MORTGAGE MARKET "COLLAPSE" IS NOT REALLY THE PROBLEM

Much is being made about the prospects of a pending recession.  Politicians, media and some business people and economist are making every effort to build a case that charges the mortgage lenders, whose credit underwriting parameters are thought to have been too lax.

In some effort to make citizens feel good, and at the same time in hopes of heading off a recession, congress has plans of sending every taxpayer a check.  It also is putting in place a mechanism to reduce the number of projected foreclosures.

While these are both important and need addressing, the real culprit, the one that is doing more to hurt the economy than the genesis of any other issue, is the enormous increase in the price of oil and gasoline at the pump. 

The federal government taxes every gallon of gasoline 18.4 cents.  On top of that, there are state taxes on each gallon with Hawaii and California being among the highest.  A gallon of regular gasoline in Dallas, without taxes, at today's price would cost  $2.41 rather than $2.78.

The U.S. would have a far better opportunity to miss a deep and linger recession if the federal government would dramatically reduce the gasoline tax, states would follow their lead, and further, the prices of gasoline were federally regulated.

Everything would adjust positively:  the price of oranges, cost of air travel, price of other goods and services that are someway intertwined with the price of fuel.

Here's a chart provided by the American Petroleum Institute:

Gasoline Taxes Assessed in 2002 (Source: American Petroleum Institute)

Copyright 2008 - William S. Cherry