The demise of the free lunch

This article reports on how the Cuban Communist Party is beginning ease the role of the state in providing everyday essentials to the people of Cuba. In a dramatic departure from the policies of Fidel Castro, workers will now need to find lunch on their own after more than 24,700 workplace canteens close. Bankruptcy is on the horizon for Cuba and in an effort to save money the ruling Communist Party will now pay workers an extra 16 cents a day in compensation for the closing of the free canteens. This type of individual reward is almost unheard of in a Cuba that has, for a half century, experienced social provision of everything from rent to wedding cakes. This extreme level of state subsidy comes with a price though and Cuba is not going to be able to keep it up much longer. As Cuba’s president Raul Castro aptly points out, “Nobody, no individual or country, can indefinitely spend more than she or he earns.” This new line of thought in Cuba is spurring discussion among its citizens on whether this new direction is the right one. Some feel that it is time to make the country more efficient while others fear that Cuba will digress into a market economy eventually. By giving workers more pay and removing the free canteens Raul Castro seems to be acknowledging that material incentives are more effective than the ‘moral incentives’ that Fidel Castro had encouraged. It will be interesting to see how the Cuban economy changes in the coming years. As future generations become more removed from the revolution of Che and Fidel, I suspect that ideas on the role of government will begin to change within Cuba.

Rich Germans demand higher taxes

This article is rather unusual, in that it talks about richer Germans petitioning the government to raise their taxes. I say unusual, because never in the United States has such a thing happened where a group of rich people demand the government to raise their tax rates.
"The group say that they have more money than they need, and the extra revenue could fund economic and social programs to aid Germany's economic recovery."

Germany has the capacity to raise huge sums of money, nearly equaling 100 billion euros if such a thing becomes a reality. The group of rich Germans who are petitioning for this tax rate are concerned with the poverty, unemployment and the social inequality. This is in contrast to the American public who despite their concern would never want a tax hike for the richer people. In fact historically, tax rates have been lowered for the rich over the years. That also shows the welfare nature of the German economy who despite being capitalistic in nature show hints of their older ways of running the economy, which was social welfare and to a certain extent social inequality.

China: Economy May Slow Down Next Year

This article points out that China’s economic growth is unsustainable and may decrease in the future. Even though the rate is still going to be very high, China needs to have a higher rate so that it could become one of the most developed countries in the world by 2050. Such a decrease in growth can be explained by China’s exports, which fell 15.2 percent in September from a year earlier, the smallest decline in nine months. The nation has posted export declines for 11 consecutive months.

Bigger U.S. Savings Than Official Stats Suggest

As the economic downturn continues, consumer spending has dropped 0.4%. This equals an amount of $40 billion out of the $10 trillion of total spending. However after when you take into consideration what economists call "pocketbook" spending, Americans have decreased spending by 3.1%, or $200 billion. What this means for us is that many Americans are saving more which allows them to repay any outstanding debt that they may have. An increase in overall savings will eventually lead to an increase in growth and get the economy back on track.

Is the Public Option Gaining Momentum?

This article from Yahoo shows that both in recent public opinion polls as well as in the Congress the public option for health care. The Congressional Budget Office recently released figures showing that the public option would actually decrease the budget deficit over the next 10 years. This fulfills is what Obama initially stated as a requirement in any health care bill he would sign.

Too Late to Buy Amazon, Microsoft?

This is quite a fascinating article on the astronomical rise in share prices for two very big companies.

Amazon shares boomed 23% higher, up $20.80, to $114.25 -- zooming past its all-time high of $113 set a decade ago. Amazon has stated that their third quarter sales have grown by an unprecedented 28%, to an amount of $5.45 billion (half a billion better than forecasted). Their earnings included 45 cents per share. They have had free cash flow of $1.9 billion over the past 12 months.

Microsoft shares were up by about 8%, or $2.06, at $28.65. The company crushed profit estimates as well, earning 40 cents per share, well above the 32 cents estimate. Microsoft has also, $1.47 billion of deferred revenue for presales of Windows 7. Within their entertainment division too, as a price cut on the Xbox in September boosted unit shipments to 2.1 million for the quarter from 1.2 million for the prior quarter.

These figures are unbelievable in this slowed down economy, and hopes for other companies are high after seeing these two companies flourish!

The main point to note is that brokers believe that people should invest their money into these two stocks - and BUY NOW!

ECB Mulls Guidelines for "Bad Banks"

Since the recession has hit so many countries across the globe, banks are becoming less inclined to lend out money. The EU is drawing up guidelines to possible help out the banks. They are trying to create a guideline to allow, what are considered "bad banks" an outlet such as a separate company to dump risky assets into. Overall the EU is trying to prevent bank support schemes in one country to negatively affect banks in another.

Beware the Bottlenecks

Throughout the news we constantly read about the Fed's fight against deflation. However, the Fed cannot ignore the other threat, capacity bottlenecks leading to inflation. Due to this recession we have witnessed numerous shortages in an assortment of items ranging from economy cars to consumer electronics. As the economy gains speed and demand increases more bottlenecks could form and consequently this could drive up prices and the Fed may have to intervene before the recovery effort is in full swing. Even though inflation is the bigger and scarier threat, it doesn't mean we shouldn't address the other side of the story. It should be interesting to see how the Fed responses to this see-saw dilemma.

Obama Wrestling With Jobs Outlook

WASHINGTON -- Increasingly alarmed over bleak employment forecasts, the Obama administration is searching for ways to boost job growth without adding to the federal budget deficit.

White House economist Christina Romer, in remarks that ratcheted up the administration's pessimism, told a congressional panel Thursday that "labor market conditions will remain painfully weak through 2010." She said that the jobless rate, which hit 9.8% last month, would likely remain "at its severely elevated level" for at least another year.

Secret Service strained to protect Obama

This article discusses how budget cuts are affecting everyone including the Secret Service.  It specifically discusses the overwhelming number of threats on President Obama.  The blog argues that a major cause of the growing number of threats is the increase in accessibility to high speed Internet.  The accessibility of websites like YouTube and social networks like Facebook is aiding extremist groups to spread their message.

How Wall Street Will Kill the Recovery

This article discusses how some feel that the US is continuing to make the same mistakes that threw us into recession last year. One of the main issues is that the media is getting the facts of oil prices and demand wrong. Last week, the Energy Information Administration showed that refinery utilization rates fell by over 4%, to 80.9%, yet oil jumped to $2 a barrel on the news that our gasoline inventories fell by 5.2 million barrels.The problem is that oil should have fallen just because, according to the American Petroleum Institute, refinery crude runs fell by 511,000 barrels per day (validating that 4% drop in utilization). In short, refineries determine oil demand, and in that week demand for more oil was off substantially—yet the market bid crude up.

NYC Sees Economic Gold in Green Jobs

This article discusses the plan proposed by Mayor Bloomberg of NYC to increase the green work force in NYC by 13,000 workers in the next decade. The Mayors goal is for NYC to compete with London to become the new center for carbon trading. Additionally, with unemployment so high right now from the recession, this plan will help to re-vamp employment in one of the worlds largest and most powerful city's. A few of the specific plans to make NYC more green is to reduce greenhouse gases, plant 1 million trees and crown skyscrapers with wind turbines.

Russia: Soviet Words and Deeds

This article gives the reader a closer look at the resurgence of Soviet ideological support. As Russians face harsh conditions, they begin looking back at the Soviet era (even during the time of Stalin) with nostalgia. Socialism is most appealing when suffering is high and basic human needs and rights are not being met; especially when they are are higher than in the memorable past. Although the author focuses on the new vigor for the Soviet past in ideological and symbolic terms, it could have huge implications for a change back to socialist economic policy. It is important to recognize that socialism has not entirely lost its appeal, which is a factor we tend to take for granted in the United States.

China’s Economy Grows 8.9%, Fastest Pace in a Year

What is the role of the government? This article discuss that question as well as others as it looks at the Chinese Economy. The economy is growing but mainly due to government spending, and stimulus. Should the Chinese Government stop supporting the economy and try to take a more hands off approach in managing the economy.

How Forigen Companies Boost U.S. Towns

This article is and interesting look at how the American Dream has changed due to this recent recession. Now the American Dream includes foreign companies helping keep small American towns alive.

Fed Beige Book Reports Some Positive Signs

In most parts of the country, regional economies are on the rise due to improving home sales and improvements in manufacturing. Changes in economic conditions have led Ben Bernanke to say that the recession is probably over. However, other aspects of the economy do not guarantee this. For example, the Beige Book report says that businesses are still heavily relying on government spending. While there are many positive signs, not all aspects point to a rapid recovery.

Wal-Mart announces weekly price cuts for holidays

This article provides another perspective on Walmart and their prices. Walmart has announced that they are planning to lower prices even further for the holiday season, in their commitment to not be beaten on price. Prices on frequently purchased grocery items have been shown to be about 14% lower than other grocery store chains. Walmart hopes that consumers will recognize this gap. CEO and president Mike Duke plans for even further growth. They will continue to use their size to increase sales and decrease prices. Because of their size, it is possible for them to outdo their rivals. They pull in so many people that when they lose profit in one area, it is compensated for in another.

Hyundai is the Newest US Auto Power

This article discusses the auto maker Hyundai Motor Group as the only one to report sales growth this year. Due to recent turmoil in the US automobile industry, it may not come as a surprise that only a foreign producer would report growth. While sales are not up by much - only 2.6% (for combined Hyundai and Kia sales), this is a dramatic picture against the majority of automakers - down by 25%-50% from last year. This has made Hyundai Motor Group the 6th largest automaker in terms of US sales. It appears many things will have to change if US automakers want to be on top, because foreign companies are catching up.

US treasury faces bonds lawsuit

Interesting article talks about how the US government is facing a lawsuit for unclaimed bonds. The state will remain responsible for paying back the bond holders no matter how long it will take for them to find the bonds.

Some See Exxon Investments Into Alt Energy Signaling 'Paradigm Shift' for Big Oil

This article targets Big Oil as possibly undergoing a paradigm shift in the very near future, with Exxon Mobile at the forefront. Due to the scale of the oil industry and how it effects economies, it is subject to heavy regulation and governance. Exxon has announced big investments in electric cars, unconventional natural gas, and a $600 million partnership to develop next-generation biofuels from algae. Many smaller companies have made the case for alternative energy sources, but none have gained significant market share. This move by Exxon, one of the longstanding traditional oil companies, could signal an industry shift. Exxon has historically been opposed to biofuels, so news of their investment is significant for the industry. Along with fluctuating crude oil prices, political forces and climate legislation may be a key driver for oil companies to invest in alternative sources. Algae absorb CO2 and could be eligible for offset credits.

Bernanke: U.S. needs to reduce budget deficit

Federal Reserve Chairman Ben Bernanke said Monday that the U.S. must reduce its budget deficit, as well as encourage Asian nations to consume more so it doesn’t lead to a global unbalance. In a news conference Bernanke stated that Asian nations must stop saving their money and start spending, while the U.S. needs to do the opposite. In order to prevent global imbalance the United States must “increase its national savings rate.” Bernanke also stated that the Asian leaders should take action by encouraging their citizens to spend more.

Corporate bonds at record levels

At $1,000 billion, the amount of corporate bonds issued this years signals a turnaround for credit markets. Issuance has increased due to low borrowing costs and increased investor demand. This makes issuing bonds much more attractive, bringing yields up to a record breaking level. Although yields on treasury bonds are still low, I still believe that this is a signal of a strengthening economy. Also, optimism about an economic turnaround has opened up the opportunity for investment.

New Emissions Bill In Congress

Currently being revised and debated in Congress is a new Emissions bill that calls for quantity control (cap-and-trade), and possibly international tariffs.

The bill is going to decline nuclear power production, revise off-shore drilling, and possibly add a tax to goods from countries who have weak environmental standards. I'm not sure if this means that the U.S. will tax companies importing goods from foreign countries with weak environmental standards, or tax those foreign countries directly? But if the goods are coming in to the U.S., aren't we paying for them, so how do we tax the foreign nation? Maybe someone can answer this for me.

This bill will most likely become a hot topic at the climate summit in Copenhagen in December.

Eighty Years After the Great Crash -- 'Is It the '30s Again?'

It was the worst thing to happen to the U.S. since Fort Sumter. October, 1929. Wall Street crashed and helped drive the country into the Great Depression—a deep economic and spiritual wound that has afflicted three generations of Americans. Eighty years later, as the country struggles through the harsh aftermath of another crash, two Sunday Journal contributors mark a grim anniversary and weigh the question that haunts everyone: "Is this the 1930s all over again?"

U.S. deficit biggest since 1945

In this special report by CNN money, the official numbers are in for the government from the Obama administration at the close of 2009's fiscal year. The official deficit ran by the government for 2009 (fiscal year) is  $1.42 trillion, which is a 212% increase since last year. Tax revenue fell 16.6%, while spending skyrocketed 18.2% compared to last year's numbers. There are many reasons for this "rising unemployment, the economic slowdown and the extraordinary measures taken by lawmakers to stem the economic meltdown that hit in fall 2008."According to data from the Treasury and the White House Office of Management and Budget, this is "the worst year on record since World War II." 

Our country is in for even more terrible times for the long haul, if things are not done to try to reduce our deficit and get the economy back on track. 

The Obama administration is promising to fix this but actions speak louder than words! 

FDIC announces 99th bank failure

In this CNN money article, the newest bank closed by regulators is discussed. The San Joaquin Bank of California was closed last Friday night, which raised the national total to 99 for the year. This is the tenth bank to close in California alone. Reportedly, "the closure will cost the FDIC $103 million." Customers of San Joaquin are covered because of the FDIC policy that has been around since the Great Depression. The article states according to the FDIC that "The Citizens Business Bank in Ontario, California will assume all of San Joaquin Bank's $631 million deposits." 

This is an interesting article that highlights the fact that some banks are too big to fail so, the government must step in to protect. I think it is just baffling that bank closures have reached 99! 

American Health Care What a waste

Last year, when he was still the head of the independent Congressional Budget Office, Peter Orszag used to warn bleakly that the rising costs of health care would, if not subjected to radical reform, one day bankrupt the government. Over the past few decades, these costs have risen at a consistent 2.5 percentage points above the growth rate of the economy. Projected out to 2050, he reckoned, Medicare and Medicaid (the government schemes that insure the elderly and the poor) would together consume some 20% of America’s GDP, almost as much as the entire federal budget of today.

Foreclosures Force Ex-Homeowners to Turn to Shelters

Growing numbers of Americans who have lost houses to foreclosure are landing in homeless shelters, according to social service groups and a recent report by a coalition of housing advocates.Only three years ago, foreclosure was rarely a factor in how people became homeless. But among the homeless people that social service agencies have helped over the last year, an average of 10 percent lost homes to foreclosure, according to “Foreclosure to Homelessness 2009,” a survey produced by the National Coalition for the Homeless and six other advocacy groups.

Even the young should be concerned with protecting their credit score

This article is about the new Federal Credit Card Accountability Responsibility and Disclosure Act, that will be put into place in February 2010, by the Obama administration.

This act will place limits on credit card companies when it comes to imposing punitive interest rates and late fees. The law would also bar students under the age of 21 to apply for credit cards, unless a parent or guardian cosigns it.

Its a very interesting subject, which might be put into effect in December of 2009!

Treasuries Show No Lost Appetite With Dollar Declines

This article talks about the deficit problems that the US government has been facing getting out of these torrid economic times. It mentions that despite the fact that the budget deficit is exceeding $1 trillion, the US government continues to sell record amount of debt which further raises the deficit. The question being raised here is the debate over which amount of debt is reasonable and the various ways that must be sought to get rid of the deficits.
One of the main reasons for this huge debt selling is that more people are attracted towards fixed income funds as compared to stock funds. This is highlighted in the article which mentions that the demand for fixed income funds is 18 times more than the demand for stock funds.
At the end of the day, the US government needs to make a calculated measure when it should stop selling US securities to get out of this major deficit. However, with this economic volatility surrounding the whole world, that question still remains unanswered.

Don't ask how much

This is an article about health care reform bill vote on October 13th, 2009. As we covered in our class, there are pros and cons in this proposal.

This proposal might increase the proportion of Americans with health insurance from 85% to perhaps 94%. Also, all this will cost $829 billion over the next decade, according to the Congressional Budget Office (CBO), a non-partisan agency. Crucuially, that is below the $900 billion threshold set by Barack Obama, therefore CBO predicts that the bill might not increase the government deficit. However, Jonathan Gruber, an economist at the MIT is afraid that the penny-pinching approach risks undermining the effort to achieve universal coverage.

In my opinion, it is a good step forward. Even though the proposal might not be perfect at this time, I think the goal is to provide better affordable coverage accessible to all. What American citizens get from this is better coverage that is forced down the budget to most of Americans because of mandatory to buy an insurance.

Keiretsu

This article discusses the concept of the Japanese keiretsu. Interestingly, translated literally, it means "headless combine." As we learned, the keiretsu system, which is a weaker form of zaibatsus, is characterized by organizations forming close relationships to work together. Often, firms are suppliers to each other.

American trade officials disliked keiretsus because they saw them as a restraint of trade. Corporate America, however, has not been so opposed. Chrysler is cited as an example of an American keiretsu; it is claimed that Chrysler has such good relationships with its suppliers that the two sides work together to lower costs and share savings. (Not sure that this has been working all that well for Chrysler, but who knows!)

The American keiretsu is different from the Japanese version, however, because Japanese keiretsu were regulated by specific laws and were virtually compulsory, but in other parts of the world, any loose network of alliances between more than two organizations is considered a keiretsu. Ken Auletta predicts that the keiretsu will become "the next corporate order."

Two sides to every story

Regulators are currently considering capping "swipe fees" levied by credit card companies each time something is purchased using plastic. The House of Representatives is looking at a bill to cap these fees, which are 1.5-2% of an average purchase in America--high by rich-world standards.

At first, regulation seems like a good idea, because firms that run card-payment systems look like other utilities, which have long been subject to price caps. However, this is not necessarily the case. The payment card system is a "two-sided" market--consumers choose credit cards that are widely accepted, and merchants accept cards that are widely used. It helps to think of this in another context. Consider bars that charge men more than women: men are more likely to go to bars visited by a lot of women.

This is a very delicate balance, and changes on one side will affect the other. Trustbusters are still worried about these two-sided markets, though. In spite of no compelling case for regulation, they may still act to cap fees in the future.

France Moves to Win Back Control of Content

This article discusses how French publishers are trying to create "e-books" in order to compete with Google and Amazon.  Problems are arising because French companies cannot seem to agree on a product.  I also wonder if the publishers will be able to create a competitive product because Amazon and Google have been so dominant in the "e-book" industry.

Detroit: Too broke to bury their dead

This article describes the increasing trend of families not being able to bury their loved ones due to the economic crisis. In this disturbing but all too real article, morgues are piling up with the deceased because families do not have the means to pay for cremation. It is $695 and people in Detroit, among others, can barely afford to survive themselves let alone pay for a proper burial for loved ones. According to Albert Samuels, chief investigator for the morgue," he has never seen anything like it during his 13 years on the job. 'Some people don't come forward even though they know the people are here. They don't have the money."' This is a sad and horrible trend that will continue to escalate as long as we are faced with the economic crisis. Something needs to be done to stop this crisis and prevent future disturbing events like this one occur.