Ruby on Rails

I have used rails a few times but have not too much experience.

I recently upgraded to Rails 4 and installed Postgres as a server on my OS X Mavericks loaded Macbook Pro.

I am unable to figure out what is going on.

1. my database.yml file is pointing to sqlite3

2. I created a new project and fired up,  $rails server.

3. Active record complains that I need to install gem 'pg' when I view in the browser. i.e. No Welcome page.

4. I did that (running bundle install again) and now I get:

fe_sendauth: no password supplied

5. But I never pointed to using Postgres as this a test project with Development, Test and Production Databases pointing to sqlite3 in database.yml

6. I get the following error when running rake db:create

Couldn't create database for {"adapter"=>"postgresql", "username"=>"postgres", "database"=>"UIS", "host"=>"localhost"}

7. I had used "database"=>"UIS" in a project long back. So rails must be looking at some configuration app out side my recently created test app.

What could be going on?

Any help would be great.

Thanks

Vid