Author: Darren Gersh, Washington Bureau Chief

Gas prices make people crazy.

On the one hand, you get the "serves us right crowd." You know the argument: We deserve to pay $4 a gallon, because we drive big cars and haven't been serious about energy conservation for, oh, the last 20 years. Cutting the gas tax or slapping a windfall profits tax on oil companies would be silly since everything in this market is driven by supply and demand.

On the other hand, you find the "birthright crowd." These folks basically argue that gas was a dollar a gallon when they were kids and it should be $1 a gallon now. We deserve cheap gas, because it is so important. If only we drilled enough, cut taxes enough or pressured OPEC enough things would return to "normal."

There are many ways to measure the extent of the credit crunch.

You can compare interest rates -- current and historical -- on safe Treasury bonds and risky high yield bonds. You can poll senior loan officers at big banks, as the Fed does on a regular basis. If loan officers are tightening up and cutting back, you can bet credit is harder to get. Checking the difference in price between jumbo and regular loans is another important indicator.

My favorite new indicator of credit conditions is the "career decision" metric.

I'm told that, when pitched a new product, buyers are asking Wall Street bond salesmen a new question: "Am I making a career decision here?"

In other words, is this investment something I can defend to my boss if it goes bust. Wrightson ICAP's Lou Crandall says that, after Bear Stearns, events in the market that were thought to be highly improbable are now considered merely unlikely.

In such an environment, buyers are bewaring. They don't want to hold anything remotely risky lest they lose money AND their jobs. Loans with collateral are in. Unsecured loans to anyone, including big banks, are out.

That helps explain why the Libor rate is under pressure. For more on Libor see this link. The Fed announced today it is pumping lots of cash into Europe and the US in a bid to bring down Libor, a key interbank lending rate.

That might help a bit, but not much in a market where any unsecured loan may be a career decision.

As Crandall says, the desire to stay employed "explains an awful lot in almost any part of the economy.”

The dollar had a good day today, rising roughly 1%. Some are beginning to wonder if the greenback has hit bottom and is ready to rebound.

Consider this: the dollar is off about 26% from its peak in February 2002. So, as this chart from Win Thin, Senior Currency Strategist at Brown Brothers Harriman & Co, shows the dollar has had a long fall.

A couple quick thoughts on my interview today with Henry Paulson.

First, he seemed more relaxed than I have seen him in months. That makes some sense. The economy did not dip negative in the first three months of the year. And credit markets are a bit calmer.

Second, Paulson sounded, to my ears anyway, a bit more optimistic about the dollar. Yes, he sounded the usual lines about a strong dollar. Markets have hear this so often that they no longer believe it. After all, the dollar has fallen 12% since Paulson became secretary.

But Europe is showing signs of slowing. The Fed here is signaling rate cuts are at an end, the ECB is expected to cut rates in the coming year.

Perhaps finally the dollar is reaching a bottom. If that's the case, and credit markets are calmer and the stimulus checks are in the mail, then Paulson -- and all of us -- can breath easier.

Let's hope.

Truckers circled the Capitol this morning, slowing for cameramen, blaring their horns at the right moment in protest of the hefty price for diesel fuel. Certainly, relative to prices last year-- up more than 40% -- the cost of $4.20 a gallon is a heavy burden in a slow economy.

And yet. . .

I can't help recall other protests over high prices. Seniors regularly parade by arguing prescription drug prices are too high. Back in the day, housing advocates were worried middle income couples were being priced out of the market. In the late 90s, California consumers flooded lawmakers with complaints about the steep cost of a kilowatt.

More often the complain is about low prices. Low prices for steel led to higher steel tariffs at the beginning of the Bush administration. Years ago, farmers drove their tractors to town to dramatize the sorry state of the farm economy.

You know, I could use some good news. Any good news would do. It's Friday and I still haven't found a reason to be glad. And when I saw this piece from economist Nouriel Roubini on income inequality, my happy-meter fell to Monday levels:

Many argue current financial crisis and income concentration among top 1% resemble the pre-1929 period; top 1% and 0.01% of the population benefited more than proportionately from trade and recent economic boom with greater income growth and rising income share while middle-class wages remained stagnant

Income of top 1% rose 7% in 2005-06 while that of bottom 90% rose only 0.1% (CBPP); Between 2002-06 income of top 1% rose 11% while that of bottom 99% rose less than 1%; national income share of top 1% rose from 15.8% in 2002 to 20.3% in 2006 (highest since 1928) and that of top 0.01% rose to 3.89%

Woes of low and middle-income groups (rising food and gas prices, trade-related job loss, lower wages, health insurance, impact of recession and housing crisis) are focus of election campaign; growing debate on why losses from crisis should be socialized when profits during boom were privatized

Given the numbers, I am surprised the rhetoric in the presidential campaign hasn't been even sharper.

Since the beginning of our Republic, farmers and agricultural interests have accused speculators of manipulating markets and capturing the financial gains that ought to go to producers.

The lastest chapter in this long story was played out today at the Commodity Futures Trading Commission. Regulators brought together investors, ag producers and groups representing farmers to talk over recent volatility in the markets.

The investors say they're simply trying to hedge inflation risk for pension funds and other big groups. After all, people on a pension have to buy bread and beef and gas.

Groups representing farmers and bakers complain that the $175 billion poured into commodity funds in recent years has whipsawed the market adding to price swings.

The numbers are eye-popping: Rice up 123% this year, Wheat 99%, Corn 66% and Cotton 48%.

What's happening? CFTC economists say its all about demand in Asia, ethanol demand in the US, and poor crops in Australia and Canada.

Whatever it is, prepare to pay more at the grocery store.

Brad King, LPL Financial Advisor, sent in this thoughful comment on a recent story. He raises a good point about how legislation designed to pump up the real estate market may have done the job too well.

Mr. Gersh,
I enjoyed your segment about the Pittsburgh PA real estate market shown on NBR on Friday evening, 4/18, here in Oregon. Over the last year, all the stories seem to avoid the part of the crumbling residential housing market that I think should have some light shined on it. The Taxpayer Relief Act of 1997 changed the rules of the taxation of capital gains on residential real estate that is not being covered at all. It has been my experience in talking to my clients, and prospective clients, that many of them are well aware, and in some cases taken advantage of, the huge tax free capital gain the tax law change provided. The real estate industry developed products to assist those who wanted to engage in the “two year primary residence rule” and sell. The tax law eliminated the 55 year old age limit for one time capital gain exemption that was in place and opened the housing speculation game to all comers. Congress hasn’t owned up to its part in this problem, and will not admit its role without the media focusing on it. I suppose it could backfire. If Congress does admit it played a role in the housing problem, they would then be even more motivated to come up with an expensive “fix” to pay for their mistake. Then we all get to pay!

On the drive up to Pittsbrugh from Washington DC two things stand out: the billboards for the coal industry and the giant windmills slowly turning along interstate 76.

The coal industry is spending a chunk of change to make the point that more than half the state's electricity comes from mines. People here have been digging out coal for more than a century. 250,000 thousand people still make a living off the industry.

But now there are windmills here too. A new carbon economy is rising up. Pennsylvania companies are rushing to take advantage of new opportunities in nuclear, wind and solar power.

Most surprising thing I learned: Pennsylvania is fortunate to sit two to three miles above geological formations that might just be perfect places to pump in greenhouse gas emissions. The idea is to pipe the gas deep underground where, over time, it may eventually turn back into rock.

Imagine that. Pennsylvania could make money off greenhouse gases coming and going -- digging it up and burying it.

Maybe that's why I didn't find voters in Pittsburgh were overly concerned about plans by presidential candidates to cap and trade carbon.

A trip to Pittsburgh has convinced me that the Carbon Economy is real.

The defining feature of this economy is that manufacturers, indeed any business, will soon be paying for carbon. Want to make steel, electricity or cars? Companies will soon have to pay for the right to emit the carbon required to make those products. With President Bush calling for the growth in US carbon emissions to peak in 2025, the only real debate seems to be how soon this happens.

Let's put this issue in more concrete terms. The market price to emit a ton of carbon in Europe is now about $40 a ton. The US emits 1.9 billion tons of carbon a year. At today's market price those emissions would cost about $76 billion a year.

That's a huge market and companies I talked with in Pittsburgh already see the opportunity to supply the technology needed to manage and reduce carbon emissions. Frankly, I thought Pittsburgh might be behind the curve. Now I think the city has a real chance to emerge as a leader in the carbon economy.