When life gives you lemon, you make lemonade.

“When life gives you lemon, you make lemonade,” becomes a common saying in these troublesome times. The future is uncertain yet grim. Drivers suffers from the never ending gas price increase, consumer noticeably changed their spending habits, employees anxious about another layoffs, even the cheerful ones who used to light up our days becomes a nearly extinct species. As of I have sent over dozens of summer job/internship applications, but no cigar; nonetheless, it is not the end of the world.

Maybe youth has misled me to become short sighted or pride has overclouded my views towards my flaws, then again optimism and skepticism is the only two things left in my possessions. After all there is nothing to do or anything to lose. Hopefully, some will join this new journey and “make lemonade” during the process.

Now enough with this nonsense, let’s attempt to discuss something related to Economics.

As of last Friday oil has gone crazy, as if it hasn’t already, and shot up $10.75 to $138.54. Instead of bring our torches and pitchforks to Big Oil, we should set our emotions behind and think rationally. Currently, there are two separate explanations for the crazy oil price: weak dollar or Peak Oil.

The first explanation basically boils down to a weak economy, then Fed cut rates; weaken the dollar and oil speculators buy tons of oil to hedge against the dollar, hence the crazy high oil price. This explanation became a norm since Ron Paul presidency run. The second explanation explains the oil industry underestimated oil demand and overestimated oil supply, plus “peak oil” drives oil speculators to stock up on oil before it ran out.

If the first explanation is true, oil is overvalued in a sense that when the dollar/economy strengths, the bubble will pop and oil will be cheaper. Conversely, if the second explanation is true, oil is undervalued and it will increase at an increasing speed.

In the name of good Economics, I will read and research both explanation, and hopefully, finding the true answer in this summer.

(Extra) March Rate Cut

March has been troublesome month in an unstable time. Several negative economic indicators, the fall of Bear Stern, and 74% American believe the nation is now in recession. Many have expected at least a 75 basis points cut from the Federal Reserve to boost the economy. Nonetheless, the previous Uncle Sam $200billion package only stimulates the market for a day. So what can 75 basis points really do?

The internal dispute news from the Fed leads me to guess the possibility of the two contrary options in today’s meetings: 1) catching the knife with their bare hands, 2) letting go of the falling knife. For option one a huge rate cut is a must, but for option two the Fed may only cut 50 basis points or less. It will be interesting if the Fed take a bolder move and increase rate. Of course the former option is much more possible than the latter. Either way the Fed is trying to catch falling knives. However, a huge rate cut leaves less wiggle room for the Fed and creates more inflation which might lead US towards the same track of Japan in the early 90s.