.

• DEFCONOMY TWO

How you'll know we're here: Most forms of credit (both to consumers and businesses) become virtually nonexistent. That results in a "vicious circle" of additional write-downs, stock market losses, and bank collapses, which leads to even less credit being available.

Odds we get here: Good. Roubini says that credit conditions are becoming worse everyday across a variety of markets and won't be getting better anytime soon. Without extra credit available, people might have to actually (gasp!) live within their means.

• DEFCONOMY ONE

How you'll know we're here: Welcome back to 1929. A full economic meltdown results in a complete failure of the underlying financial system. What will be known to future generations as "The Greater Depression" has arrived.

Odds we get here: Not likely. Roubini believes that this will be a "very painful and severe recession" that could last for 18 months or more, but it will be more like 1981 than 1929. Families may be eating soup again, but at least it'll be in their own kitchens.

Now, do I think any of what you just read will happen?

I have no idea, and that's exactly the problem. I'm not an economist or a stockbroker; I'm just a guy trying to make the best decisions I can, and picking the brains of real experts helps me do that.

But I do know one thing for sure: Depressions aren't advertised in advance. Last time around we went from the Roaring '20s to bread lines in a matter of just a few years.

Anyone who says that can't happen again either doesn't know history, doesn't understand how interconnected the world's economies have become, or is lying to you. While that doesn't mean you should panic, it does mean you should prepare -- something my grandfather would've done a long time ago.

Gotta love Glenn Beck!

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IMF are planning on selling all there gold to try and bring down the price of gold from $900+ an ounce to the $500 an ounce level...

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if you've invested in gold then youre a genius.

Off to buy more Gold bullion. In less than five weeks, I made over $40 on 1/2 once.

If things go the way i hope in the next 2 or 3 months i plan on investing 2k in gold bullion *fingers crossed* I've been thinking about it since i read an interesting thread on the RPF a few weeks ago where mike spoke of gold investing with a dark helmet i believe.

I used to think saving money in the bank was the way to go boy was i way wrong! It just sits there i have to figure out how to get my money working for me

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Its great to see this kind of dialog here. As a trade finance banker, I happen to know something of how on the macroeconomic level, fluctuation in foreign markets will have an adverse ripple effect domestically. Despite the current administration's denial that we are not in recession but 'slowing', it doesn't obscure the fact that last quarter, the US economy grew less than .6%. Sorry you can put lipstick on a pig, but its still a pig.

The sub-prime mortgage meltdown is one symptom. Banks raked in fees off ARMs signed off by consumers who saw the lower monthly principal payment but got hit with foreclosure when their take home pay couldn't match the interest in a bull market. That's where the Fed Reserve stepped in and cut interest to make it cheaper to borrow. But yeah, the American lifestyle is based on instant gratification and the quick buck. Is it any wonder we're the only industrialized nation in the world with the least amount of government mandated vacation? In college I used to get in debates with friends from Europe who scoffed at our lifestyle based on mass consumption with little regard for the global consequences. Well, guess what? While we've moved to a service economy, countries like China and India took a page from capitalism to invite foreign investment to upgrade their manufacturing infrastructures and create jobs. The result is an emerging middle class with disposable income who want the same things they see in the West. Cars, houses, flatscreens, etc...Bottom line, the demand for OIL and capital to realize those goals isn't gonna go away. I wouldn't be surprised if we start paying European prices for gas but at least they have more transportation alternatives.

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I wouldn't be surprised if we start paying European prices for gas but at least they have more transportation alternatives.

I just threw up in my mouth.....

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if you've invested in gold then youre a genius.

Off to buy more Gold bullion. In less than five weeks, I made over $40 on 1/2 once.

If things go the way i hope in the next 2 or 3 months i plan on investing 2k in gold bullion *fingers crossed* I've been thinking about it since i read an interesting thread on the RPF a few weeks ago where mike spoke of gold investing with a dark helmet i believe.

I used to think saving money in the bank was the way to go boy was i way wrong! It just sits there i have to figure out how to get my money working for me

Very true but I wouldn't write banks off just yet. There are some banks out there that offer high interest bearing savings accounts with no penalties for early withdrawal. But yeah, pay yourself first - the younger you start the better. Get a Roth IRA and max out on your contributions to your employer's 401k plan (if they have one). I usually invest all my bonus pay that way (despite the temptation to spend it on armor or related gear). And yup, that's where my tax rebate is going too.

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