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

I Think I'll Bike to Work Today

Just recently, oil prices have reached a new high for 2009. With the raise in oil prices, the general thought is that new means of transportation needs to be found; whether its a bus, a shuttle, biking, or walking. The growing rate of unemployment and job cuts is yet one more factor contributing to the "severe drop-off in miles driven by Americans". With less money in their bank accounts, Americans are finding ways to save. One of those ways is by finding alternative transportation. This last February, it was shown that Americans had driven 3.1% less than this same time last year. Currently, oil is still being produced meaning that supply is still up, however, the demand for oil is way down with the current economic crisis. So if people are driving less, then why are we faced with the prices going up? Well, the supply of oil will soon start going down, as OPEC "squeezes global oil supplies, trimming 4.2 million barrels per day". As the supply of oil decreases, the price of oil will go up. As for now I'd bust out your bike because, ""I think we'll see higher oil prices for a while," said Michael Lynch, president of Strategic Energy & Economic Research."
-SC

Out with the Hoovervilles, In with the Nickelsvilles

"The reality is that could be us one day." With the American unemployment rate rising steadily to 8.1% so far, it comes as no surprise that housing is continuing to suffer right along with it. As the people of America lose their jobs, the likelyhood of paying their morgages beomes more and more slim, leaving them often in the situation of forclosure. In the city of Seattle, WA this is an enormous problem. Upon losing their homes these people (between 50-100 daily) end up living in the outdoor Nickelsvilles. "Got a lotta people losing their homes. You don't want to go all the way to the bottom. Nickelsville is kind of a catch in between," said one Nickelodeon, a former warehouse manager who never thought he would lose his job and home. So with the unemployment rate rising, the rates of foreclosure rising and the need for more places such as the Nickelsvilles, what is it that can be done to help solve this problem? Well, the pumping of money into the economy looks like a pretty good plan for now. This expansionary method involving government spending will be a way to help lower the unemployment rate, and thus hopefully get these Nickelodeons back into real homes by means of helping them to again attain positions in the work force. It is a must that these people be removed from the Nickelsvilles and put back into homes, for the sake of themselves and the neighborhood surrounding them, which is seeming harbor animosity towards them. The only thing left to do is wait.

-SC

The future is in the cards.

 In times of trouble, people do things they may not do otherwise... One of them may include becoming a dealer. The steady decline of the economy has naturally created a steady increase of unemployed, leaving more people without jobs all across the spectrum. A variety of unemployed, from engineers to truck drivers are coming out to Colorado casinos in hopes of becoming dealers in craps, blackjack, roulette and poker. The casinos' income is important to the states, as "State governments often look to casinos as a quick source of tax income in difficult economic times. " Colorado also voted in a referendum to expand the betting limits at casinos from $5-$100.  The state is eager to rake in the cash the casino will make, and so are the soon-to-be-employed, as the salary is said to be $40,000 to $80,000 a year. If the choice falls between no job or dealing cards, the decision is easy. The unemployment is cyclical, yet somewhat structural. People are dealing with it though, as is Craig Taylor. "...you have to do what you have to do in this economy and make the adjustments to where the job you have pays the bills."  

-CH

"Please sir, may I have s'more?"

Two of the "Big Three" in the auto industry, GM & Chrysler, find themselves on Washington's front step on their knees begging for again, more money.  GM announced last week that they wre going to lay off 10,000 employees because the government told them they had to "manage their labor costs." They're also offering early retirement options. But you thought GM was bad? Chrysler has 32,000 jobs ready to be erased from the payroll. The companies already asked for 9.4 billion (GM) and 4 billion (Chrysler), and are coming back for more...and by more I mean 4 billion (GM) and 3 billion (Chrysler). How is giving more money to these companies going to solve things? If you have a good or service that people want, they will spend money and buy it. Currently people don't want to buy cars. So instead of dealing with it, they run to "The man". Throwing out money to every failing company like candy at a parade is not going to help things in the long run....Why doesn't the entrepreneur down the street get the money they need? They're filing for bankruptcy as well. Just because the government throws down some money does not mean that people are buying cars...It stops the flow of the free market--Instead of putting the money in the hands of the people, the government is beginning to overstep their boundaries.  Laissez-Faire, or pure capitalism, is to keep the government from interfering with the economy. Currently we're not doing that, and as to just regular capitalism? The "use of markets and prices to coordinate and direct economic activity"? We're not doing that either. Put the money back in the hands of the people. Give it to us and tell us we have to buy a car with it. Its probably way more complicated than that, but if I was given money and told to buy a car with it...I'd be much happier- and so would the auto industry. I'd have a new car, and they'd be selling some. 

-CH

What's more important, a price reduction or sustaining competition?

On Wednesday of this week, Rudolph T. Randa (a federal judge) declared Wisconsin's mark-up gas law unconstitutional. Okay, but what is the mark-up gas law exactly? It was a law that has been in effect for 70 years now, passed in 1939. The law prohibits gas retailers from charging their customers less that what it cost them to purchase the good. The law also requires the same retailers to mark up their gas by 6% of what they paid, or 9.18% higher than the average wholesale price (they choose the higher of the two). Judge Randa claims this law to be a restriction on trade, but is this law really that bad? Should it be "struck down" as the article explains it to have been? Personally I believe that by eliminating this law the small business owners in the state of Wisconsin will suffer greatly, along with the consumers. The larger companies will be able to set their own lower prices, allowing for them to slowly but surely push the small man out. This is a complete depletion of competition, a main characteristic of our market system. Along with decreasing competition comes a decrease in supply. Although the lowering of prices by the larger gas chains will seem just "dandy" at first it will all have to come to an end. As I said, the decrease in competition will also cause a decrease in supply. When supply decreases, ultimately the price increases since there is less of the demanded good. In conclusion, I can only hope for an appeal, as said here, ""We're hoping for an immediate appeal ... to make sure consumers are protected from a less competitive marketplace," Hauser said.". It would only hurt the consumer in the long run if we were to encourage large gas companies to run small, self-owned companies out of the competetive market system. The effects on both the consumers and on small company retailers of striking down the mark-up gas law should be thought over more thoroughly.

-SC

Heroes? Or Desperate for Employment?

Many children grow up hoping and dreaming to be  firefighters, but usually as they get older, the appeal of running into a burning building dies down. They settle for jobs with less excitement and fill the cubicles of corporate America. But these days, apparently, fire is looking pretty appealing. In Miami, Florida, news of job openings for firefighters at Miami Fire Department spread like rapid fire, and soon there were almost a thousand people camping out 48 hours before the job interviews would begin. With a 7% unemployment rate, the demand for jobs is at a high. ""I think that it's almost a call for help," said Aszurdee Jeff, a recent Florida State graduate. "Desperation you know being that the economy is not stable.  It's a lot of people that really want the stability."" Stability is the prize, and an inelastic one at that. 

-CH