The Dark Side of the Productivity Surge

According to the Bureau of Labor Statistics, even though the economy is declining in the US, non-farm sector's productivity grew at 9.5% annual rate in the July-September Quarter followed by 6.9% in the second quarter. Is this a good thing for economy? The author says it wasn't because of clever efficiency measures or the purchase of wonderful tools that help people get their jobs done faster. Such improvements take years, not mere months. Rather, it was because companies cut jobs and work hours drastically. Work hours fell at a 5% annual rate even as output increased at a 4% rate, the government said. So people working shorter hours had to do the same amount of work as before, or more. People who kept their jobs had to pick up the work of ex-colleagues. Many workers probably put in extra hours that weren't counted in the statistics in order to get all their work done. That would exaggerate the output-per-hour gain. I think this phenomenon can explain the current situation why GDP is recovering in recent months, but unemployment rate is still rising in the United States.

A Globe Redrawn

The following article talk about Russia after the Soviet collapse. The author points out to the huge inflation, the result of the repressed inflation of the central planning era. Additionally, he describes how wrong incentives aimed at continuous industrialization led producers to make tonnes of steel or cement, or tanks and rockets that no one wanted, "while shops were empty of the things they craved." The author states that "producing goods worth less in real terms than the materials used to make them could not go on for ever." "Meanwhile, shortages created a crime-ridden black economy that, by some estimates, was worth as much as 30% of the real one, perhaps more." Thus,when the Soviet Union collapsed, and the government chose to opt for the "shock therapy" in the transition to a free market economy, there was no mechanism in place to support it.

House Moves Toward Vote on Health Bill

In this Wall Street Journal article, the health bill and its progress is discussed. This is an interesting article that describes what is happening with the bill and how it is expected to turn out in the different political houses. Although it seems that total amount of money going to be dished out for this bill increases daily, the total as of today is $1.055 trillion. According to the article, "The bill would extend insurance coverage to 96% of nonelderly Americans, setting up exchanges where they could choose between private plans and a government-run insurance option. Funding would come in part from a new surtax on wealthy Americans." 

India Cleans Up Its Act

This article provides an interesting look into the environmental changes that India is under going in an effort to reposition its self as a world leader. India is making changes that will effect the global economy.

US jobless rate rises to over 10%

In October the unemployment rate in the US rose to 10.2% highest rate since 1983. 190,000 jobs were lost in the month. President Obama is willing to sign a extended unemployment benefit. Most job losses were in construction, manufacture and retail. People who had been out of work for at least six months rose to a record 5.6 million and accounting for 35.6% of the jobless total.

How Many Jobs Has Stimulus Created

This information is not in article form, but as a map. There are two different ways to view it - one is how many jobs (per state) stimulus has created, and the other is current unemployment percentages. It is possible to scroll on each state to view the information for each. The range of jobs created is 960-110,185 and the range of unemployment is 4.2%-15.3%.

The Berlin Wall - So much gained, so much to lose

This is a reflection on the Berlin Wall collapse 20 years ago. It's collapse not only brought political freedom from Communism, but also economic freedom from an inefficient, crumbling socialist system. The author noted that many East Berliners flocked to the West to buy fridges, jeans and Coke.

Comparing that event to today, the author laments how the pursuit of economic and political freedom have become disjoint. Countries like China and Russia are still governed by oppressive regimes while the world turns a blind eye because of the economic success of such nations. The idea of globalization has overtook the concern for social justice and welfare. However, things will change, whether it is an economically motivated reform that changes the political system, or, a political push that will likely destroy an economy. Both seem plausible.

Stocks Rally on Jobless-Claims Report

A report was released yesterday that announced that jobless claims were down 20,000 last week to only 512,000 - the lowest since January of this year. Combined with this was the report that came out stating that workers are being more productive, and the productivity rate was quite high for this quarter. Because of this, stocks have been increasing. The article also further discusses jobless claims, as well as retail sales in October.

Nestle: The unrepentant chocolatier

Doubling R&D expenditure during a recession is not a route chosen by many firms. Nestle, however, is doing just that in its attempt to transform its image. Today, Nestle is known primarily for its chocolate and other sweets. Execs, however, are working to make it the world's leading health, nutrition, and wellness firm. Nestle is currently working on developing "functional foods," which claim health benefits.

Nestle's reasons are fairly clear--they want to move away from low-margin products which have been a victim to consumers' switch to private labels, to high-margin products and services. However, this move is not without risk--research costs are huge, consumers are unpredictable, and Nestle's image in other products could be damaged, just to name a few potential problems. Will this really work, or is it just a marketing gimmick? Only time will tell.

Berkshire Buys Burlington in Buffett’s Biggest Deal

Warren Buffett’s Berkshire Hathaway agreed to purchase Burlington Northern Santa Fe Corp for $26 billion, which will be the largest purchase for Berkshire. Basically, Warren took advantage of the soft market when competitive bids were relatively low. Burlington Northern would be Berkshire’s second- largest operating unit by sales. Buffett will use $16 billion in cash for the deal, half of which is being borrowed from banks and will be paid back in three annual installments.

U.S. Economy: Factories Expand More Than Forecast

Manufacturing in the U.S expanded faster than anticipated in October and exceeded every estimate of the 70 economists surveyed by Bloomberg. The news of the expansion eases concern that signs of recovery are strictly due to goverment stimulus. Our recovery is greatly linked to both the manufacturing and housing sector. The number of construction contracts unexpectedly rose again in September. First time home buyers are trying beat the November 30 deadline to qualify for the $8,000 tax credit. The economy still has many challenges ahead but gains in manufacturing and housing are a good sign.

Buffer Warren

This article discusses the repercussions of the recent recession on banks in America. It is no secret that banks in America have an inherent problem with cashflow, and that only accounting is used for measuring performance. As a result of this, there is a furious push by many regulators to force banks to have bigger equity buffers. Banks, however, argue that this is too expensive and will increase the cost of credit, hurting the economy.

Something must be done because with the promise of unlimited liquidity provision from governments, banks (unlike normal companies) do not have to worry much if they have loads of other short-term debt that constantly needs to be refinanced. Banks have too soft of budget constraints, which inevitably hurts consumers when bailouts need to be financed by taxes. The major issue moving forward is making banks more safe by increasing their equity.

US consumer spending falls

US consumer spending fell for the first time in five months in September. Household spending lowered by $47bn last month which is also due to decrease in income of the US citizens. This news came out after the news of US economic output grew by 3.5%. The growth happened due to the increase in the GDP and pulled the US out of its worst recession. The stimulus packagae helped the economy and there will another federal fiscal stimulus package coming up next spring to help the slow recovery of the economy.

Fish out of water

We've all heard the dismal unemployment statistics--10% in the US and nearing 20% in Europe. The outlook is even worse for people our age.

This article suggests that policymakers may have been approaching the problem from the wrong angle all along; instead of saving yesterday's jobs, perhaps the goal should be to create tomorrow's. What does this mean? Entrepreneurship, innovation, and venture capital.

Entrepreneurship has been a key to growth in both America and around the world. In many of these cases, from Silicon Valley to Israel, government intervention has played an important role. However, many problems can result. Two common ones are the temptation to spread the wealth around to everyone and a suspicion of foreign investors.

This shift in focus could mean an increase in entrepreneurship opportunities for our generation. It certainly beats unemployment!

Wilbur Ross Sees ‘Huge’ Commercial Real Estate Crash

Although the economy has been showing signs of improvement over the past few months, there are negative signs out there which might make us think otherwise. One of the biggest reasons for the poor economic situation that the country is facing was the housing market crash. That slump in the housing market has inevitably extended itself into the commercial property market as well, as pointed out by a well known investor, Wilbur Ross. Wilbur Ross said that the US. is in the beginning of a huge crash in commercial real estate.

Wilbur Ross is one of the nine money managers participating in a government program to remove toxic or dangerous assets from bank balance sheets. So a statement coming from a man like this seems to be giving all the wrong directions for the US economy which was expected to come back to life soon enough. However, property prices and commercial rent continues to rise putting further pressure on the economy as a whole.

Another well renowned investor, George Soros believes that gone are the days when the US consumer would drive the world economy. Although Ross does believe in self-correcting markets, he is of the opinion that it will take some time for the economy and the commercial estate market to correct itself. Although right now things just seem to be going the wrong way. Just to elaborate my point, I am attaching a little excerpt from the article:
"U.S. office vacancies hit a five-year high of almost 17 percent in the third quarter, while shopping center vacancies climbed to their highest since 1992, according to the property research firm Reis Inc."

Geithner: Economy Growing, Jobs Lag

WASHINGTON -- Treasury Secretary Timothy Geithner acknowledges the federal budget deficit is too high, but that the priorities now are economic growth and job creation.

Asked repeatedly on NBC's "Meet the Press" whether this means taxes will rise, Mr. Geithner avoided giving specifics. He did say President Barack Obama is committed to dealing with deficit in a way that will not add to the tax burden of people making less than $250,000 a year.

The White House has not decided how to reduce the red ink, Mr. Geithner said in an interview broadcast Sunday. "Right now we're focused on getting growth back on track," he said. "And we're not at the point yet where we have to decide exactly what it's going to take."

He acknowledged that the economic recovery, while showing positive movement, has been shaky and uneven.

Gulf monetary council 'on track'

Kuwait, Saudi Arabia, Qatar, and Bahrain signed an accord in June to create a joint monetary union council as a precursor to a Gulf central bank. Oman and the UAE are still questioning the idea of joining and creation of the council. The UAE wants to keep it own dirhams (currency) which will remain pegged to the dollar whereas Oman is not ready to follow the preconditions of joining the council.