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.

Have Keynesian Economists Been Delt the Perfect Hand?

With the latest news that GDP fell at the annualized rate of 3.8% in the fourth quarter of 2008, Obama and his administration are preaching the urgent need to pass the stimulus package currently before the U.S. Senate. There is however, a great deal of debate as to whether or not this package is heading in the right direction. It is large enough? Should it focus more on spending and less on tax cuts or vice versa? From this article it is plain to see that there are many opinions and some are very contradicting. Economist Debate But contradicting opinions can be helpful in the learning process. The way I see it is if and when this stimulus plan is put into place it may possibly be the perfect situation to truly test Keynesian Fiscal Policy. The question is: Are we willing to take a trillion dollar gamble? If not we could always turn to China and Russia. Vladimir Putin and his Chinese counterpart are publicly critiquing the U.S. macroeconomic policies. Maybe we should ask them for advice.

Spending Plan leaves many unstimulated

http://archive.columbiatribune.com/2009/jan/20090130comm003.aspAccording to article, suppose the value of all that we will produce in 2009, our gross domestic product, totals $14 trillion. There cannot be any disagreement that if Congress spends $4 trillion, of necessity there is only $10 trillion left for us to spend privately. In other words, if Congress is going to spend $4 trillion, it must find a way to get us to spend $4 trillion less. The most open and aboveboard method to force us to spend less privately is to tax us to the tune of $4 trillion.
Another method to force us to spend less privately is to print money and inflate the currency. I think tax and inflate the currency would not good way to do for this problem, because bottom of the income scale people suffer from inflate the currency and tax. I think people who are satisfied or happy with their life, would no problem to pay tax or inflate the currency. Goverment spend money to makes suffer people happy might make money more than they expect.

On the brink of collapse!!....., well, not really.

This article foresees doom for the sliding profits of the oil companies. Well, the profits are falling, but no one is talking about the potential collapse of the big names in global oil. Exxon posted a 33% fourth quarter earning shortage as compared to last year's Q4 earnings. It sounds rough, but I'm sure no one had been fired because the company only made $7.8 Billion in "Revenue-Cost". It is a volatile market for profits in the oil market right now, but when the question is "windfall profits or semi-windfall?", I would say it is safe to live in Texas for the time-being.

Kinda' Cool

Blogged gave you all a 7.6!

News for everyday life

It's hard to feel like this is breaking news anymore. The news that the price of oil hit a new all-time high is almost a daily occurrence anymore. This AP article is filled with all sorts of the economic principles we have discussed throughout the semester; supply and demand, constraints, etc. Relevant to our more recent study is the externalities of the situation. We are all intimately familiar with the effect this has on our personal, everyday lives. Just driving our personal cars is cramping our style and effecting our decisions. I'm not sure where the locus of control falls with this, but we should be aware of the effect these conditions have on all other aspects of life too. As stated in the article, with the rising costs of fuel, especially diesel fuel, the cost of anything transported by truck, rail, or ship is going to have to rise as well. Obviously, this affects everything. How's that for an externality?

Do Girls Cause Divorce?

In this article there were many things discussed about divorce. There is a lot of research and there are a lot of people reading the research to "create" facts. There is a relationship between low income and divorce but it is unclear which comes first. The part of the article I found interesting was that couples were more likely to get divorced if their first born was a girl. The other thing that I found alarming was that non traditional families cost the American people "$112 billion per year, or $1 trillion each decade" in taxes. That is money coming out our pockets. This statistic really surprised me. There are tax benefits to getting married and there aren't benefits to getting divorced. As I continued to read this article I realized that we all need to be careful of the facts we are believing, and the evidence that are supporting the conclusions. This article did a good job of explaining both sides in the end.

Economic Hypochondriacs Unite

Forget recession, bring on the depression, and make it a great one! I think there is a disconnect between the generation of Americans that made this one of the most influential in modern history and those that drive contemporary, mainstream opinion. Widespread diffusion of responsibly, spill over of the great society, and instant everything have changed the makeup of America’s character and I find it to be tragic. The greatest generation of Americans was born from one of the worst economic periods of our history, considering current sentiment, I welcome the forecasted economic downturn.

Squeezed By The Staples!!!

HELP HELP, the food costs are rising!! It’s ok though, because wages are also rising to offset… no wait, oh crap, only food and fuel costs are rising, everything else is unresponsive! Good thing these facts are kept under control with our exceptional MBA degrees that will undoubtedly land us successful high paying jobs no matter what the economy has to say about it right, right.

This little peach of an informative helps shed some light on our current inflationary saga. Interestingly enough the article begins by stating that the even Wal8Mart’s “Always Low Prices” aren’t so low these days and that around the world we are seeing food-related riots. That’s right, I am not just talking about the common food fight, these bad boys are riots! “Nearly every food staple has seen a double-digit percentage increase over the past year, including a 38% hike for a dozen eggs, to $2.16, and a 19% jump, to $1.78, for a loaf of white bread, according to American Farm Bureau data.” Basically the average American has turned into a coupon hunter. I don’t know about you, but it looks and is starting to feel like we have been thrown into a painful circle of, dare I say it, recession-linked inflation. Unfortunately for the consumer, all of the goods that are seeing price increases are staples, with little if any elasticity and discretionary spending. We need food, we need gas. Apparently we also need a big fat kick in the pants, or at least our pocketbook