if gas goes to $4.00 this summer

The ones who will probably be affected the most are those who are commuting to and from work. They can afford the $4.00 gas. Those who are unemployed still need to drive, but they will likely find ways to curve their fuel consumption. Maybe people will smarten up and drive in a more reasonable fashion. There is no need to floor it just to get to a red light or a stop sign. This requires logic though, something many American drivers seem to lack.

I have a feeling that the people who are going to be hurt most have already made drastic spending changes long ago. With this in mind, I feel that the economy will not drastically change as a result, but it will still be impacted none the less. The stock market may react to all of this, given the nature of the current volatility. There are so many investors who readily jump in and out of stocks, and given the right circumstances, we could see some wild trading sessions as these investors unload their stocks in fear. That's what I am most afraid of myself.

And UCO, USO and others. I don't know why I avoided all these. CNBC has been harping, however, all week, with a series showing how individual stocks would profit more than the ETFs. But I like the conservatism of the ETFs if you can read them right. I've been burned now and them on them too. But, if I had a time machine, I'd definitely get a listing of all the ETFs and just stick with them.

It appears the rate of ascent is the key factor. If gasoline rises slowly like it did 2001-2005 it seems to me it is less likely to bring on a recession. However, the last two major spikes, 2008 and 2011, in the least coincided with market collapses if they weren't partially responsible for it.

Dept of Energy gas price index.

It looks to me as though $3 acted as resistance on several occassions in the not-too-distant past. Only twice has retail gasoline exceeded this level and stayed there for several months.

I don't disagree that at some point it loses its severity of impact. However, I've read myriad reports saying that for every 10 cent increase in gasoline over 11 billion dollars are drained from the American economy, or roughly $1B per penny increase. I'm not sure if this is contemporaneous data or the historical average. I question the statistic because two opposite forces are at work here. First, Americans are consuming less gasoline on a per capita basis. After the 2007-2008 energy shock fuel efficiency increased significantly whether this was in the form of higher MPG vehicle fleet rotation (cash for clunkers) or improved driving habits (combined trips, proper tire inflation, slower acceleration etc) is not really of concern. All that matters is that in America we're consuming less gasoline per capita. Second, acting against this increasing efficiency is the fact the economy is still in a very slow state of growth and bordering on the verge of recession according to the ECRI. While maybe $4/gal gasoline would be a minor impediment 5 years ago I question the consumers' ability to handle a sustained period of elevated gasoline prices in such a low growth environment. Keep in mind that the pay-roll tax cut the Obama Administration is hanging on to amounts to about an extra $40/week in the average Americans bi-weekly paycheck. This 'tax relief' is effectively zero when gas prices go from $2.75/gal to $4/gal meaning whatever stimulative effect the Administration hoped for is diminished. And lastly, income growth in the last 12 months was 2.8% nominal but when you factor in inflation real income growth was actually negative 0.06%. That doesn't leave much room for the consumer, whom is 70% of the economy, to spend on discretionary items. Now I'm not predicting a recession just yet but this is definitely a new development that is going in to the 'model forecast' and in my personal opinion it deserves close attention and should be followed regularly.