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New Mexican (Newspaper) - October 2, 2005, Santa Fe, New Mexico Sunday October 2 2005 THE NEW MEXICAN D3 Economy Consumer behavior remains key to recessionary concern Continued from Page Dl spending to build some cushion to pay their higher heating bills on top of paying more to fill up their gasoline he wrote to investors this week In other words I am not sure that the economy is resilient enough to withstand the onetwo punches from the tag Yardeni said it was increas ingly likely that the economy soon could face a six month bout of stagflation in which prices rise but wages and hiring stagnate the economic curse of the 1970s Much gloomier is Philip Ver leger a veteran energy analyst at the Institute for International Economics a nonpartisan research center He predicted todays energy crunch more than three years ago and now sees an economy saddled with dangerous parallels to President Lyndon B Johnsons in the mid 1960s LBJ launched his ambitious Great Society domesticspend ing program while fighting a cosdy war in Vietnam The economy couldnt underwrite it all leading to tax hikes price spikes and a 15year battle to control inflation Todays paral lel is costly wars in Iraq and Afghanistan the rebuilding of the Gulf Coast and soaring fed eral deficits This is the setup for 1966 Verleger said point ing to pledges by the president and lawmakers to spend what ever it costs to rebuild the Gulf Coast If Congress goes ahead and spends another billion and doesnt pay for it its just what LBJ There also are some reasons for optimism however Rebuilding after the hur ricanes will spur spending and growth America remains die global investment zone of choice as Europe and Japan remain sluggish Longrange interest rates so far have refused to follow the Feds effort to head off inflation by raising short term rates 11 straight times and those low long rates so far are sustaining investment Ben Bernanke the head of President Bushs Council of Economic Advisers argued in a speech last week that the The Associated Press President Lyndon Johnson is deep in thought at the White House early in 1968 Some see a par allel between the economy during the Vietnam War years and todays situation with rising federal deficits wars in Iraq and Afghanistan and the need to rebuild the Gulf Coast economy remains resilient It recovered vigorously from the severe shocks it experi enced between 2000 and 2003 and I believe that it will sustain growth in the face of the new challenges brought by the two hurricanes and high energy he said Tne Commerce Department reported Wednesday that orders of durable goods bigticket items built to last more than three years grew by per cent in August Wachovias Bryson puts the chance of outright recession defined as two successive quar ters of negative growth at only 25 to 30 percent but offered this caution I would agree that the risk of recession is greater today than it was a month ago 1 can certainly think of how we can get to Consumer behavior drives about twothirds of economic activity is the key On Tuesday consumer confi dence posted its biggest plunge in 15 years according to a sur vey by the Conference Board a New Yorkbased business research center And Friday it was reported consumer spending fell by 1 per cent in August Last week the government reported that housing starts fell in August and July starts were revised downward Stephen Roach the chief economist for Morgan Stanley warns that America is a shoestring kept afloat only by reckless borrowing by con sumers and the government alike He thinks a slowdown in home sales will expose how much economic growth has been fueled by risky borrowing against home equity One economist con tends that even if oil reaches a barrel the cost of regular should be a gallon But the industry claims prices are following the predictable laws of the marketplace The Associated Press Spirit Face your fears and your family history Gouging The practice is difficult to define Continued from Page Dl gouging with New Mexico poised to join them but experts say its hard to define the practice A law may target unconscionable dramatic or unjustified price hikes particularly after a natural disaster But distinguishing this from ordi nary laws of supply and demand isnt easy for prosecutors Gas stations for example needed to cover a spikein wholesale costs as Katrina hit And with rivals often right across the street setting arbitrarily high prices isnt a good business plan But the refining business has a differ ent profile The top 10 refiners of gasoline together control 83 percent of the market Critics say the combination of few suppliers tight refinery capacity and vary ing regional formulas for gasoline have made this an unusually profitable market place Although the industry was overbuilt 30 years ago they say profit margins have soared thanks to a wave of mergers that regulators approved with little scrutiny They are making out like bandits right now at a time when Im not sure that the economy can sustain these high says Tyson Slocum a researcher with the consumer group Public Citizen The five largest refineries bil Valero ConocoPhillips Shell and BP have recorded billion in profits since 2001 he testified recently at a con gressional hearing Not all that cash comes from the gas oline market but he says that profits from refineries are now at record highs In 1999 refiners reaped 23 cents for every gal lon they processed As of 2004 they made 41 cents per gallon he says citing Depart ment of Energy data Economist Don Nichols at the University of Wisconsin cites other data suggesting todays gasoline prices may be out of line Even if oil reaches a barrel again he reckons the cost of regular gasoline should be a gallon for the crude oil plus a typical markup of 85 cents for refin ing distribution and The industry responds that prices are following the predictable laws of the mar ketplace Supply was already tight before Katrina hit Three weeks later 4 percent of refining capacity and 9 percent of crudeoil production was still sidelined In a market economy you cant have demand higher than says Lawrence Goldstein an economist at the Petroleum Industry Research Association in New York When supplies run short the price has to continue to go up until the imbal ance is corrected That is exactly what has happened in recent weeks he says Prices initially rose above S3 a gallon But undamaged refineries worked overtime consumers conserved and other nations pledged to ship gaso line to the By the time hurricane Rita struck regular was selling for Rita means another perhaps milder shock through the system Gulf refineries had to shut down temporarily during the storm and at least one will remain offline for a few weeks due to damage Theres a windfall for oil companies Goldstein says But thats not Economists say a price spike sends a signal to boost energy supply and lower demand that helps the market adjust But for now in a nation that will spend more than billion at gas pumps this year todays prices fan populist fires For many lowincome families gas now burns through 10 percent of household income Recent polls show Americans blame major oil companies for high oil prices and they arent happy with President Bush on the issue either This is putting pressure on politicians to act States for their part are pursuing allega tions of price gouging The Federal Trade Commission is probing whether gas prices were illegally increased after Katrina and whether oil companies have kept refinery capacity low to boost prices Beyond that some economists say there is a time to keep an eye on gas station prac tices when prices drop Stations tiiey say often reduce their prices slower than the wholesale prices fall Energy experts say America may need to focus most on how to develop other sources of energy to replace increasingly expensive fossil fuels Weve got to be working on alterna says Tom Mast an author and energy expert in Austin Texas And weve got to be Continued from Page Dl didnt know what Jack was doing and vice versa Jack aimed a steady stream of criti cism at Margaret for spending too much money and Marga ret would collapse under the stress and retaliate by spending when she knew she shouldnt always giving the excuse that she was doing the best she could In the past I had tried to centralize their management and control Margarets spend ing by having Margaret keep track of their monthly expenses against their monthly income but her monitoring often broke down under the stresses of her chronic back pains the act ing out of her children Jacks incessant judgments and her concern for the ill health of her father In my last session with Jack and Margaret Jack had put his finger on his main problem He had confessed that he had an irrational fear around money I dont understand what Im afraid he said I know we wont actually run out of money even if we go bankrupt But I cant stop myself from panick I advised Jack that he had to accept his fear and his inability to take charge of his familys finances You just cant do it with the amount of fear you bring to I told him Then I added And you cant expect Margaret to manage effectively if you con stantly criticize the way she spends I had paused and had thought for a moment I think its time you gave up control of the household finances and let Margaret take complete I know youre Jack said Its making me a nervous At this point Margaret chimed in I cant take it anymore Jack expects me to support him when he gets in despair about our finances and at the same tune he rails against me for how I spend she said 1 I replied but you on the other hand have not been able to keep your financial head about I admit Margaret said I need to concentrate more on keeping track of our expenses but Ive had so many Her voice trailed off and I saw seen tears forming in her eyes Although I sympathized with her I felt that I couldnt let her off die hook Life is not easy and we all have lots of stresses that we have to I said You need to accept them and carry them as best you I paused and said I really tiiink there is no other answer but for you to take charge of the finances If you dont I think Jack may have a nervous break Youre Margaret replied I think I can do it if Jack stays out of I smiled at Jack Jack you just focus on earning That will be much easier for Jack said And our session had ended on this positive note Readers Im sharing this case to show how devastating fears around money can be Receiv ing that phone call from Marga ret hearing her complain once again about Tacks judging her makes me wonder if Jack can let go of his money fears long enough for Margaret to get her and her familys financial act together Please dont take your finan cial fears lightly Look at your fears and at your family money history to see how their fears may have affected you Then look at your financial picture and identify how your fears are affecting your financial manage ment Use your new selfaware ness to help you control your fears and take steps to improve your financial position Fred Brown author of the book Money and Spirit is a moneymanagement consul living in Portland Ore He can be reached at 503 7717650 or through his Web site oneyan Brown will be in Santa Fe through Thursday His cellphone is 503 3109665 Watch National parks Consistent strategies still pay off remain a great bargain Continued from Page Dl National Park and many other public lands waive the entrance fee once a year I know this because I found out by accident recently when I visited Mesa Verde Sept 24 was National Public Lands Day and employ ees said Mesa Verde waives the entrance fee every year on that day Karen Breslin NPS spokes woman for the Southwest region said not every national park waives the fee on National Public Lands Day its up to officials at each park In New Mexico every park I called including Aztec National Monu ment Bandelier Carlsbad Cav erns Chaco Culture National Historical Park and White Sands waived the fee this year National Public Lands Day started seven years ago and its main purpose is to get vol unteers out to clean up public lands Organizers also encour age people to visit public lands on that day You can learn more at National parks however are a bargain at any time of the year The entrance fees at Bandelier Carlsbad Caverns and White Sands are all less than per person until next year and all three give people a chance to learn something amazing exer cise and have fun at thesame time I cant think of anything comparable for the same price Contact Wendy Brown at 9863072 or [email protected] Continued from Page Dl This marks the second year of gains in average account balances for this group of workers who saw their average balance decline in and 2002 according to the study In 2004 alone this group of plan partici pants saw account balances increase 15 per cent on average partly from stockmarket gains and partly from contributions accord ing to the study Our analysis shows that consistent and longterm investing strategies continue to pay said Sarah Holden coauthor of the report and senior economist with the Investment Company Institute in a con ference call EBRI is a nonprofit research group and ICI is a trade association of mutual fund companies The study is based on the database with information on million plan participants or about 40 percent of the some 43 million workers who took part in plans last year The study focused in part on 4 million plan participants who were in their plan over five years Oneyear snapshots can be misleading because older workers pull out high balances and younger workers enter plans with low balances the study said While overall these workers enjoyed a 35 percent gain that average masked signifi cant differences across age groups Plan participants in their 60s who main tained their accounts over those five years saw a 5 percent drop in balances on aver age to last year from in 1999 For those older savers their larger aver age account balances faced a sharper hit from the stock markets fall in 2000 and consistent contributions and stock market gains since then werent enough to entirely make up that punch Also older plan participants are likelier than younger ones to make withdrawals Withdrawals will of course pull account balances she said Meanwhile workers in their 20s who had participated for five years saw their plan value rise 206 percent on average reflect ing the strong effect contributions have on small account balances Those in had an average account balance of in 2004 up from in 1999 Workers in their 30s who participated for the full five years had an average bal ance of last year up from in 1999 while those in their 40s had an aver age balance of last year up from in 1999 and those in their 50s had an average of in rneir plan up from five years ago On average workers in their 20s invest about 52 percent of their plan assets in equity funds compared with 37 percent of plan assets invested in equity funds among those in their 60s Younger workers have a bigger taste for balanced funds than their older counter parts with plan participants in their 20s investing 13 percent of assets in balanced funds vs about 10 percent of plan assets invested in balanced funds among those in their 60s and about 10 percent of plan assets on average among those in their 40s Bal anced funds combine equities and bonds generally a mix of about 60 percent stocks and 40 percent fixedincome ;