Tuesday, March 18, 2008

Feds, Gas prices, Home Market and how it affects you

The below is a blog written by a fellow Male Buppie. Had to share with my readers!

Written by Wole Oluyemi

So I'm stuck at home on pain killers. Still working of course, but I wanted to share my thoughts and hear from others on the current economy of the US and how it affects us all.
I'm an engineer, so I'll start off with an equation:
feds cut rates = devalued dollar = $4 gas prices this summer = US economy still sluggish = feds cut rates, .. as you can see this is an ugly cycle.

Gas has and will always go up but the past year its almost doubled itself. Why? Many reasons really, but here are a couple:
1. India and China
2. The War
3. House Market
4. De-valuation of the dollar

1. India and China are growing at exponential rates. My man GS can directly attest to that. That won't change anytime soon, and with more people in the world driving and using more oil, it will cause the gas prices to go and remain high. The old supply and demand game. I don't see this changing until we finally figure out alternative ways of decreasing our carbon footprint, basically getting off our oil dependency.

2. Regardless of how you feel about the War, we're in serious debt from a economy perspective.
This is simple accounting.. Since 01 we've borrowed tons of money and we no longer export the amount of goods we import.. This causes serious issues from a GDP perspective and at some point will cause a recession. That how we got here..

3. And of course the housing market. This is where it gets interesting, because the hosing market always directly affects people. Its sad to see people lose their homes, but the other hidden in plain view piece here is how all our financial institutes are tied to the housing market. Basically, lenders gave people with no business owning a home a bad loan and the financial institutes backed it. Now they're in bad shape and going outta business. BoA and Bear Stearns not in your investment portfolio? Still affects you due to our banks controlling the financing of every major market in our economy. So (in my humble opinion) thats one of the major factors that cause the entire economy to be on the brink of a recession and also leads me to my next point.
**BTW Bear Stearns just went under**

4. In the 70s we got off the gold standard and convinced the rest of the world to only trade crude oil barrels in the dollar currency. Made sense at the time due to the stability of our currency, but now its one of the reasons gas prices will increase. Since the economy is slowing down, the Feds will cut rates, which will lead to inflation. ie weaker dollar. The weaker dollar leads to the price of crude oil going up to keep up with its true value compared to other currencies of the world. So, Americans pay not only more at the pump, but in heating homes, flight prices, food, etc. Which will lead to consumer losing confidence and the economy moving even slower.

Typically I'm not a doom and gloom person, but I don't see a way outta this until we serious get off dependency on crude oil. Your thoughts?

My point in this long and drawn out note.. We never really consider how things happening across the world affects us directly. This is my attempt to prove how we should all be a little more aware of not only ourselves, but world affairs. Its officially a small world.

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