Monday, January 21, 2008

January 21, 2008 It is the Economy but are we stupid?

Consider This for January 21, 2008—It is the economy but are we stupid?

Most of the political hacks are wondering why the candidates for president are not talking about how our economy has gone down the toilet recently. Romney and McCain did bring it up in Michigan but only as it relates to Michigan and not the nation.

National Public Radio ran an item last week about how a lot of this recession or the near recession has occurred is because oil prices have increase 35% in the past couple of months and our personal energy costs, gasoline, natural gas and electricity, have increased over 17%. When your money runs out you are more likely to do crazy things like pay your mortgage, buy gasoline and get food before you go out and pump up the economy by getting a $5000 high definition television or a new $50,000 car.

Therein is the problem. There are too many days in the month and not enough days in the paycheck.

The subprime housing market has not helped but that hit one sector with a lot of spillover into other parts of the economy. It was not the poor schmuck who got greedy and bought a house for very low interest rate. It was the mortgage brokers who got greedy and sold those loans to people who could not afford them after the rates increased.

The other interesting thing that is happening is that foreign investors are buying up American companies as if there is a fire sale. One part of Citicorp was purchased by a Saudi Prince for a couple of billions of dollars. Guess where he got his money. Oil.

One explanation of the inflated price of oil is in the commodity market. When oil finally reached $100 a barrel the market boys and girls were saying that it was an inflated price and that the commodity traders were willing to pay that price betting that gas prices would reach a level to support their investment. It was and is speculation.

I asked my students to guess how high a gallon of gas would go with oil at $100 a barrel. I thought that they would say between $4 and $5 a gallon. They came back with a price of around $3.50 a gallon. They could not imagine it going higher than that. I just hope they were right.

The next crazy thing is that China is no longer the cheapest labor market making it no longer the place where American companies will go for manufacturing. The economy in China is supported by an inflated price for their currency. The United States has asked them to drop the value to something that is closer to reality. If that happens China’s economy will decrease dramatically and companies will begin to move their production elsewhere in Asia.

So why aren’t the candidates talking about the economy? Do they remember Bill Clinton’s statement to King George the First? “It is the economy stupid.” Are they afraid that a solution might just be to raise taxes to bring things back into an even kilter?
Could it be that they don’t know what to do?

Colorado economist Tucker Hart Adams spoke to the Northern Colorado Businessmen last week and said that she sees positive things twelve to eighteen months down the road. This time last year she was telling everyone to grab their wallet because hard times were coming.

She was right last year and we can only hope that she will be right this year.

I have heard some lesser politicians say that we should not put plans in place to help the economy a year or two down the road. They think that we should do something immediately to put dollars into our pockets using a tax rebate or something like that.

I have had tax rebates in the past when they were used to stimulate the economy and I don’t remember buying any big ticket items. If I remember correctly I used to money to buy silly things like gasoline and food and to pay my mortgage. I guess they are big ticket items to me.

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