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Monday, August 29, 2005

How a Hurricane or accident in "America's Gasoline Alley" Can Create a Recession

Hurricane Katrina is battling New Orleans as I write, but it is also threatening 50% of the refinery capacity between Texas and Louisiana and our Gulf of Mexico production at the same time. Twenty five percent (25%) of our production comes from the Gulf area hit by Katrina.

Call it "America's Gasoline Alley." Katrina is exposing our Achilles heel. Much of our production eggs are in one basket. If a storm or an accident or terrorist knocks out one or more of our aging, 30 year old refineries or Gulf platforms, gas prices will go even further into orbit and our economy will go south (see news headlines a couple days from now--8 refinieries out; gas shortages). It is moving closer to the cliff as oil prices are peaking and busting peoples’ wallets. Oil is now spiking past $70 on the spot market. Analysts say it could go up another $5 to $10 more - $80 oil! This will hurt the country unless action is taken. Oil is good for Houston and Louisiana but it is also a negative brake on the U.S. economy as a whole when it gets over 3% of our disposable income. That is when it can cause a recession as it did in the early 80’s during the Reagan administration when it last peaked. We are now at that point, and the new spikes will take us into recession unless action is taken. I’ve talked to owners of car repair places who tell me that people are putting off maintenance on their cars until they break, which makes the problem even more expensive. They are avoiding even routine maintenance because all their money is going into filling the tank. The system is stressed; so are the people. The Energy Bill does not make building new refineries with new equipment a priority. So we rely on 30-year-old ones running at 95% capacity and when a storm or an accident shuts anything down, prices surge. Congress has not addressed this issue despite all the warnings. That inaction has left us vulnerable to pain at the pump -- and another national recession fueled by high oil costs that hit everything in our oil based economy. I think Congress should be proactive in avoiding these problems rather than just being reactive after the cows have run out the barn door. 9 11 should have taught us that.

Foresight is required, and planning. Refineries aren't built in a day, so we now have a shortage that can't be fixed without doing the one solution available that our government refuses to endorse: conservation.

One would think that would be a conservative value.

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