Recession Takes Toll on Living Standards

The recession has slashed families' earnings, increased poverty and left more people without health insurance, according to the Census Bureau's annual snapshot of living standards. The report Thursday offered sharp evidence of how much the falling economy has touched Americans across incomes and races.

Cautiously, Small Investors Edge Back Into Stocks

For anyone that lost money in the stock market this article gives hope to small time investors.  Despite many Wall Street analysts predicting individual investors to be “dead for years,” people are beginning to invest again.  The article tells the stories of several individuals and their families who lost thousands in the Wall Street decline, who are now investing again.  I wonder what they are investing in. 

For Gorman, a Test of His Leadership

This article is about the stepping down of Morgan Stanley CEO John Mack, and the appointment of new boss , 51 year old Australian born, James Gorman. James Gorman has an impressive resume which includes: Merrill Lynch & Co., McKinsey & Co., and now Morgan Stanley.

Read on...

Trade Gap Widens on Jump in Imports

The gap between imports and exports grew 16.3% in July. This may indicate that global trade is bouncing back from the recession. Even though the trade deficit is larger, the increase in imports and exports could mean that the U.S. Economy is strengthening. It is thought that stimulus programs such as "cash for clunkers" contributed heavily to these increases.

5 lessons from the crash

This article published in the CNN money magazine talks about the lessons which the American public must learn following the economic disaster. It was the worst financial meltdown since the 1930's affecting any and all kinds of financial institutions. The government tried to keep it under control by taking over various banks and insurance agencies. Here is the list of 5 lessons which the article talks about:

1. Asset allocation still works:
Diversification is essential for any sort of investment. You should not restrict yourself to just stocks and bonds but also look for other investments such as hedge funds and foreign equities.

2. The world is riskier and will stay that way:
Those days are over where you could expect to earn profits over long periods of time. Now you need to be aware of the inherent risks out there and need to adapt accordingly.

3. Real Diversification is harder to achieve than it looks:
Again you need to be aware markets in and out. Just investing money with diversification doesn't guarantee success.

4. Recongnizing a bubble is hard. Hedging against one is harder:
The moral is to not bet against meltdowns. It is almost impossible to predict them. You should try to invest proactively.

5. You can't time the market. But you can time yourself:
Again, predicting markets is hard. Instead try to be reactive to different market signals and act accordingly.

Obama calls for Congress to face health care challenge

UN Attacks Capitalism

Frustrated with the Fed's monetary policy, the UN has announced their disdain for the United States' free market system. Because the dollar is the primary international reserve asset, they wish to reform the system so that there is a new fiat currency for all nations to use to make international payments. The motivation behind this action is that attacking the issue of climate change will require a more international coordination, which the proposed system could provide.

Why the Unemployment Rate Isn't Falling Anytime Soon

To continue discussing the unemployment rate, as we have been, I thought this article would provide insight about why the unemployment rate is so high. Namely, the unemployment rate has not risen so much because of job loss, but because people are having a harder time finding a job. This, and other facts, could help us make normative decisions about how to assist in lowering unemployment.

Swiss Topple U.S. As Most Competitive Economy

Switzerland tops the overall ranking in The Global Competitiveness Report 2009-2010. The United States falls one place to second position, with weakening in its financial markets and macroeconomic stability. The U.S. is slipping to number two for the first time since the introduction of the index in its current form in 2004. Singapore, Sweden and Denmark round out the top five. European economies continue to prevail in the top 10 with Finland, Germany and the Netherlands taking the next three places.

Obama Says Rule Changes Will Make Retirement Savings Easier

What is the role of the government in retirement savings? The governments goal is to make the process easier and more streamlined, but should the government get involved with personal retirement investment decisions?

Sustainability - Consumers and employees have made a strong business case for firms to adopt sustainability

The concept of sustainability came on to the corporate agenda via the UN World Commission on Environment and Development (more commonly known as the Brundtland Commission after the name of its chairman, Gro Harlem Brundtland, a former Norwegian prime minister). The commission, set up in 1983 to address growing concern about “the accelerating deterioration of the human environment and natural resources, and the consequences of that deterioration for economic and social development”, introduced the idea of sustainable development, which it famously defined as development that “meets the needs of the present without compromising the ability of future generations to meet their own needs”.

Google's Ex-China Head to Fund Start-Ups

SHANGHAI — Three days after announcing that he was resigning as the head of Google’s China operations, Kai-Fu Lee said Monday that he had raised $115 million to create a company that would finance high-tech start-ups in China.

eBay Sells Skype: Looks to Adapt to Changing Online Market

It may come as news to many, but the popular online telephone service Skype was, until just recently, owned by the online retailer eBay. Skype was originally purchased by eBay and was envisioned as a way to make communication between its buyers and sellers easier. Although Skype never produced results for eBay, the company now has over 480 million users. Bringing in $170 million in the second quarter, Skype has demonstrated that it is a viable company that is ready to grow as its own entity. The buyers, a consortium of private-equity and venture-capital funds, paid a whopping $2 billion dollars in cash for a 65% stake in the VOIP giant. The decision to sell Skype comes as eBay reevaluates its business and where it will go in the future. Decreasing sales due to the current recession and a new online consumer preference to purchase items at set prices has halted eBay’s growth. To give an idea of how significant a shift eBay is working through, they recently reported a 7% decline of year-on-year quarterly revenue, the first ever for eBay. To adjust to the new online market landscape eBay has made an effort to highlight its fixed-price items and prominently display highly rated sellers in search results. Will these changes keep eBay a relevant online market place? The popularity that Twitter and Facebook now enjoy is nearly identical to what eBay once experienced. Surviving past the initial growth is proving to be more difficult for eBay. When a new technology enters the market it can take off like wildfire. Some technologies become pillars in the economic system and others fall by the wayside. The current situation that eBay is in shows how important it is to keep innovating and changing for businesses and technologies.

Efficient Markets Hypothesis or Behavioral Economics?

This comprehensive article examines how the efficient market hypothesis (EMH) shaped the financial models that contributed to the current economic recession. As the movement behind behavioral economics continues to grow, many people are asking which theory describes reality better. EMH assumes that the price of a financial asset takes into account all relevant information and is very close to the actual value of the asset. Following this assumption, many new financial models were developed that all rested upon the idea that prices never strayed from equilibrium for long. Banks decided to keep less capital on hand to cover their risk because a “bubble” would not occur according to EMH. When the market did crash, there were not enough assets to cover all the losses and banks failed. Some see this as proof that EMH does not explain the market’s actions accurately and they suggest that behavioral economics can better describe what happened. Describing the actions of thousands of individual sellers and buyers is a lofty goal for any theory, to be sure. But it is important that we step back and investigate why things happened like they did so we can know what to look for in the future. Whether the current recession was due to bad models or poor judgment it is clear that we are not yet able to “see” most of what is going on in our economy.

College Grad Can't Find Job, Wants $$$ Back

Mexico economy contracts record 10.3 pct in 2nd qtr

In this article, the author describes an outrageously big contraction of the Mexico economy, which is expected to reach seven percent for this year. The important thing to notice is that a major part of this decline is attributed to the economic downturn in the United States. 80% of Mexican exports go to the United States, where the demand for goods manufactures in Mexico is low right now.

More importantly, according to the author, the shift in spending pattern of the Americans towards saving, can fundamentally affect Mexican economy in the future. It is worth mentioning, that this interdependence exists due to the NAFTA, which is an agreement signed by the US, Mexico, and Canada. The agreement has as its ultimate goal the elimination of trade and investment barriers among the three countries.

The question is, whether the described situation can be regarded as one of the market-based economy failures. I think that such severe susceptibility to outside changes can be regarded as one of the drawback of the market economy, as it encourages free flow of goods, services, and investment, which, in turn, prompted Mexico to sign NAFTA. However, at the same time an uplift in the Mexican economy can be attributed to the same connection with the US economy, which brings us to another market economy drawback, which is susceptibility to business cycles.

• SEPTEMBER 5, 2009

GOP Uses Job Data to Attack Stimulus

By JOHN D. MCKINNON

WASHINGTON -- The rise in unemployment last month muddied President Barack Obama's case that his stimulus program is lifting the economy, and Republicans seized on Friday's jobs report with an eye toward the 2010 midterm elections.

Many indicators suggest the economy is in fact, on the mend, including data showing the pace of job losses slowing. But the number that draws the most headlines -- the jobless rate -- worsened in August, rising to 9.7% from 9.4% in July. And Republicans said that showed the limits of the Democrats' stimulus plan.

"The administration said its bloated 'stimulus' would create millions of jobs and keep the unemployment rate from going above 8%," said House Republican Leader John Boehner of Ohio. "Instead, unemployment has now soared to nearly 10%, millions of jobs have disappeared, and massive new debt has been needlessly piled on future generations."

Even as the August report showed a deceleration of monthly job losses, Republicans have stepped up their attacks over the economy, and especially unemployment. They contend that Democrats have taken their eye off the economy -- a major issue for voters -- as they try to push through long-term initiatives on health care and climate change.

Coupled with last month's projections of higher long-term federal budget deficits, the monthly unemployment spike could complicate these Democratic efforts. Republican critics have argued that both measures would increase job-market weakness by imposing new costs on many employers. And they argue that even if stimulus has ameliorated the recession's impact, it isn't worth the long-term fiscal cost.

The White House held a series of events this week to trumpet the effects of its $787 billion stimulus package. Speaking by satellite link to workers at a California solar-panel plant, Vice President Joe Biden on Friday said the jobs report showed the U.S. economy is "making progress." He cited economists' estimates that the stimulus package has created or saved between 500,000 and one million jobs so far.

White House press secretary Robert Gibbs said the administration's recovery plan "is in many ways doing more than we thought it would do in terms of cushioning the blow and in cushioning the downturn of an economic recession...creating an economic environment for the lessening of job loss."

The Republican congressional campaign committee has been running ads in select Democratic districts hitting on the jobs issue. Recent GOP ads have targeted Reps. Tom Perriello and Rick Boucher of Virginia, Ike Skelton of Missouri and Vic Snyder of Arizona. On Friday, the committee sent a news release to media in 54 districts where the GOP views Democratic incumbents as vulnerable, asking: "Where are the jobs?"

Republicans believe governor's races in hard-hit Michigan and Ohio could also turn on the employment situation next year.

The Republicans' radio address for the Labor Day weekend is slated to focus on the potential dangers to the job market posed by a plan sponsored by Democrats to overhaul the country's health-care system.

Democrats are also highlighting other measures adopted with the aim of helping workers, such as a minimum-wage increase and greater workplace, health and other protections. "Our nation's workers have been battered by stagnant wages and an indifferent Bush administration," said Rep. George Miller of California, chairman of the House Education and Labor Committee. "Last year, Americans demanded a change and we are working every day to bring that change."

It remains unclear whether a potential job-market turnaround would occur quickly enough to satisfy voters. "Unless things change dramatically, job losses will continue and the unemployment rate will keep rising for a significant period of time after the formal end of the recession," said Chad Stone, chief economist for the Center on Budget and Policy Priorities, a progressive think tank.

John Sweeney, president of the AFL-CIO labor federation, said Friday's report showed the need for "further investments" by the government to create jobs. A number of advocacy groups are calling for more jobless benefits.

Write to John D. McKinnon at john.mckinnon@wsj.com

Printed in The Wall Street Journal, page A2

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Will the Fed Play Politics?

Abstract: The article discusses the U.S. Federal Reserve Board, and its efforts to mitigate the global financial crisis that began in 2008. An argument is presented that Ben Bernanke, the board's chairman, will have to stop increasing the flow of money into the economy in order to avoid inflation. Topics addressed include interest rates and unemployment rates.

The Incredible Shrinking Surplus

This article discusses the current trend of China's large account surplus diminishing. Some economists believe that the Chinese account surplus was a root cause of the current financial crisis. Therefore, financially speaking for the rest of the world this is seen as good news. However, as the article goes on to discuss, many people are wondering how accurate China's figures are in this sudden shrinking of the surplus. China is somewhat notorious for having less than perfect economic statistics, so how reliable is this data? The article goes on to discuss possible ways for the Chinese statistics to be off, and a conspiracy theory is even mentioned.

Wall Street Pursues Profit in Bundles of Life Insurance

This article is talking about how the current state of our economy and the recent past economic downturn has effected the amount of profit Wall Street is earning. However, they are planning on purchasing the life settlements mentioned in the article and packaging them together into bonds and selling those bonds to investors that will eventually receive payouts when the elderly or ill person who originally sold the settlement passes away. I am not sure if I agree that this will be a successful way of gaining profit because there will be a high risk if the ill or elderly person who sold the insurance outlives their life expectancy, because the way this plan works is the sooner the person dies, the higher return the holder will get on the bond.

Also, I agree that it will be difficult for customers in the life insurance market, too, because, as stated in the article, most people let their life insurance lapse before they die, which would make the plan for Wall Street impossible.

Along with this, they are worried that it will hurt insurance companies. I agree with this and believe that it will because when people decide to go through with Wall Street's new plan, then people keep their policies longer, which means more payout for the insurance companies and less money for the company.

All in all, I do not agree with the new plan. I think it will end up hurting insurance companies and possibly those who decide to purchase the bonds, because of the risk out outliving the insurance holder's life expectancy.

Taxing Rich Wouldn't Close the Gap but would Shrink it

This article in the Wall Street Journal talks about President Barack Obama's plan to cut the federal deficit over the next 10 years. The federal deficit is expected to be around $9 trillion even if the President's policies were to work. Obama plans to undo the Bush tax cuts for upper-income Americans and create a health-care plan that doesn't widen the deficit over the next decade.

President Obama is expected to increase the tax on the richer Americans which is in contrast to what President Bush did in his 8-year tenure. People in favor of the new policy argue that the rich would indeed have enough money to pay the taxes without hampering the economy. Opponents of the plan argue that the tax increase would choke off growth and massacre small businesses in the country. However, previous figures show that increasing the tax on the rich would in fact help the economy more than hampering its growth.

Another point of debate is the possible efforts by the richer Americans to hide or under-report their income if the taxes were to be increases. At the current rate of tax, the government is expected to raise around $7 trillion in the next decade. In order to raise the additional $9trillion, the tax rates need to be increased to an astonishing figure of 68.9% which seems highly unlikely at this point.

The bottom line to the whole debate is which method would be best for improving the economy. It could be either raising or decreasing the taxes!

Gold Trades Near Six-Month High as Dollar Falls; Silver Slips

The price of Gold is rising on a daily basis, and on September 4th 2009, it traded at a six month high! As the value of the dollar falls, consequently the value of gold rises. This was seen as the value of the greenback fell by 0.6%, with the price of gold hitting the value of $999.50.

This article reminded me of the time when gold was a monetary value and was traded as a basis of fiat money. After World War I, through the Bretton Woods Agreement, gold was substituted by fiat money. However, with the rise in gold and the decline in the value of the dollar, it almost feels as though gold as an asset is back and is here to stay!

Analysts believe that the value of gold will continue rising till early 2010, and then reduce in value as the US dollar gains importance.

Read on...