Gasoline

Does anyone remember a time when gas was under 2 dollars? Has anyone noticed that gasoline prices have been steadily increasing over the past couple of days? I was getting gas and a few days later the same gas station had gas priced at 2 or 3 cents higher. According to CNN gas prices has once again hit another "all-time high."

Some of the numbers that they talked about were:

• In one day the national gas price went up by .8 cents
• Gases prices have rose 19.9% since last year
• California has the most expensive gas price at 3.737 dollars a gallon, while New Jersey is the only state to see prices below 3.10 a gallon

But what does this all mean besides the fact people will have to start selling their organs in order to pay for these high prices? I think that with gas prices at an all time there is a much larger incentive for scientific companies to think of other sources of energy. This is especially true for large corporations as diesel prices have gone up by a lot with in the last couple of months. These larger corporations, as pointed out by the article, use diesel for their large trucks so they will want to find a cheaper way to transport things. This also hopefully will sway more people to either carpool or take public transportation which will help the environment. I certainly don't see the gas prices decreasing any time soon...

The Wonderful World of Economics

In February the economy shed 63,000 jobs; according to the New York Times this is the fastest falloff in five years and the strongest evidence yet that the nation is headed toward (or may already be in) a recession. Despite this staggering loss of jobs, the unemployment rate in February actually fell to 4.8% from 4.9% in January. How could the employment rate AND unemployment rate fall? The answer lies in the government's definition of unemployment: the unemployed includes only those people actively looking for work. Thus, the unemployment rate fell not because more people found jobs, but because more of the jobless gave up looking for work. Another cause for the lower unemployment rate could be that there has been an increase in the number of people who choose not to work purely by their own choice. The growth in the number of nonemployed people may also explain why overall wage growth has remained stagnant. With an increasing pool of people who are not employed but willing to work for the right price, those who DO have jobs find themselves with less bargaining power. Essentially, since the labor pool is growing, employers have less incentive to give their workers raises because there is a large supply of labor that would readily take jobs at a lower price.

So what's the government going to do? The president acknowledges the fact that the economy has slowed but remains confident that the recently enacted "stimulus package" and his "pro-growth, low-tax policies that put faith in the American people" will help stimulate the economy.

The government has announced two actions intended to keep supplying extra money to the economy for at least the next six months. First, the government will increase its lending through the "Term Auction Facility." Starting on Monday, the government will increase the amount available to $100 billion a month. Second, the government will buy about $100 billion in securities ranging from Treasury securities to mortgage-backed securities issued by the Federal Housing Administration.

Do you think the government "stimulus packages" will keep us out of a recession, or is it too late? Do you think there are any other explanations for why both the unemployment and employment rate fell? The employment rate is not the only indicator of the health of the economy, are there any other indicators that you know of that indicate how our economy is doing?

Bank Failures

Last week the Federal Deposit Insurance Corp. (FDIC) that backs bank deposits identified 76 banks as "in trouble." These 76 banks are likely only a small part of the impending economic problems looming over the banking sector. Within the upcoming year experts are expecting about 200 bank failures, this is almost as much as the record 206 bank failures that occurred in 1989. So far this year only one bank has failed (the Douglass National Bank in Kansas City, MO). Thankfully, the banks at highest risk for failure are generally smaller ones.

Why are these banks at risk for failure? According to financial services analyst Jeret Seiberg, "Many of these banks are highly dependent on construction lending, and that's the area of lending that is likely to come under the most stress." In the past 6 months the number of construction loans that are 30 days or more delinquent has spiked to 7.5% (up from 3.1%). However, the nation's major banks aren't exempt from economic threat. Seiberg says, "Tighter capital among the nation's major banks poses an even greater economic threat than hundreds of small bank failures."

Of greatest concern to economists is that banks will pull back and not make new loans which provide the "life blood of the economy." Federal Reserve Chairman Ben Bernake summed up the impending problem nicely: "This economy lives and dies on credit. If the megabanks are stuck with billions of leveraged loans eating up precious space on their balance sheet, they won't be able to originate new loans. That's bad for everybody."

Do you think we're headed towards a recession? What do you think the government should do to prevent a recession? How much do you think it will effect the economy if only smaller banks close down? What are your thoughts on the national state of the economy?