Energy Prices Dropping As A Percentage Of Total Expenditures

Does it feel like energy prices are going through the roof? Are we all feeling like the world is coming to an end because the price of fuel is outrageous?

Unfortunately, our feelings do not properly reflect what is going on. It is because we buy into them that we lack the insight into what is truly occurring. This is what causes people to consistently miss in their forecasts. When it comes to investing, an an example, this could be fatal.

We become accustomed to how things are in the moment. The recent past is what we remember while overlooking what took place far back. It is very common in the stock market during every bull run. As the market is extended, people forget what happened before and keep piling in. After all, markets only go up.

Of course, we know what happens. The pigs get slaughtered due to the combination of greed and forgetfulness. Sadly, it happens every time.

Why do we not remember the distant past? That is outside the scope of this article and might require hundreds of head doctors. Nevertheless, we do not need to know why to accept that it is what occurs. Evidence is all around us of the actions in this direction.

Energy Prices

It is hard for many to believe this next statement in light of their frame of reference. Nevertheless, the reality is that energy prices are dropping and did so over many decades. This is something that the media doesnt want you to know. After all, their job is to make you either fearful or angry. That is what keeps people tuned in and hostage to what they are espousing.

Here is a charge that shows energy prices as a percentage of PCE (Personal Consumption Expenditure). The goal of this idea is to see the drag on the economy that energy prices wield.

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In the late 1950s through the early 1970s, we saw the percentage reside between 6%-7%. Then we got the oil embargo of the 1970s and that sent prices skyrocketing. As we can see, 9.5% of household were related to energy goods and services.

The next wave saw a huge decline throughout the 1980s and much of the 1990s. After bottoming, they rose during the 2000s, peaking when oil ran up to $140 per barrel. Of course, this was not sustainable and the Great Financial Collapse sent the next wave down. The reflation period coming out of the recession was once again stamped out as we almost double-dipped. It did, however, set off the run to the all time low (up to that point).

Again we saw another run up in commodities only to have it reverse prior to the pandemic. Naturally, once this hit we saw another rush to a new mark on the downside. Now we are getting the bounce upwards as energy prices are on fire.

This does look very similar to a 25 chart of oil prices. If we start with the first chart, we can see that starting around 1997, they track similar. There was a run up and dip in the above before starting an upward trend. Oil prices, on the other hand, simply ran up at a steady pace until the $140 peak.

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We Consume More

When it comes to energy, consumption is only on the increase. We have more devices plug into walls than ever before. Our electronics grow exponentially. There are phones, tablets, laptops, gaming consoles, Chromebooks, routers, and an assortment of other devices that use electricity.

If this is the case, how is this declining?

Much of the answer comes from technology. Everything, on an individual basis, uses less power as time passes. Innovation and technological development ensure that things are more energy efficient. We have cars that get more miles per gallon as compared to those 50 years ago. Hence, the same amount of gasoline goes 2, maybe even 3 times as far.

Our major appliances are also consume a great deal less power. This helps to lower the power bill. We see the same thing with air conditioning units. All this makes an enormous difference when you chart it over an extended period of time.

Energy is one of those components of the household budget that cannot be altered a great deal. Sure, during times of high oil prices, the SUV gets parked in favor of the Honda Accord™. We also see people push up the temperature on the AC or down on the heat when times are tight. However, while this use to be commonplace in the 1970s (and the residual in the 1980s), most forgo this step. Ultimately, due to the efficiency of the devices, it doesn't make a great deal of difference.

This is a trend that we can expect to continue over time. With all the calls for $100 oil (and some absurd ones at $200 or $300), it is best to remember the long-term flow of things. Energy costs are continually being reduced.

As they say in the commodity world: the cure for high prices is high prices.

Eventually, either a change in behavior or technological advancement tand to crush any overpricing that takes place.


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It's hard to believe, but it does make sense. Imagine how fast energy prices would decline without all the government interference!

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That could be although the energy market is a rigged game anyway. Sitting at the core of it is a cartel.

Hard to have a true market when a foundation like that.

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Very true. It might just be the nature of the beast. Energy (electricity especially but also oil, coal, etc) has HUGE benefits from large scale operations.

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Bang, I did it again... I just rehived your post!
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While I agree with the overall theme of the article, it's hard to look at the big picture when it's an extra $400-$500/month out of my pocket right now. And if I'm dealing with it, there are a LOT more people out there feeling it more than me.

Granted, this is a short-term mindset. But isn't that what the world lives in right now? Instant gratification and a 24/7 news cycle. If you can see the trend, don't you think our government should have seen this coming months ago?

We are continually being manipulated by the elite in order to keep the middle class down. What better way to herd the sheep than to once again make them more reliant on the government? Sickening.

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So do you have the same short term mindset when things are going well and prices are dropping? Are people going to say, isnt it wonderful gas prices are dropping as they are losing their jobs?

You are correct that people often view things through a short term point. However, they also do it so as to fit an agenda.

You might be paying more for energy as compared to a year ago but how is your long distance billing? How about the mobile plan, you paying a dollar plus a minute?

These are things that we conveniently overlook. Of course, we are complaining about this stuff on a global communication platform that is basically free on devices that have more processing power than what the space program had half a century ago for basically a nominal fee.

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(Edited)

Are people going to say, isnt it wonderful gas prices are dropping as they are losing their jobs?

As opposed to having their jobs cancelled by politicians and watching those gas prices and heating prices go up by 50%?

I get where you are coming from there but it's also true that those technological advances are now necessary for people to utilize in order to interact with the world. You used to not need a hand-held phone. You used to not need free long-distance. These technological advancements, while comparing performance to price, are light-years ahead of what they used to be, but they are also now requirements. They are utilities 90% of the population must pay for if they want to work in society.

So, yes, everything is cheaper, but you now need to spend $1000 on a phone upgrade every 2 years (although with the pandemic that's going away again). You need to spend $500/mo on your heating bill. All the while wages haven't increased in any meaningful way for decades.

We become reliant on these new technologies and performance becomes better, but the pool of money people have to buy these things becomes smaller and smaller as a percentage of the overall needs. Even though performance is better for cheaper.

In the meantime, the taxable wage-earner pool in this country becomes smaller and smaller as well and instead of incentivizing people to become part of that class, they vilify it and try to redistribute that wealth to people that have learned it's cheaper to stay under the radar.

I'm certainly no expert and you obviously have forgotten more about this than I'll ever know, but the left is driving this country into the dust and paying the people that suffer most to keep them in power. Between the education system, the welfare system, and the mainstream media, they've attacked the American Dream from all directions.

It's still possible. But you're a xenophobic racist if you're actually successful at it and ever open your mouth.

Why do you think they're so afraid of crypto? The potential is there to educate and empower the masses outside of the system and its starting to scare the hell out of them.

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Yes, prices are high. but they are not at the all time high we once saw and even with inflation counted into that prices of gas etc really are not that high.

Two things spark innovation
War - sadly but so true that most innovation happens during times of war
High prices - If it costs too much money to power via older means oil, gas, coal. Well then alternative methods make more sense to start investing into to make them more efference and possible. Non of this happens over night as we can see but looking back through time these are the two things that are the fastest at shaping inovation.

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Technology really makes long term price hikes near impossible. Anything that remains elevated for a couple years is likely to be teched out.

People will either adapt or we will see more technology changing the supply side.

Look at batteries, iron is becoming a bigger component. That will end up driving the cost down even more.

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With all the headlines, I am not surprised by everyone crowding the trade. After all, we have the current administration in the US release more oil barrels out of the strategic reserve and the oil producing giants reducing the supply. They don't want to reduce prices and eventually the strategic reserve will run out and they will be forced to pay higher prices.

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Energy cost cannot reduce because it is like life and we can't all do without it, unless an alternative is produce and it is adoptable for everyone which I don't see it will will happen anytime soon

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We have more devices plug into walls than ever before.

Isn't that the truth. Nearly every plug I have have an expander on it and each plug is filled. I worry about the wiring as I doubt they house was built for so much on each plug. But I guess if I'm not popping breakers I'm ok.

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That is another matter altogether.

Of course, that is something else we dont think about. How was the wiring and breakers in homes a half a century ago?

Thinks change a great deal because of technology.

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From your videos, I'd guess you are close to my age. The changes we have seen. And change is just speeding up.

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