Ford Earns $1.7 Billion in Q3, Pays Down Debt

This article talks about how Ford has had it's sixth straight quarterly profit. Ford has a debt of almost 23 billion to pay off, and each quarter is paying about 3 billion here and there to pay of things like retired workers health care among other expenses. This is a good sign for Ford since they basically shut down detroit because of their failure. Do you think it's possible the economy struggling is helping ford? I wonder if people who would normally buy imports and other expensive cars are cutting back and buying cheaper cars like Fords..

Why the Fed's bold move won't work

The Fed is trying to pump more money into the system next week and their are some economists worried that this is going to be a bad idea. The plan is to jump start the struggling economy by purchasing billions in new asset's. Hopefully this will encourage more spending because interests rates will be driven down, which will encourage more spending by small businesses and consumers. The reason the Fed is doing this again is because they made about $2 trillion last time they did this during the great recession. There are potential problems to this idea though that need to be looked at. One it could create a new asset bubble in the financial market, two inflation could greatly rise, or finally it could cause a trade war with some of the U.S. trading partners because of the value of the dollar. By doing this big move economist should be certain that it will work because there is going to be a lot of money involved. So, they need to be certain that it will work, which some of the economists are not. It will be a risky investment in my opinion.

How Much Does China Matter?

In 2009, China's economy has accounted for about 46% of global coal consumption. It also got through twice as much crude steel as the European Union, America and Japan combined, bought more cars than America last year and looks set to buy more mobile phones than the rest of the world. China will account for 1/5 of world growth this year. The Economist constructed a “Sinodependency index”, comprising 22 members of America’s S&P 500 stockmarket index with a high proportion of revenues in China.  The index outperformed the broader S&P 500 by 10% in 2009, when China’s economy outpaced America’s by over 11 percentage points. But in April it reconverged. The ultimate question is whether China will contribute to other nation's growth. It is the largest export market currently, however, it's imports are also falling. Essentially, while China is an important part of global growth, it is not yet enough to actually prop the global economy up during times of crisis. 

Why Europe Lags the U.S. in Productivity

Europe has made considerable economic progress in the past 15 years, but its per-capita gross domestic product is still $11,250 lower than that of the United States--$4.5 trillion in all. A preference for leisure time is one reason, but a widening productivity gap between Europe and the United States is the major culprit. The major reason is that market barriers and regulations have limited production over the past several years. Local services (such as retailing) alone account for two-thirds of the productivity shortfall. But Europe, boasting examples of best practice across service sectors, could reduce the gap. The trick would be for companies to emulate these examples in their own industries and for governments to help them do so by removing regulatory hurdles. From the 1960s to the mid-1990s, Europe steadily closed its productivity gap with the United States. But then the gap started widening again--and one important reason was that Europe's service sectors underperformed their U.S. counterparts.

‘Dr. Doom’: ‘Fiscal train wreck’ may be coming

A U.S. economist wrote today that the U.S. economy is being called a "fiscal train wreck" waiting to crash because of low growth rates, some of the highest UR in history, and deflationary pressure. He continued to say that when the Federal Reserve announced more quantitative easing, it will have a small effect on U.S. GDP growth possibly causing a double dip recession. With the U.S. economy following this unsustainable fiscal course, economic downside is further heightened and economic growth looks dismal. Do you think the U.S. economy is a "fiscal train wreck" destined to have another crash?

France's pension reform: After the protests

We covered France and its economy a couple of weeks ago in class. With the union holding certain power in the labor force, France is still prone to occasional protests and strikes. However, the disruptive power of strikes is no longer as severe as it used to be because the law now guarantees minimum service on public transport and in schools on strike days, and workers who down tools are no longer paid. The real disruption now comes from local union leaders with tactics such as blockades of oil depots or go-slow lorry convoys on motorways. With these events, we can see that it is not easy for the French government to have reforms and changes.

Glaxo Smith Kline to pay $750 million fee

Here's one case where people should be glad the government intervenes within the economy. Glaxo Smith Kline, a pharmaceutical producer is being fined $750 million for selling "adulterated" and "unhealthy" drugs at a plant in Puerto Rico that were used to treat infections, nausea, and Type II diabetes. These were labeled unsafe due to their content and false claims were made about their usage. All of this happened between 2001 - 2005, and the civil class action suit was just finalized this year. They agreed to pay the fine instead of potential lawsuits or being shut down. It also raises a solid point about unreliable goods being produced overseas. The safety of our medicines should be produced in more secure and reliable locations where it can be managed easier, even if it means increasing costs for companies.

Investment in Foreign Markets

Thew global investment in to equity markets have risen in "emerging" markets. Investment is quickly moving away from United States, and European stock to emerging countries. If this trend continues there is an expectation of the value of the U.S. dollar to decrease. Should we be concerned about this shift or will the decreased value help our economy and our large deficit? Obviously no individual wants to see the value of their money decrease but this could be a benefit both to the deficit and domestic companies.

Bye-bye, tax breaks?

This article is about how upcoming Obama's fiscal commission will issue its report to cut back the 200 tax breaks in the federal code tax breaks that cost more than $1 trillion a year. Many have issued support for the cutting of tax breaks and it looks like it could be likely to pass. Cutting back on tax breaks can be a more efficient way to bring in revenue than raising income tax rates because it would subject more work and business income to taxation. If done right, it also promises to make the tax code fairer and simpler. Do you think we should cut back on the tax breaks and follow though with the breaks? Why?

Britain's GDP growth in the third quarter

According to the recent statistics, Britain's economy grew by 0.8%, beating expectations. This growth was attributed to the increased spending in the private sector, especially in construction which was among the hardest hit during the recession. Manufacturing, business services and finance sector slowed down, but to a lesser extent compared to the first two quarters. This growth in economy is consistent with the increase in employment rate. However, like the U.S government, the British government still faces the daunting task of cutting budget deficit, and they will have to tread carefully here to avoid hurting the fragile economy recovery.

White House Official Says Mortgage Firms Need to Bolster Trust

Due to the inability of banks to properly process foreclosures, the white house officials are concerned about a "trust deficit" that is widening because of this inefficiency. The officials are irritated with firms that do not make full effort to participate in the tax-payer supported programs such as modifying loans and not re-financing at-risk borrowers. The article further states that nearly nine in ten new loans originated are backed by government which is further putting the economic boom in a slumber. According to the officials, all this trust deficit has scared off some part of an entire generation of potential home buyers such as younger workers and families that will comprise the "echo boom" generation.

The Fed may have a new job

The rather recently conceived Consumer Financial Protection Bureau is still without a director, and many say that it is unable to make decisions and likely to fail if nothing is done soon, and some say it may even be too late. With deadlines soon approaching for the Bureau to make, one possibility to help is that the Fed would appoint a director. The Fed and the Bureau are within the same category and work together often, but it seems like a slight reach to me that the Fed could have the final say on the director. The Bureau doesn't officially launch until July 21, but some dates are approaching along the way.

End Bailouts—No Ifs, Ands, or Buts

This article is arguing for no more bailouts in light of current issues with foreclosures and how they affect the banks that service the loans. The author goes on to blame major banks for taking to much risk and acting on the assumption that if all goes wrong the public sectors will have their backs. I do not think it is unreasonable for banks to assume this. Nobody in Washington was complaining when banks were providing sub-prime mortgages then selling the mortgages off the Fannie Mae, all in the name of increased home ownership. The government has a hand in this mess too, thus have no right to turn a blind eye to the banks that are being troubled by the foreclosures. the moral hazard was created by the government when they allowed and even promoted banks to give out risky loans. Also, at some point consumers have to be held accountable for these foreclosures as well. Just because a mortgage is being offered to you, does not mean you have to take it.

The new Wall Street: No bubble, no profits Commentary: Investors are on to the Street’s tricks

Mr. Weidner argues that Wall street can no longer put up record breaking performances anymore without a bubble. He believes that now mortgage backed securities are no longer cash cows investment banks and commericial banks will have nothing to bring in massive profits anymore. This is a somewhat static view. The financial industry is a competetive industry just like most in this country. Firms have to differentiate products and out perform competitors. So, is it unreasonable to believe that there will be new innovation in financial instruments or in investing techniques, which have yet to be regulated? History would say that there is plenty of innovation to come, therefore plenty more record breaking profits.

Bernanke's Next Round of Asset Purchases Risks Jimmy Carter-Like Inflation

Next week, Fed chairman Ben Bernanke is likely to preside over a decision to launch another round of large-scale asset purchases. The Fed will be aiming to increase the rate of inflation and reduce the cost of borrowing in real terms. The size of the purchase program would range between $1-2 trillion dollars. According to the Fed, unemployment would fall and GDP, CPI, and stock valuations would rise. However, many disagree with the Fed's logic - the program would add more liquidity - creating money - and could cause unwanted high inflation rates. Also, the Fed could create an asset bubble (which always bursts eventually) by artificially overvaluing assets.

Ford to bring 1,200 jobs to Michigan

Ford is once again helping the economy by increasing the number of jobs available in Michigan. In order to help the numbers of unemployed and increase Ford's productivity, the company is using funds created from its increasing stocks and state tax incentives to facilitate this expansion.
"Ford Motor company said it will create up to 1,200 jobs in the distressed state of Michigan as it ramps up its engineering and manufacturing operations to produce more fuel-efficient cars".
Of the 1200 jobs being created, 900 of them will be hourly jobs with the rest being "salaried positions in the engineering and manufacturing operations." They all however will be full-time jobs.
This is a good start for the state of Michigan and hopefully many other firms follow!

Wall Street Bailout Returns 8.2% Profit Beating Treasury Bonds

Government's spending is finally proven to be working after Wall Street reports a return of 8.2% profit 2 years after the Government released the financial bailout package through the Troubled Asset Relief Program. This program provides taxpayers with higher returns than yields paid on 30- year Treasury Bonds and ironically was proposed and signed by president G.W. Bush, whose administration was largely blamed for the recession.
The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies. That beats U.S. Treasuries, high-yield savings accounts, money- market funds and certificates of deposit. It's great to see that government's spending actually works somewhat and hopefully employment rate will increase as financial firms start making positive profits.

China's succession: The next emperor

According to The Economist, China is beginning the transition to a new leader in the "twin roles of party chief and president", Mr. Xi Jinping. The article offers that the world should be nervous about this transition for two reasons: first due to the relatively "unknown character" of Mr. Xi as well as the "brittle nature of a regime that is far less monolithic and assured than many foreigners believe." If all goes according to plan Mr. Xi will take over from current President and party chief, Hu Jintao, in 2o12 with the two year transition as a test. However, it is mostly the immensity of the task that should worry foreigners, with new signs of disagreement on where both economic and political priorities should lie. The article argues that there needs to be more substantial economic growth with "wage-earners getting a bigger share of the national income", but these changes would not come easy and would face resistance from many state-owned enterprises. However, China's economic gains could be "jeopardized by a failure to loosen the party's hold" as public discontent towards the government grows. Even though this would be beneficial for China it is unlikely that Mr. Xi will adopt the policies. The article ends by saying, "Too many Westerners, including those urging trade sanctions over the yuan, assume that they are dealing with a self-confident, rational power that has come of age. Think instead of a paranoid, introspective imperial court, already struggling to keep up with its subjects and now embarking on a slightly awkward succession—and you may be less disappointed."

Companies aren’t charities

The article states that the problem in the developing world is not how companies conduct themselves, but that there aren't enough of them. Consumers are demanding social justice as well as cheap prices and companies can not meet both standards. One argument is that companies should focus on profits and eventually there will be more of them to help pull developing nations out of poverty. However, I think that the rate at which we are producing is not sustainable and if we as consumers could make the commitment to supporting companies that do try to promote social justice as well as help nations develop by sacrificing some luxuries... I think that companies that work closer with the people, operate on a more local level have a greater impact to individuals anyway.

Daily Show: Eric Cantor & Jon Stewart Discuss Conservative v. Liberal Economics

In our democratic country, our economy is significantly impacted by what political party is in power. In this interview, Republican Whip Eric Cantor accuses Democrats of "maligning success" in their rhetoric against Wall Street, to which Stewart asks if they are maligning success or maligning rapaciousness, pointing out that robber barons were considered "successful." Cantor paints a picture of an America with "equality of opportunity" in which one can be successful if one works hard, no matter who their father was, what connections they had, or what school they could get into. But Cantor does not recognize this American Dream has become a myth. I feel Cantor's policies don't support this vision because he supports tax cuts for the rich that keep wealth concentrated in the hands of elites who inherit wealth, capitalize on connections with other elites, and use donations to get into top schools as a step toward a lucrative career. We do not have equality of opportunity in this country if those who inherit wealth do not do their part to ensure that kids without rich parents are also given the opportunity to attend quality schools and become successful if they work hard.

CHINESE ARE COMING PART TWO

Middle East, North Africa Economies Will Accelerate Next Year, IMF Says

The IMF released a statement saying growth in the Middle Eastern and North African economies will accelerate next year as crude production rises. These countries economic systems rely heavily on oil exportation. Although this is positive news for the area, the profits from crude production need to be invested into projects that will benefit the economy in the long run, keeping sustainability and viability in mind. The IMF report advises these countries to diversify their exports to include markets in South America and Asia, instead of mainly relying on Europe. Diversification of exports will be beneficial in the long run - once the oil is gone these economies must be able to function without that source of income.

U.S. weekly jobless claims drop 23,000

According to this article, jobless claims have fallen 23,000 to 452,000 last week. Accordingly, some believe this is proof that our recession is still present. According to the article, "A serious decline in claims (of joblessness), in our view, depends on a return to better credit conditions for small firms, which we expect to emerge only gradually over the next year or so."

Gas prices inch up as oil prices rise

According to this article oil prices are on the rise again. It explains to possible reasons for the increase. This rise in oil prices will no doubt slow down our economic progress in getting out of our current economic recession.

IMF change is likely

The G-20 wants to change the way the IMF board is selected. Currently, 5 out of 10 on the board are appointed and the others are elected. In order to get a more fair and formula-based board, the G-20 officials want the board to be fully elected. The IMF director seems to be in agreement with the shift, to get the most important economies on the board, not just the largest.

Investors Still Bullish But Just Barely

The dow has been up for the third week and this week, it had its highest single day gain. This is pretty unusual for a historically bad month for the markets. Investors believe that markets will continue to rise for coming months. This has been the 7th straight week that optimism about stock prices will rise. Even though many people remain certain that stock will continue to increase and the economy will recover, investors main concerns are the federal deficit and interest rates.

7 banks closed in Fla., Ga., Ill., Kan., Ariz

Seven more US banks closed this week bringing the total to 139 banks this year. The largest bank by far is Hillcrest Bank located in Kansas. This bank had over a billion dollars in failed assets. These recent closing now surpasses the number of banks that failed in 2009. This is mostly due to bad loans on commercial and land development. The cost of resolving the bank problem will reach 50 billion dollars.

Are we still out of the recession, or is this just the process of weeding out the smaller unsuccessful banks so we can have a stronger economy?

Britain's Austerity Overdose

When we studied Britain, we looked at Thatcherism, the decrease in government spending during the 1980s. This post is a New York Times editorial explaining how the current British government is drastically reducing its deficit. While health services will not be cut, most government departments will have to cut spending on average 20%, half a million of Britain's 6 million government employees will be laid off, and long-term unemployment benefits will be limited to 12 months. While keeping deficits low is necessary for economic stability and growth in the long run, I agree with the editorial that a recovering economy with high unemployment is not the time to focus on deficit reduction. It looks like a major portion of the British population will be suffering in the next several years.