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Your Money
Number One Issue - The Economy; High Oil Prices; Spitzer Sex Scandal; Credit Card Fee Control
Aired March 16, 2008 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN NEWS ANCHOR: Welcome to your money where we look at how the news of the week affects your wallet. I'm Ali Velshi.
CHRISTINE ROMANS, CNN NEWS ANCHOR: And I am Christine Romans. Coming up on today's program, a possible bright stot in the economy. Consumer prices at lease held steady last month, according to the government. Find out if it's a good sign or just a mirage.
VELSHI: Plus, how do we get here? The former controller general on how and why the economy turned sour and what it is going to take to fix it.
ROMANS: Oil is up, oil is up big. We will tell you how soon you can expect $4 a gallon gas and how to blunt the pain.
VELSHI: And at least two states have $4 a gallon gas. Well, we begin with issue No. 1, according to all of you out there, which is the economy. Today begins CNN's coverage of issue No. 1, dealing with your job, your debt, your house, your savings, your investments, all of the issues that the president and the three candidates vying to succeed him, are talking about a lot. President Bush delivered an upbeat speech to the Economic Club of New York on Friday and pointed to brighter times ahead.
(BEGIN VIDEO CLIP)
GEORGE W BUSH, PRESIDENT OF THE UNITED STATES: So, I'm coming to you as an optimistic fellow. I've seen -- I've seen what happens when America a -- deals with difficulty. I believe that we're a resilient economy and I believe that the ingenuity and resolve of the American people is what helps us deal with these issues and it's going to happen again.
(END VIDEO CLIP)
VELSHI: And that was after the government reported that consumer prices held steady last month. But, if you look at the numbers and talk to many Americans, that's not the way they see it. Oil reached new highs this week, $111 a barrel. The dollar dropped to its lowest point against the euro ever. And foreclosure fileings nationwide jumped 60 percent in February, according to one report.
ROMANS: Now, Americans are facing inflation rates that out pace what they or their investments can earn. The Federal Reserve has signaled it is ready to cut interest rates again in a matter of days. But, will that or anything help? Time will tell. Oh, don't forget, you are going to get a check in the mail by the second week of May. Some folks are saying that could actually stall or keep a recession very short.
VELSHI: Could just be a drop in the bucket. If you are worried about the state of the economy and how much worse it could get? You are not alone. The nation's top auditor has lost plenty of sleep about where we are headed; he's here with us now.
ROMANS: That's right. This week David Walker ended a 15 year term as comptroller general of the Government Accountability Office, otherwise known as the GAO, that's an independent non-partisan agency that investigates how the federal government spends our taxpayer dollars.
VELSHI: Now, next week, you step into a new role. He will be the president and the CEO of the Peter G. Peterson Foundation working on solving some of the economic challenges facing the U.S.
And as we just talked to you about, not all of them, because there are too many.
DAVID WALKER, PMR COMPTROLLER GENERAL, GAO: There are too many sustain ability challenges. We are going to focus on the budget deficit, the savings deficit, the balance of payments deficit, entitlement reform, healthcare reform and a few other issues. Believe me. We'll be very busy.
ROMANS: We have some big picture issues to go through, here: trade deficits, budget deficits. You talk about a leadership deficit in Washington across the board for people being able to look out more than two years or four years to figure out how to fix some big picture issues. And you have crossed the globe talking about the United States and comparing it with Rome before the fall. Give me that comparison, that analogy.
WALKER: Sure. Our biggest deficit is a leadership deficit, we have too many people thinking about today not enough people trying to help create a better tomorrow. And that's not just in the government, it's also in the private sector.
The analogy to Rome is as follows: The Roman Republic, which is the longest standing republic in the history of mankind, fell for many reasons, three of which seem to resonate today: Decline in moral values and political stability at home, overconfident and overextended around the world and fiscal irresponsibility by the central government. We need to learn from history and take steps to make sure we are the first republic to stand the test of time.
VELSHI: What is the biggest issue with respect to fiscal irresponsibility? What's the most irresponsible thing that you've seen in your time in office? What has to change?
WALKER: Well first, when a $53 trillion hole, $455,000 per household, and we are still digging.
ROMANS: Four-hundred and fifty-five per household? WALKER: Per household. And median household income in American is less than $50,000 a year. The most ir responsible single piece of legislation was the enactment of the Medicare prescription drug bill with an $8 trillion price tag when Medicare was already underfunded by $20 trillion. That was totally irresponsible.
VELSHI: Why does that happen, though, because we just -- because it's like a credit card with a credit limit increase, we don't really see the effect of it immediately? It's somebody else's problem down the road?
WALKER: Well, when I was very young, Popeye -- you know, there was I cartoon called "Popeye," and he had Wimpy, "I'll gladly pay you Tuesday for a hamburger today." I mean, the bottom line, what's going on is, it's easier to spend somebody else's money, especially when that somebody else is too young to vote or may not be born yet. That's what is going on. We are mortgaging the future of our country, our kids and our grandkids.
ROMANS: No matter how you slice it, then, we're talking about a future with lower standards of living and with some major, major financial burdens and possibly it hurts our international competitiveness then, right. If you are paying more in interest than you're getting in foreign direct investment or you have coming in, that's unsustainable?
WALKER: Absolutely. Right now, we are lucky, interests are pretty low. There's lots of parts of the world that actually save. America doesn't save. America is great at spending. What happened after 9/11, what did the government tell us to do? Go out and spend more money. So, we're having to rely upon foreign investors to finance our debt and that's a high risk strategy, because if they change their mind, interest rates will go up, that will have an effect on the economy, on other interest rates, on disposable income, on America's standard of living.
VELSHI: And in fact, they are telling us the same thing again, when these rebate checks come out. Well, congratulations on your term in office and good luck in the next job for you? And we will keep in touch with you.
WALKER: Appreciate it.
VELSHI: David Walker is coming in as the president and CEO of the Peter G. Peterson Foundation.
ROMANS: OK, up next on YOUR MONEY, it's not the old boss, supply and demand that's keeping oil prices high. We'll tell you who is behind those record gas prices.
(COMMERCIAL BREAK)
ROMANS: OK, oil hit new highs this week, really high and that means one thing for consumers; expect more pain at the pump. The nationwide average price of gasoline set another record Friday reaching $3.28 a gallon. VELSHI: If you didn't read the number, we could play this every week, oil hit new highs this week. Here is the thing, the sharp rise in the price of crude oil is not necessarily based on market fundamentals. Supplies for crude oil and gasoline are actually pretty high in the United States and demand has actually been slowing because the prices are getting high, people are worried about the economy.
Peter Beutel is the president of the energy risk management firm, Cameron Hanover. He's going to help us understand what in the world is going on.
Peter, we talk about this all the time on TV. I see you here and in other places talking about it and I read the stuff you put out. What's different? What's new? Why is this continuing? How long can it go on for? Tell me something?
PETER BEUTEL, CAMERON HANOVER: Well, it's not anything to do with the supply and demand of oil. It is not usually petro political stuff where it's something in Nigeria or Venezuela. This has all to do with the fed, the dollar and oil. Let me explain to you how this works, very quickly.
When the fed lowers interest rates, people pull money out of our banks to put them in banks overseas to pay higher interest rates. They need to sell dollars to do that, the dollar drops, commodities like oil are denominated in dollars and in order for us to get the oil we need, we have to bid the price up, because oil is less expensive in terms of Euros or yen when the dollar drops.
VELSHI: So, just backend that for us. In fact, I think we have a chart here that shows as the dollar has gone down in the last year, the price of oil has gone up. Explain that to me from the perspective of a country that sells oil, just for example, Saudi Arabia. They've been getting -- they get dollars for the oil, but those dollars just aren't worth as much to them as they use to be.
BEUTEL: Well, that's true, but it is more of a matter of the market. Because the dollar drops, the oil is less expensive to the European's in terms of Euros. So they can buy more. For us to get the oil we need, we then have to bid the price even higher, so that it costs the Europeans so much that they won't get the oil we will. It's a matter of competion between users, really.
ROMANS: OK, let's talk about the user that I am, me, and how much it is going to go up for me this summer. You say there is a 50/50 chance that the country could see $4 a gallon of gas. It is already, frankly, higher in some parts of the country, right now, you know, in pockets and stuff. So, do you think we are in for high gas prices for the foreseeable future?
BEUTEL: I think we are in for high gasoline prices probably through Memorial Day. We do have almost record high gasoline stocks. That should bring prices down. Demand is sliding, that should bring prices down.
ROMANS: Demand is sliding, because of a recession or potential recession or because people are starting to get the idea, that wait, I can't take three trips into town today, I can only go in once?
BEUTEL: We're not sure which one it is. It could be the recession and it could be the fact that people are conserving. But, in any event, we're seeing empirical evidence that demand is dropping. But there are two problems in front of us. One is the interest rate dollar higher commodity contagion that we have right now.
And the second one is the fact that refineries usually take down units in March, April, and May, in anticipation of coming back with a maximum gasoline slate and a lower heating oil slate. So, they go through this maintenance period. They are running less crude, turning it into less gasoline, heating oil and diesel, and what happens is there is less supply, so the price rises pretty much from March 15 to May 15. We're hoping that maybe we won't see it this year, but we've seen it in 22 out of the last 23 years.
VELSHI: So, we're hoping we are not going to see it, but no clear indication we won't.
BEUTEL: Right.
VELSHI: Peter, good to talk to you. Thank you very much for joining us. And thank you. We ask him the same questions very often, but he does give us good and fresh new information. Peter Beute is the president of Cameron Hanover.
ROMANS: And he points out that you and me and all Americans are paying hundreds of millions more every for energy than just a month ago.
VELSHI: For years, I remember Peter saying: wear a sweater, don't take so many trips into town, and carpool. This is a guy in the energy business and he's saying that.
Well, with the weakening economy, many Americans are using their credit cards to pay for basics, like groceries and gasoline. And as the credit card debt increases, Congress says it's time for a card holder bill of rights.
ROMANS: But some of the powerful credit card companies are opposing moves in Washington to reign in late fees, fines and exorbitant interest charges.
(BEGIN VIDEOTAPE)
(voice over): Tarek Salib's finances are a house of cards -- credit cards.
TAREK SALIB, CREDIT CARDHOLDER: I missed one of the payments on the cards. It jumped my rate from eight percent, basically, to 30 percent.
ROMANS: Outrageous fees, penalties for paying off high balances and skyrocketing interest rates. House lawmakers are considering a credit cardholder's bill of rights that would require at least 45 days notice of any interest rate increases and give cardholders the right to cancel their card and pay off their balance at the existing interest rate, and prohibit excessive fees.
ELIZABETH WARREN, HARVARD LAW SCHOOL: No family should be brought low by schemes designed to pray on the unwary.
ROMANS: Author, Elizabeth Warren, says nearly half of all credit cardholders missed a payment in 2006, the last year of available data. One day late on one card warrants a $28 late fee on average. In somecases, interest rates can spike above 30 percent. Credit card companies sudden rate increase, critics say, are as dangerous as the adjustable rate subprime mortgages called "exploding loans."
REP MAXINE WATERS (D), CALIFORNIA: I think we could label credit card agreements "landmine loan," because it is not at all clear to consumers of how and when their interest rates are going to increase.
ROMANS: But, industry representatives oppose any new regulation.
CARTER FRANKE, FP MORGAN CASE: We are concerned that this bill would reduce the availability of credit at the very time when Congress is doing all it can to increase credit availability and stimulate the economy.
ROMANS: And potentially hurt profits. Consumer credit expert, Catherine Porter, testified late fees are the third largest revenue stream for credit card companies.
(END VIDEOTAPE)
ROMANS: Of course, her testimony was -- it was interesting because, it was hard to get a clear direction about just how much these late fees and retroactive interest rate increases and all that, mean for the bottom line of the credit companies. There was some praise for the credit card companies at that hearing because some of them voluntarily have started to reign in some of these practices, and they're still making money.
VELSHI: Even that suggestion about the bill of rights, 45 days notice to then pay your, either get out of your contract. When people are carrying balances, it's just not -- I mean, we are in a pickle where you can't just pay that balance off and get ought of it. Where are you going to get that money from? This is a bad situation.
ROMANS: The credit card companies, they want to make sure that their ability to use risk management and decide, who is less risky person, who is less risky, that that isn't -- you know, infringed upon by any kind of new government regulation. But, it seemed like it is wa a ideological kind of battle here between no regulation, voluntarily we'll try to make sure that things are cleaned up, for a better word, and then with people who want -- they want regulation. They don't want this to happen again.
VELSHI: Well, that seems to be a battle going on.
ROMANS: In a lot of different areas in the economy, that's right. VELSHI: All right, we are going to take a break. When we come back, we will tell you how folks on Wall Street are reacting to Eliot Spitzer's prostitution scandal and his resignation.
(COMMERCIAL BREAK)
VELSHI: Welcome back. Let's take a look at some of the top stories of the week. Bear Stearns shares plummeted on Friday. That was after an announcement that J.P. Morgan Chase and the Federal Reserve bank of New York will provide short-term to the battered Wall Street firm. Now, the news comes just days after Bear Stearns denied that it had liquidity problems. The announcement did not specify how much funding Bear Stearns will receive, but it looks like a big deal.
ROMANS: Another week, another milestone for gold. Gold prices hit, get this, $1,000 an ounce for the first time ever. Gold is seen as a safe haven for investors spooked by the struggling U.S. economy.
VELSHI: And Southwest Airlines grounded 44 planes for inspection this week. The inspections caused the cancellation of four percent of the company's flights on Wednesday. The FAA is seeking a $10.2 million civil penalty against the airline allegedly operating 46 airplanes without conducting proper inspections. Southwest said more service interruptions could occur in the coming days. That's sad, but check the planes out.
ROMANS: Wall Street shocked by outgoing New York governor, Eliot Spitzer's fall from grace. A spectacular fall from grace. Spitzer vowed to wipe out corporation in the financial sector when he was New York attorney general.
VELSHI: Now, the man who was once called the "Sheriff of Wall Street" was notorious for personalizing his battle with the big banks and the insurance industry. Richard Roth looks at how Wall Street is viewing the Spitzer sex scandal.
(BEGIN VIDEOTAPE)
RICHARD ROTH, CNN NEWS CORRESPONDENT (voice over): Less than a month ago, Eliot Spitzer, riding in a Super Bowl victory parade, heard cheers on Wall Street for the first and last time.
WAYNE BARRET, SR EDITOR, VILLAGE VOICE: I mean, there are so many people on Wall Street who hated, hated Eliot Spitzer, all of whom had connections.
ROTH: Spitzer earned the title, the "Sheriff of Wall Street," as he pursued financial misconduct among big money powerhouses.
ELIOT SPITZER, OUTGOING NY GOVERNOR: The CEO was personally bought off by being given IPO allocations. It was wrong, it shouldn't have happened.
ROTH: But the street didn't like his style.
ALAN VALDES, VICE PRES, HILLIARD LYONS: There were a lot have irregularities going on down here at that time, in the '80s and the '90s, which was exactly right. But, the way we went about it, I mean, he would leak things to the media, he would really go, really too heavy handed.
ROTH: Spitzer's biggest scalp may have been Richard Grasso, forced out as the head of the New York Stock Exchange over his pay package. Andrew Sabin is a friend of his.
ANDREW SABIN, SABIN COMMODITIES: I got a call from a couple of big -- very, very big houses on Wall Street today, telling us about the celebrations inside their offices when they got the news.
ROTH: And who knows, perhaps the celebration helped fuel a massive one-day stock market rally. From the CEOs to the man on the street, the shock has not warn off.
UNIDENTIFIED MALE: I'm not that politically involved, but I think this guy is crazy. How can you do this? Like nobody's going to know? Come on. I mean, really.
ROTH (on camera): Eliot Spitzer built his career fighting corruption in investment firms and mutual funds that line the canyons of Manhattan. He and his investigators took down leading executives.
(voice over): In the end, Spitzer's own actions may have taken himself down.
Richard Roth, CNN, New York.
(END VIDEOTAPE)
VELSHI: You know, I got to say, we have to remember that I maintain the average investor is better off today because back in 2001 and 2003, when the SEC, the Securities and Exchange Commission, couldn't step up to the plate, the accounting firms were not doing their job and corporate America was, you know, if you weren't watching, had their hand in the cookie jar, Eliot Spitzer did step up back then.
ROMANS: But, I will say, the men and women on Wall Street who found themselves underneath his microscope all said that he was very high and mighty and self-righteous. They didn't disagree, I guess, with his investigations, but they said he was so self-righteous and now they just say it's just hypocrisy.
VELSHI: Yeah. And there were cheers on the floor of the Exchange. When...
ROMANS: That's right. He doesn't have a lot of friends, there. I'm going to tell you that right now.
All right, coming up, where the candidates stand on healthcare and how their plans could affect your wallet. But first, this week's "Right on Your Money."
(BEGIN VIDEOTAPE) ANNOUNCER: You have less than one month to file your 2007 tax return and making the right decision now can get you a bigger check later this year. Tax attorney Donna Cocovinis says first make sure to choose the right filing status.
DONNA COCOVINIS, TAX ATTORNEY: You could be head of a household if you support a parent or a relative, don't overlook that and especially for someone who may have lost a spouse, there's something called qualifying widower or widow status and it will give you the benefit to allow the joint filing brackets and deductions.
ANNOUNCER: Also, pay attention to some commonly overlooked deductions.
COCOVINIS: One of the thing is job-hunting expenses, resume preparation, the stamps, faxing fees, publications for find a job. You know, any kind of medical testing that you need to get the job, gambling loss is actually -- against your gabling winnings, unfortunately. So, you have to have won to get those losses. Legal fees to collect alimony, and unfortunately sometimes that's the way you have to get it.
ANNOUNCER: if you have had a major life change in the past year, consider working with an accountant.
COCOVINIS: If you have a big change in your tax position, you've been married, have a baby, or loose a dependant, get divorced, buy a house, sell a house, sell a business, something where you tax position is changing. And if you are uncomfortable doing your taxes, it's a great way of having a financial checkup, they can show you all of the deductions that you can take in the future, they'll get you the right form schedules and this way you can go forward knowing you get all the deductions that you deserve.
(END VIDEOTAPE)
(COMMERCIAL BREAK)
VELSHI: Nearly 50 million Americans uninsured and countless more are underinsured.
ROMANS: Reforming health care has become a top issue in the upcoming presidential election. Take a look at where the candidates stand, what they're proposing.
VELSHI: There's been a lot of talk about health care. Senator Barack Obama would create a national health insurance program for individuals who do not have employer-provided health care and who do not qualify for other existing federal programs. Now, his plan would not mandate individual coverage for all Americans. It does require coverage for all children.
ROMANS: Senator Hillary Clinton's plan, on the other hand, mandates individual health insurance coverage. Her plan offers federal subsidies for those who can't afford it and allows people to choose from among federal private plans also offered to members of Congress, as well as a new public insurance plan modeled after Medicare.
VELSHI: Now, while the Democratic plans are similar, the Republican opponent Senator John McCain takes an entirely different view. He opposes federally mandated universal coverage, instead he supports health care tax dividends for low-income Americans, as well as encouraging small businesses to band together to negotiate lower rates with health care providers.
ROMANS: OK, so for -- got that straight, got them all different (ph), right?
VELSHI: Sure.
ROMANS: For a closer look, let's bring in Shawn Tully, editor- at-large with "Fortune."
Shawn, now you say that the best plan, the most sort of, I guess free market plan, the most fiscally responsible plan would be the McCain plan, why?
SHAWN TULLY, EDITOR-AT-LARGE, FORTUNE MAGAZINE: Well, because you have to be bring some sort of market discipline into an area that's totally undisciplined, where we're really going to bankrupt the country because of the explosion in health care costs. There's no question when you look at the numbers for Medicare, which is 2.5 points of GDP underfunded. We've added the Medicare drug benefit on top of that. This is the biggest fiscal problem this nation faces, and also, employers ...
ROMANS: It is a time -- I mean, you say it's a time bomb.
TULLY: Well, it's a time bomb for the federal budget, but it's also a time bomb for employees because companies simply can't afford to keep on providing health care to their employees when the costs are going up at eight or 10 or 12 percent a year. So, they're dropping coverage in many, many cases. And both of these plans are trying to address these problems but from totally different points of view.
ROMANS: I mean, when you say both, you're talking about the Democrats and McCain ...
TULLY: Yes.
ROMANS: ...because you don't think there's a lot of light between the two different plans on the Democratic side?
TULLY: No, the only differences really -- major differences, the mandate that would require health care for all individuals under the Hillary Clinton plan and would not under the Obama plan. That's a very minor difference. Since about seven million of the people who are uninsured are illegal aliens to begin with, and that no mandate covers everybody or even close. We're seeing that now in Massachusetts.
VELSHI: Well, the issue is how you fund this. Now, the bottom line is this money doesn't come out of the ether. What is the best way to fund health care?
TULLY: Well, again, the two plans are totally different from that point of view. Like I said in my story for "Fortune," choose your revolution.
VELSHI: Right.
TULLY: And these are two different revolutions.
VELSHI: OK.
TULLY: What the McCain plan would do is tax health care benefits, which is an incredibly radical revolutionary idea. Since World War II, companies have been able to provide you, me and anyone who works for a big company with health care benefits that we don't, as employees, pay tax on.
VELSHI: Right.
TULLY: McCain's saying, we're going to dismantle that entire system. That's the problem. That's an indirect subsidy. We're going to get rid of it and we're going to give the money to individuals. So, many companies would drop their plans ...
VELSHI: Right.
TULLY: ...because they can't buy any more health care for you than you can buy for yourself.
ROMANS: Right.
VELSHI: Right.
TULLY: They would drop their plans. You would get more takehome pay ...
VELSHI: Right.
TULLY: ...right, which would then be taxed and he would make up for the taxes under his plan by giving a tax rebate of $2,500 to $5,000, depending whether it's an individual or a family. People would then take the extra pay, plus the tax rebate and buy their own insurance.
VELSHI: Right.
TULLY: This would lead to an acceleration of the direction the market is currently going in, which is health savings accounts and high deductible plans, restoring real insurance as opposed to an open- ended benefit ...
ROMANS: Right.
TULLY: ...that overloads the system and drives up prices.
VELSHI: But it still doesn't help people who don't have work. TULLY: No and in fact, this is a big gap in the McCain plan. The McCain plan has a serious weakness which is he doesn't deal with people with pre-existing conditions or people who can't afford health care. Now, the people who are poorer, it's not such a huge problem because he can make the tax rebate larger.
VELSHI: Right.
TULLY: Or create direct subsidies. People with pre-existing conditions would essentially be stripped naked under his plan. he has to come up with a way to protect them to make his plan credible.
But the advantage to his plan is that he does dismantle a very unhealthy system that has led to gold-plated plans ...
ROMANS: Right.
TULLY: ...that are not free.
VELSHI: Right.
TULLY: They're taking away people's raises and reducing their take-home pay and giving people much more health care than they really need.
VELSHI: Right.
TULLY: And these health care plans have nothing to do with keeping you in good health.
ROMANS: Right.
TULLY: You know, a lot of spinal manipulation and going to the dermatologist, and that is not essential to maintaining health. And his plan would allow the market to devise hundreds of different plans tailored to different people.
VELSHI: Right.
TULLY: The Clinton plan would not allow that.
ROMANS: How would we keep the cost down, though? My concern is that they will find a way to make more money no matter what. And my other concern is that my company, then not paying for my health care is still not really going to give me all that money back, you know?
TULLY: Well, this is -- again, there is a lot of leap of faith in all this, right? Companies, to keep their employees, if markets are efficient, are going to have to give you the money. That's just the way markets work.
ROMANS: Assumption number one, markets are efficient and in the labor market right now.
TULLY: That's -- yes, yes. I don't think companies are going to have ... ROMANS: Right.
TULLY: ...companies have a lot of gall, but I don't think they have the gall not to give you the money. They don't care what they spend it on. They just as soon give it to you and get our (ph) of a health care market ...
ROMANS: Sure.
TULLY: And they would love that.
ROMANS: They don't want to (INAUDIBLE).
TULLY: But the problem with prices going up is they're going up now at incredibly fast rates. And the more overloaded, the more free care you have, the more the demand is inflated, the more overloaded the system becomes and the faster the prices go up.
What the McCain plan would do is he would say, look, if you don't spend the money, you get to keep it. And that is the only type of market that works. Free, open-ended care requires eventually rationing and it does not improve access as we've seen in Canada and other countries that essentially have free care.
VELSHI: Shawn Tully is one of five Americans who understands health care systems and what the candidates are saying about it.
ROMANS: He really -- but he really does understand it.
VELSHI: He really does.
ROMANS: All right, thanks, Shawn Tully "Fortune" magazine.
TULLY: Thank you.
VELSHI: All right, coming up next on "YOUR MONEY," oil's up, the dollar's down. What does it all mean to your bottom line? Stay with us. We are going to tell you. You are watching "YOUR MONEY."
(COMMERCIAL BREAK)
ROMANS: Of all the economic problems out there right now, inflation is one that every American faces. Inflation can be fought most times.
VELSHI: But unfortunately, right now, with the U.S. economy on a brink of recession possibly, it's not one of those times. And the shrinking dollar is a big part of the problem.
(BEGIN VIDEOTAPE)
VELSHI (voice-over): Crude oil is traded in U.S. dollars, even though the U.S. only produces seven percent of the world's oil. Other nations that produce oil get paid for it in dollars, which are worth less and less with each passing week, which means non-U.S. producers make less money per barrel as the dollar drops. Unless of course, they're able to charge more per barrel. Some say, and this chart shows, that when the dollar drops, oil gets more expensive.
Now, individual countries don't really set the price of oil, the market does. But OPEC's 14 members produce 42 percent of the world's oil. So, they can influence the price by controlling how much they produce. And oil works its way into everything we buy, into the diesel that trucks use to transport goods, into the heating for factories and into the packaging for products we buy.
Inflation is a real problem. The Federal Reserve typically fights inflation by raising interest rates, making it more expensive for businesses and consumers to borrow money. That curbs demand and brings prices down. In fact, raising interest rates is so effective that it not only tackles inflation, it slows the whole economy down, which is exactly why the Fed can't raise interest rates right now.
The U.S. economy is already slowing down fast. It needs a kick start, the kind that comes from cutting interest rates, which is what the Fed's been doing since September and what it's likely to do at its next meeting on Tuesday. And that's likely to push the dollar down further. And if you buy this argument, it could make oil even more expensive.
(END VIDEOTAPE)
ROMANS: But Ali, you always say there's a silver lining in a weak dollar.
VELSHI: Yes, well, you know, because I grew up in Canada. So, there was a weak dollar for a very long time. One of the few areas -- you know, we saw that jobs report for February. One of the few areas where jobs were being created was the tourism and hospitality sector.
ROMANS: That's right.
VELSHI: Because people are finding it cheaper to come to the United States. And some manufacturing is actually -- are you sitting down? I hope you're sitting down.
ROMANS: And asleep (ph).
VELSHI: Manufacturing jobs are actually moving to the United States. BMW announced last week that it is shifting some production from Germany to the United States.
ROMANS: Right, exports have been good as the dollar has been weak.
VELSHI: Yes.
ROMANS: But, for most people, a lower dollar means inflation. Right now, that's a problem with no easy solution.
Greg Hunter joins us now from Washington with a closer look at the relationship between oil and the dollar. Hi there, Greg.
GREG HUNTER, CNN CORRESPONDENT: Hey, how you guys doing? ROMANS: Great.
HUNTER: Let's go back for a little history lesson because it's not the United States God-given right to trade oil in dollars. Let's go back to 1971. You've all heard about Richard Nixon closing the gold window. And before 1971, international debts were settled in gold. So, you would have the SS -- USSR (ph), the SS Da Gall (ph) come over from France if the United States owed France money and bring a ship, pick up the gold and take it on home with them, right?
Well, Nixon closed the gold window. No longer you could take dollars and trade them in for gold. And we became a fiate (ph) currency, a currency by decree, not backed by anything. But in that same year, they did something Lex Luthor brilliant. They talked to the Saudis and they talked to OPEC and they got the entire world to trade oil only in dollars. Before then, you could trade oil in yen or in leara (ph) or anything you wanted.
But we got the whole world, and still today, trading oil only in dollars. And you know, that's great for the U.S., because we're the world's reserve currency. Everybody needs dollars.
VELSHI: The idea is that the dollar was stable. It would -- it was always going to be strong.
HUNTER: That's right. And hey, listen, when the dollar was high and interest rates were high, hey, guess what happened to oil, boom. When Volcar (ph) cut -- raised rates really high, guess what happened to oil, went down to $9 a barrel.
OK, so let's take a look now what happened just in the last six years since 2002. If you take a look at the dollar index, it was the dollar measured against a bunch of other currencies, it ended up being about just last week another historic low ...
VELSHI: Wow.
HUNTER: ...100 and -- 71.95 in -- that was March of 2008, but in March of 2002, it was almost 118 measured against a bunch of currency. So, look at how the dollar has gone down, really high to historic lows.
Now, move down that screen and take a look at the price of oil. Can you imagine this? Just six years ago, oil was $20.28 a barrel. What does that equal, about $1.40 a gallon for gas? Now, it is $110.33, another historic high for oil. Historic low for the dollar, historic high last week for oil and that is bad.
And listen, if it's causing inflation here in the United States and pie (ph) oil does somewhat cause inflation here, there's no question about that. What do you think it's doing to the folks in Bahrain, Saudi Arabia. Hey listen, inflation is the thing that can cause entire governments to crumble. And so, they are very worried about the inflation picture.
Therefore, here's a question to pose to you guys. VELSHI: Wait, I'm going to ask it, I'm going to ask it. Is there a chance that oil will be traded in some currency other than the U.S. dollar, Greg?
HUNTER: A lot of people have been talking about that, including Alan Greenspan has talked about the euro becoming the world's reserved currency. So, instead of everybody needing dollar to buy oil, they'd need euros. And what that means to you at home, if they ever stop trading oil in dollars, and a lot of people say it's not an if, it's a when, because they want to quell this inflation, oil will go sky high. And that could be part of the trade that you're seeing now.
VELSHI: Greg Hunter, thank you very much. Very good explanation on that whole thing. Greg Hunter, by the way, we'll continue to talk. We just turn the volume up or down at any given time. And if you are ...
ROMANS: He'll be talking until next week.
VELSHI: But let me tell you, Greg and I sat and did a radio show, which you can go to CNN.com/podcast and download it because we sat for an hour and Greg reads this stuff like nobody I have ever met. There is a small part of my brain that thinks Greg is a little off. But the rest of it thinks he's a genius.
So Greg, thank you very much. Tune in, CNN.com/podcast. the thing is called "What's the Real Deal." You should tune into it and listen to Greg's ideas. He's a very smart guy. Greg, thank you my friend.
ROMANS: Thanks, Greg.
VELSHI: OK.
ROMANS: All right, coming up next on YOUR MONEY, rising commodity prices meet soaring fuel costs. Why it's a wash for some farmers, next.
(COMMERCIAL BREAK)
VELSHI: All right, commodity prices are way up.
ROMANS: Yes.
VELSHI: We were just talking about the old days when Christine and I both used to talk about commodity trading.
ROMANS: Com (ph) futures and wheat prices and corn and soybeans are all up.
VELSHI: All of it, yes, it's a lot up. It's not exactly great news for farmers.
ROMANS: No, record oil prices are offsetting the boom in commodities and taking a toll on farming families.
CNNmoney.com's Poppy Harlow reports.
(BEGIN VIDEOTAPE)
POPPY HARLOW, CNN CORRESPONDENT (voice-over): Scott Hoese has been farming this land in central Minnesota for 33 years. His son, Eric, recently joined the family business and together, they manage a farm of 600 acres of corn and soybeans, along with 118 dairy cows.
But with the record high price of oil, the cost of farm necessities like diesel, propane, fertilizer and potash has increased at a staggering rate.
SCOTT HOESE, HOESE DAIRY: Because of the fuel prices and everything (ph), two years ago, we were paying probably $2.50 on. For this year, it's going to be as close to $4 for our diesel fuel that we use. And we probably go through, I'm sure about 6,000, 7,000 gallons a year for our diesel fuel. So, that impacts us and it impacts the bottom line of our operation here.
HARLOW (on camera): This farm has been in the Hoese family since the late 1800s. And yes, it's getting a lot more expensive to operate. Especially lately, but keep in mind, the milk and corn and soybeans that are produced here are also trading at record highs.
(voice-over): The price of wheat, corn, soybean and milk futures have surged over the past year. But these farmers say not as much as the cost to run the farm.
UNIDENTIFIED MALE: A farmer, even with high prices now, the input prices, in other words, what it costs to make that crop crow, have eaten up any kind of profit they might have, just as sure as prices are high, they are going to drop. And typically, inputs never go down to a farmer.
HARLOW: Along with higher operating costs, farmers and their families are dealing with increasing day to day's personal expenses.
HOESE: My wife does drive to work herself and my son's wife does drive to work. It impacts our family living because of the higher cost of just driving to work. You know, they're driving 10 miles to work, which isn't far, but it is costing more and more. And our health benefits keep on rising.
HARLOW: For the Hoese family, the additional money they're making from their milk and other goods, is being esentially eroded by sky-high operational costs.
(on camera): Are you nervous what this is going to mean for you in the future?
HOESE: I'm a little nervous, but I think it's going to work itself out. I think with out ethanol coming in and our oil prices, I think there's going to be a balance out there someplace that will work for all of us. I think until we get that, everybody's going to be nervous. HARLOW (voice-over): And when this snow melts and planting season begins, so too will a new challenge. Can the Hoeses make more money from their farm than it costs them to run it? More than a century of their family's farm legacy depends on it.
Poppy Harlow, CNN, Mayer, Minnesota.
(END VIDEOTAPE)
ROMANS: Gosh, you're always in an ice age when you're -- you know, I come from a family of farmers.
VELSHI: Yes.
ROMANS: You know, you're always in an ice age when you're running a farm. And you can imagine, $24 wheat, wow, and then you look at oil and input costs and fertilizer and insurance.
VELSHI: I mean, let's fill (ph) those out again. The feed ...
ROMANS: Right.
VELSHI: ...which has gone up because it's got stuff in it that's grown. The fuel, the diesel to run the farm equipment. The fuel that goes into your own vehicles and your own heating and things like that, and then the equipment. When you get into tough times ...
ROMANS: True.
VELSHI: ...and then that equipment, we forget, these things, some farmers have a certain amount of equipment. If it breaks or they need to get another one financed in tough economic times, and all of that somehow does get up to your kitchen table. It does end up costing you money.
ROMANS: Oh, absolutely. It absolutely does.
VELSHI: All right, coming up next, do you ever get frustrated at work?
ROMANS: No, I never get frustrated.
VELSHI: Not when I'm with you. We've some expert advice, however, on how to destress at the office. Trust me, you don't want to miss this. Stay with us. You're watching YOUR MONEY.
(COMMERCIAL BREAK)
VELSHI: Workplace stress -- it's getting me now -- it's one of the most common reasons why employees consider leaving their jobs.
ROMANS: Yes.
VELSHI: Now, two recent studies found ...
ROMANS: It's nothing to laugh at, I'm sorry. It's very serious. VELSHI: No, it's a big problem. I mean, few employers are actually taking steps to -- this is a study -- that says few employers are taking steps to actually address stress in the workplace. The kind of people just sort of say, that's what it is and they don't do anything about it.
ROMANS: Right, and that means it's up to you, like -- which causes stress, no -- what could you, workers, what could workers do to make their life less stressful?
VELSHI: What we do is we bring Ines Ferre.
ROMANS: Right, to tell us how to become de-stressed.
INES FERRE, CNN CORRESPONDENT: Yes, exactly, de-stress, folks. Hello.
Well, you might not be able to change your company, but you can certainly take steps to make your work area less stressful. I spoke to one executive coach who says it all starts with taking one task at a time.
(BEGIN VIDEO CLIP)
JANE CRANSTON, EXECUTIVE COACH: One of the things people could do is stop multi-tasking because that's actually very stressful for most people because your brain can't handle all of those things at once. And there's evidence now that it takes you 50 percent longer. So, it's not working and it doesn't feel good. So, to sit down and work one thing at a time is actually de-stressing, not really more stressful.
(END VIDEO CLIP)
FERRE: Prioritizing is very big on the list of making your work less stressful.
VELSHI: I saw ahead to one of the things. Turning the BlackBerry off.
FERRE: Yes, turning it off also during lunchtime, except if you're in the news, of course. But ...
ROMANS: Unfortunately, there are exceptions to all of these wonderful de-stressing rules for all of us..
FERRE: Yes, when you're in the news, there's an exception. But ...
VELSHI: And eating your lunch not at your desk.
FERRE: Exactly, because so many of us eat ...
ROMANS: Do you eat at your desk?
FERRE: A lot of times, unfortunately. ROMANS: I do, too. Do you eat at your desk?
VELSHI: No, well, I'm sitting in the cafeteria gulp there and I'm stressing about not getting my work done.
FERRE: Yes, I know, but if you can leave your work area, if you can also see some daylight, that's really good for you, you know.
ROMANS: Daylight?
FERRE: Daylight, you know, a lot of us work in cubicles ...
VELSHI: Right.
FERRE: ...with no windows. So, try and see out the window, or go outside a little bit. Also, your lighting in your work area is really important and ...
ROMANS: Right, I got one of those little bankers lights.
VELSHI: You know, I should get one of those.
ROMANS: Because you can turn off the harsh overheadlights for 25 minutes in the afternoon or something and turn on the little banker light and do a little bit of work ...
VELSHI: That definitely makes a difference.
ROMANS: That helps, that helps.
VELSHI: I've seen people doing that.
FERRE: Right, and some people also listen to music with their iPods. And then also having plants or flowers, something really fresh around.
VELSHI: That would stress me out.
FERRE: My office mate Kitty Pilgrim gets fresh flowers every week.
VELSHI: See, that would stress me out.
ROMANS: Well, it's great.
FERRE: I'm going to stress you out actually, because you know, I actually thought you guys don't have anything that's green on your desk.
VELSHI: No.
ROMANS: No.
FERRE: So, here's a little money tree for each of you.
ROMANS: Oh, a money tree! VELSHI: Oh, really? All right, that works.
FERRE: It's called the money tree.
VELSHI: That is excellent, thank you. And it works so good.
FERRE: Yes, and you guys only have to water it twice a month.
VELSHI: I'll take care of that.
FERRE: Just take a sip of your water and just put a little bit in twice a month. Not a lot of light.
VELSHI: I see, now that's a no stress plant. A money tree, and they say money doesn't grow on trees.
ROMANS: Yes.
FERRE: It does. You know, and some companies do have programs where they do -- like they bring in a back rub chair once a month. And there are other things that companies do to try to help out their employees.
So, we should say there are some places that do a pretty good job of that, but.
VELSHI: Look, the money tree.
ROMANS: Wait, that was my tree. This is your tree.
FERRE: Yes, exactly. There you go.
ROMANS: That's the way I want to do that, OK.
VELSHI: Ines, thank you so much for the gift. We'll be taking good care of the money tree.
And all next week, we will be all over things to do with money that doesn't grow on trees.
ROMANS: That's right.
VELSHI: The mortgage meltdown, the credit crunch, the issues that matter to your bottom line. We'll be live every day, 12:00 Eastern with important information on your house, your debt, your job, your savings, and so much more, including answers to your e-mails. So, send them in. 12:00 Eastern all next week. I hope you'll join us.
ROMANS: I know, I want to hear about your credit cards, too, everybody. You got to start paying attention to those.
All right, thanks for joining us on this edition of YOUR MONEY. We'll be back here next week.
VELSHI: Saturday at 1:00 and Sunday at 3:00. Have a great week, and we'll see you then.
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