OIl Prices Will Hurt The Consumer
As oil prices continue to surge, economists are locked in a full-on debate about how much they will affect the economy.
Bulls argue that "this time is different," saying that today's consumers have handled oil above $100 a barrel so far, so they'll be able continue to handle it and the economy will roll merrily along.
Bears, meanwhile, argue that oil prices will eventually clobber the economy--by forcing consumers to spend more of their incomes on gas, heating oil, and other petroleum-based necessities, thus leaving them less to spend on other things.
Lance Roberts, the head of StreetTalkAdvisors, is in the latter camp.
Roberts believes that most economists are underestimating the impact of today's oil prices. Specifically, he says that the damage inflicted by high oil prices is not just a function of price--it's also a function of time. In other words, consumers can adapt to temporary spikes in oil prices, but the longer oil prices remain elevated, the more they'll crimp overall consumer spending.
Roberts also believes that the recent apparent "recovery" in consumer spending, which many observers interpreted as a bullish sign for the economy, has actually been the result of higher energy prices. Consumers are being forced to spend more on oil and gas, Roberts says, and this is boosting overall consumer spending. But this increase in spending is not, Roberts argues, the result of consumers feeling better about the economy and thus loosening their purse strings.
If oil prices remain at today's level (or higher) for a long time, Roberts argues, they'll ultimately wallop the economy.