Not in Your Corner

© 2015 Steve Feinstein. All rights reserved.

 

This is an equal-opportunity political bash. It’s something that has bugged me for years and that politicians of all stripes are equally guilty of (although probably for different reasons, which I’ll get to at the end).

 

There are two really important economic elements that are of major concern to the average person on a moment-to-moment basis. These two elements affect many peoples’ daily lives to a larger degree than many other fiscal issues, most of which tend to be more theoretical and hypothetical than immediate and actual.

 

These two are immediate and actual:

  1. The relationship between crude oil pricing and gasoline retail pricing
  2. The interest rate that banks pay on savings/CDs vs. the interest they charge for credit card balances

 

There are two benchmarks for crude oil prices: West Texas Intermediate (WTI) and North Sea Brent. Those are the two indices that determine the price at which oil trades. Brent oil tends to be about 12-15% higher.

 

As of Friday July 17th, Brent was $57.1/bbl., WTI was 50.56.

 

The long-term historical relationship between crude oil pricing and retail gasoline price per gallon in the U.S. has been Brent x .035 and WTI x .04. (It’s actually easier to do in your head using just 3.5 and 4. You’ll know where the decimal goes.)

 

So, let’s see…$57.1 x .035 = $1.995. 50.56 x .04 = $2.02. Seen any prices at the pump like those recently?

 

Here in MA, the going price is around $2.70/gal. For Brent, that’s a 4.7 factor, not 3.5. For WTI, that’s 5.3, not 4. Holy smokes!

 

How the heck did that happen? Consumers are so happy and relieved that they’re not paying $3.75/gal like they did in the summer of 2014 that they just don’t realize how badly they’re getting gouged. In July 2014, Brent crude was $107/bbl., which was exactly $3.75/gal using the 3.5 multiplier. Just like it should have been.

 

How is gasoline $2.70/gal. now? I’m so mad every time I fill my car with gasoline I can hardly see straight. Now that you know how off-kilter the crude-retail pricing relationship is, you should be furious too.

 

WTI went down from $54 to $50 in the last week, since the Iran nuclear agreement was announced, as the oil market reacted to the knowledge that Iranian oil would soon be re-entering the market, exacerbating an already over-supplied oil market and putting further downward pressure on crude pricing. I was looking forward to filling the tank this weekend, confident that prices would be much lower.

 

They didn’t budge once cent. Not one red cent. How is that possible?

 

Now, on to issue number two: Bank payout rates.

 

Again, the historical divide between bank payout rates and bank credit card interest charges has been about 5-8%. 5% one-year CD interest rate, 11.99% credit card interest rate. That kind of thing.

 

These days, however, we find ourselves in this kind of situation—CD rates around 1.5% and credit card interest rates around 20%! Furthermore, most bankcards have instituted a policy of “two months interest,” even if you pay off an unpaid balance in its entirety the following month.

 

To wit: Lets say in Jan, you pay $700 of your $1200 balance. When Feb’s bill comes, you’ll be charged interest on the unpaid $500 from Jan, plus interest on whatever you’ve charged in Feb (that’s not fair, but that’s what they do.) Let’s say you charged $600 in Feb, so your total balance due is $1100 ($500 unpaid from Jan + 600 in Feb.)

 

You pay off the entire $1100 on time in Feb. Clean, now you’re back to zero.

 

In March, you charge $900. When that bill comes, it has an interest charge on the entire $900. How is that possible? You paid off the entire balance on time last month. This month’s $900 charges came on a zero balance. Enraged, you call the card company: “That’s just how we do it. It takes two months of on-time paying to wipe the slate clean of interest charges.” You have no recourse other than cancelling the card in protest—once you pay, of course.

 

At 20%, no less. This is loan-shark territory. This is what average people go through. This is why they never get their balance down to zero.

 

So, these two all-important everyday fees/costs have mutated far away from their historical norms and the average person is suffering as a result. It’s part of why there’s a general lack of consumer confidence and enthusiasm hanging over the economy. These are contributing factors to why the average consumer thinks we’re still in a recession.

 

Our lovely politicians have no visibility or sensitivity to these issues. None at all. Where is that populist champion of the people, Elizabeth Warren? Why isn’t she looking into the 1.5-to-20% interest rate chasm, on behalf of “real people”?

 

Why isn’t someone in DC investigating and calling for testimony from the oil companies and the gasoline retailers association to explain how the crude oil-to-retail gasoline multiplier has suddenly gone from 3.5 to 4.7 in less than a year?

 

My daughter used to work in Congress on Capitol Hill. Every day, she’d see Texas congresswoman Sheila Jackson Lee on the sidewalk in front of her apartment building, a mere two blocks from the Capitol where she worked. Every day, she’d see a tax-funded stretch limousine pull up and take Lee to the Capitol, two blocks—3 minutes—away and drop her off. Think Lee is concerned about the gasoline prices that the “small people” are paying?

 

In her own congressman’s office, every piece of outgoing mail—every piece, routine to important—that went back to his home district in CA went via Fed Ex overnight. Every piece, taxpayer-funded. I paid for it, and so did you. Think he gave two hoots about what the average peon earned in interest on their meager savings at the bank or how much monthly interest income the average retired person on a fixed income was getting from their CDs?

 

The cynical among us may say that Dem politicians are so insulated from reality, so dismissive and condescending towards the hoi polloi (hence the origination of that famous phrase “limousine liberal”) that they simply don’t know these situations exist. Does Elizabeth Warren—teaching her one course per semester at Hah-vahd for $360 large per year, living in her $1M mansion, actually know or care about gasoline prices? What are the chances you’ve ever seen her at the next self-serve pump at the local Sunoco?

 

And perhaps certain Republicans are hesitant about aggressively prodding their big donors in the banking and energy industries (although TBT, just as many fat-cat Repubs take limos and don’t pump their own gas and just as many Dems get big donations from Wall Street and Energy.)

 

Yeah, our politicians get a lot of big things wrong, like arms-control treaties and tax policy and national defense and border security and civil rights and on and on.

 

But they get the small thing wrong as well and on a day-in/day-out basis that may be even worse.