When folks have to figure out their finances, many turn to an insurance agent. This can make some sense. If a spouse passes away, there is often an insurance payout. Insurance companies help people managing risk; and the risk out not having enough money is a major concern. While one death isn’t predicable, the number of deaths in a population of a million is. So the law of large numbers makes insurance a natural place for people to look for financial advice. Only the [...]

For 31 years oil prices were pretty stable. Where are they headed now? From 1982 to 2003 oil prices remained largely within a narrow band between $20 and $30 / barrel. Then prices spiked, advancing five-fold between 2003 and 2008. This is roughly similar to the two supply-shocks experienced in the ‘70s. In the early ‘70s prices quadrupled from $3 to $12. Then, after the recession weakened them to $8, quadrupled again to $32 during the Iranian crisis. Is it different this time? Prices [...]

Sometimes Nobel prizes go to their heads. Take Linus Pauling. The man was one of the greatest scientists the world has ever known and won the Nobel Prize in Chemistry in 1954 for discovering the structure of protein molecules. Eight years later he won the Peace Prize for his advocacy on behalf of nuclear disarmament. He capped this distinguished career with … Vitamin C? Against all expectations, he is often remembered for promoting that daily mega-doses can cure head colds, the flu, cancer, and [...]

The timing couldn’t be better. For once governments are discussing taxing and spending plans just when folks are focused on the issue. As we collect our W-2s, 1099s, and receipts, our elected representatives are debating how to deal with the ever-present gaps in government finances. And taxes are important. They’re a wedge between producers and consumers. If high enough, they eliminate economic activity that would otherwise happen. It’s been suggested part of the reason Europe has grown more slowly than the US over the [...]

So are state finances falling off a cliff? Four months ago some analysts made headlines by predicting a financial cascade in municipal bond land. With the expiration of the stimulus package, the Federal government was due to stop making transfer payments to the states. To preserve their own budgets, the states in turn would slow or stop support payments to local municipalities. The resulting credit squeeze would produce 50-100 bankruptcies totaling hundreds of billions of dollars How’s that working out? Well part of it [...]

Are the big banks still too big to fail? You bet they are. The top four banks in the US have over $6 trillion in assets. Goldman and Morgan Stanley probably have that much exposure in swaps and other off-balance-sheet items. If one of them faced insolvency, the interconnectedness of our financial system demands that government step in and guarantee their financial operations, even if shareholders are wiped out. When Lehman failed, its global web of assets and liabilities led to a financial panic. [...]

The Fed often gets roasted for excluding food and energy in its policy discussions about inflation. Is this fair? Of all the Fed’s comments, one of the most irritating is their focus on “core” inflation, excluding food and energy. Don’t these folks eat or drive? It’s not accurate to say that food and energy make up a small portion of consumer budgets. The Cleveland Fed recently studied this. They found that median households spend 17% of their budget on food and energy, and the [...]

“If something cannot go on forever it will stop.” Economist Herbert Stein observed this some 40 years ago. At the time, many people were worked up over the US’s balance of payments. Extrapolating recent trends, they forecast that by the year 2000 the US would be importing half of the goods it consumed. Stein noted that this simply wasn’t tenable; a nation must produce the vast majority of what it consumes, especially services. Trends that can’t continue, won’t. This also could have been applied [...]

Some commentators are critical of President Obama’s Latin American trip. They think that with Japan facing a nuclear crisis and overwhelming reconstruction expenses, the timing of his trip is poor. On the contrary, I think it couldn’t be better. One of the more amusing questions raised by the earthquake and tsunami disaster in Japan has been that of financing: “Where will the Japanese get the money to finance perhaps $200 billion in reconstruction expenses?” Are they kidding? With a trade surplus of $85 billion [...]

Honor is usually a good thing. But the triple crises in Japan have shown us that there are two sides to everything. Japan is an honor-driven society. Your reputation for integrity and competence is extremely important. Self-respect is maintained, one anthropologist notes, by doing what is expected. Personal desires are secondary to social expectations. If someone is shamed, the only way to restore self-respect is to do what society expects. While such an approach provides a great degree of social order, it also leads [...]