Jobs stink, Dow surges. What's up?

Stocks rallied on Friday with the DOW crossing 11,000 implies the investor's buying frenzy. Nevertheless, this incident is considered logically unusual as for the unemployment rate remains high (9.6%). The explanation for this surge can only be that investors are betting on the Fed to move in and further assist the market by pumping in more liquidity. Does this sound familiar?

How is this compared to the Japanese financial crisis? I believed that there is definitely the moral hazard issue involved, since investors are entering in the risky investment because it knows that the Fed will help the economy in the end anyway.

First TARP scammer convicted

This article is about the Fed prosecuting their first major case of fraud with respect to TARP money. I think this will send an important message to others considering taking advantage of government programs.

NFL ticket prices on the rise

A slightly lighter look on the economic front! NFL tickets this year have been on average 4.5 percent more than last year ($76.47). Even though many teams are failing to fill their stadium they boosted the price of tickets. David Carter (executive director of USC's Sports Business Institute) said that the tough economy is certainly playing a large role in pricing decisions for the NFL organizations. Many of the teams are included price breaks on concessions and parking because of the price hikes in tickets. Many teams are banking on economic conditions improving and dans returning to the games to fill all the seats. Do you think the bad economy does have a big influence on game attendance or NFL tickets are such a priority and big ticket item that fans don't consider the price and just make the purchase?

1 million workers lose out on better coverage

"About 1 millions workers aren't going to benefit from a key provision of the health care law that would have increased their insurance coverage to $750,000 in 2011." This article is about the health care program that was put in effect. Companies such as McDonald's, Jack in the Box, and many other companies won a one-year exemption from the governments to raise the amount of insurance coverage after threatening to hike premiums or drops coverage from their employess completely. 30 companies (968,765 enrollees) were affected by this decision. Since this new health care reform affects so many people (968,765 people) what kind of affect do you think it will have on the economy as a whole? Do you see the effect being positive or negative? Why?

City budgets slammed by falling property taxes

A projected property tax revenues decline is leaving negative impacts on the cities. According to the article,  this means cities must continue to slash services and shed personnel, with expenditures projected to fall by 2.3% this year and that's a tie for the largest cutback ever; cities have only cut back on spending five times in the past quarter-century. "Cities are in the worst shape they've been in since the Great Depression." Some cities are also trying to resolve the current situation by hiking fees and taxes. Some 40% of cities raised fees, while 23% upped their property tax rates. Another 23% increased the number of fees they charge.In such a bad recession, it's doesn't sound plausible to inrease all these taxes and fees. The outlook for 2011 seems gloomy.

Japan: Easy does it

In an effort to improve the economy, Japan has lowered their interest rates. The Japanese government lowered their already low interest rates from .1%, "to a range between 0% and 0.1%." The government told their people that they would hold the 'virtual zero-rate policy until there was "medium- to long-term price stability"." Along with the lowered interest rates, Japan is planning to make a system for banks to sell off public and private sector assets, these include, "commercial paper, corporate bonds and even exchange-traded funds (ETFs) and Japan real-estate investment trusts (J-REITs)."

the question remains, will the Japanese efforts to improve their economy really work? And if so, how long will the turn around take?

China offers to buy Greek debt; vows double trade in 5 yrs

China is now offering to help Greece in its recovery. The Chinese Premier Wen Jiabao promised to double trade with Greece and buy bonds from them as soon as the country steps in to the international markets.

"Wen said China also planned to provide a $5 billion credit line to Greek shipowners to help boost the purchase of Chinese-built vessels".

China is not only working with Greece improve its economy but Wen Jiabao seems to be visiting many other EU countries that have been hit with the recent recession and is making deals and agreements on helping them recover too.

Why do you think China is taking it upon them to get countries back in to the global market?

India's economy miracle

Along with China, India is one of the fastest growing economies in Asia. Its economy is expected to grown by 8.5% this year, and its growth is expected to outtake China by 2013. Some economists think India will grow faster than any other large country over the next 25 years. This article explains the reasons why economists are very optimistic about India economy.
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HORRIBLE toilets. Stagnant puddles buzzing with dengue-spreading mosquitoes. Collapsing masonry. Lax security. A terrorist attack. India’s preparations for the 72-nation Commonwealth games, which are scheduled to open in Delhi on October 3rd, have not won favourable reviews. “Commonfilth”, was one of the kinder British tabloid headlines. At best—assuming that the organisers make a last-minute dash to spruce things up—the Delhi games will be remembered as a shambles. The contrast with China’s practically flawless hosting of the Olympic games in 2008 could hardly be starker. Many people will draw the wrong lesson from this.

A big sporting event, some people believe, tells you something important about the nation that hosts it. Efficient countries build tip-top stadiums and make the shuttle buses run on time. That India cannot seem to do any of these things suggests that it will always be a second-rate power.

Or does it? Despite the headlines, India is doing rather well. Its economy is expected to expand by 8.5% this year. It has a long way to go before it is as rich as China—the Chinese economy is four times bigger—but its growth rate could overtake China’s by 2013, if not before. Some economists think India will grow faster than any other large country over the next 25 years. Rapid growth in a country of 1.2 billion people is exciting, to put it mildly.

People power

There are two reasons why India will soon start to outpace China. One is demography. China’s workforce will shortly start ageing; in a few years’ time, it will start shrinking. That’s because of its one-child policy—an oppressive measure that no Indian government would get away with. Indira Gandhi tried something similar in the 1970s, when she called a state of emergency and introduced a forced-sterilisation programme. There was an uproar of protest. Democracy was restored and coercive population policies were abandoned. India is now blessed with a young and growing workforce. Its dependency ratio—the proportion of children and old people to working-age adults—is one of the best in the world and will remain so for a generation. India’s economy will benefit from this “demographic dividend”, which has powered many of Asia’s economic miracles.

The second reason for optimism is India’s much-derided democracy. The notion that democracy retards development in poor countries has gained currency in recent years. Certainly, it has its disadvantages. Elected governments bow to the demands of selfish factions and interest groups. Even the most urgent decisions are endlessly debated and delayed.

China does not have this problem. When its technocrats decide to dam a river, build a road or move a village, the dam goes up, the road goes down and the village disappears. The displaced villagers may be compensated, but they are not allowed to stand in the way of progress. China’s leaders make rational decisions that balance the needs of all citizens over the long term. This has led to rapid, sustained growth that has lifted hundreds of millions of people out of poverty. Small wonder that authoritarians everywhere cite China as their best excuse not to allow democracy just yet.

No doubt a strong central government would have given India a less chaotic Commonwealth games, but there is more to life than badminton and rhythmic gymnastics. India’s state may be weak, but its private companies are strong. Indian capitalism is driven by millions of entrepreneurs all furiously doing their own thing. Since the early 1990s, when India dismantled the “licence raj” and opened up to foreign trade, Indian business has boomed. The country now boasts legions of thriving small businesses and a fair number of world-class ones whose English-speaking bosses network confidently with the global elite. They are less dependent on state patronage than Chinese firms, and often more innovative: they have pioneered the $2,000 car, the ultra-cheap heart operation and some novel ways to make management more responsive to customers. Ideas flow easily around India, since it lacks China’s culture of secrecy and censorship. That, plus China’s rampant piracy, is why knowledge-based industries such as software love India but shun the Middle Kingdom.

India’s individualistic brand of capitalism may also be more robust than China’s state-directed sort. Chinese firms prosper under wise government, but bad rulers can cause far more damage in China than in India, because their powers are so much greater. If, God forbid, another Mao were to seize the reins, there would be no mechanism for getting rid of him.

That is a problem for the future. For now, India’s problems are painfully visible. The roads are atrocious. Public transport is a disgrace. Many of the country’s dynamic entrepreneurs waste hours each day stuck in traffic. Their firms are hobbled by the costs of building their own infrastructure: backup generators, water-treatment plants and fleets of buses to ferry staff to work. And India’s demographic dividend will not count for much if those new workers are unemployable. India’s literacy rate is rising, thanks in part to a surge in cheap private schools for the poor, but it is still far behind China’s.

Advantage India

The Indian government recognises the need to tackle the infrastructure crisis, and is getting better at persuading private firms to stump up the capital. But the process is slow and infected with corruption. It is hard to measure these things, but many observers think China has done a better job than India of curbing corruption, with its usual brutal methods, such as shooting people.

Given the choice between doing business in China or India, most foreign investors would probably pick China. The market is bigger, the government easier to deal with, and if your supply chain for manufactured goods does not pass through China your shareholders will demand to know why. But as the global economy becomes more knowledge-intensive, India’s advantage will grow. That is something to ponder while stuck in the Delhi traffic.

Greece Presents Austerity Budget for 2011

Today Greece presented the draft for the 2011 austerity budget and promised to increase tax revenues while ending cuts to the public sector. The state hopes to earn $6.8 billion from these new tax measures and are aiming to cut the deficit from 13.6% of GDP last year to 7.8% this year. The plan includes "a one time tax on companies and an increase in the midrange value-added tax" as well as a tax amnesty plan to encourage citizens to settle unaudited tax filings. These measures are on top of the many tax increases implemented in the past months. One economist argues that the new administration working with the IMF makes a big difference and that Greece should be lauded for the achievements it has already made, such as cutting the budget deficit in half in a single year. However, another economist warns that "Greece is still a long way from demonstrating that it can put the public finances on a stable footing without resurrecting its debts. We continue to think that some kind of default is eventually very likely".

Germany's Reunification

I thought this was interesting because we talked about it in class a little. Article states that even more than 20 years have gone by, there is still resentment as well as economic differences between east and west Germany. East Germany suffers from greater unemployment and lower living standards than its Western half and many people still view the reunification as colonization. Westerners, however, are often bitter for having to foot the bill for reunification but the article states that westerners have benefited more than they realize from Eastern migrants labor productivity and the increase in competition which has led to more profitable businesses. The article also says that younger Germans are tired of the east-west feud and that tensions will soon be phased out.

A half-pike up the nostril

It seems that China is beginning to show the South east Asia its ambition and power to detrimental effects. China and Japan having a dispute over sea channels and the Chinese resort to using more coercive diplomatic power to free a captain held by Japanese officials. However this just created less than favorable sentiments to other Asian countries especially India as it is clear China has more intentions for disputed waterways. Similarly it also clued America to China's growing power and ambition. However China must tread carefully in order not to antagonize their buyers cause as much as the world economy needs them they equally need us.

The Corruption of the Rating Agencies: Is AAA Junk?

This is an interesting article discussing the opaqueness of mortgage backed CDO's and the ignorance that resulted. A history of mortgages in the U.S. is provided, along with a brief explanation of how the financial system broke down. One of the causes was the poor effort by the bond rating agencies. The main reasons for this breakdown in effective rating was the conflict of interest between the rating agencies and financial firms and the lack of competition in the rating industry. The final, most interesting point, is that not all the blame in the current financial crisis can be put on the supplier. There is a certain responsibility of the consumer to know what he or she is buying. If the deal looks too good to be true it probably is. There is always risk.

India's surprising economic miracle

It's China that mostly has come to the media's attention lately. It's no longer the hidden tiger and has prove itself to be the world's potential new super power. This thus left India the remaining country in Asia that will most likely to become huge in the future even when it receives a lot less attention. The article describe the advantages and disadvantages of India, and briefly compare to those of China. In fact, some economists think India will grow faster than any other large country, even China, over the next 25 years. I think it's a very interesting article since the author reveal such strengths of India which does not appear to be so with "HORRIBLE toilets. Stagnant puddles buzzing with dengue-spreading mosquitoes. Collapsing masonry. Lax security. A terrorist attack."

Apple is in Exxon's rearview, but for how long?

This article talks about how Apple Inc. might be the largest company by market capitalization. It will soon pass Exxon Mobile if they keep on the same track that they are going now. If this happens it will also take to top spot on the S & P 500 index, which is the market index that is most used by professional money managers. Exxon will most likely see the price of its shares fall if this happens as Apple will see the price rise. This would be a huge accomplishment for Apple because not many company's have had the oppertunity to hold the top spot on the S & P 500. General Motors, GE, and AT&T are a few that have in the past. Apple moving to the top spot shows that consumers are spending there money on technology and entertainment rather than traditional manufacturing. For this to happen though Exxon will have to stay flat and Apple's stock will have to rise 12% to take the top spot. Apple has a good thing going for them. During this recession many people have down sized there house and stopped taking vacations, but they have not stopped purchasing devices like the I Phone. Apple has convinced people that they need to have one of there devices. They are doing something right and if they keep on the same path they will eventually be the biggest company.

Latest unemployed: Stimulus-subsidized workers

I believe that it is a good thing that the unemployment stimulus package is coming to an end. It will force many of unemployed to work harder to obtain and hold jobs which will help our economy grow. Further, I believe its conclusion will reduce our current free rider problem.

The Survival of the Safest

Some of the precautionary steps businesses are taking to preserve their companies may also be adding to the downward economic spiral. There is a paradoxical relationship of morale in companies. Businesses are not hiring which is dropping morale while trying to keep spirits high in the office. Managers consistently report their concern about the emotional state of employees. However, it will be difficult to keep morale high if they have to make pay cuts or lay off employees. The problem is beacause the attempts to keep morale high with current employees may be preventing the job market from growing. When will the vicious cycle stop?

Germany marks 20 years as a reunified nation

Sunday October 3rd marks the 20th anniversary of the German reunification. The article talks about the views on the reunification and the acceptance of the "solidarity tax" which is a tax for the rebuilding of East Germany. However, even though 20 years have passed and money is still flowing into East Germany, the region is still not fully developed. As the article and the news cast video discusses, many people move to West Germany for employment and currently only the older population chooses to reside in the East.

September stock highest in 71 years

The stock market for last month was the best September in 71 years. There was rapid growth, over 9%. Many experts think that growth will continue to rise, but not at such high levels, but rather more stable. With uncertainty in the economy, mainly from the upcoming election in November, many think that the markets are going to suffer and slow their recent upward trends.

Japan 'ready' for more yen action

This article relates to the Japanese bubble economy we discussed in class.

The Japanese Yen has been rising in value and "The governor of Japan's central bank has not ruled out further interventions in the currency markets in its fight to control the rising value of the yen".

The Bank of Japan is considering selling large amounts of the Yen so that its value falls.

This high rise in the value is hurting many exporters as their profits are being squeezed.

"Mr Shirakawa said the BOJ would closely watch the impact the strong yen is having on the economy".

He also stated that the BOJ is ready to take action if it is necessary.