People Are Driving Less

U.S. gasoline prices have gone up by about third this year. From both economic theory and recent history, you would expect that people would be using less gasoline, mainly by driving less often. From what I can see locally, that is the case. People are still driving to work, and they are stopping at retail destinations on the way home from work, but there aren’t so many trips out after they arrive home.

Data on U.S. imports also suggests a decline in gasoline consumption. The amount of oil imported in February, the latest data available, fell to its lowest level since 2009, though with higher prices for oil, the United States is spending more on oil imports.

Not Just a Matter of Size

There are no easy answers for the federal budget, so I don’t want my comments here to be taken as a criticism of it. It is far better, in my opinion, that we have the budget we ended up with this weekend than to not have a budget. Still, the budget compromise will have economic consequences that we may not be ready for. It is important to keep the size of the cuts in context: smaller, perhaps, than what will ultimately be needed, but nevertheless the largest decrease in the scale of any national government ever. And it is not just a matter of size. The budget cuts that were finally agreed on were not selected to spare the national economy. Some of the cuts that the House selected will reduce the size of the economy by more than three times the amount of money nominally saved. For these cuts, there is no budgetary gain to be found — the lost tax revenue is about the same size as the foregone spending. Initiatives that will ultimately be needed to get the economy growing again were cut right along with programs that are essential for the safety of workers in the U.S. economy. Productivity, obviously, will suffer as a result, resulting in some ugly GDP numbers and some inflationary pressure.

In terms of the operational footprint of the U.S. government, cuts on this scale have been attempted only once before, in 1981 when Reagan took office, and they threw the economy into a decade-long funk that culminated with the biggest banking crisis in the country’s history. The current cuts are happening when the economy is already staggering and the banking system already falling apart. These cuts, and the subsequent cuts that will be needed in the budget for the coming fiscal year, will reshape the United States in a bigger way than what happened in the 1980s, and this time, the changes will hit essentially all at once.

How the Near-Shutdown Means More Money for Billionaires

I was surprised to wake up this morning and read that the government shutdown had been called off. The story is that conservative leaders persuaded the House Republican leadership not to use the health care issue and the budget process as an excuse to shut the government down. It’s a victory for the House Republican leadership, which showed it still has enough push to get the extremist members of its caucus into line.

But this episode has put more strain on the United States’ credit rating. The government will now have to make many more cuts in the next budget in order to have the money to meet its interest payments. Now seen as less credit-worthy than before, the U.S. Treasury will have to pay more to borrow money. Of course, this also means that the bondholders will be collecting more money from taxpayers. Interest costs might just have gone up by a billion dollars a day because of this latest legislative dysfunction, so no one should imagine that the few billion dollars cut from the budget along the way will actually save the taxpayers any money.

Rather, the higher borrowing rates resulting from this episode are just another example of a transfer of wealth from taxpayers to billionaire-investors.

This Week in Bank Failures

A federal government shutdown is expected to be ordered tonight, and there is a chance that the shutdown could last for a week or longer. If it comes to that, bank failures do continue during a government shutdown. State banking regulators and the FDIC aren’t affected by the government shutdown. Federal banking regulators are still obliged to close a bank well before the bank is forced to close its doors on its own, regardless of a government shutdown.

Opinions of Portugal’s creditworthiness have declined so much that banks in that country say they are no longer able to lend the government money. Portugal is expected to seek a two-month loan from the European Commission this weekend.

BB&T is discontinuing its free checking accounts on June 3, but customers can still get the $12 monthly maintenance fee waived by maintaining a $2,000 average balance each month. Executives at giant banks have suggested that all the banks will be discontinuing free checking this summer.

There were two bank failures tonight, each with less than $200 million in deposits.

In Illinois, Western Springs National Bank and Trust was closed. Heartland Bank and Trust Company is taking over the deposits and purchasing the assets.

In Las Vegas, Nevada Commerce Bank was closed. California-based City National Bank paid a $1 million premium for the deposits and is also purchasing the assets.

There was also a credit union liquidation tonight. Mission San Francisco Federal Credit Union had 2,500 members. Membership accounts have been transferred to Self-Help Federal Credit Union.

Your Own Personal FDA

The U.S. government shutdown expected tomorrow includes the Food and Drug Administration. The FDA will not be checking to see that your food is safe except in an emergency situation — i.e., after large numbers of people have already gotten sick in a pattern that obviously points to a food source. This is an even more limited role than it appears on the surface, as many of the people who track down these patterns will also not be on the job. As for drugs, the FDA likely won’t have any enforcement muscle at all for as long as the shutdown lasts. The food and drug factories know this, and they know they can quietly do whatever they please for the duration of the government shutdown. This means it is up to you to ensure the safety of the food and drugs you and your family use for as long as the government shutdown lasts.

And actually, even when everything is working at the FDA, it can’t do as much as we might imagine to make food or drugs safe. We are relying on the good will of the factories to use the ingredients they say they are using and make the products they say they are making. There are rarely any outside tests or audits to hold them accountable, and even inspections are a hit-or-miss affair.

But now, assuming the government does shut down Friday as most observers expect, there are no inspections, no enforcement actions — in effect, no rules at all about food or drug products as long as large numbers of people don’t get violently ill. The safety of the food you eat and any drugs you take is your responsibility now. Think of yourself as the head of your own personal Food and Drug Administration.

It’s enough to make a person start asking questions, questions like, “Do I even know where my food comes from? How do I know it’s been handled properly? What do I need to do to minimize my risks?” These are good questions to ask in any case, but more important than usual now that the government is no longer looking out for you.