Oil, housing credit crunch, and health care same story...

There is a little dark secret that is sitting in the background behind the rise of the price of oil, the falling dollar and its inflationary consequences. For example, when the dollar falls against other currencies it literally costs 'more' dollars to purchase goods from other countries. Therefore, if you are looking to buy a BMW it will literally cost more dollars to purchase if the dollar falls against the euro and it will cost 'less' dollars if the dollar rises against the euro. The first step in our discussion revolves around the dollar falling against other currencies creating a situation where foreign goods, including foreign oil, requires 'more' dollars to purchase. Why is the dollar falling? A very big reason for this is the housing/ credit crunch that we are currently going through and the attempt by the Fed to curtail a 'financial meltdown' by lower rates and increasing the amount of dollars in the system; more dollars equals inflation.

A huge part of the credit crisis in this country is because the incentives of those issuing loans and those that were buying the loans, packaging the loans, and then selling them off to investors were not in line. The individuals that were issuing the loans had very little incentive, if any, to actually ensure that the borrowers were actually credit worthy but rather they had the incentive to ‘churn and burn’ as many loans as possible. The buyers of these loans were eager to get as many loans as possible because a large pooled loan market existed; however, once the markets stopped buy these ‘sub-prime’ loans, and the originator of the loans started closing shop a situation was created where a lot of credit was issued on assets that were not retaining their value on the open market aka a credit crisis. Instead of letting the markets run and those ‘that got caught with their hands in the cookie jar’ pay a price the fed has stepped in andlowered rates in order to 'soften the blow' of the housing market imploding. This involvement by the Fed does have consequences, which is being highlighted by the rise of oil. Granted the rise of oil is not to be completely blamed on a weak dollar because other factors, like growing demand, supply not being able to keep up, and the fact that a new refinery has not been built in this country for 20 years all have played vital roles in our current situation.

The market has no emotion and action that is taken to off-set a market correction will be amplified in a different sector. People need to take responsibility for their choices because the alternative will be a solution that will prove to be managed by a select few (in our example the fed) creating a situation where a supposed solution will only hamper growth and productivity (the effects of a central planning authority). Health care is another example of what people have come to believe should be a free indemnity but many fail to realize that if the incentives are not aligned for all involved parties coverage may exist for all at the expense of quality of care/ access to care. The market could not support individuals that made $80k a year in a million dollar house and the market will not be able to support universal free health care for all. The housing crunch and how everyone has reacted to it may only be the preamble to a larger crisis that has the potential of bankrupting this country and creating such a bureaucracy that basic freedoms will be lost in order to the support this system of socialized medicine.