Despite the President's decision to give the last of the TARP money to Chrysler and General Motors, the price of automaker stocks dropped yesterday. Despite the hundreds of billions of dollars spent in the last couple months to prop up banks, the stock market is down one-third from it historic highs from this summer. Despite record government deficit spending, the year-over-year consumer price index is no greater than 1.1%! ([link edited for length]) Most of the deflation risk is acocunted for in dropping fuel prices.

The price of gasoline, which is the most visible fuel price I see everyday, hasn't dropped because of breakthroughs in refining capacity, finding new oil wells, alternative fuels, or the sudden sales of electric cars. It's that people are driving less. The Brookings Institute ([link edited for length]) found that Americans started making significant cuts in their driving habits in 2007, for some of the same reasons not seen since 1980. Travel began to plateau in 2000, began the decline in 2005, fell sharply in 2007 when the price of gas spiked to over $3 a gallon and, continued to decline when gas got over $4 per gallon earlier this year. The pain at the pump made an indelible imprint on the psyche of consumers. If it could happen that fast once, it can happen again.

OPEC, despite recent announcements to cut production ([link edited for length]), failed to keep the price of oil from sliding. OPEC needs the price of oil between $60 and $80 per barrel to cover its costs of production and exploration. At less than $40 currently, those activities will come to a halt.

All this leads me to think that current fuel prices aren't due to the sudden availability of resources; it's the continued lack of demand. Consumer and business credit has come to a screeching halt. Unlike the late 70s, when the Federal Reserve raised interest rates to double digits to make borrowing too expensive, the marketplace did it itself. The credit panic exemplified by the rise and crash of investment banking giants Bear-Stearns and Lehman Brothers, is now hitting everyday consumers. The easy credit, fueled by adjustable rate mortgages, low-cost introductory rate credit cards, and home equity loans are gone. Consumers are stuck with mortgage payments they can't afford. Even those who try to refinance with modified terms are defaulting at a rate of 55% within six months ([link edited for length]).

The rest of us, who still have jobs and are able to make the minimum payments on our debts, are not going to spend a dime more than we have to. We can't. ([link edited for length]). Until consumers are confident in their jobs and their ability to pay their bills, this trend is going to continue.

In my situation, I've taken a pay cut so I can keep working. My employer last summer decided not to continue selling a software product that was my specialty and eliminated my department. Luckily I had friends at a competitor. The decision I had to make at the time was to take the lower paying job and keep looking, or hold out for something better. Several months later, I've found there isn't anything better. Maybe in a year or two, a better position will open up, or I'll see a need for a new product? Historically, those are the sorts of things that have helped my career along.

In the mean-time, I'm watching every dollar like a hawk. And so are millions of my fellow citizens.