US foreclosure filings up 71 percent in 3Q

The number of homeowners trapped in the foreclosure crisis grew by more than 70 percent in the third quarter of this year compared with the same period in 2007, according to data released Thursday. Nationwide, nearly 766,000 homes received at least one foreclosure-related notice from July through September, up 71 percent from a year earlier, said foreclosure listing service RealtyTrac Inc. By the end of the year, RealtyTrac expects more than a million bank-owned properties to have piled up on the market, representing around a third of all properties for sale in the U.S.

Six states — California, Florida, Arizona, Ohio, Michigan and Nevada — accounted for more than 60 percent of all foreclosure activity in the quarter, with California alone making up more than a quarter of all U.S. foreclosure filings.

The combination of sinking home values, tighter mortgage lending criteria and an economy that many economists think has already slipped into recession has left hundreds of thousands of homeowners with few options. Many can't find buyers or owe more than their home is worth and can't refinance into an affordable loan, with the global credit crisis making loans far less available.

It remains to be seen how much the government's intervention will stem the housing crisis. Earlier this month, the Federal Housing Administration launched a program that aims to prevent foreclosures by allowing homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan. The bill is projected to help about 400,000 households.

Reference: Yahoo Financial News

France Public Choice could be used in the US?

The France government have set up public bike rental stands in Lyon France. Though this article is not directly about the economy, but its a public choice that France has made, and I personally think its a very good and clever one. One of the users of this public good is quoted as follow in the article:

“Rates are quite low, more or less around 1€ per hour.”
“The first 30 minutes are free - to encourage small commuting and the rotation of the bikes at the numerous stations.”
“Bikes are really heavy but the ride is pretty smooth, they have two drum brakes, 3 internal gear, lights and a small lock.”

Having public bike rentals can solve many of our current problem, First the current energy problem, a bike could be a lot cheaper than driving and the first 30mins in free. One might consider driving into a city because they could drive from spot to spot, but with rental bikes one could just ride the bus to the city and commute with the bike with out worrying about parking, gas etc... There's a lot of positive externalities to this programs also, with more bikes available people will bike more, promoting a healthier life style and possibly save on health care costs for the government. With more people biking as a way of commuting there's less pollution making for cleaner cities. I think this program could be a great idea and see whether our city could follow France's example and start riding and beside who doesn't like riding a bike?

Current commitments and decisions leaves the next president with his hands tied

As Congress passes the $700 billion bail out, and the military commitment overseas for the United States, Howard Fineman sees limited options for the next president. Neither canadaite will "cut and run" on the Iraq war, and internationally countries like Isreal are looking for the U.S to play larger roles. These commitments all costs and money and ss the U.S is running further into debt and with foriegners holding bear $3 trillion government debt it will become harder and harder for the U.S government to leverage money.
This articles should keep the hopeless optimists in check, letting them know even if they selected the right man for the job, either Obama or McCain, the president might not have the power to turn the economy around, this problem might require a long term fix.

3 Oil Countries Face A Reckoning: Fall in Prices Threatens Big Political Visions

I want to bring here another piece of information from the oil industry. As oil prices drop, 3 oil countries: Venezuela, Iran, and Russia are facing a lot of difficulties pursuing their political ambitions. For all three nations, oil money was a means to an "ideological end":
- Venezuela: Its President Hugo Chávez's goal is to build a socialist-inspired state, and suppress opposition. Venezuela used petrodollars to buy Russian weaponry, to win friends in the hemisphere and elsewhere (nations that are also anti-America in a sense), and to create a wide array of social welfare programs. Problems right now with Venezuela: high inflation rate (36%), while heavy government deficit once oil prices fail. "We're in the same situation of people who have lost a limb but can still feel it," said Ricardo Hausmann, a Venezuelan economist who teaches at Harvard University.
- Iran: Another nation that is very dependent on oil money. It has used them in the past four years as a political and economic weapon to defy and undermine the West while promoting its own agenda (spread its influence in Iraq and then the Middle East, promote itself as the leader of the Islamic world and continue its nuclear program) Almost same problem with Venezuela, the inflation rate in Iran is very high (30%). "It's not expected that economics will force Iran to change its underlying ideology-long-term goals. Still, if prices stay depressed for long, it could mean a greater willingness in Tehran to find a compromise on the nuclear issue, and, perhaps, a political shift that left Mr. Ahmadinejad vulnerable in June's presidential election.
- Russia: Russia was willing to use its vast energy reserves to try to reassert the dominance it lost with the Soviet Union's collapse. As we might remember, two months ago when Russia invaded Georgia, almost no nations really do anything. Europe had become dependent on Russia's gas and couldn't afford to mount a strong challenge. Now that Europeans may no longer be as intimidated because of the drop in oil prices, Russia's goal is being threatened.
Almost every country is in the trial process to see what economic system would work. With the oil prices effects, the systems in Venezuela, Iran and Russia will need to try hard to prove whether it is viable.

Falling oil prices - OPEC's emergency meeting

As consumer confidence falls and aggregate demand drops, so do oil prices. Oil prices have fallen 40% since its peak of $147 per barrel in Mid-July. "The OPEC basket, a blend of OPEC crudes, dropped through the psychologically important $80-per-barrel level, to $77.38, on Oct. 9." OPEC has called for an emergency meeting in Vienna this November on Oct. 9, but now has just moved its emergency meeting even earlier, to Oct 24th. Public is eager to see whether an output cut will happen, and to what extent it will be. OPEC is a so-called cartel, containing the Saudi Arabia and its Gulf allies, Iran and Venezuela. According to "Behind OPEC's November meeting in Vienna" in the BusinessWeek, Venezuela president has just moved to the Saudi Arabia's side. So now the two main players of this meeting will be the Iranians, who want to have a huge cut (they favor a $100-per-barrel floor prices), and the Saudis, who believe that such a cut is absurd and will make the current economy even worse.
If you are interested, here are a few articles that you can have a look at.


The Economist: OPEC's emergency meeting



The BusinessWeek: Behind OPEC's November meeting in Vienna

To Save or Not to Save

My mom made an interesting comment the other day, about how it was too bad Lehman Brothers didn't fall apart later, so that they could benefit from recieving a bailout from the government, like AIG. What was interesting about her comment, is that, yes AIG did recieve a government bailout, however, the repayment terms of the bailout are so steep, that inevitabley the insurance giant will go bankrupt paying it all back. I know this because my dad, who worked for AIG for 20 years up until this time last year, now works for AIG's former CEO Hank Greenberg, who sent out a letter to the employees of his company CV Starr, explaining the details of AIG's bailout, and how it was bring down the company in the long run. He wishes to save AIG, and proposes new terms for repaying the bailout.

So the real question is, is it worth actually bailing out a company, if it only just prolongs the day they have to close, instead of helping to keep them open indefinately? Or is this the price a firm should pay for reckless behavior

Malaysia reveals plan to prevent slow down

Malaysia has unveiled a number of measures to boost its stock market and attract more foreign investment in expectation of slower growth in 2009.
The government will invest 5bn ringgit (£814.4m; $1.4bn) into a state agency that will invest in undervalued stocks.
Malaysia's stock market has plummeted 37% this year.
The government will also speed up market liberalisation and ease rules concerning foreign investors buying industrial land and property.
Despite the action, Malaysian finance minister Najib Rasak has denied the country is in the grip of a financial crisis.Malaysia is expected to reduce its economic growth forecast of 5.4%. The Malaysian Institute of Economic Research has said the growth rate could fall to 3.4% next year.

In Times of Crisis, Buy Stocks.

Warren Buffett wrote an opinion piece in the NYT with advice that seemed contradictory to what I thought people would do during a major economic crisis with an unstable stock market -- buy more stocks. And not stock in foreign companies, where the money might be 'safer', but American stocks, the value of which are changing wildly every second.

Some of his arguments:

• He follows his own rule of: "Be fearful when others are greedy, and be greedy when others are fearful." When the stock market was at its prime, and investors were reaping billions of dollars of returns, he had his personal account put into secure government bonds. Now when everyone is fearful, that's when he is buying.
  
• People should not overlook the long-term prosperity of sound American companies, despite short-term uncertainty.
  
• "Bad news...lets you buy a slice of America's future at a marked-down price."
• After all that's happened to America in the past century (wars, a depression, an epidemic, etc) the stock market has continued to go up.
  
• People are holding cash right now to feel safe, but they shouldn't because it's a "terrible long-term asset". Especially after the potential inflationary effects of the bailout plan. Instead: equities, equities, equities.

I guess this is a form of long-term speculation but it also sounds like common sense. One's first instinct might be to pull money out of the market while they can before the value declines even further, but the better solution might be to wait out the crisis, and even add to that stock because now it's cheaper.

Then again, it may be only a certain number of people that have that much optimism and can afford to buy stock and wait for an unknown time before seeing any returns. Most people have immediate bills and loans to pay off and they need as much cash as they can get now.

In any case, Buffett sounds optimistic about the future (American optimism?), which may instill confidence amongst investors and the American public. (Well, probably the global public because of globalization and all). And I guess when one of the world's richest men tells you what he's doing with his own money at this time of crisis, you'd be silly not to at least consider what he has to say.

Japan's current account surplus halves in August

Asia's largest economy posted a surplus of 988.8 billion yen (9.7 billion dollars) in its current account, the broadest measure of trade in goods and services, down 52.5 percent from a year earlier.
Japan's economy suffered its worst contraction in seven years in the second quarter of this year and there are fears that it is now in a recession.

China's economic growth rate slows down

The country's economic growth rate has fallen for the third quarter in succession. Its current growth rate is 9%, as compared to the previous 10.1% over the previous quarter. The Chinese government has started some measures to prevent the economy from plummeting. These included changing its focus from preventing the overheating of the economy and preventing structural inflation to the "preserving growth" and "controlling" inflation. Inflation is kept under control. The National Bureau of Statistics also announced that consumer price inflation had cooled to a 15-month low of 4.6% in September. In February, the inflation rate had hit a 12-year-peak of 8.7%.

Automakers Hit Hard

Chrysler has reduced construction of vehicles. They are now only producing Jeeps and minivans. The company has already cut over 64,000 jobs. Now the Chrysler CEO is talking to the GM CEO to make a deal.

The marriage of the companies would be beneficial for both sides. Chrysler owner Cerberus Capital Management no longer wants to be in the business. And GM CEO is in desperate need for credit. The GM is facing is keeping enough funds while the market rebounds.

2009 is projected to be an even worse year for automakers and analysts have lowered their prediction to only 13 million vehicles being sold in the US; this is a 3 million vehicle drop from 2007.

Joe the Plumber is Safe

Throughout the debates John McCain has been claiming Obama's tax increase would hinder small businesses. However, according to CNNmoney McCain is using too narrow a definition for small business and does not have his numbers right.

Out of 34.7 million small businesses only 479,000 would have an increase. This number is less than two percent. Also, the term small business is a very broad term. McCain and Obama file as a business because of their book royalties, but neither own a business.

Only the upper two brackets would face a tax increase. Small business owners who bring in an income above 150,000 dollars as a single filer would pay a little less than 2,000 dollars more each year. The bracket would move from 33% to 35%.

Therefore, Joe the Plumber can start his business and sleep easy at night about taxes.

Cities Slash Services

This article goes into detail on why some cities are cutting services. Between the suffering economy and the mortgage crisis, cities are being forced to cut expenses because of lower tax revenues and investment returns lacking. Problems in the economy today are forcing changes some would not expect. In Oakland, California the public library is cutting programs for the elderly and disabled, bookmobile, and literacy programs. Cities in the Midwest can expect more snow on the roads this winter because a spike in road salt prices. In Aspen, Colorado the city is delaying the construction of a $360,000 foam pit for snowboarders practicing tricks in the city gym. In Phoenix, the city will not be able to afford trimming of all palm trees, and will limit trimming only on major roads.
In response to hard times, cities are also trying ways to generate more revenue or saving their money. New Jersey governor, Jon Corzine, is telling cities to start combining some of their services or they will be penalized by a reduction in state aid. In Chicago the city is giving workers 3 more unpaid days off work, which is said to save 20 million. New York is considering selling ads on the sides of garbage trucks and street sweepers to raise money.
I think its too bad that our poor economy is going to affect people in ways they may have not considered. Changes are defiantly being made, and some of them good. It is a good thing that cities are opening their eyes and looking for ways to be more efficient and alternate ways to generate revenue.

China 'can be engine of growth'

The American economic crisis was transmitted to the world through global financial markets, and many economies of different countries has been largely influenced. Resolving this crisis, according to Linda Yueh, will require rebalancing the global economy.

As China has $2 trillion in foreign exchange reserve, it has become a significant source of global savings. Even though the econmic crisis has slowed down China's economic growth, it is definately in a position to help with the credit crunch in the West as well as serve as an engine of growth.

Western goverments must borrow to help with the crisis, as increasing taxes is not advisible in a downturn. Borrowing large funds would mean an increas in future taxes and interest rates (contractionary policy), which could hinder econmic growth. Instead of borrowing from China and other countries, it would be much more helpful if the soverign wealth funds of these countries invest directly in western markets.

Meetings

One of the most important points I find in this article is the question as to how this new "global financial order" is going to affect the consistent demands of less developed countries for a new global financial order. Developing countries have systematically complained through forums such as the UN, the WTO, and various multilateral trade negotiations that they are being systematically discriminated against by the existing economic order as it is imposed by developing countries. It will be interesting to watch as to whether the seemingly inevitable changes made to the economic order will be beneficial to these developing countries or harmful. They could be beneficial because with the failure of the current system, other recommendations could be more willingly heard. However it could also be harmful because developed countries could concentrate solely on shoring up their own prosperity more securely and soundly, a situation that would most likely harm the efforts of those developing countries trying to change the system in their favor.

Great Leap Forward in China

Since we have learned about how plannings theoredically worked in socialist countries in the class, I would like to share what it really looked like in the real world with an example of China's Great Leap Forward.

In China, Mao Zedong started Great Leap Forward, an economic and social plan used from 1958 to 1960 which aimed to use China's vast population to rapidly transform mainland China from a primarily agrarian economy dominated by peasant farmers into a modern, industrialized communist society.

Following is 18 min video about process and result of Great Leap Forward. It's very interesing. ENJOY~ :)