This has definitely been one of the most wild rollercoaster-like years for our economy in a while. Many changes have taken place in the markets, monetary policy and consumer spending. The ride is not over, as the outlook for next year looks to be even more difficult than 2007 has been.

The price of oil started out this year at $60 per barrel. It hit a record high of $97 per barrel after a few months, and it is still climbing.

The infamous housing crisis was the hardest hitting problem this year. In the eyes of lenders, home values were expected to rise. The assumption was probably that sub-prime borrowers could simply refinance with a higher home value in order to continue payments. When home values declined, new homes sales stagnated, and foreclosures escalated through the roof, banks everywhere suffered losses. It wasn’t long before the stock market showed the effects of economic slow down.

The U.S. Dollar hit record lows against the Euro, with the Euro near $1.49. The Canadian currency actually caught up with and passed the dollar for the first time in about 30 years.

The Federal Reserve has made several moves to keep the credit crunch from driving the economy down too far. Billions of funds were injected into the system, and the Fed isn’t done. TAF auctions are scheduled for January for banks with liquidity problems. There have already been two $20,000 billion TAF loans to banks.

The interest rates were lowered again and again for the second half of the year, making the rate 4 1/4 percent. The dollar value suffered and inflation continues even now to be a concern of the FOMC.

What will happen next year?

The average American expects recession, continued lowering of housing prices, record high gasoline prices, higher grocery bills, and recession.

The Fed hopes that its recent actions will forestall recession, but continued economic slowdown, at the very least is expected. Economists expect rate cuts to reduce the interest rates even further. There may be some growth, but it won’t be much.

If oil barrels reach $120, we will probably start to see $4 per gallon at the station.

Employment may balance out. The unemployment rate has held steady this year, and there might be a modest increase in the overall unemployment rate. Jobs related to the housing industry, like realtors, construction workers, lenders and furniture retailers will all experience some cuts as the housing crisis continues. On the other hand, there is a demand for bankruptcy lawyers, teachers, and executives. Retail jobs in apparel, food, and pharmacy should become more available in the coming year. Many jobs will be overseas, as the global economy seems to be doing well. Exporting is a promising business in the coming year.

Overall, inflation will remain a concern, and the Federal Reserve will continue to make the necessary moves to soften the effects of the housing crisis. Moves to improve liquidity, lending practices, and encourage long term economic growth will be made throughout 2008. Will there be a recession? Possibly. The best thing to do is hold off on big purchases, get out of debt as soon as possible, and save as much money as you can.

Strap yourself in and remain seated, the ride is not over yet.

The Federal Reserve conducted a $20 billion loan auction, on Monday, for banks that are struggling with liquidity. There were 93 bids in total at the Term Auction Facility (TAF) vying for the credit so they can have some cash flow.

The loans are for a 28-day term with an interest rate of 4.65%. The normal discount rate that the Federal Reserve charges for these loans is 4.75%, making the loans distributed through the TAF .10% lower than usual. Bidders were hoping for a lower rate than that. The maturity date on these loans is set for January 17, 2008.

The total accumulation of bids submitted totaled $61.553 billion. The budget was only $20 billion for the auction, about one third of the total received bids.

Winning bidders were not disclosed. Local Reserve Banks contacted the banks that submitted winning bids yesterday.

Another TAF is set for today at 10:00 am EST. The minimum bid is set at $10,000 per institution, and the maximum bid per institution is $2 billion. The term for these loans will be 35 days. Maturity on these loans is set for January 31, 2008. Banks have until 1:00 pm EST today to submit bids. Winning bidders will be notified tomorrow. Loans will settle on December 27th.

The Fed’s offering is still set at $20 billion for today’s TAF. There are to be more Term Auction Facilities held in January, but amounts and terms have not yet been released.

The circulation of cash flow in the banking system should hopefully give banks the flexibility to function smoothly. Some don’t see how this can solve the issue of the lack of incoming capital in certain banks and constrained balance sheets. This could very well be a temporary solution. It will, however, help with liquidity problems at the start of the year, and possibly slow down a major credit crunch.

The Federal Reserve Board of Governors has an open meeting today at which they will propose amendments to the Truth in Lending Act (TILA). Focus will be on Regulation Z of TILA, which contains most of the specific compliance regulations for lenders. The issue at hand is the warding off of abusive lending practices.

There are several amendments that are being discussed at today’s meeting. They include:

-Improving the screening process to help lenders better determine the borrower’s ability to repay loans.
-Prohibiting or limiting loans that do not require proof of income.
-Requiring lenders to ensure that borrowers have budgeted for taxes and insurance payments (especially sub-prime borrowers)
-Prohibiting penalties for prepayment on loans (for sub-prime borrowers)
-Regulate advertising, offers, and ‘teaser’ rates to limit confused or otherwise mislead borrowers.

The Board of Governors will discuss and vote on these issues at there meeting today. After public discussion, and perhaps further research, these amendments will go into effect. These adjusted regulations are being proposed in the hopes that there will be less foreclosures in the future.

At present, banks are already encouraged to work with borrowers as much as possible to avoid unnecessary foreclosures. As of today, we are still staring recession n the face. Stock market performance yesterday left much to be desired.

The President declared a mortgage freeze that will hold initial adjustable mortgage rates at the starter rates for five years. This will only affect sub-prime borrowers, and save them on interest.

The Fed is working to make sure that all borrowers fully understand the terms and conditions of their loans. Hopefully the amendments to Regulation Z will thwart abusive lending practices, and less people will have overwhelming debts that they can’t keep up with. Ultimately, the effort should help to slowly boost the economy over the long term.