This approach is one which many pure economists may agree with, but it is hard for the common man among us to understand. The common knowledge, and indeed the theory the Fed has been operated under recently, says that some institutions are simply “…too big to fail.” One prime example is Bear Stearns and Co. which the Fed rescued in March. The company has since been bought out by JPMorgan Chase and Co..

Hoenig’s concern seems to be that as more and more mergers take place, that there are more institutions which are under the “too big to fail” category. The Fed can not save them all.

According to Hoenig, the perfect economic equilibrium of financial and price stability to come naturally, and he is prepared to watch major institutions fall, with all the repercussions that may follow.

The Fed has yet to make any official response to Hoenig’s speech.

Damage forecasts for hurricane Gustav could make the latest storm one of the top ten costliest in US history. Eqecat, Inc., an industry leader in risk modeling, estimates insurance payouts of up to $10 billion. That’s less than a quarter of Katrina’s cost and less than half of 1992′s hurricane Andrew, but that might be small consolation to the insurance firms and to the people suffering the destruction of their property.

Eqecat’s estimate closely matches the Federal government’s own projections, of approximately $8 billion worth of damage.

What has forecasters particularly worried is the fact that this is still just the beginning of the hurricane season. It’s anybody’s guess how much more devastation can occur by the end of autumn, when the seas are finally expected to quiet down.

An area of particular economic concern is the Gulf of Mexico. The offshore rigs and refineries located on the coast of the gulf account for 25% of US domestic production, or 1.3 million barrels a day. The industry suffered considerable damage from Katrina in 2005, and as a result, millions have been spent upgrading the equipment to weather the storms better. Gustav is set to be the ultimate test of all the experts’ efforts. If the equipment doesn’t hold, there is potential for a high jump back up in the price of gas.

Production has already been affected, since all the offshore rigs in Gustav’s path have been evacuated, and will remain that way for a week or so. The same is true of the refineries on the coast. 40% of America’s oil refineries are located on the shores of the Gulf of Mexico, so this one week “vacation” will already make a dint in the nation’s oil supply. With all these critical facilities in this one area, and no new refineries having been built in over 30 years, the industry is particularly susceptible to hurricane damage. Capacity has not even been fully restored in the three years since Katrina plowed through the area, and it seems like Gustav will end up being just one more factor in oil prices’ seemingly inexorable climb. Experts are predicting a national spike perhaps reaching a record $4.40 per gallon of regular gasoline due to the latest storm. This comes immediately after consumers were able to take a few gasps of air as prices dropped over the past two weeks.

For now, we simply have to keep our fingers crossed that the solutions put in place after Katrina were the right ones and were implemented properly.

Headlines everywhere are focused on the inflation, or rising prices, which we are all experiencing right now. However, not everything is going up. Here is a list of what is rising, what is falling, and what it all means.

RISING:
Wholesale prices rose so much in July that they broke the record for “fastest pace of inflation” for the past 27 years. The rise of 1.2 percent (reported by the Labor Department on Tuesday (Aug 19) was due for the most part to the rising costs for motor vehicles, energy and core materials for manufacture and production. Although economists expected prices to rise, they had projected only a 0.5 percent increase.

If we exclude food and energy prices from the calculation, then we are left with “Core Prices.” Core prices rose 0.7 percent, which only beat the record since November 2006. Still, it was a significant surprise to economists who had forecast a minor 0.2 percent increase.

Consumer prices also rose significantly this July, the most in 17 years. The 0.8 percent increase was also due in large part to the record surge of crude oil prices.

FALLING:
Crude oil prices have actually begun to fall by more than $30/barrel since they reached their peak price in July of $147.27. The hope is that now that energy prices are falling again and the dollar is strengthening, prices should stabilize over the next few months.

The housing slump is not showing any real improvement in most parts of the country, meaning that housing prices are way down. In fact, MDA DataQuick reported on Aug 18th that July saw the most house sales in San Diego county in more than a year. The median price was down $6000 from June and 25.6 percent ($125,000) down from July 2007. This was the biggest year-to-year drop for the 20 years that DataQuick has been tracking the market.

Unfortunately for contractors, low real estate prices and the high costs of building materials have led to a plunge in housing construction. The Commerce Department reported new construction at the lowest pace since 1991.

WHAT IT MEANS:
When energy prices were going up, it took a little while for it to effect the consumer in places other than the gas station. The same is true on the way down. Manufacturers and wholesalers need to see that they are able to turn a profit even with high production costs – once they see those costs drop, it might take a month or so for those savings to reach the consumer. Experts project that by fall we should see a drop in, or at least a slowing of, inflation.

Let’s hope that economists are underestimating again and that inflation slows three times faster than they are projecting – we could all use lower prices sooner!