Yields on long-term government debt decreased to record lows on Friday, November 28. The rate dropped to 3.43% on 30-year and 10-year dropped below 3%; both of these rates are the lowest since the government has been issuing them. These low rates show that investors are still very careful, a feeling that will probably continue into December. Even with the low rates, there are still a lot of reasons to buy treasurys, they are every safe and secure, especially in a time where future economic data is, “probably going to be nothing but bad news.”
On the other hand, Bank-to-bank lending rose for the second day straight. An increase in such rates can have a greater impact on the entire economy, effecting both businesses and consumers.
Saturday, November 29, 2008
Obama Says Aggressive Economic Plan Needed
The United States President-elect Barack Obama said that he is busy formulating an “aggressive” economic plan for the next two years, saying that action is “needed to prevent a deep slump and falling prices,” which could result in the loss of millions of jobs. Deflation could increase the already massive debt further. This bleak and detailed assessment of the economy is his first since the election. Mr. Obama is receiving help formulating these plans from his economic team, which he just recently finished all the nominations.
Big Drop in US Consumer Spending
United States consumer spending fell by 1% in the previous month, the biggest decline since September 2001. The demand for “durable goods,” goods that will last at three years, fell 6.25%. Consumers are only buying the necessities and basics. Home sales also have a gloomy future, they are the lowest they have been in 17 years.
The decreases were greater than analysts had expected. They expect for the decline to increase as the year comes to an end.
The decreases were greater than analysts had expected. They expect for the decline to increase as the year comes to an end.
European Commission Pushes $256B in Spending to Battle Crunch
The European Commission wants the European Union to fight the economic slowdown with a €200 billion stimulus plan to increase both growth and confidence with consumers and businesses. The two plan calls for 27 European Union governments to increase spending to hopefully bring to an end the economic slowdown, which has pushed the EU into a recession.
The plan would be €170 billion from national government and €30 billion from the European investment bank; this investment will be 1.5% of the EU gross GDP.
The recovery plan has been called “big and bold, yet strategic and sustainable.”
OECD said that targeted and temporary tax cuts are necessary for help alleviate problems. Britain has decreased their VAT tax from 17.5% to 15%; however, both Germany and France have rejected proposals to decrease their tax rates. Germany said that they are waiting to see the effect of the €32 billion rescue plan that was announced recently.
The plan would be €170 billion from national government and €30 billion from the European investment bank; this investment will be 1.5% of the EU gross GDP.
The recovery plan has been called “big and bold, yet strategic and sustainable.”
OECD said that targeted and temporary tax cuts are necessary for help alleviate problems. Britain has decreased their VAT tax from 17.5% to 15%; however, both Germany and France have rejected proposals to decrease their tax rates. Germany said that they are waiting to see the effect of the €32 billion rescue plan that was announced recently.
UK Government Takes Majority Stake in RBS
The Royal bBank of Scotland said recently that the British government will purchase a majority stake in the bank, buying 57.9% of the shares. RBS said that is could possibly post its first annual loss. Under the terms of the plan, the government agreed to purchase any shares in which investors did not buy. The plan will be costing the government about £20 billion, £15 of it going into ordinary shares and £5 going to preferred shares.
This particular bank bailout is the largest part of a bigger plan the British government has planned to recapitalize banks. Some of the other banks receiving aid are Lloyds TSB and HBOS. RBS will be buying back the preferred shares as soon as it can.
RBS has been hit hard due to sub-prime loans and its purchase of ABN Amro bank.
This particular bank bailout is the largest part of a bigger plan the British government has planned to recapitalize banks. Some of the other banks receiving aid are Lloyds TSB and HBOS. RBS will be buying back the preferred shares as soon as it can.
RBS has been hit hard due to sub-prime loans and its purchase of ABN Amro bank.
Saudi Arabia Wants Oil Price at $75 a Barrel
Saudi Arabia said recently that it hopes to raise oil prices to $75 a barrel. They said that no measures would be taken until OPEC’s scheduled meeting in December taking place in Algeria. The Saudi oil minister said that OPEC will “do what needs to be done” to raise prices, stating that, “$75 is a fair price for oil.” Just last July; a barrel of crude oil was trading at its highest price of $147, now it is about $90 cheaper than that.
The justification for the price increase is to insure proper investment in the oil sector. If prices were to be increase somewhere between $70 to $80, then that would be a high enough price that would encourage development of new oil fields. If this doesn’t happen then it can lead to an oil crisis in the future due to the lack of investment.
For oil prices to increase to just $65, OPEC output would have to cut production by more than 3 million barrels a day, which is very unlikely.
The justification for the price increase is to insure proper investment in the oil sector. If prices were to be increase somewhere between $70 to $80, then that would be a high enough price that would encourage development of new oil fields. If this doesn’t happen then it can lead to an oil crisis in the future due to the lack of investment.
For oil prices to increase to just $65, OPEC output would have to cut production by more than 3 million barrels a day, which is very unlikely.
Will mumbai bounce back this time?
The Indian stock market reopened for trading today, after having closed on Thursday following the terrorist attacks in Mumbai, India’s commercial capital. After an initial fall, the markets were behaving normally once trading started, said a strategist working for a research firm. However concerns do exist that the attacks may have a longer-term economic impact.
This is not the first time that Mumbai has faced terror attacks. Each time the city has been attacked that city has only bounced back, that is the spirit of the people of Mumbai. The people of the city as well as the businesses in the city and the foreign investors rest assured that the city will not let them down. A standard Chartered Bank employee is quoted as saying “this time will be no exception.”
In my opinion it is clear that the attacks were just to destabilize the country as the attackers seem to have no other motive in particular other than just making their presence felt. Being from the city however, I feel like this time it is different. Mumbai is known to bounce back each time but this time the city seems shattered. It is or rather was the safest city in the country and now news clips show not a soul on the streets once its dark. I mean the city will definitely bounce back but I don’t think it will be like all other time when come Monday and people just carry on with their life and pretend nothing ever happened. This time I feel the impact is deeper hence I am not surprised when they say that the concern of a long-term economic impact exist.
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