False fixes for budget crunch

Denise Oppenhagen
Published: March 9, 2008

That the economy is having major problems right now is not in question. Several trends — rising home foreclosures, falling home prices, rising gas prices, and falling … — have spiraled together to create major disruptions in our lives. Stagflation, inflation, recession — it doesn’t matter what it is called; it is affecting each and every one of us.

Because the economy is in such dire straits (and because it is an election year), many ideas are being floated about to solve these financial problems.  Two of the more recent suggestions, however, make no sense to me. 

The first idea was presented by our president to members of the Organization of the Petroleum Exporting Countries (OPEC). In seeking to counter the increase in the cost of oil, the president asked the organization’s members to increase the production of oil. In theory, his request makes sense. In a pure economic system where a small supply leads to a large demand and thus an increase in prices, an increase in the oil supply would lead to a decrease in prices. However, the global economy is not theoretically pure. The cost of crude oil is affected by its demand on the stock market. Investors (who helped drive home prices up until they turned tail and ran) are driving oil prices up in their attempt to hedge their future financial security. 

And, personally, I have a problem with the United States looking to someone else to save our economy. As a world leader, we need to solve our own problems, especially when we cause them. If oil prices are higher than we can afford, then we need to cut our use of that oil, i.e. gasoline. Look around the next time you’re stopped at a red light. How many SUVs do you see?  Hummers and Hummer s? Gas guzzlers? How many times do you run out for one or two things and then later that day run out for something else? Instead of running errands after work, how many times do you go home and then a little later run out?

We have the power to change the amount of money we spend on gasoline. Buy a hybrid instead of a large car. There are hybrid SUVs and pick-up trucks along with regular cars, so there is a hybrid for everyone. Petition the government to make the HOV exemption for hybrids permanent. So what if people buy hybrids just to be able to use the HOV lanes? I say good for them. It cuts down on pollution as well as gasoline usage. 

Put all your errands together and go out once. Have the kids take the bus to school instead of making a special trip to drive them there. Carpool to work.  Walk where you can. Cut down on the number of delivery orders you make. There are things we can do — it should be up to us to accept the task of spending less on gasoline, not other nations.

The other recent economic suggestion is more outrageous. Chairman of the Federal Reserve Ben Bernanke is asking banks to reduce the amount of principal owed by struggling homeowners. Yes, he actually has proposed this. I looked it up on the Web sites of major newspapers to make sure I had heard correctly. 

I had. I have seen what to me is a new term, “moral hazard,” being used to describe this suggestion.  Some — not all, certainly, but some — of the homeowners that are in bad straits are there because they overextended themselves by buying more home than they could really afford.

Banks loaned them money and since they were at higher risk of default, charged higher interest.  Others purchased those loans at higher rates because of the increased risk involved.

More on this idea next week.  But let me leave you with a question: Should those of us who are adverse to risk be forced to pay for those who purposely entertained high risk?

Denise Oppenhagen is a longtime resident of Prince William County and can be reached at{encode="DenOp1@comcast.net" title=" "}.