History Repeats: Gas Stations Shutting Pumps in CA – Prices Surge – Running Out of Gas at Pumps – Coming to a State Near You? Analysis

Pumps closed in CA - image from the Northridgepatch.com

During the period from 1979 to1980 one saw the price of gas surge, gas stations run out of regular then premium, shutting pumps, gas rationing and after a stabilization, (government controls) the price of gas surged in 1980 and lines still cropped up in urban areas (The End of Happy Motoring, Sarasota Herald Tribune. This added to the nation’s woes as high unemployment, coupled with high inflation and high interest rates on loans, resulted in what became known as the “misery index. There were fingers pointed in every direction, from supply and demand (as prices at the pumps rose, motorists could no longer afford to fill their tanks, refineries slowed or ceased production, shortages began to occur, first on the West Coast, spreading east to encompass the entire nation.) to government regulation and oversight of gas rationing.

Fast forward: California is running out of gasoline and pumps are shutting down. From the Contra Costra Times 10/4/2012 Headline: “Gas shortage shutters Costco stations, prices skyrocket” - “California had its largest single-day gasoline price spike in almost five years Thursday, leading to long lines at the pump, gas shortages and even station closures. According to the Times, the price of regular unleaded is at $5.79 for those paying with a credit card, and a dime less for those paying cash. In addition the paper cites a multi-faceted problem causing high fuel prices and lack of available fuel as part regulations requiring gasoline to be refined differently during summer months than winter months (emissions), which slowed production, coupled with a rise in wholesale prices, and a power failure at an area refinery.

From the Redding Record Searchlight: the question “What's next? Gas lines in California? The answer, most likely. The Record sites a Bloomberg News Article, which speaks to the problem in California headlining :”California Gas Stations Shut as Oil Refiners Ration Supplies” and the gist:

Low-P, a gasoline station in Calabasas, California, 30 miles west of Los Angeles, stopped selling unleaded gasoline Oct. 2 and ran out of high-octane and medium-octane fuel yesterday, John Ravi, the station’s owner, said by phone yesterday. Ravi said he posted an “Out of Gasoline” sign on each pump and took down the prices outside his shop. “I can get gas, but it’s going to cost me $4.90 a gallon, and I can’t sell it here for $5,” Ravi said. “If you come here right now, I’ve got some diesel left. That’s all. My market is open, but no gas.” “We’re going to start shutting pumps Friday,” Sam Krikorian, owner of Quality Auto Repair in North Hollywood, said by phone yesterday. “Gas is costing me almost $4.75 a gallon with taxes. There’s no sense in staying open. The profit margins are so low it’s not worth it.”

What is usually not considered by the average consumer is that gas stations are either franchised or owned by the corporation, meaning the nations gas supply is kept going by small business owners. In fact the majority of gas stations are owned by independents or franchise, according to U.S. Census data, gas and convenience stores are in the top 10 of industries that “make up the majority of the business nationwide” (Inc. Magazine online) Therefore, when the small businesses owner, already burdened by regulation and uncertainty over additional regulations, including national health care and the tax code (Which the Bush era tax cuts are set to expire in 2012 as the White House and the Congress will address taxes in January’s lame-duck session – leaving the entire nation, individuals as well as businesses subject to tax increases), a tightening of available loans (Dodd-Frank) and rising costs of a product which is highly taxed to begin with – the choice is often made for that owner, they shut down.

If one thinks this is going to stay in California without some intervention by both state and the federal government (or perhaps, less intervention by the states and Federal government would better serve the problem) those rising prices will be exported east, and the lines and lack of fuel will be at your door. With winter coming to the nation, especially the upper west, Midwest and Northeast, home heating may also be affected.

Is there a way out? Yes of course, depending upon how the crisis in the Middle East is handled, taxes on individuals and small businesses as well as fuel are stabilized or lowered, and more consumers (lower unemployment) will all combine to up demand, and supplies will follow – of course, regulations may put a damper on that 1980-1981 model. In the meantime, grab a bus schedule, buy a bike, or start a carpool and wait it out. Of course, depending upon the election and the outcome, if the status quo remains, one can anticipate stocking up on sneakers and bicycle tubes, bus passes, and in the northeast, blankets and fleece.

Federal Reserve Warns of Insolvency – Can a rise in interest rates be avoided – Scenario eerily similar to 1978-1979.

The end result of inflation in 1979 - gas lines and shortages, photo the razor.org

This week, CNBC reported that The Dallas Federal Reserve’s President, Richard Fisher , noted the U.S. is on the path to insolvency. In an interview at the University of Frankfurt, Fisher stated “The short-term negotiations are very important; I look at this as a tipping point." He went on to conclude that the Fed has other avenues available other than raising interest rates (which would enhance the inflation currently creeping upwards in commodities affecting food and fuel). A March 5th article at from the Los Angeles Times asks: “Is inflation wolf at the door?" - in response to Congressional Testimony by Federal Reserve Chairman Ben S. Bernanke, when Bernanke was queried about the rise in commodity prices he said: "The most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation," .

Recall, when the dollar dropped in the 1970’s, the Fed , in the face of a trade deficit and a Federal deficit, Carter and the Fed’s raised interest rates in order to “right” the economy. The Press Courier, September 12th. Interest Rates on used car loans were as high as 26%.

By the end of Carter’s term in 1979, Fed and administration policies had driven inflation up to an annualized 13.3%, or the “worst in 33 years. Spokane Daily Chronicle.

The Stimulus Programs, Increase in Entitlement Programs, the bailout of auto makers, increase in promises to Unions, and a subsequent budget of 30 Billion Dollars by January of 1979 (Wall Street Journal) combined over a period of time to devalue the dollar and drive up inflation. ($30 Billion adjusted for inflation (using 2009 as the stop gap) $87,507,668,383,160.)

What can be anticipated? Inflation on food and fuel will continue to rise though the balance of 2011, with a subsequent increase in unemployment. It is the trickle up effect of a rise in commodities to a rise in the cost of steak, vegetables, and even durable goods, that consumers can no longer afford, causing the trickle down effect of less spending at a retail level, fewer orders for durable goods (who needs a car when gas is $5 plus per gallon?), leading to subsequent layoffs and business closing.

What should happen? Granted the 1970’s are not ancient history, but history none the less, those who are in charge of the nation should at least study trends from “recent history”, to ignore failed policies and then repeat them, leads to misery.

Although some on the right may be seeking the elusive next "Ronald Reagan", it is apparent that person does not exist, look for the individual who is able to effectively govern and has a keen appreciation for business and has a grasp of recent history.