How do people deal with higher gas prices? Of course, they economize. In the Philadelphia area, for example, Triple A reports that they buy less gasoline…and then run out. AAA is getting twice as many calls from stranded motorists with empty tanks.

Consumer confidence is out of gas too – at its lowest reading in 28 years. And no wonder; house prices are still falling…while consumer prices are going up much more quickly than CPI numbers suggest.

On the housing front, the Boston Globe reports that some nearby cities have seen property prices fall by as much as 33% in the last year. And the New York Times adds that the housing problem is “trickling up” to the upper middle class. It may have begun with marginal subprime borrowers, says the paper, but now even expensive houses in good neighborhoods are getting marketed down…and taking much longer to sell. God forbid that you need to sell in a hurry; sellers have little bargaining power.

And thank God for those rebate checks. They’ll buy nearly 300 gallons of gasoline for every man, woman, and child in the country. That ought to keep the nation rolling for a bit longer…

*** Back to our theme. What was it? Oh yes, Peak Food. Well, we won’t actually have anything to say on the subject until later in the week. For today, we merely observe that people are ready to believe practically anything. In the early ’70s, they seemed to believe that we would all “starve…in the dark” as the world ran out of vital supplies. Then, in the ’90s (and still today) most people came to believe that there is nothing to worry about…that new supplies will always come forward just when they are needed.

*** This week marks the euro’s 10th anniversary.

We remember when it came out. The “Esperanto Money,” we called it, referring to the ersatz language that never quite caught on.

The dollar is bad enough; at least it is supported by the full faith and credit of the United States of America, for whatever that is worth. Whose full faith and credit stood behind the euro? What nation would be willing to stick with the new money when the going really got tough?

The euro opened at $1.12 to the greenback. Then, it sank below 90 cents. It looked doomed; the American paper was stronger, surer, more lasting.

But then our initial skepticism towards Europe’s new money quickly turned to admiration. The euro’s weaknesses were actually its great strength. Since no nation stood behind it, none would knock it down to get where it wanted to go. Just as the Europeans could never agree on sausages or military campaigns, they would never agree on the destruction of their money. If French wanted a weak euro to help enliven their economy, the Germans and the English would tell them to stop whining and show some backbone. If it were the English whose economy went soft and who wanted an easier money policy, likewise, the French would like nothing better than to deny it to them.

That is the charm of the Europeans; they detest each other mutually. The French would rather endure a depression themselves than spare the English one. And as for the Italians, the Irish, the Austrians…and all the other peoples at the periphery – well, they can just look out for themselves!

But rather than leave the European Central Bank weak and subservient, it actually makes it stronger and more independent. Its officials may have no more integrity than officials of the Federal Reserve. Their economic theories may be no better. But at least they are unresponsive. In central banking, the consequence of inertia and inactivity is almost always salutary.

While the Fed has cut rates…raised them…and then cut them again, the ECB has done nothing. And the euro has almost doubled from its low and now trades for $1.55.

Until tomorrow,

Bill Bonner
The Daily Reckoning

Source: Out of Gas

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