Home > Main > High gas prices are shifting 2% of GDP to oil producers, but we still allow massive long only speculation in the energy markets

High gas prices are shifting 2% of GDP to oil producers, but we still allow massive long only speculation in the energy markets

June 6, 2011

There is an easy way to find out how much impact gas prices have on the economy.  The rule of thumb math is that every 1 cent of increase in the price of gasoline exchanges $1bn of consumer spending from goods to energy.   With this in mind, Deutsche Bank estimates we’ve lost between $90 and $150 Billion in demand in the first half including all of May.

But for some reason, they don’t put this into straightforward GDP terms. Choosing a $120bn midpoint of the estimate of losses, and annualizing by the time spent through May, we get 288bn lost on an annualized basis.  The U.S. Economy is about 14.1 trillion.  This is 2% of GDP.

High oil prices are pushing 2% of our entire economy into the energy markets instead of other goods.

Yet, we have huge, huge investment funds buying commodities like crazy and only ever from the long side.  This is a serious mistake that literally costs us vast amounts of long term economic growth.

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