This article written by a former IMF economist details his idea of a possible "non-band aid" solution. He basically comes up with an idea to keep banks capable of producing the necessary cash when times are good, so that they can use it when the economy turns bad. The author comments that regulation usually is allowed to progress when times are bad and public sentiment is in the regulators favor. This idea needs to be implemented by more than just banks. The public could use this dose of medicine, too. What's interesting is who will actually put this into practice. My bet is that the financial sector will put on a face for the public to show sorrow and a "real change of heart," and may even make some actual changes here and there. The public on the other hand will make the more significant and long lasting change to prevent a crisis again. I could be wrong. Maybe the banks will actually figure out a way to cash in on public savings.
Here is a link to the article.
Terms and Conditons
The government's stimulus program has been ramping up investment to counteract the weakness in export demand. Fixed-asset investment in urban areas, China's benchmark measure of capital spending, rose 30.3% in March from the year-ago period, picking up from 26.5% growth in the first two months of this year.
I may have this completely wrong, but this seems to be a step in the right direction as far as their policy goes. Reinvesting back into your countries own capital is vital to growth and if the Chinese begin investing some of their billions back into their own country as it becomes more stable and reliable they could experience substantial gains in well-being, I think. Here is a link to the article, http://online.wsj.com/article/SB123984767545423661.html#mod=testMod.
This article points out the various questions currently being asked in regard to initiating new regulation of banks and the financial sector. It features various economists giving their take on what needs to be done to ensure that a meltdown like the current one doesn't happen again. I'm really not sure what the point of new regulation is. Any regulation on the banking system will have its moment in the sun and be played up as Washington and Obama "getting things done." But the financial system runs on taking risk, and whether they are called hedge funds or something else, they will find a way to get around any new laws and regulations. It has been going on for years with tax evasion, and when this crisis blows over the game will continue and their will be new winners and losers.
Many economist have been warning that as the Fed continues to inject hoards of cash into our struggling economy that inflation will soar, thus effecting the purchasing power of Americans. Such effects are not yet evident as consumer prices actually saw an annual drop for the first time in over 50 years. It was reported that the consumer price index fell .4 percent in March from the previous year. These figures signal deflation and may be due to the global recession keeping prices low. Some would view this as a bigger danger than current manufacturing and production data that is effecting businesses' outlook on the economy. It is not likely however that consumer prices will downspiral. As senior economist Carl Riccadonna stated,“The more slack there is in the system, the longer it will take for inflation to become a concern.” The effect of the Fed's massive spending I would assume will be seen further down the road.
It seems logical that a worker in his field should be paid what he is worth. For Example, I work in a factory driving a large fork lift doing very skill based maneuvers. It is not an easy job to do for most people. If I were to apply to work somewhere else, I know that I am at least worth what I am making. If an offer were less than what I am making now, why would I ever accept it? The only problem with most jobs, is that there is no effective way of measuring productivity. It is a very hard thing to do in most cases. In basketball however, productivity is perfectly measured. It is a very simple thing to see what a player contributes to his team. And it would make sense that a player should be payed according to his productivity.
Lebron James is one case where his productivity can be measured very well. In his profession, he would expect to make what he is worth compared to other players in the league, just like any other industry. If we use the stats to determine how much money James should be payed, there is very clear data showing that he is actually underpaid! If he were paid for the amount of money that he alone generates for the Caveliers, he would make a lot more money than he does. He brings in a lot more revenue than he is paid. This is determined by looking at the number of wins that he himself produces and the revenue that is made from the gate, merchandise, and other factors. So despite common belief, some professional players are not being payed what they should.
As a moderate Republican, I side with the Republican party on most aspects, but this issue is simply impossible to ignore. In most economies we can allow major companies to fail, as inevitably a replacement will come, replacing the lost jobs. However, we cannot allow every major bank and insurance company in the nation to fail all at once, as this panic and devastation would easily plunge us into a great depression that could take years or decades to recover from. If some major banks fail, this will likely trickle down to all the financial institutions, as they are so tightly correlated, and virtually all of them are in financial trouble. For a long time I've criticized those who compared this recession to the Great Depression because things aren't close to that bad. I believe though that if the government does nothing, and lets the economy repair itself, things could get much, much worse, ultimately dwarfing the Great Depression. Thank goodness that isn't the case, as the Fed is rescuing all the major banks that could cause us to spiral out of control.
Some Republicans believe that the best policy is Pure-Capitalism. I believe that system is just about as bad as Pure-Communism. What we need is a Capitalistic market, with the regulations that are necessary for optimal economic growth, and government intervention when necessary. I hope that doesn't sound too much like Socialism, as I'm certainly not Socialist. No one wants to relive the Great Depression, that's why I'd rather have the government spend billions, knowing that much of it will be wasted. At the very least, this optimism is getting people to spend, in turn causing us to climb out of this awful economy.
I couldn't find that old MSN article, but here's an interesting one: http://www.financialexpress.com/news/letting-lehman-go-was-big-mistake-lagarde/370911/
In the April 6th edition of the Wall Street Journal, Kelly Evans discusses the United States’ savings rate in, “Frugality Forged in Today’s Recession Has Potential to Outlast It.” He quotes Richard Berner from Morgan Stanley by saying that, “consumer spending will grow at an inflation-adjusted 2% to 2.5% annual rate over the next several years, compared with 3.5% in the decade ended in 2007.” In a previous blog, Professor Tufte explained that people save because they:
Lack social security
Lack a pension
Lack material possessions
Are more worried about the future than the present.
Based on these incentives, it is no surprise that Americans are saving more. While Social Security hasn’t really changed, the other four incentives have had an effect on the personal savings rate. Many Americans have lost their jobs and with that they have lost benefits such as insurance. Due to the financial crisis, many citizens have lost their entire pensions or have at least lost a good portion of it. During the recession, discretionary incomes are lower; therefore, material possessions are not necessarily in abundance. With countless doom and gloom reports or at least reports that do not look favorably on the near future, expectations of the future are grim. The personal savings rate should be expected to increase during these conditions. Is it not true, however, that the savings was always there it just was not counted? Most Americans previously stored their savings by purchasing homes, which was counted as investment. Due to the financial crisis, investments in homes have decreased. This has resulted in moving our way of saving to a type that is now counted.