It's The Gas Prices, Stupid

Suddenly, all the talk among Wall Street traders and government policy pundits is the “soft patch” the economy seems to be in. The chatter escalated after last week's Labor Department report showing anemic job creation in May.

What could be slowing the economy, that just a few months ago seemed on the road to recovery? How about $4 a gallon gasoline?

Fuel prices began rising last October, shortly after the Federal Reserve embarked on its second round of “quantitative easing.” By the end of the year the national average price of gas was $3 a gallon and headed higher.

Fear drives up prices

The momentum picked up over the winter months as political unrest gripped much of the oil-producing Middle East, giving speculators a reason to continue bidding up prices on the oil futures market. By the spring, things were slowing down. Could there be a link?

Turn back the clock three years to the spring of 2008 and you have a similar situation. Gas prices were rising and the economy was slowing considerably. By July the price of oil hit $147 a barrel and the national average gas price was over $4 a gallon.

By September, retail sales had fallen into a deep slump and consumers were forced to scrimp elsewhere to keep driving. Had it not been for Wall Street's heart attack following the Lehman Brother's bankruptcy and the resulting credit lock down, the recession might have been the fall's big economic story. As it was, it sort of got lost in the fear that the major banks were about to fail.

But the consumer economy was sputtering long before that, and many economists attribute it to $4 a gallon gas.

History repeating itself

If history is repeating itself, even partially, is there anything that can be done? Yes, says CNBC stock pundit and former hedge fund operator Jim Cramer, and the place to start is the oil futures market. In Monday's episode of “Mad Money,” Cramer said the oil futures market is small and easy to manipulate, because there are relatively few traders.

Calling the government “blissfully ignorant,” Cramer called for new margin requirements for traders in the oil futures market. If they were required to but up 50 percent of their purchases in cash, Cramer asserted, it would “cut speculators off at the knees.”