Originally Posted by tandempower

When gas hit $4/gallon, no one really understood why the economy was falling apart because they don't realize it's death by 1000 cuts. When everyone drives to work in every job along every supply chain and finance and corporate cost-sharing tie everything together, there is practically no cost anywhere on any supply chain that isn't creeping up as fuel prices rise. It's like a large traffic jam that forms because everyone keeps gradually accelerating and shortening following distance until everyone has to start slowing down because there's nothing else to do. It's not just the car in front of you going slow that's slowing you down but also the ones blocking you from changing lanes, the ones slowing them down, etc. etc. up the chain. That's how rising fuel prices work in an economy where everything is transported by internal combustion power.

Now, what will happen as fuel prices drop? Basically it will be like a widespread fiscal stimulus program for everything, every cost, etc. (except human-powered activities of course). So for a while, many people will probably grow their dependency by using more fuel to do more things. Then, however, the economy will tighten up in terms of competitive business and those who grew their dependency will be squeezed to maintain earnings levels that they built up using cheap fuel. Then, at some point, fuel costs will begin inching up again and gradually initiating the 'traffic jam' of recession. This is the bubble-burst. It's happening now with the stimulus-driven stock markets and later it will happen with the cheap-gas-driven economy.