by Calculated Risk on 12/27/2005 01:09:00 AM

Looking back, I think these were the Top Five economic stories of 2005:

5) Social Security

Social Security is the story of what didn't happen.

Drs. Mark Thoma, Brad DeLong, Paul Krugman, Andrew Samwick and my friends at Angry Bear all contributed to my understanding of this issue.

4) Interest Rates

The Federal Reserve raised the Fed Funds Rate eight times in 2005; steadily increasing the rate at a measured pace (25 bps) after each Federal Reserve meeting. The Fed Funds rate started the year at 2.25% and finished at 4.25%.

The eight increases might be a big story in and of itself, except the even bigger story was Greenspan's "conundrum" with long rates. The Ten Year Treasury Note started the year yielding 4.22% and closed last week yielding 4.38%.

Amazing.

Looking ahead: It appears the yield curve will officially invert after the next Fed Meeting (Jan 31, 2006 - Greenspan's last meeting).

For more on the Fed, I suggest reading Dr. Tim Duy and Dr. William Polley.

3) Energy Prices

Another huge story was energy prices. Even though prices have dropped recently, oil and gasoline prices are substantially higher than last year. According to the DOE, at the end of 2004, the weighted average price was $32.07 per barrel (all grades) and $51.58 last week. That is a 61% increase in the price of crude oil.

For Energy issues, see Dr. James Hamilton.

2) Trade Deficit

The trade deficit continued to increase in 2005. For the Jan through Oct period, the US trade deficit was $598 Billion, up from $504 Billion for the comparable period in 2005. The US is heading for a $720+ Billion trade deficit for 2005, or close to 6% of GDP.

For more, see Dr. Brad Setser and Dr. Menzie Chinn.

And the biggest story of the year ...

1) The Housing Bubble

I've written extensively about housing on this blog and at Angry Bear. For daily updates, I've linked to several sites on the right under "Housing Sites".

I'll write a "looking forward" to 2006 post later this week. Note: Iraq and Katrina were also huge stories in 2005 from an economic perspective, as were hurricanes in general and global warming. Iraq is a huge story from many perspectives, but I am trying to stick to macroeconomics.

Best to all. Happy New Year!