When oil was climbing past $50, $60, $70 and even $80 a barrel, the big question was: Where is the breaking point for the economy?

Now with the economy staring down a recession (or in a recession, depending on your view), oil is at $110 per barrel. And some economists are saying the price is now beyond that breaking point -- and the duration of higher prices and the resulting impact on gasoline prices will be a big factor in the economy's ability to shake off its sluggishness.

"The only reason the economy hasn't visibly broken is that gasoline prices haven't risen commensurately with oil prices, but that's coming," says Mark Zandi, chief economist of Moody's Economy.com.

Deutsche Bank chief U.S. economist Joe LaVorgna and Zandi both told me in recent discussions that rising gasoline prices threaten to wipe out any benefit that could come from Washington's $100 billion plus stimulus package.

"According to my calculations, for every one penny rise in gasoline, households spend about $1 billion (per year) on energy. If you take gasoline and go from say, $3 a gallon to $4 a gallon, which fact is a risk, you basically take your $100 plus billion tax cut and it goes into energy," Lavorgna said.

If that happens, "What we'll do is take the tax rebate and put it in our gas tanks," said Zandi.

Of course, LaVorgna says, if gasoline prices were to start to fall it would be like an instant bonus to households. "That would lower the cost of doing business and that would restore real purchasing power," he said.

Yesterday, the Energy Information Administration said retail gasoline pump prices, now $3.225 a gallon, are likely to top out at $3.48 a gallon nationwide in May. The EIA also said it is likely gasoline will pass $4 per gallon in some markets though the summer average will be under that level.

Oil Wednesday closed at $109.92 per barrel, driven higher by a record low dollar. Oil pushed through $110 per barrel in the after hours electronic session.

"It's now a financial market driven by speculation, a developing bubble. So like all bubbles, it can get a lot bigger before it breaks," Zandi said.

Traders say there's a new breed of buyer in the market, pension funds and other typically more conservative institutions are buying alongside hedge funds.

LaVorgna says he currently expects third quarter GDP to get a bump from the stimulus package, but he may review that if gasoline keeps rising. He said he thinks the breaking point for the economy was $100 per barrel oil.

Cambridge Energy Research Chairman Dan Yergin wrote us late yesterday about oil's runup; he raises an interesting point.

"It's strange. There seemed to be more concern about the impact of oil on the economy when oil was $70 than when it is over at $100 or at $110. Yet we seem now to be in oil shock territory. Prices at this level are at a heavy weight on an economy already under great pressure and a big issue both for consumers and many businesses," said Yergin, CNBC's energy analyst.

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