The question on everyone’s mind is, How low can you go?
To lure business, gas stations around the country have brought back a relic of the 1970s – Gas Wars.
Retailers from Target and Wal-Mart to high enders such as Tiffany’s and Neiman-Marcus are slashing prices.
To jumpstart dormant sales, America’s automakers are advertising new cars below “employee pricing.”
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A Discount Makeover
Even plastic surgeons in Beverly Hills – the elite cutters”to the stars – are offering two-fers. Augment one; get the second one for free. You get the picture.
Where’s the bottom?
Nobody really knows.
In a supply and demand world, as demand drops and supply grows, prices will continue to fall.
Bottom Is Not in Sight
If today's unemployment numbers are any indication of the road ahead, then we have yet to see the ultimate lows on the price horizon.
Last month, U.S. companies slashed payrolls at the fastest pace in 34 years as the economy headed for its deepest and longest recession since World War II. Employers cut 533,000 jobs in November, bringing losses so far this year to 1.91 million. The unemployment rate now is hovering at 6.7 percent, the highest level since 1993. If any of the automakers actually closes its doors, then these unemployment numbers could easily climb above 7.5 percent.
In the wake of these rising unemployment numbers, crude oil plunged to its lowest level in nearly four years on concern fuel demand will drop as U.S. employers continue to cut jobs. Oil has declined 71 percent since reaching a record $147.27 a barrel in July. The U.S. consumes 24 percent of the world's oil.
What Happened to $200?
At the height of the oil crunch in July, some energy industry analysts were projecting the price of crude to hit $200 a barrel. Today, these same folks are forecasting crude to fall as low as $25 a barrel.
Falling prices at the pump and the supermarket may be good news for the consumer in the short run. But if they continue to fall at the same rate, with the ranks of the unemployed climbing, the risks of a dangerous deflationary cycle become even more imminent.
It will take more than a simple stimulus package to halt the slide and stop the bleeding.
The President-elect along with his team and the Congress will have to set politics aside to quickly enact measures to get America working again.
How About Those Priorities?
During the past seven years, we have spent more money rebuilding the infrastructure of Iraq than we have our own country. Although it may be a page right out of the New Deal, we must immediately turn our attention to an employment stimulus bill that will deliver help to families and quickly create jobs. One of the best ways to do that is through direct federal government investment in transportation and energy infrastructure.
Over the short term, this may mean more government spending and, arguably, more government.
We've already enhanced the fortunes of America's biggest banks and are about to do the same for the auto industry.
No matter your political affiliation; what's the use of a central government if it can't use its enormous reach and spending power to improve the lot of its citizens?
John Cohn is a senior partner in the Globe West Financial Group[ based in West Los Angeles. He may be contacted at www.globewestfinancial.com
