Gold 2009 Supply and Demand Impact on Gold Price

last week i was reading the article , published on Feb 27, 2009 in The Market Oracle which predicted the gold price above $1000 level based on the supply and demand impact and today i seen in a news that gold price pass the $1000.00/oz mark which is the highest price level. Price is truly related to the supply and demand of gold. In article author mention the following comment. " We conclude by emphasizing that demand through gold Exchange Traded Funds will dominate the gold market and take gold to new heights well above $1000."

According to the article total projected demand for 2009 is 3,493.40 to 4,171.02 tonnes. Where as the supply are 3,493.40 tonnes. That means the demand is higher then the supply. Article also shows the data of Gold supply from mine production, scrape and Central Banks. From article i can see the new pattern of gold demand. people are investing more in Gold. so investment demand rise by 40% to 702.8 tones. article indicate the big change in the Gold E.T.F which will rise up to 677.62 to 1,355.22 tones.
In my opinion there are many factors affect the gold price. In developing countries people are buying more jewelery, I think fear of inflation, recession and weakness in dollar also increase the gold price. As per economic principle when price will go higher then demand will be going to decrease. so i think in near future the demand of gold is going to decrease.

http://www.marketoracle.co.uk/Article9140.html

New Exotic Investments Are Emerging on Wall Street

This morning I was reading an Article about the ever new and exciting instruments that wall street is coming up with. Last year there was a mad dash by investment firms to purchase life settlements policies from elderly people. They plan to package them, rate them, and sell them off to investors much like they did with the mortgage markets. The article goes on to talk about the large fees that Wall Street would collect by creating, packaging and selling these life settlement policies. It looks like they are back to the same old tricks.

By packaging these types of instruments what effect is this going to have on Life Insurance premiums? During these last couple of years companies like Mass Mutual, North Western and New York Life have been the bright spots in an otherwise ugly economy. What will this do to their companies if they have to start paying out death benefits? Their profit margins could collapse quickly if they do not hedge themselves.

I personally think that that it is a great idea and could produce a lot of great investment products in the future but at the same time there are a lot of unknowns in these products. What happens if people start living longer? Investors could end up losing a lot of money. What if these large insurance companies can not pay out the death benefit's? Who is going to bail them out? There are a lot of different variables that could come into play here. The biggest concern I have is that big Life Insurance companies build their model around not having to pay the benefits. You could see a huge shift in the future if these new life settlement instruments really start to take off. Profits could go down drastically, premiums could rise, and firms that are "to big to fail" could be in trouble.



http://www.cnbc.com/id/32707038

Cash-For-Clunkers Supply/Demand

Referring to an article found in USA Today relating to Chapters 2&4. I have to ask are automakers making the right decision? The article says that as a result of the highly successful Cash-For-Clunkers program the automakers will be ramping up production for the 3rd and 4th quarters of this year. However, the cash for clunkers program only made a short term spike in demand that is now over since the government rebate program has ended, but it seems the automakers don't realize that they could over supply the dealers again who will be left with cars on their lots because demand has fizzled.

The article also states that once this oversupply of vehicles happens dealerships will "require profit killing rebates in order to unload". It seems automakers are jumping the gun in order to save jobs and think demand will return to normal levels. Although automakers are claiming they are only producing enough to replenish lots from the vehicles that were sold during the Cash-For-Clunkers program.

The Cash-For-Clunkers program definitely spiked demand, and has created an incentive for automakers to supply more vehicles, however what is the short term demand as a result of this program? Are many consumers going to be purchasing new cars anytime soon or did those who were thinking about it already buy them? How much of consumers demand will rely on automakers offering hefty rebates again?

Cash-for-clunkers demand has carmakers boosting production

Is any firm really "too big to fail"?

I came across an article in the Harvard Business School Working Knowledge research site discussing the economic impact of large financial firms and whether or not we can afford to let these firms fail. A main point from the article states that, "The federal government should slap tough new regulations on all firms that pose 'systemic risk'—the risk that a failure of one institution could wreak havoc across the entire financial system." I wholeheartedly agree with this statement and wish that the government would "step up" and implement some new security measures to prevent firms from failing in the first place.

However, once these firms are getting to a point where they are looking like they might fail, even though this really shouldn't ever happen if management teams were smarter, the government needs to keep their hands off and let the firm fail. It is not the taxpayer's responsibility to continually bail out these gigantic organizations that keep failing time and time again. Everybody in government needs to show some respect for the hardworking American's that vote them into office and not do things that benefit the few at the expense of the many.

What do you all think? Are these large firms really "too big to fail" or should we cut the cord and let them fail and see what happens?

Here is a link to the article that got me thinking about this: "Too Big To Fail": Reining In Large Financial Firms

A lesson to learn

"Cycle-proof regulation"

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.

US foreclosures up 24% in first quarter

I came across this article after responding to a post made about the 4.7% increase in new home sales. I thought it was interesting that in February new home sales rebounded nearly 5%. It's even more interesting that US foreclosures are up 24% now and in February new home sales were up 4.7%. I would have to say that this article about foreclosures show us that the 4.7% increase in new home sales wasn't much of a sign that the economy is recovering. "The faltering economy is causing the housing crisis to spread. Nationwide, nearly 804,000 homes received at least one foreclosure-related notice from January through March, up from about 650,000 in the same time period a year earlier. Wow! That is such a huge jump in just a years time. The article states that while foreclosures were down 13% in the fourth quarter last year they project that it will continue to rise and hopefully taper of in the summer.

Here is a link to the article.
http://finance.yahoo.com/news/US-foreclosures-up-24-percent-apf-14940685.html

Is China a threat?

Spurred by the time-deadline placed before me, I read an article in the New York Times about China expanding it's influence in Latin America. This article explained that China has negotiated deals with Venezuela, Ecuador, Argentina, and Brazil, giving them large sums of money. This move either shows that China cares, or that they have a lot to gain by doing this. David Rothkopf is quoted in this article as saying, "This is how the balance of power shifts quietly during times of crisis." This comment sort of put me on the edge of my seat thinking that China is secretly taking over the world. Then i thought about it some more and realized that we owe China a lot of money so it's not like we aren't aware just how much influence China already has with us, and in the world in general.

It’s Okay if you lose your Job

I saw an interesting advertisement on TV a few days ago and thought I would share it with those who might have not seen it. Saturn has a new protection plan for their vehicle buyers. They offer to pay up to nine months of your payments if you lose your job. I know they are trying to promote sales, but how is this going to help them? Yes, they might get a few more cars off the lot, but their company just got bailed out and is on the chopping block to be sold. There terms state: “You have to be employed for at least 30 hours per week for 90 days after you buy or lease the vehicle and for 12 consecutive weeks prior to your first day of unemployment. Then, if you lose your job due to economic conditions during the next 21 months you are eligible for benefits. If you lose your job for other reasons, you may not be covered.” How would someone go about proving they lost their job due to “economic conditions”?

Terms and Conditons

G-20 2009

What I would like to know is what changed, this big meeting amongst world leaders, large and small countries, highest security ever assembled, etc. I here very little of Obama coming back from the Summit with new ideas, for that fact I hear nothing about change in other countries due to the summit. I was looking up the agenda for the summit and what was to take place during it. With all of the things being discussed, I would have expected more. We talked about the relevance of each country that attended and what they brought to the table in class. The one thing that I feel is missing is the outcome, there were more stories about the security at the conference than the outcome of it. (Wikipedia: 2009 G-20 London Summit)

China's New Investment

I found an article from the Wall Street Journal Online entitled China's Growth Slowest in Two Decades. Given that we study growth theory, and China is a major player in the world economy, and tonight is the deadline for submitting new posts, I thought I would give it a read. The article is pretty basic and talks about how the numbers don't accurately portray Chinese growth because they only release numbers on a year-to-year basis, unlike our quarterly releases. The main thing that caught my attention was the noted increase in Chinese domestic investments.

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.

Same Game Different Rules

The Post-Recession Appetite for Risk and Regulation
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.

Consumer Prices Falling

This article on bloomber.com caught my attention:
http://bloomberg.com/apps/news?pid=20601068&sid=aiLW5X3YKx8U&refer=economy

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.

Is Lebron James Overpaid??

I have often heard people talking about the salaries of professional athletes. It's no secret that most professional athletes make more in one year than most of us will ever make in our life times. And I can see how people might think that paying people millions of dollars to run around playing like they were still in kindergarten could seem a little ridiculous. Just as an example, Lebron James plays for the Cleveland Caveliers. He came straight out of high school and is already making the individual salary cap of 20 million per year. That's some serious dough for just playing a game of basketball!! Most people see those kinds of numbers and are just disgusted. I used to think the same thing until I took a class on sports economics. There are certainly cases where players are overpaid for what they actually do in their profession. This is not the case for Lebron James.

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.

Don't read if you're a right wing republican

Due to the responses another blog of mine received, I decided to make another blog that goes into further detail of why the Federal Reserve needs to rescue the banks, and letting them fail would be a grave mistake with enormous economical consequences. MSN published an article a few months ago listing the 10 biggest mistakes the Federal Reserve has made thus far in this recession. I realize it's a little early for such hindsight, but bear with me. MSN stated that the #1 worst mistake our country has made was letting Lehman Brothers fail. Once that happened, it sent investors scrambling for the exits as that meant no company is 'too big to fail.' This panic also sent a run on the banks, which is blamed for the bankruptcy of Washington Mutual, as well as the further destruction of Citigroup, Bank of America, and others. This panic spread throughout the economy and news outlets, causing consumer spending to plummet and the Dow Jones to get into the 6000's.

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/

China isn't stupid

Last time we were in class we discussed the problem of a lot of foreign ownership of U.S. treasury bonds and the risks that we are facing by deflating the value of the dollar on purpose. China currently owns 70% of the $2 trillion of foreign held reserves. China recently asked for a guarantee of safety of their assets, due to rising concerns of U.S. spending. Dallas Federal Reserve President Richard Fisher recently pointed out that China wouldn’t dare do anything to harm U.S. interests, like dumping the treasuries they own, because U.S. and Chinese interests are directly connected. We rely on Chinese investment in our treasuries for revenue, and China’s economy relies on U.S. consumer spending. And despite the continuing economic turmoil, the U.S. dollar is still the preferred currency of the business world. China would be giving itself a huge kick to the crotch if it tried to get rid of the treasuries it’s currently holding. Whether they wish they had bought them or not, they’re stuck with them for the foreseeable future. You can read more about what Mr. Fisher said about the situation here:http://news.yahoo.com/s/nm/20090414/bs_nm/us_fed_fisher;_ylt=AqlZtLX_x97QmqMFhr.BFXXv5rEF

The Future of American Roadway Maintenance Unclear

I came across on article entitled “Oil Industry Braces for Drop in U.S. Thirst for Gasoline” in the April 13 copy of the Wall Street Journal. The article explains that since the introduction of the mass-produced Model T nearly a century ago, U.S. demand for oil has been on the rise until now. The article claims that many of the oil industry’s most prominent members including Exxon Mobil Corp., believe that U.S. gasoline consumption has peaked and will never again attain such levels. The U.S. Energy Information Administration reports that American drivers consumed 371.2 million gallons of petroleum-based gasoline a day in 2007 and that this figure is expected to decline in 2009 to 345.7 million gallons daily. One might say the current recession is to blame for decreased gasoline consumption which is essentially true but Americans have begun to alter their lifestyles as well. Americans have recently made a concentrated effort to decrease commuting distances and driving overall as gasoline prices skyrocketed as recent as last summer. Those deeply involved in the industry believe that even after the economy strengthens, gasoline consumption will never again reach the levels it did in 2007 due to the emergence of biofuels and more energy efficient vehicles such the hybrid. One might additionally argue that certain policies promoted by the Obama administration are fueling the energy revolution and thus will have a decreasing impact on overall gasoline consumption. While this trend is generally regarded positively as a step in the right direction, concern has risen regarding the tax revenue that gasoline consumption supplies. The article notes that federal gasoline-tax revenue fell 3% last year and that the trend must inevitably continue as consumption declines. This reveals a major concern that needs to be addressed. What is the future of America’s highways and roads that are currently funded primarily by gasoline-tax revenue? How will the United States maintain and repair its massive highway system as funds decrease? One suggestion is to tax drivers per mile driven rather than by the gallon to incorporate the use of biofuels and more energy efficient vehicles but how would such a policy be enacted? Would one have to report miles driven annually with your income taxes? In my mind such a policy seems implausible, but I can’t think of any alternatives. Are there any better suggestions? How can America continue to contribute to the Highway Trust Fund as gasoline-tax revenues decline?

Obama Sees...

I read an article from the New York Times called "Obama Sees More Pain Now but Hope Later on Economy." http://www.nytimes.com/2009/04/15/business/economy/15obama.html?_r=1&hp The article discusses a speach given by Obama on the economy, in his speech, Obama states that the near $800 billion stimulus plan was "starting to generate signs of economic progress." I agree that we are starting to see signs of improvement in many of the economic indicators (ie. the stock market). Assuming the economy has turned the corner (which I am in no way stating, only hoping), perhaps it is/was due to the injection of Obama's stimulus plan. But I for one feel it is too early to tell whether or not the turn-around is a direct result of Obama's stimulus. People have been talking about a turn-around since late last year. In my opinion, we were due for a turn-around. The inefficient companies failed (more would have failed had the government not bailed out the entire world) and the stronger companies are left to carry on. I think the reason for the recent upswing in the stock market, and hopefully the economy, is because businesses have reduced waste. They have slashed costs in order to save, and are now position to succeed for the future. I tend to agree with Obama that the worst is over and that rough times are still ahead of us. I'm just not quite ready to bow down and worship Obama because he saved us from economic collapse.

Finally...signs of life

In an article from http://www.economist.com/displayStory.cfm?story_id=13411349 the author states how this recession is likely bottoming, but a full recovery will likely take some time. Over the last month, we've seen more and more positive economic reports, in contrast to three months ago where positive news was nowhere in sight. National home prices are now considered 10% undervalued relative to income, and this is leading buyers back into the market. Auto sales recently saw an 8% jump from February to March, creating a glimmer of hope in a dismal market. Larry Summers recently said that the current annualised vehicle sales of 9 million are well below the 14 million needed for replacement and rising population. Larry continued to say that the current level of the stock market might be the 'sale of the century.' Investors certainly have known how cheap stocks and houses have become, but with the good news we're seeing people are starting to buy once again. Despite all this good news, certain parts of the economy are likely to take longer to recover. Consumer spending in general will continue to be depressed by the 18% drop in household net worth last year. More job losses are inevitable as unemployment is a lagging indicator. These job losses are likely to lead to more defaults on loans, thus causing more problems for an already battered financial system. The Federal Reserve should counter this by continuing to buy the bad assets, as an economic recovery isn't likely without the financial industry on board. It will take macro economists months to call March 2009 the trough, but I think the evidence exists to already label it as such. The lagging indicators will certainly take a while to get better, but the leading indicators (such as the stock market) are pointing to a recovery.

Shifty Savings

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 insurance
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.

Stimulus -Not- Thinking

http://www.nytimes.com/2009/04/01/business/economy/01leonhardt.html?_r=1
I found this gem of an article on the New York Times website, it is titled "Stimulus Thinking, and Nuance." The article relates Obama's recent presence at the G20 Summit with that attented by global leaders back in 1933. The author sets out defending stimulus packages and how throughout history they were nothing but effective. He names three! The Germans in the 30s, FDR, and the Japanese in the 90s. I'm sure we can go out on a limb and say there were more than three recessions and more than three attempts at stimulating the economy. I'm not sure where the Times dug up this guy, but it is apparent he hasn't done his research. I'd like to focus on his defense of FDR and his use of stimulus in boosting the economy. The author says the following: "When Roosevelt stuck to a stimulus program, unemployment fell markedly, and the biggest stimulus of all — World War II — did the rest." One could argue that FDR kept our country in a recession (or depression) longer than if nothing had happened at all. For the author to claim FDR saved us is silly and uneducated. Unemployment rates were sky high and not to mention a tax bracket reaching as high as 94%. The biggest stimulus of all truly was the war, because it put people to work. Right now jobs are being slashed left and right, even as we are in the midst of a war. This just goes to show how we cannot accurately compare different recessions across time. There are just too many variables to accurately predict what the effects of a stimulus will be. Maybe this guy knows something we don't, but chances are he is just ill-informed on just about everything except dates and names.

Global Economy?

I don't think we realize just how global our economy is. There are so many nations that have trade with us and invest in us, that it is impossible to separate our problems from theirs anymore. We need to realize that we are all working towards the same things and our fates are interrelated. I read an article that talked about Obama meeting with the Group of 20 to discuss the economy. In this article Charlene Barshefsky is quoted as saying, “This is a classic case of countries bending to domestic political pressure because it is too difficult to make the political argument that if everyone restricts imports, everyone loses." You would think that these leaders would be able to agree on that, seeing as how it is one of the most basic economic principles being taught in our schools.

Does a 4.7% increase in new home sales say anything about the economy?

According the article (New home sales in surprise rebound) I found on CNNMoney.com a 4.7% increase is generally a good sign but it’s definitely not enough to say the economy is recovering. The U.S. Census Bureau reported that the median sales were $200,900, down 18% from a year ago. The economist at Moody’s Economy.com also stated that this information is only a months worth of information and that there needs to be at least three months of information to tell if the economy is recovering. It also explained that the Mortgage Bankers Association showed a 30% increase in loan applications last week. The main cause was due to Americans refinancing existing loans. I believe this is a good sign, but my gut feeling tells me that the worst has yet to come. I know this article says there is an increase in sales, but I have yet to hear good news of much of an increase in new home sales around my home town.
http://money.cnn.com/2009/03/25/real_estate/new_home_sales_Feb/index.htm?postversion=2009032512

One down, hopefully more to come

The evening news two days ago brought what I believe is encouraging news to the government bailout plan. GM CEO Rick Wagoner was forced out of the company by the Obama Administration as part of its agreement to loan the failing car company more money. Finally, after billions of dollars already handed out to companies such as Ford, GM, Chrysler, AIG, etc. Someone is being held accountable for the mistakes that helped cause such financial problems within these organizations. I just hope the same thing happens with AIG, who has infuriated the public and congress for handing out $165 million in employee bonuses since first receiving government assistance. No employee, especially CEO’s, CFO’s, and other top tier managers who are directly responsible for the success or failure of their companies should be getting million dollar bonuses. While bonuses were not a deciding factor at GM, I am happy that the government is finally holding people accountable for poor management. You can’t give some who’s lost billions of dollars due to poor choices another couple billion in aid and expect them to suddenly be much smarter in their management decisions. Hopefully this is just the first of several “boots” of failing company’s managers. You can read about Rick Wagoners forced resignation here: http://abcnews.go.com/Business/wireStory?id=7204767

A Possible Turnaround

Fed’s Stern: Expects Some Econ Improvement Midyear
Gary Stern who has been through the previous two recessions as head of the Minneapolis Federal Reserve Bank offers a few words of encouragement towards the possible end of the current recession. As we have discussed in class it is hard to predict when recessions end and the economy picks up again, and normally don't have evidence until well after the event takes place. That being said, as the first quarter of draws to an end there seems to be initial signs that by midyear things could be turning around. March seemed to be a great month for the Dow-Jones-finding many stocks hitting lows and now rebounding well. Other reports show that while many retailers have offered, and continue to offer great deals, their are faint signs that pickup in the consumer spending trend should continue. With the G-20 summit looming with loud cries from several governments calling for increased regulation over companies with multinational financial risks, time will tell how strong this possible turnaround may be.

We Don't Want Your Money

There is an article on cnnmoney.com that talks about how hard it is to give the money back that banks received from TARP funding. Some banks are saying that the funds that were given to them are actually preventing them from growing. The banks want the government out of their hair and allow them to run their bank as usual. None of them want to be the next AIG.

If the government was going to force banks to take money even though they didn’t need it to try to cover up the ones that did, why are they not making it easier for the people to pay back what they didn’t need in the first place? It is obvious which of the big banks needed the funds; the government really isn’t covering up anything.

(Bankers: Take your TARP money back http://money.cnn.com/2009/03/27/news/economy/tarp_takeback/index.htm)

Could it just fix itself?

In the news lately I am seeing a huge influx of information regarding approval polls of something. One of the latest is who is being blamed for the current economic crisis. Surprise that the banks are being blamed the most for it and then George Bush Jr. This is not a shocker considering they are highly suspect in the current economic crisis. With President Obama being elected only a handful of people are saying it’s his fault, in fact 42% of Americans are saying the country is on the right track. (Washington Post, March 31, 2009: Blame for Downturn Not Fixed on Obama) I was a huge fan of saying that once a new president is elected the economy would turn around. I believe that any change would have spurred the economy around, rather that people seeing change, make them change and would help to make things better. With history we have seen that all recessions have a trough, and that a lot of presidents loose elections because bad economic problems. But would all recessions end if we did nothing and let them run their course? Do we need to do anything at all, or would a simple change of thought help to pull us from despair.

White House to Accept Some Blame for Economic Crisis

An interesting article was published in the Wall Street Journal this week. http://blogs.wsj.com/economics/2009/03/31/white-house-to-accept-some-blame-for-economic-crisis/?mod=rss_WSJBlog?mod=marketbeat. It is entitled Real Time Economics, White House to accept blame for Economic Crisis. This is a surprising article to find in our day and time. It talks about a statement that a White House Official made. He stated how the White House was accepting some of the responsibility for the economic situation that we are currently in. The article does not specify exactly for how much they find themselves at fault for, but just the fact that they are accepting any at all and actually admitting it is quite amazing! He tells how part of the problem is believed to be in the weakness of the regulatory system of our country. This confession came about due to accusations by other large Economy countries that the US is running some sort of a "free-wheeling style capitalism" that led to the crisis crushing their economies, and they are now looking to punish the US for this. Prime Minister Gordon Brown of Britain said, "This crisis was caused by no black man or woman or by no indigenous person or by no poor person. This crisis was fostered and boosted by irrational behavior of some people that are white, blue-eyed. Before the crisis they looked like they knew everything about economics, and they have demonstrated they know nothing about economics." Plans have been made to expand the scope of regulations to any institution, market or product that's important to the international financial system.

Is Inflation the Answer?!?

In the March 30, 2009 issue of the Wall Street Journal, an article entitled, "Inflation Is Tempting for Indebted Nations", discusses the implication that inflation can have on a country which is heavily indebted. The United States is considering using inflation to reduce the value of the U.S. dollar, which would significantly reduce the burden of money owed to other countries. Economists are saying that it would be "epic, a terrible thing to do" but it would be better than outright default. The United States is planning to increase the money supply by more than $1 trillion with the hope of causing some inflation to weaken the value of the dollar and reduce the current federal deficit. Some are concerned with the idea and speculate that this will cause hyperinflation, comparing the current situation to that of the 1920s Germany and the 2000s Zimbabwe in which the local currency was debased and hyperinflation followed. Most economists are saying that this "doomsday" is possible but extremely unlikely. Policy makers will be trying to stimulate some inflation but will be closely monitoring it to prevent it from getting out of hand. While I agree that hyperinflation is not a likely possibility, I am concerned about investing and the stock market. As the dollar weakens, the amount of consumer confidence could fall, causing the stock market to continue to plummet. On the other hand, the burden of debt, which in the U.S. rests heavily on the taxpayers, would be lightened and nominal wages, house prices and tax revenues would increase while mortgage and bond debt would remain constant.

Mid-Size Success

I ran across this article on the WSJ website today. The article caught my interest immediately because Provo and Ogden were among the cities that were beating the recession. The article did mention that a lot of the smaller cities that are doing well have been fortuitous with regard to the housing crisis that has stopped a lot of lending, yet that cannot be the only reason they are doing well.

Obamanomics

Recently I stumbled across this opinion piece in the Wall Street Journal. It is written by Robert Rieich, a professor of public policy at the University of California at Berkeley, and a former U.S. Secretary of Labor under President Clinton. In it he defines "Obamanomics" and compares them to the conservative coveted "Reaganomics". One point I found particularly interesting because it relates to our recent lectures in class; Top Down vs. Bottom Up economic policy.
Top Down Policy: During the Reagan administration, it was widley believed that lowering taxes on the top earners would incourage them to invest more into capital in hopes of attaining a higher return. The theory here is by allowing them to be rewarded more, they would in turn create more opportunities for everyone from the "Top Down" and the economy would benefit. This is the idea that growth is enhanced when people are allowed to retain their wealth and be rewarded for investing it, or Alpha form our model.
Bottom Up Policy: Obama's Administration believes that the economy grows better form the other direction. By increasing taxes on the top 2%, Mr. Obama plans to better fund U.S. infrustructure, create more pell grants for low income students, and improve health care and education. In doing so, he hopes to create a better educated more efficient workforce which will help the economy to grow.
Personally I would like to see the Model that Team Obama is using. Each of their goals is admirable and on a social scale would improve the lives of many. However if by accomplishing these goals they hamper the growth of the economy the effects would surely be short lived. It seems to me they are missing a key point from Adam Smith's Wealth of Nations. Most people don't set out to become better educated to improve the lives of others, but rather to improve their own life. Unfortunate as this may be, it is a fact of life. Removing the incentive to earn more, by raising taxes, is not going to result in a better workforce.

Taxation?

I had a thought that may have been obvious to some, but for me, it was a little slow at becoming a reality. I thought of the true meaning of taxation, and if it was, in fact, the source for government revenue. I stumbled upon a book online that briefly covered my thoughts in skimming it. Why do we care of taxation? I can see that the money I suddenly can't choose to use due to taxation is a issue we all must tackle. I cannot, for the life of me, understand why we worry about how it is used. In the news lately, anyone with a online associates degree will arrive on the television and protest the use of the public's money in the recent "stimulating" acts of congress. I haven't seen anything that would suggest the money that is taxed from me going to the government is used for anything specific. The instantaneous restriction and subsequent expansion of the monetary system would lead me to see that all that is happening has to be the revenue services of our government are taking our money, placing it into a pile on the white house lawn, and burning it. At the same time, they print more and decide to use it for something that would make them happy. The distribution of wealth is a concept of child's play in that scenario. Someone please tell me that I am an idiot, and that I am missing the elephant in the room. Explain to me what i am missing!

Decreasing Trade Deficit Not So Good

In a recent article in the Wall Street Journal titled: “Trade Slump Spreads Pain Across Globe,” it was reported that the U.S. Trade Deficit has shrunk significantly to approximately $36 billion. This news should be perceived positively right? After all, it means that Americans are importing less foreign goods therefore reducing our dependency upon them and bringing the nation’s balance of payments closer to equilibrium right? Interpreting the data in this manner is misleading. The primary reason for a declining trade deficit can be attributed to the poor state of the economy. The current state of the Economy has discouraged everyone from the business sector to individual households from making additional purchases. All have scaled back and settled for only the immediate and necessary purchases. If times were good, economically speaking, most likely the deficit would be growing. The truth is that Americans are still highly dependent on foreign goods, especially oil which constitutes a large portion of that deficit. The United States will not see a truly significant decrease in the trade deficit until it provides alternative forms of energy to reduce its dependence on foreign oil. In the meantime, the decline in trade could actually be seen as harmful to all participating economies. The decrease in trade has been mostly among consumer goods that are more elastic to changes in market conditions. Assuming a basic economic theory to be true, that trade makes everyone better off, the recent decline in trade harms standards of living in all participating parties. Consumers in the United States have less consumer choices and their trading partners receive less income. Layoffs as well are becoming more frequent among parties. It is fast becoming a downward slope.

Trade Slump Spreads Pain Across Globe
http://online.wsj.com/article/SB123694710187818981.html

ABC's 20/20 Bailout Special

This last Friday, John Stossel of ABC's 20/20 news program had a piece called "The Big, Bad Bailout." I have provided a link to watch the 6 1/2 minute video here: http://abcnews.go.com/2020/. It talks about a ton of stuff that we have gone over in class. It shows a lot of clips of our current politicians explaining to the news media that this is a "crisis" that we have not experienced since the Great Depression, and that we need a stimulus package now, and we need it to be BIG!
As I first began to watch the show, I was pretty sure I was in for the normal "hell, fire, and damnation" story about the economy that is the norm in today's media. John Stossel, however, calls the importance and benefits of the stimulus package into question. He explains, and the news clips show, how politicians like President Obama say that when it comes to the need for the current stimulus package, there is a complete consensus among the economists of this country that it is important and vital to our recovery.
Afterward, however, John Stossel interviews a group of economists who all believe the stimulus package is bad, and not helping but hindering our recovery. He points out that a lot of the current stock market drops have immediately followed federal government press releases announcing more federal money to help struggling sectors. Investors really seem to dislike the government's help!
I thought the video was really informative and sums up a large portion of what we talk about on a day to day basis in class. I would really recommend taking the time to watch it.

Preventing the Next Fire While This One Blazes

According to the Wall Street Journal,http://online.wsj.com/article/SB123679308980797581.html#articleTabs%3Dcommentspreventing all future crises is not the goal. The goal is to prevent mishaps from burning down the world economy. I really agree with this issue. as article said, preventing all future crises would be the equivalent of banning stoves and furnaces. Here are three of the threshold questions that need pondering:

Who shall be saved, and who shall be allowed to die?
The goverment must draw a circle to identify which firms or kinds of firms will be saved.

How paternalistic should regulation be, and who should be the parent?
We're foing to get a gurdian even we know a gurdian could get mistake. The question is how much power to give it.

Can we install air bags in the financial system that deploy automatically?
There is the rules for each firms, so understanding each other would be the key.

Can the government really spend our money better than us?

We have been talking a lot lately about whether the government can spend our money better than we can. I don't know whether that is true or not, but they do spend our money differently than we would ever spend it. http://online.wsj.com/article/SB123707854113331281.html

The article that i have linked in this post explains how the government is giving our money to AIG. They will in turn be giving 165 million dollars in bonuses to executives in the company who have obviously done an outstanding job. Tell me that this is how we would spend our money. I would quote the article in saying that the use of our money in this way is "distasteful and difficult." We deserve to have our taxes go towards fixing the problem and not towards rewarding failure.

Am I the only one getting jipped??

So here's an interesting scenario for anyone who might be in the same boat. I am a full time student at SUU and am within a year of graduating. I was married about a year ago here and have planned to stay here as long as I can. When I married I realized that the play days were over and that it was time to get a real job. So for the past year I have been working full time at a factory at nights to try and provide for my family. A medical situation arose within my family that called for immediate attention. So in an attempt to try and stay afloat, we applied for medicade and financial assistance through the hospital. As a full time emplyee however, I was denied any financial help at all and was left with a $5,000 bill to pay. My wife and I started with literally nothing, not even a car, and to put up this kind of money, and to pay for school was impossible. So we are now paying every month for the next six years to try and dissolve this debt. Late, due to non-economic reasons, I was layed off at my work along with 100 other employees. They left us in a time of practically no chance whatsoever of finding something new, and especially something that would be enough for the bills we need to pay. So I applied for unemployment in order to get at least what ever i could. I was denied because I am a full time student and am not available for full time work. What??? I spent the last year working full time and going to school full time! So as a full time employee, I'm not entitled to government help with medical issues. But as a full time student, I'm not entitled to government help with being unemployed! Were I just one or the other i would have qualified. But I guess in our society you get punished for being more productive and working harder for your family to survive. The basic message I'm receiving is that to be more lazy is actually encouraged!! You are rewarded to be a bumb. Wonderful.....

Should Obama give every one $425,000??

It is always amazing to me what people will believe from the most random emails they receive. The only credibility they seem to rely on is something like how it's a person that they may have once associated with who took an economics class in junior high school. An acquaintance of mine was sucked into the same process by a certain email he received from a co-worker who was also his assistant scout master. Note that both of these men are truck drivers who at the most look at the New York Times maybe twice a year for the sports section! So in a random conversation that somehow made its way to the discussion of the current economic situation, he brought up this email that he had received about the latest stimulus package. Looking back on it i realize that the funniest part about this whole conversation was how converted he was to this idea! He told me about the 80 Billion dollar stimulus package that Obama was trying to pass and how he was using it all wrong. He explained to me that Obama should take the money, that would be used for bailing out large corporations, and split it up between the 200 Million working Americans evenly. If this were done, every person would receive $425,000! The people would be required to use the money to pay off all mortgages and other debts first, and that then the rest could be used in any way that they wanted in order to build the economy. What an awesome idea!! And this guy could not figure out why the government would be so dumb as to not see such a simple solution! Well i'm not big on trying to pull down other peoples views, at least not to their face. Plus i obviously wasn't sure myself whether it was a good idea of not. But obviously being quite hesitant to just except the idea, I asked Professor Tufte what he thought of the plan. A simple calculation of the numbers cleaned the matter right up. What turned out to be the truth is that obviously the stimulus was for 800 Billion to begin with. And if you divide 200 Million into 800 Billion, the answer is far from $425,00 per worker. It actually only works out to be . A further investigation on the subject lead to snopes.com where the issue was easily resolved. I never did tell my him about my findings, although i probably should. It is just astounding how easy it is for someone to read something that dumb and believe it so intensely.

Too Big to Fail…Really?

We have heard the phrase “Too big to fail” thrown around recently with all the talks of stimulus packages and bailouts. Obviously these companies weren’t “too big” to be immune from failure, but many individuals, and many in government argue that allowing a company of such size to fail would be crippling to the economy. This brings up two points I’d like to discuss. First, how do we allow a company to reach a point where it is too big to fail? I found a letter to editor from New York Times at the following link.
http://www.nytimes.com/2009/03/08/opinion/l08antitrust.html
As pointed out in the letter, Anti-trust laws are in place to protect us from large corporations who monopolize industries and destroy competition. Perhaps that definition needs to be expanded. Because even though there are more than 8,300 banks (according to a previous post: Nationalization of America’s Banks), and there is competition among them, I still think the American economy has been hurt in such a degree perhaps monopolizing banks would have been a better alternative? I certainly don’t think so. I think the solution is found in not allowing banks to become so huge. I think banks and other corporations should not have been allowed to acquire other companies, and been allowed to turn themselves into the monstrous giants they have become. I believe in economies of scale, but I think we have gone well beyond that at this point. In looking toward the future, politicians may want to rethink how we interpret Anti-trust policy.
My second point: I was also looking through to find data on the companies who had already received money from the first stimulus package (TARP funds). This list is found on at this link.
http://www.usatoday.com/money/economy/tarp-chart.htm
Take a look at the list and sort the companies by size of TARP funds received. The last Company on the list was the Calvert Financial Corporation which received $103,700 of TARP funds. I’d like to know how this company was 1) “Too big to Fail” and 2) how is that amount of money going to help out a financial corporation when that sum of money is not even enough to bail out former boxing champion Evander Holyfield? (http://sports.espn.go.com/espn/print?id=3428080&type=story)

Bizzare

I read an interesting, albeit a little morbid article from http://economics.about.com/b/2003/07/30/a-futures-market-on-terrorist-attacks.htm on a proposition of a program to induce a futures market based upon the probability of a terrorist attack on certain locations. In simpler terms, an idea was created to have people make bets upon the chance of a terrorist attack happening. Although the idea seems strange and morbid, I have to agree with the author that it may help in reducing the threat of terrorism. Futures and options markets are highly efficient, and are usually good predictors of where the stock market is heading. If a futures market existed for say, the risk of a terrorism threat to the Pentagon, it could help the CIA and Homeland Security understand the reason for the escalating risk, and ultimately reduce the risk. A problem I see with the program is the difficulty in assessing the dangers of a terrorist attack. The futures market is very efficient because stock market investors have access to an enormous amount of information on individual stocks. Terrorist threats obviously don't have balance sheets, income statements, dozens of financial ratios, etc. to accurately assess risk. Well anyway, this program was eventually denied, but perhaps it should be given a second thought, if we can find a way to fix the problems.

Nationalization of America's Banks

In Alan Blinder's article in the New York Times entitled, "Nationalize? Hey, Not So Fast", he argues that some of America’s banks are in pretty bad condition, but that nationalizing these banks might not be a good idea. He also acknowledges that some of these banks are "too big to fail". There may be many possible solutions to this problem, but nationalization should not be one of them. Many who are in favor of nationalization site Sweden as benchmark for the United States. It is true that Sweden was able to successfully nationalize its banks, but it does not guarantee that it will work in America. Sweden's government only had to deal with an extremely small fraction of the banks that the U.S. government would have to regulate, which is more than 8,300. It would also be difficult for the government to nationalize only a small number of banks and allow the rest to be handled in the private sector. Banks that are not nationalized would face a disadvantage in competing for funds with the government-backed banks, forcing these banks to pay higher interest rates to attract customers and their subsequent deposits, resulting in lower profits. Another problem that Sweden didn't have to face was the size and complexity of banks. Many banks in the U.S. hold billions of dollars in assets, causing more complications in managing these assets. If the government were to take control of the financial sector, banks would mirror the efficiency of the U.S. Postal Service, which anyone can tell you is a complete fiasco!! Finally, the confidence of the American people would plummet to all-time lows if banks were nationalized. It isn't American tradition to seek governmental help unless in dire straits, and nationalization would indicate that the financial sector is failing, resulting in less consumer confidence. Less consumer confidence would only deepen the recession and cause the stock market to continue its downward spiral. The government cannot be allowed to tinker with the free market. Every time it implements a new policy, such as the nationalization of banks, past history has shown that, although good intended, these policies make society worse off.

Media…The Source of the Problem.

The article, “Hopes of Quick Rebound in China Start to Fade,” by Andrew Batson in the February 26, 2009 edition of the Wall Street Journal, discusses China’s place in the current global recession. Because China’s stock market has had the best performance this year, hopes were high for them to lead the way out of the global recession. Steel prices have effected the expectations for the country’s growth, probably due to the fact that it consumes the most steel in the world. While steel prices have grown approximately 15% since November, they have declined by close to 9.5% in the past few weeks. Steel is a leading indicator for China’s economy; therefore, many people believe that the data produced in the past couple of weeks mean that the economy is not looking up. Another key indicator for the economy is their trade balance. Exports and imports have both declined. This is because international demand is down as well as domestic demand. A reason for this could be expectations. The title of the article attracts pessimism porn addicts, and disregards some aspects of the economy that are actually positive forces. News, like this article, could really be playing a big part of these plummeting expectations. An extreme solution to this issue could be restricting negative opinions of the economy; however, then it would be an infringement on the right of freedom of speech. Therefore, it seems our media is setting us up for a downward spiral of deteriorating economies.

Economy in worst fall since '82

According to the Wall Street Journal, http://online.wsj.com/article/SB123574078772194361.html#articleTabs%3Darticle more recent figure -- which represents the steepest dropoff since the depths of the 1982 recession -- raises pessimism among economists. Until recently, many had been hoping for a rebound in 2009 and now sound downbeat about the remainder of this year. As saying on the video, it would be too soon to say that this is the bottom of the recession. Growth in both Europe and the U.K. fell at an identical 5.9% annual rate. Japan said last week its GDP had contracted more than 12%. The U.S. exports declined at a 24% annual rate, compared with the 20% rate previously reported. This recession is worldwide, so it would be good time to learn other country plan for recession.

Bank Failures

On Friday the 15 and 16, two more failing banks were closed. These closes has required the FDIC, Federal Deposit Insurance Corp, to fund approximately $100.7 million to purchase the assets of these two banks. With the smaller banks failing the government has been forced to bail out the larger ones like Citigroup. “The government has taken control of 36% of Citigroup, which had already received $45 billion from the government.” Will the government have to take more control of the banks to ensure that the money we deposit is safe?
If banks don’t get their criteria for loans tightened this may have to happen to make sure that the population still has faith in the US banking system.

http://money.cnn.com/2009/02/27/news/companies/bank_failure/index.htm?postversion=2009022721

Bailout or Handout?

An article in The Wall Street Journal is talking about GM seeking 16.6 Billion more dollars in U.S. aid. The question arising in my mind is with them already receiving a portion of the pre-allotted auto industry bailout, why do they need more? It seems that companies are using the United States Stimulus package as a bargaining chip. GM has announced that they will be cutting 47, ooo jobs, they are going to be cutting 3 lines of vehicles (Saturn, Saab, and Hummer), these things are all being said to justify them asking for more. With talks of all this money floating around it seems to me that companies are using this as a time to recoup everything that they have lost over the past decade. They are looking for handouts, “U.S Giving away free money”, seems to be the viewpoint of many industries right now. With companies using threats to create wide spread panic for jobs, the government will be forced to take some kind of action. (The Wall Street Journal: Wednesday, February 18, 2009 “GM Seeks $16.6 Billion More in U.S. Aid”)

The sky is falling, the sky is falling!

In Don Feder's article, "Demographic Winter' Exposes the Century's Overlooked Crisis" the author talks about how population growth across developed countries have been sinking considerably over the last 40 years. The author states that fertility rates have gone down 50% since 1968. In Europe, for instance, the average birth rate is 1.5, whereas the replacement level needed to sustain the population is 2.1. When the baby boomers pass away, coupled with our declining birth rates, is it possible that real estate and equity investments might decline for the majority of our lives? I think not only is it possible, but quite likely. Developed countries require growth, and never in history have we had economic prosperity accompanied with depopulation. Japan is already one step ahead of the U.S., as they never had the baby boomer generation to provide that final push. Japan saw their stock market fall over 80% in the last 15 years and watched real estate slip 60%. If we see the birth rate in the U.S. slip below the replacement level of 2.1, it's hard to imagine how investments/real estate could return anything at all. Maybe Dr. Tufte is correct in saying home ownership isn't such a great and secure investment! http://www.humanevents.com/article.php?id=25723

Never A Clear Answer

The 2% Illusion

I'll admit that as I watched President Barack Obama's speech Tuesday night I did have a sense of hope that he truly did understand the importance and urgency of the current economic crisis. My boss's words were ringing in my ears from what he mentioned the day before, "Your second job may be your only job next month." As I listened to him explain how he was going to distribute rebates and not raise taxes for essentially the working and middle-classes, his idea of taxing those that make over $250,000 seemed fine to me. However, good intentions and hope have never made money appear out of thin air. "The 2% Illusion" takes the most recent data available from 2006 on the tax revenue generated from the wealthiest portion of tax payers (the same portion President Obama is now proposing we increase taxes on) and finds that if taxed even at 100% of taxable income (generating $1.3 trillion), that was not enough to cover even half of the governments fiscal budget. The current stimulus plan released today has a price tag of $3.6 trillion. That was conveniently left out of Tuesday night's speech. Simply put, yes the rich have deep pockets, but not that deep. It is going to be very hard for President Obama to sell his concern that he does not want future generations to have to deal with paying for the current debt if he simply does not have a viable way to come up with the money.

Obama calls for a reduction in the U.S. deficit???

Only days after signing the largest stimulus package known to man, as well as instituting a number of other costly bailouts to various market sectors, President Obama issued a statement that he has set a goal to slash the United States annual deficit in half by the end of his term. Mr. Obama inherited a deficit for 2009 of close to $1.2 trillion, which is expected to rise to more that $1.5 trillion given the initial spending from the stimulus package. I am not criticizing Mr. Obama for either of the two issues but I am having a hard time understanding how he is going to accomplish both of these lofty goals. With the economy being in its worst condition since 1982, the U.S. government needed to step in to provide some much needed relief and did, coming in the way of the bailouts and stimulus package. By doing so, the U.S. deficit took a extremely large hit, but this was the lesser of two evils, hoping that the $800 billion stimulus package would stop this downward spiral and spark some hope in the eyes of everyone across the world. Also, Mr. Obama has intentions to deliver this year on ambitious campaign promises to implement his health care and energy policies, which undoubtedly will add to the already enormous deficit. Mr. Obama also has plans in the future to reconstruct the country's education system by providing schools with increased funding and pay for teachers. I don't claim to be a very smart man but even a child can understand that a great deal of money will have to be provided to accomplish these goals and agendas. One way of raising the necessary funds to achieve his aspirations would be for Mr. Obama to raise taxes on the citizens of the U.S., which in these economic times would only act as gasoline on an already out-of-control fire. Another option President Obama has at his disposal, is to borrow even more money from foreign countries to finance his political agenda, leaving the tax payers, me and you, with more and more debt, with interest, to repay. This is a classic example of having your cake and eating it, too!!! It just can't work!!! The two major goals that the President is trying to achieve are contradicting!!! In a recent article published in the New York Times, Mr. Obama was quoted saying, "We can't generate sustained growth without getting our deficits under control." If that is in fact true, and I personally think it is the case, it is vital that we put all other agendas, policies and goals aside and focus on reducing the deficit to generate growth in the U.S. The stimulus package may in fact be necessary to stop this economic downturn but the line needs to be drawn somewhere!!! Everything that the government has done to stimulate the economy is water under the bridge and now the government needs to take a step back, focus on reducing the deficit, and let the economy run its course. This isn't the first recession we have experienced and it certainly won't be the last. The economy has always come out of the contracting state and this holds true for the current recession. Once we have weathered this economic storm and the U.S. budget has been somewhat controlled, then if the President want to look into these political policies, I see no problem. A good leader is one who can assess the current situation and make adjustments to the overall objectives to ensure the best possible outcome for his/her team, company, or in this case, country. Let's focus on the most important objectives, economic growth, and then work our way down the list when the time is more appropriate.

Treasury Finds No Rise in Bank Lending

This article, titled "Treasury Finds No Rise in Bank Lending", quotes the Treasury Department of saying that the largest recipients of the $700 billion stimulus plan did not increase lending to consumers in the last three months of 2008. Actually the lending in the last quarter of 2008 was stagnant or declining, even with the "$250 billion capital-injection program" in place to stimulate lending. As was talked about in class, these banks that are receiving the funds from the TARP program are for the most part keeping them to make their own books look good rather than lending the funds out to stimulate the economy as was originally intended. This hoarding problem has Congress pressuring the Treasury Department to find out what is going on with the funds given to banks. If the banks are using taxpayer dollars to make themselves look good, instead of loaning the funds out, the stimulus plan is, for the most part, ineffective. What are some possible solutions to this problem? The Government could put in place a contract with the banks to require them to lend out a certain percentage of the funds within a specified period. Another solution could be increase incentives (such as low interest rates) for potential home buyers to take out mortgages. In any case, the bank side of the stimulus plan is not working so far, so the Treasury Department and those in charge of this section of the plan must step back and re-evaluate their strategy.

The Inflating National Debt: Threat to U.S.?

With the passage of the recent American Recovery and Reinvestment Act of 2009 the annual budget deficit took another dramatic leap for the 2009 fiscal year. The deficit was originally projected at $1.2 Trillion dollars, but with the addition of the Stimulus Bill that figure has nearly doubled to a staggering $2 Trillion dollars. This giant deficit will most assuredly add to the already-massive National Debt which is already in the ballpark of $11 Trillion or 60% of GDP. Some fear this consistently increasing number threatens the solvency and sovereignty of the United States of America as a political state. Is this a reasonable concern? Is the solvency of the Republic in danger? The answer is no, the current debt is not a viable threat to the solvency of the state. Though we do not wish to advocate deficit spending, the fact of the matter is that the United States has faced budget deficits and national debt before. The current debt represents approximately 75% of U.S. GDP, yet has been much worse in the past. For example, post World War II the debt reached 130% of GDP. The U.S. debt fares pretty well in comparison to other countries as well, it ranks 23rd in National Public Debt. Japan by comparison, ranked 3rd, has a debt that is an unbelievable 170% of GDP. As outstanding the debt may be, the simple fact remains that no creditor is bold enough to call in American debt. This would only spur a chain reaction in which the U.S., and every subsequent country, would also call in their outstanding loans and the world’s financial system would be left in ruin. No country or creditor would dare inflict such chaos, thus no matter the size of the U.S. National Debt, the solvency of the United States will remain intact. That’s the blessing of being the world’s economic superpower.



"A Short History of the National Debt" By JOHN STEELE GORDON

http://online.wsj.com/article/SB123491373049303821.html?mod=article-outset-box

Obama Makes History By Using History to Create Fear

The $ 787 billion stimulus bill that President Obama signed into law will clearly be noted in history. The fact that he used history, by wrongly comparing our current situation to the Great Depression, most likely won't. The point here is simple: cooler heads prevail. Passing a bill fueled by fear might not be the best idea. The fact is that we are in the middle of an economic crisis. In 2008, we lost 3.4 million jobs or 2.2% of the labor force. The financial sector is in trouble and everyone is wondering which bank will fail next. Things are not good. If this were to continue for some time, could we end up in a situation similiar to that of the 30's? Sure, but do the current signs predict this? That is not clear. What is clear is that the Obama administration has no qualms about using fear to rush legislation through the democratic process. In 1930 durring the begining of the Depression, the labor force contracted by 4.8%, in '31 it went down by 6.5%, and in '32 it shrunk 7.1%. In 1933, thousands of banks failed. The point is our current situation isn't quite there yet, and saying we are on the brink of another episode of the Depression is less than truthful. Machiavelli felt that fear was a good tool for a ruler to use. Hovever, I am unsure if he ever considered the economic consequences. Fear may cause a decline in conusmer confidence which would hinder any type of recovery. Comparison of 1930's to 2008-09.

White Collar Birthplace Essential?

Professor Tufte explained in class, awhile ago, that there are distributional consequences of recessions. Usually workers who have bad or lazy attitudes, social pathologies, are tied to a location, are at the bottom of the income latter, or do not have skills are typically the first to be affected in a recession. The article, “The Jobless Go Back to School and, They Hope, Work” by Amy Merrick and Roger Thurow in the February 5th edition of the Wall Street Journal discusses the unemployment issue in Rockford, Illinois. Rockford is a small town near Chicago, Illinois. The unemployment rate in Rockford is approximately 12.5%, which is well above the Illinois state unemployment of 7.4%, and even higher than the U.S. average of 7.1%. The town is characteristically a manufacturing town, meaning that many of the jobs there are "blue collar." Not surprisingly, there has been little incentive for residents to receive higher education. Only 19% of the residents have a four-year college degree which is much less than the national average of 27%. Would this be the same in a "white collar birthplace?" The burden of the recession is much worse in towns like these, which just goes to show that the location one is born in can determine their future financial situations.

For a more sustainable U.S.

http://proquest.umi.com/pqdweb?did=1645605171&sid=1&Fmt=3&clientId=1670&RQT=309&VName=PQD Article wrote by David P. Chynoweth who is a professor emeritus of agricultural and biological engineering at the University of Florida. One of his suggestion is a heavy tax on unhealthy product such as tobacco, alcohol, foods with added sugar and alcoholic beverages. It would be good idea to heavy tax on unhealthy product, but low income people consume alcohol heavier than middle or higher class people so unhealthy product company would have hard time if it is happen. I think idea of "Education through undergraduate college level should be free for all residents" is good idea to be a more sustainable country because we can learn so much things in the University, so it makes country more productivity.