Gas prices skyrocketing. Hurricane Katrina devastating a city. Housing prices through the roof, while incomes have not kept pace. Inflation. Higher interest rates. Etcetera, etcetera.
The dominoes are falling already, folks, and there's no stopping the chain reaction.
Parts of the economy will benefit from this. For example, construction companies will have plenty of work for years to come. Industries directly and indirectly related to the rebuilding on the Gulf Coast will be booming.
On the negative, you have retail stores. Places like Wal-Mart, Sears, and all the rest depend on the Christmas season to make the year profitable. Well, with John Q. Citizen shelling out over
more money for gasoline just to get to work, I can pretty much guarantee John won't be splurging on presents this holiday season.
Gas prices affect retail stores, and other commerce, by increasing delivery
costs to stores.
How about Fed Ex and UPS? They're going to have problems, with fewer packages flying around in December, combined with higher fuel
costs. Click-clack go the dominoes.
We've already seen the effects on the airline industry, with two bankruptcies in the past month. So, you can pretty much assume anyone using a plane is going to feel the
effect of the gas prices. Even if they pulled a Southwest airlines and bought fuel at last year's prices, the lower volume of passengers and deliveries
because of less expendable income is going to rock the service industry's world.
And let's not forget the current housing situation. Here in South Florida, home
prices have gone up 30% a year for the past few years, while income has remained flat.
Do the math: a family of four cannot afford a four-bedroom house and save for retirement. More than likely, they are using credit cards to
finance their expenditures.
As more people default on credit card debts (Can I make a prediction? There will be more accounts receivables written off by financial institutions
in 2005 and 2006 than during any other two year period in the history of the United States), and people get laid off in certain sectors due to the effects of inflation/fuel costs, and construction companies flock to the Gulf ... guess what will happen? Folks will default on mortgages, or sell for what they can get.
The banks and other lending institutions must be sweating something fierce!
Mortgage bubbles have burst before ... so this is not some outrageous prediction. It's just a clear overview of what is going on. Take this information and do with it what you will.
