Fires in California = Insurance Cost Increases

This article here talks about how they are predicting that the Southern California fires going on right now are 'on track to become one of the most expensive fire events in U.S. history.' Insured damages are estimated to be at least $500 million. The report goes on to catalog all of the fires that California has had in the past, including 8 of the most expensive fires in the country.

My favorite part of the article states 'this is California. We are not strangers to these kinds of tragedies.' That means that Californians are used to environmental conditions that are dangerous, not only to their physical self but to their pocketbooks.

Insurance companies in California will continue to raise the price of policies issued in that state, especially the areas that have been locally effected since it seems to keep happening in the same place (not if but when).

But there is no way that individual policy holders in these affected areas can compensate the insurance companies monetarily for the insurance claims that are pouring in. Luckily, my insurance company is not listed as having policies with claims in that area. If they did, I would expect an increase in rates for my personal policy to offset the difference, even though I live nowhere near the affected area, nor do I plan to.

My point is this. Why does the collective have to pay for the poor mistakes of the few? If you decide to move to California, and it is a matter of when you will have an insurable claim, why not charge these people out the nose for living in such a hazardous environment? Is it because a private insurance program instituted locally would go bankrupt after the first major incident? This would discourage insurance companies from offering policies in that area and homeowners would go uninsured. Is it important enough to our society that we have people live in known hazard zones that we are all willing to fit part of the bill? Is that economically efficient?

I see that the government has stepped in and declared disaster zones, offered manpower and other aid for this event, which I believe they should. That is what we have a governmental body for, to deal with issues that the private sector cannot, or would not if left alone. In this manner, however, we are again all pitching in toward the cause with our taxes going to provide relief.

Burgers Beware

This article here states that Cargill is recalling 850,000 pounds of hamburger that may have E. coli contamination. The news of this bacteria possibly being in the market may disrupt hamburger and other meat sales in the short-run. One company, Topps Meat, has completely shut down due to the costs associated with taking back 22 million pounds of ground beef.

The market scare will reduce the demand (shifting it back) and the suppliers will suffer. Strangely enough, the price may actually increase since the supply of uncontaminated meat will be more scarce and hamburger is an inferior good. A main factor that may deter the possible price increase will be the availability of substitutes, but their price may increase because of the sudden increase in demand.

The consumer buying binge is over

This article shares the author's view that consumers are out of money, and that creditors are less likely to give them more. He is predicting that consumers will now buy less and that the economy will suffer for it. Although he is not predicting a recession, he states that 'one wouldn't surprise me.'

Are American consumers really out of money? Will the gluttonous spending habits of the recent past subside and 'practical budgeting' among consumers take over?

Personally, I feel that American consumers will justify a short extension to their gluttony through the holidays in order to maintain the perception that they are not in financial trouble. I am reminded of the television commercial where the guy is smiling much bigger than a person normally would, and states under his breath, 'look at my huge house and nice car...I am in debt up to my eyeballs...someone please help me.'

Our ambition to have more than the next guy will push us farther into consumer debt through the holidays. This will make 1st quarter 2008 an even greater dilemma as all of the credit card bills come due and American consumers finally realize that they don't have enough money to pay for it.

So I agree with the author that market indicators point to the consumer being out of money, I just don't think that the consumer is ready to admit it to themselves yet. The demand curve will artificially be maintained close to its current position, at least until 1st quarter 2008. Then I would agree that it will shift backward as consumers will be less willing to pay for the same level of supplied goods/services. Suppliers are forecasting this as well and will produce less since the demand will be for a lower quantity. The price may stay relatively the same; there will just be less available.