It's all relative.

Last summer, as many of us may recall, gas prices hit a pocket-emptying, bank-breaking $4 a gallon. But the recent outrage is the 10% surge the gas prices have hit, rising 20 cents over the past two weeks. While in the short term, this is a big increase, gas prices are still 46% lower than they were in July, and on the even brighter side, analysts say that they are not likely to hit $4 again. Why does this happen? The oil prices go up, which in turn drives up the price of gas, as they are complimentary products. The oil prices rise as they are "crude prices", but the crude market does not support higher prices, say the analysts. But the oil workers are not so optimistic. "There's some irrational optimism about the future," said Tom Kloza, chief oil analyst for the Oil Price Information Service. "People are looking at the bright side and not the actual data points for supply and demand." But no matter what the oil companies say, gas is still 46% lower than it was in July. I prefer to look on the bright side.

-CH

Obama Calls For Trade

One hundred days into Obama's term, the people of the U.S. begin to look into his beliefs on trade, and he is appearing to be more pro-trade than most thought. This is leaving some with a sour taste in their mouths. Many people are beginning to blame the decline in American jobs on President Obama's plans to continue trade with foreign nations, taking away from jobs that could potentionally be given to the millions of unemployed workers currently living in the United States. Obama can only respond by explaining that with a changing economy comes a change in how you go about fixing our nation's problem. "Obama has said repeatedly in recent weeks that he does not want to risk the rise of global protectionism that could make the financial crisis much worse." By closing off ties with other countries and lessening trade by use of protectionism Obama would be welcoming a higher price for any foreign goods, an increase in inflation, a tighter monetary policy, and thus higher interest rates. With higher interest rates, investment would continue to decline, only worsening our current situation. "Prices tamed by competition gave monetary policy-makers greater leeway to err on the side of economic growth" (Richard W. Fisher). So Obama has it right, steering clear of protectionism and embracing global trade is one way to help our current recession, although it may seem as though jobs are being stolen from the American people.

-SC

Yes, that +7 billion dollars was a gift. No problem at all.

Chrysler is not planning on paying back the 7+ billion dollars that they borrowed from the government (and tax payers such as you and I) in an effort to save themselves from bankruptcy. Yet Robert Manzo from the Capstone Advisory Group assumed that "the Treasury would forgive a $4 billion bridge loan gien to Chrysler in the closing days of the Bush administration, a $300 milion fee on that loan, and the $3.2 billion in financing approved last week". However, there is a 8% equity stake that the Treasury will recieve from the fruits of reorganizing the company, and is supposed to be used to pay back America for helping them out. Apparently though, the government knows that they will not be reimbursed but they are okay with that, the only reason for which I could imagine is because they have much larger problems on their hands.  With the markets dropping, unemployment rising and the auto industry demanding more money, if one company goes bankrupt, that may just be a load off of their shoulders, a load that they are ready to move on and forget about. But what about the public who are unemployed, trying to raise a family and struggling to make ends meet? It does not seem fair that Chrysler gets off the hook that easily--but they still have to contribute about $4.7 billion, paying back the government a fraction of what they borrowed.  Now the question is, was it worth it?

-CH

Good News Coming Our Way?

With the current recession taking nearly 5.1 million jobs since December 2007, we look to friday where we will again see April's totals for unemployment (which some economists speculate could reach a high of 8.9%). How is it then that "Federal Reserve Chairman Ben Bernanke told Congress Tuesday the economy should start growing again later this year"? He goes on to explain that even with his prediction of improvement, he believes our economic activity will remain "subpar". He says that businesses will remain wary of hiring. Due to President Obama's tax cuts (part of his stimulus package) and increased government spending, economists predict that the economy should begin to grow. Bernanke also says, "there's been tentative signs that the declines in other countries' economic activity may be moderating, which could help sales of U.S. exports." With exports rising, so then would our output (real GDP). With money being pumped into the system, people would once again be able to invest, allowing various companies to increase production and begin to hire, and thus raising GDP and lowering the unemployment rate. Lets hope for the best and see what happens!
-SC

Forget Cinco de Mayo, It's Time to Clean

After spending nearly $2.2 billion during the recent outbreak of the swine flu, Mexico annouced that it plans to restart its economy. Restaurants and schools are scheduled to be reopened and the government is looking at a $1.3 billion dollar stimulus package, aimed to help small businesses and tourism. In the midst of some 840 confirmed cases of the swine flu, nearly 2.4 MILLION treatments of antiflu drugs were sent by WHO to various countries hit by this epidemic. These prices were part of the tole taken on the high government spending. On the flip side, however, countries associated with WHO can possibly look at these shipments of medicine as beneficial to the medical markets. Other factors hurting Mexico's economy are the decline in tourism and decreased exports of pork (thought to be related to this epidemic). Such plans as "Mexican Finance Secretary Augustin Carstens, who unveiled plans to stimulate key industries and fight bans on Mexican pork products" are necessary in order to bring Mexico's economy back up. One more toll on the government's economy is the large payment in order to have all facilities cleaned before the reopening of Mexico City. Mexico has recently spent $1.5 million on cleaning products. No coincidence then, is it that today (rather than celebrating Cinco de Mayo) the people of Mexico are sanitizing with cleaners such as bleach in hopes that they can put this epidemic behind them with the reopening of safe and bacteria-free facilities.

-SC

And then God smiled

The public relies heavily on what comes out of Ben Bernanke's mouth. In a way, he has significant power. If today's report is positive, the stock markets increase slightly, and John Doe walks home from work with a bounce in his step. But this has the reverse effect as well, negative news sends everything downward, such as putting faith in world currency, and not the American dollar. Yet any talk is becoming cautious. On Tuesday, Bernanke told Congress that this year the economy will begin to recovery, yet even when that starts, things will not be as good as they once were. It will be a slow recovery, including more job losses.  Even with the tax cuts that are said to come with Obama's stimulus package, rising unemployment and home values plummetting will not free many families up to spend as they wish.  The economy celebrated (and by celebrated, I mean the negative version of celebrate) the worst 6 month performance since the late 50's.  Banks are going to be required to "develop "comprehensive capital plans for esablishing the required buffers" to protect against losses that  may occur in the futue. The economy is expected to bottom out before this slow but steady recovery begins, but don't worry, Ben has it under control.

-CH

Crack the whip was never my favorite game.

On Monday, President Obama proposed to close the loopholes that come with corporate tax on the "multinational corporations" and to crack down on tax havens overseas. The purpose in doing such a thing is to keep jobs here in the US, and to equalize the tax code. Yet is keeping all of the jobs in the US always a good thing? In trade, if we do not specialize, then we do not have an advantage.  Yet if Obama does this without lowering the corporate tax rate, it is just going to encourage companies to take their jobs elsewhere. There are three proposals being discussed. The first being to reform the "deferral" rule, a rule that allows US multinational corporations to deduct expenses for the things they do overseas, where they also do not have to pay income tax on those things as well, unless that money is brought back to the US. The second proposal is a tax cut for "R&D credit", or research and development, that is done in the United States. The government is attempting to make it more difficult for companies to abuse the foreign tax credit, as right now they can claim credit against their income taxes for the taxes they paid in a different country.  The third proposal is changing the way the IRS handles things, specifically the "check the box" rules; rules that allow companies to shift income and escape taxation.

The business community obviously is not thrilled about these new changes, as well as the foreign countries, the "tax havens" as we will not be offering as many jobs with these new proposals. 

-CH