ECB will lend more than 334 billion euros

The European Central Bank would lend more than 334 billion euros (425 billion dollars) during a regular weekly operation which underscored strong demand from eurozone banks. It was estimated that banks needed 222.5 billion euros for the week and the sharply higher amount indicated that banks were maintaining strong cash balances amid uncertainty generated by the international banking crisis.

The funds were lent out by the ECB at the rate of 3.25 percent following a half percentage point interest rate cut.

"Banks are safeguarding their balance sheets to such an extent that they are now very reluctant to lend just when households and enterprises need credit to tidy them oversome rough times," Bank of America senior economist Holger Schmieding noted. The situation appears to be creating some frustration at the ECB, and its president Jean-Claude Trichet has pressed commercial banks to assume their responsibilities as purveyors of credit to the wider economy.

"It's not a normal functioning, clearly that you have a lot of supply of liquidity which at the end of the day is in our deposit window," Trichet acknowledged after the ECB announced its interest rate cuts.

Earlier on Tuesday, the ECB said that more than 209 billion euros were parked in its overnight deposit facility which offers a rate of 3.25 percent, well below the going interbank market rate of 4.15 percent. That was a clear sign banks would rather lend money to the ECB, even at a lower rate of return, than to other banks amid prevailing market mistrust.

The ECB identified a large amount of excess cash in eurozone money markets and moved on Tuesday to mop it up with what it calls a fine-tuning operation. The ECB's forecasts "show that a large positive liquidity imbalance is expected" during which commercial banks must maintain minimum reserves. The central bank held what is called a quick tender to absorb the extra cash, taking in 80 billions euros.

Banks were allowed to offer as much excess cash as they wished. Central banks have injected massive amounts of cash into interbank markets to encourage commercial banks to keep lending to businesses and households. When it identifies a surplus however, it removes the cash to prevent an excessive supply from fueling inflation and to keep market rates close to its own benchmarks.

Fears grow in the global airline sector

The risk of failure is huge and the list of failures is growing in the airline sector.
First to succumb were the airlines with innovative new business models, such as Silverjet with its mission to undercut the major airlines in the battle for business passengers. Small operators like Futura, Sterling, Maxjet, Oasis and EOS have also gone. The collapse of XL was a huge shock to the UK charter airline market. Even a flag-carrier, Alitalia, is in administration
Times are even harder in the massive US aviation market. Southwest, the innovative low-cost airline that spawned imitators such as Ryanair, the European airline, has announced its first financial loss in 17 years. Of the other Big Six, American, Continental, Delta and NorthWest were all in the red for the last three months' reported figures. Below them a host of smaller operators have disappeared.
But the US has a system for propping up ailing companies and airlines have made full use of theChapter 11 protection from bankruptcy to enable them to restructure or merge, and secure their futures.
This week aviation industry representatives were saying they thought the worst was over. All this is happening, partly because of the "credit crunch". But the spike in oil prices has been the biggest problem. The rise started in December 2006 and only stopped in June this year when a barrel of oil had topped $140. It has now dropped like a stone to just above $60 a barrel. That won't help many airlines just yet. They are still paying more for their fuel under 'hedging' deals, in which they set a fixed price months into the future. United Airlines, for example, has said it is around $230m out of pocket as a result of its hedging deals.

Companies in Mexico wouldn't go public because of crimes

Companies in Mexico are scrapping plans to float shares on the stock exchange for fear of raising their profile amid a brutal drug war and a surge in kidnappings, the bourse president said on Tuesday.
Stock exchange President Guillermo Prieto said that aside from market volatility in the past two months due to the global financial crisis, crime was a major issue for firms thinking about initial public offerings (IPOs).
"Obviously, market conditions are very difficult but (crime) has become a factor, so people don't want to put their surnames on a share listing," Prieto told a business forum in the northern city of Monterrey.
"At least six or seven companies have said crime is a reason (for not listing)," he said.
More than 4,300 people, mostly drug smugglers but also police and soldiers, have been killed this year as President Felipe Calderon's army clampdown on drug cartels sparks battles between rival cartels and security forces.
Kidnappings, often carried out by gangs led by corrupt police, have also surged and the public has been shocked by recent cases of abducted children being brutally murdered.
Going public to raise funds for expansion requires far greater company disclosure and a higher public profile for company executives who go on roadshows to attract investors.
Mexican business leaders say operations have not been hurt by the drug war and they mostly support Calderon's deployment of some 40,000 troops and federal police to catch drug gangs.
Many businesses have stepped up security, however, and some company owners in violent northern border cities such as Tijuana are conducting their business from the United States to avoid the risk of being kidnapped. (Reuters)

China envoy hails 'successful' trip

As Chinese Senior official Chen Yunlin, the head of the Chinese government's department in charge of Taiwan affairs wraps up his five day tour in Taiwan to meet with officials in Taiwan Chen Declared the visit to be successful and that they have accomplished what was set out to do.

"Chen signed a landmark trade deal expanding aviation and shipping links across the Taiwan Strait, agreed to exchange rare animals with Taiwan and to work on measures designed to boost co-operation on food safety issues."

This was the first of such meeting in the last six decades, due to political differences. Though both sides agree that this was a successful talk, they also know that this is only the beginning of a long and difficult road, for break-throughs between Taiwan- China relations.

This meeting did not go with out resistance, the Taiwanese protesters gathered and shouted pro-Independence slogans with anti-China banners.

Agency Predicts a Return of Triple-Digit Oil Prices

By JAD MOUAWAD
Published: November 6, 2008

The global economic slump that has curbed energy demand and pushed oil prices down in recent months may provide only a short-lived respite for consumers, according to the world’s top energy forecaster.

Demand for a Say on a Way Out of Crisis

By ALEXEI BARRIONUEVO
A gathering of the Group of 20 over the weekend revealed a desire among developing countries to have a greater voice in helping the world navigate its way out of the financial crisis.

Working Poor and Young Hit Hard in Downturn

By ERIK ECKHOLM
Labor experts say the hardships of the gathering recession will hurt the working poor and younger job seekers most.

The Hedonistic Paradox: Is Homo Economicus Happier?

This paper was published in the Journal of Public Economics.

It explores the idea that more altruistic people are happier than people who are greedy. It states that homo economicus -- someone who seeks happiness for him- or herself -- will not find it, but the person who helps others will.

The authors conclude that "The results of this and other studies raise the question of whether greater attention should be paid to the potential benefits (beyond solely the material ones) of policies that promote charitable donations, volunteerism, service education, and, more generally, community involvement, political action, and social institutions that foster psychological well-being."

A Model for Future Mortgage Finance in the U.S. by Ben Bernanke

The Chairman of the Federal Reserve made this speech at the UC Berkeley Symposium on October 31, 2008.

He discusses the mortgage securtization process, how it has affected the current financial crisis and how can the model be evolved in the future.


The Future of Mortgage Finance in the United States

Chairman Ben S. Bernanke
At the UC Berkeley/UCLA Symposium: The Mortgage Meltdown, the Economy, and Public Policy, Berkeley, California
October 31, 2008

Consumer spending continues to slow down after AIG bail-out!

Wall Street heads into another turbulent week with investors set to pore over a government report on retail sales and earnings from Wal-Mart Stores Inc. to get a better reading on the consumer.

There are growing signs that the deepening economic slowdown has caused Americans to cut back on their spending budget. There was fresh evidence of this past week when retailers posted the worst October same-store sales in 35 years -- and analysts believe the upcoming holiday shopping season could be among the slowest in decades.

With consumer spending driving more than two-thirds of the U.S. economy, investors will be paying close attention to earnings outlooks for some of the nation's biggest retailers. Wal-Mart, the nation's biggest retail chain, will post results on Thursday. Kohl's Corp., JCPenney Co., Macy's Inc., and Abercrombie & Fitch Co. are scheduled to release reports as well.

Wall Street had enjoyed its biggest Election Day rally in history last Tuesday, but could not cling to those gains. This was followed by a two-day loss of about 10 percent in the major indexes, including a 929-point drop in the Dow, as investors turned their focus once more to the economy's woes.

Additionally, investors are watching for developments with General Motors Corp., Chrysler and Ford Motor Co. after the automakers met with Congressional leaders last week to secure financial help.

Democratic leaders in Congress asked the Bush administration on Saturday to provide more aid to the struggling auto industry, which is bleeding cash and jobs as sales have dropped to their lowest level in a quarter-century. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said in a letter to Treasury Secretary Henry Paulson that the administration should consider expanding the $700 billion bailout to include car companies.

It looks like everyone is gonna get bailed out these days. But when will we start seeing its effects on the market?

Is it time to resort to fiscal policies?

The IMF predicts that the global economic growth in 2009 will be 2.2%, which is down 0.8% from its last prediction on October 2008.

Developing economies: growth rate of 5.1%, which is a full point lower than the October prediction. This is due to falling commodity prices. While that has helped ease the inflation burden on rich countries, it is hurting commodity exporters. The IMF lowered its 2009 baseline oil price projection to $68 per barrel from $100, and noted that prices had also fallen for metals and food.

The IMF warned that conditions could get even worse as financial firms reduce their debt, investors brace for rising corporate defaults, and consumers cut back on spending.

IMF chief economist Olivier Blanchard said the IMF's downward growth revisions for most economies was based on a sharper-than-expected fall in demand in advanced countries and worsening credit conditions in emerging market economies. He believes that there is little room left in some counties to further cut interest rates, and that we should resort to employing expansionary fiscal policies (that is, lowering taxes and/or increasing government spending)

But taxes -- necessary as they are -- can distort private decisions, create misallocations of resources and generate dead weight losses. Tax systems can be more or less distortive for two reasons: either because they extract more or less resources from private agents (the tax level), or because they raise a given amount of revenue in more or less distortive ways (the tax structure).

For different countries to consider reforms to their tax systems, identifying the growth implications of different tax instruments is useful for policy design, regardless of whether or not they identify a change to the overall level of taxes. Another reason for focusing on tax structures rather than the overall tax burden is that the overall level of taxes reflects societal choices over the size of the public sector, while the tax structure is the first tool to implement these choices. Governments may consider changes to the structure of taxes in order to minimize the negative consequences for growth, while maintaining the desired level of public goods and services provided.

If a fiscal policy is, infact to be imposed, it will be challenging to figure out how to plan this policy, and what will the effects of its implementation be.

China's stimulus plan's effects on Asian stock markets

Asian stock markets logged strong gains Monday, cheered by China unveiling a $586 billion stimulus plan over the weekend to counter the effects of a global slowdown on its booming economy.

China announced Sunday a massive stimulus package in hopes of keeping economic growth from falling too fast. Demand from the U.S. and the country's other vital export markets has been waning as the global financial crisis takes an economic toll.

China's economic growth slowed to 9 percent in the third quarter, the lowest level in five years and a sharp decline from 11.9 percent the year before-- perilously low for a government that needs to create jobs for millions of new workers and for other Asian countries that have come to depend heavily on Chinese demand.

"The global economy is in trouble and Chinese authorities understand that they can't wait anymore ... They're aware that exports next year will be terrible given the weakening economies in the U.S. and Europe," said Winson Fong, a Hong Kong-based managing director at SG Asset Management, which oversees about $3 billion in equities in Asia.

"This has been overdue," he said. "Investors in mainland China have been waiting for a complete rescue package since the beginning of the year."

China's announcement came as economic officials from 20 leading nations called Sunday for increased government spending to boost the troubled global economy.

In my opinion, this stimulus package sure does give China some hopes but what this decision can do to their economy is still in the mist. My concern is what if the global demand stay at the same level or even fall lower next year while China is producing more and more goods (because of the stimulus package) ?

How to Solve the Problem of the Dollar

The value of the dollar has been going down and this article offers an interesting method to remedy this problem. The author suggests creating a substitution account at the International Monetary Fund (IMF) through which unwanted dollars could be converted into special drawing rights (SDR).

Such a system was created in 1978-80 to increase monetary stability in the world. Infact, $34 billion of the money still exists.

According to this system, instead of converting dollars into other currencies through the market, unwanted holdings ed could be depositin a special account at the IMF. They would be credited with a like amount of SDR (or SDR-denominated certificates), which they could use to finance future balance-of-payment deficits and other legitimate needs, redeem at the account itself or transfer to other participants. Hence the asset would be fully liquid.

The fund’s members would authorize it to meet the demand by issuing as many new SDR as needed, which would have no net impact on the global money supply (and hence on world growth or inflation) because the operation would substitute one asset for another. The account would invest the dollar deposits in US securities. If additional backing were deemed necessary, the fund’s gold holdings of $80 billion would more than suffice.

All countries would benefit. Those with dollars that they deem excessive would receive an asset denominated in a basket of currencies (44 percent dollars, 34 percent euros, 11 percent each yen and sterling), achieving in a single stroke the diversification they seek along with market-based yields. They would avoid depressing the dollar excessively, minimizing the loss on their remaining dollar holdings as well as avoiding systemic disruption.

The United States would be spared the risk of higher inflation and potentially much higher interest rates that would stem from an even sharper decline of the dollar. Such consequences would be especially unwelcome today with the prospect of subdued US growth or even recession over the next year or so.

The international financial architecture would be greatly strengthened by a substitution account. In the wake of the dollar crises of the early postwar period, the IMF membership adopted SDR as the centerpiece of a strategy to build an international monetary system that would no longer rely on a single currency.

The move to floating exchange rates by most major countries in the 1970s postponed the need to pursue that strategy to its conclusion but also generated the extreme currency instability that triggered official consideration of an account. The global imbalances and large currency swings in recent years, and the accelerated accumulation of official dollar holdings by countries that have essentially reverted to fixed exchange rates, replicate the conditions that led to both the creation of SDR and the negotiations on an account.

A substitution account would not solve all international monetary problems nor would it suffice to restore a stable global financial system.

The dollar needs to decline further to restore equilibrium in the US external position. China, many other Asian countries, and most oil exporters will have to accept substantial increases in their currencies now and much more flexible exchange rates for the long run. But early adoption of a substitution account would minimize the risks of adjustment of the present imbalances and the inevitable structural shift to a bipolar monetary system based on the euro as well as the dollar.

The Human Factor

This NYT article states that the mathematical models used to determine risk on different investments/securities failed to consider how humans would use those models, which contributed to the crisis in a big way. The article goes on to talk about credit-default swaps, securities, and derivatives but (partly because I'm not a big finance person and I wouldn't know a derivative if it bit me) I just found a couple of points in the article interesting:

1. The article says that financial models couldn't keep up with the rapid pace of technological growth and financial innovation. And apparently neither could humans, for as they continued to chase after the potential profits to be found in such innovation, they disregarded or underestimated the possible risk.

2. What the models say and what the analysts say can be very different. A model can predict one thing, but if an analyst says the probability of it is very low, investors may be more inclined to agree with the more optimistic analysts.

3. "Complexity, transparency, liquidity, and leverage" are risks and factors not easily captured in a mathematical model. And it's not like humans can be counted on to adhere to the laws of mathematics in everday life.

4. In regards to financial regulation, it should be like "fire safety rules in building codes. The chances of any building burning down are slight, but ceiling sprinklers, fire extinguishers and fire escapes are mandated by law."

What interested me was the notion that despite people's best efforts to predict risk and map out the financial market, ultimately it all comes down to how humans use the information. Models may assume humans act rationally, but as in this case, it seems like people's use of new financial instruments outpaced the calculated warnings of the model, and the way we acted was not all that rational.

Small Businesses in Economic Crisis

I think it's also important to look at how the crisis is affecting not only banks and big companies, but small businesses who face the brunt of the credit crunch and must either downsize or shut down. This article features 7 small businesses that have shut down this year ("Victims of the Crash" as CNN dramatically calls them) and the loss to the community that each one represents. If you look at the reasons why each business faltered, it's interesting to note how everything creates an impact on a smaller, more personal scale. Real-estate prices, dwindling corporate philanthropy, rising costs in food and oil prices, drying up of funds all contributed to these businesses filing for bankruptcy. Of course, there were some non-crisis related factors, like dwindling CD and book sales, but it's the crisis that accelerated these businesses' problems.

Small businesses are a vital part of the American economy. As this article states, they employ half of the non-government labor force, which means that if they are forced to cut jobs, that could increase unemployment drastically. They can help local communities thrive, preserve history and culture (no more circus animal cookies??), and help prevent a few major companies from completely taking over an industry.

While one can argue that in a capitalist economy, a firm that can't operate efficiently can't survive, in this case maybe small businesses should be protected. Is it worth trying to save/protect small businesses directly? If Wall Street and Detroit are being helped, should small businesses be too (which then raises the question of how far should the government go)? Or is the trickle-down effect of the bailout sufficient?

AIG's new bailout

The troubled insurance company is close to a deal that would have the government supplying them with a third bailout plan to help out their struggling finances. The government is changing their current $123 billion plan and increasing it to a $150 billion plan. This deal could be reached as soon as November 10, because that is when AIG is to announce their third quarter results. With this being the third deal that the government is offering to AIG, is it possible that they will ever recover from their debt? The government with this new deal is exchanging $40 billion for preferred stock to recover some of the funds that they are just giving away. This is good because the government will need a lot of help if they expect to get all of their bailout money back from all of the banks and financial instituions that they have helped out over the past few months.

China's New Stimulus Plan

This article discusses how China is going to implement a stimulus plan to help their economy.  It seems like it's a lot like the stimulus plan implemented in the United States; it would pick up the pace on spending on low-cost housing, increase spending on rural infrastructure, and put money into new railways, roads and airports, as well as other things.  In addition, it will remove credit limits for commercial banks.  The total plan is worth $586 billion.  I think that it's interesting that China is introducing a stimulus plan like the United States', but the fact that their stimulus plan includes things such as increased spending on health and education show the difference between China and the U.S., that China is still a communist state and the United States is still a capitalist state.

The Race to Zero

Yes, we are talking about the policy makers' race to bring interest rates to 0%. On Nov 6, the Bank of England just slashed interest rates to their lowest level since 1955. Less than an hour later, the European Central Bank (ECB) cut its key interest rate too, but by only half a percentage point, to 3.25%. Shortly after the Bank of England's big cut, Switzerland's central bank reduced its policy rate by half a percentage point, to 2%. Earlier in the week, the Reserve Bank of Australia reduced its key rate, from 6% to 5.25%. Central banks in India and Vietnam also cut their benchmark interest rates in November.
The trend is pretty obvious. Until the summer, the main concern for most central banks had been whether they could cap inflation. Now the race is on to ease monetary policy in order prevent a prolonged economic slump. The Fed leads the way, and now other banks follow. The question is, whether this expansionary monetary policy will have an effect before interest rates actually drop to zero.

Obama takes aim at the Greenspan era

As Barack Obama was elected as the US president on Tuesday, what will be the most important item in his agenda? As public has observed throughout the President's campaign, investors are certain that tougher rules are coming.
"Overhaul of the government's financial services regulatory structure, consolidation of charter types, tougher liquidity and capital requirements, bankruptcy and credit card reform are all on the table," said William Donovan, a partner at the Venable law firm in Washington and former general counsel of the National Association of Federal Credit Unions.
Obama has proposed an economic stimulus plan that would include money for infrastructure, and he favors reforming the bankruptcy code to help homeowners and make it easier to restructure troubled mortgages.
Obama has also been supportive of infrastructure spending as a way to create jobs -- something that will no doubt take on greater urgency on Friday when the government releases its October employment figures. The report is expected to show 200,000 jobs lost in October, which would make it the weakest month of the year.

Markets Fall Sharply, Erasing Election Day Gains

Despite the recent election, and booms from previous days due to the election hype the stock market fell sharply. Nasdaq dropped 5.5 %, Dow Jones dropped 5%, and Standard & Poor’s 500-stock index fell 5.3 percent. Wall street began to drop after a report showed that activity at the nation’s service industries in October went down in, the drop was the steepest drop since records began in 1997.


"I think anytime you do see a rally like we’ve been having, there will always be a little bit of pullback when people wake up and see things like today’s headline number on nonmanufacturing activity, which was the lowest of all time,” Michael Feroli, an economist at JPMorgan Chase, said. “If there’s data out, there’s going to be bad news out. That will tend to keep market enthusiasm a little bit contained.”"


This article should remind us those we are still feeling much of the election euphoria, it is serious business to fix the economy and it will take more than just "hope"

Nobel Winner Aumann Says Bernanke, Paulson Steps `Not Smart'

Robert J. Aumann, the Israel economist and mathematician who won the 2005 Nobel Prize for his work on conflict and cooperation through game-theory analysis said at a rabbinical conference in Jerusalem on November 1st that he thinks the Federal Reserve and the US government made a wrong, "not smart" move in bailing out big financial institutions.
"The intervention by the regulators to save the U.S. economy will lead to further bankruptcies of banks and insurance companies," said Aumann. "They are only encouraging institutions to take more uncalculated risks."
I think he is right. Some argue that after the government steps in to help "trouble" institutions, these “zombie” or “living dead” institutions will fail sooner or later, and it’s believed that they are even more inclined to take more risks because there is nothing else to lose. Your thoughts?

Russia and the unfolding global recession

The current financial crisis is influencing many countries, and to minimize the global economic downturn, there has been great international bank bailout this year in May. However, some economists believe that Russia can minimize the effect locally and can improve the economy into better shape.

One of the factors that were discussed in this article was change in the infrastructure spending.
With the large infrastructure development program already on its way, it is believed that it can help Russian business. This would further decrease the unemployment as there would be more jobs available. The government is currently considering an investment to improve social infrastructure particularly in health and education, as well as housing stock.

Furthermore, investments in gas and oil development as well as investment in transport and logistics infrastructure would help to improve the energy sector and the heavy industry especially steelmakers and construction outfits.

Overall, it is believed that these changes in the infrastructure with its massive investment would help to increase employment in addition to keeping up the consumption, generating improvements in quality of life for everyday Russians.

New Economic Plan?!

This was one of those emails I recieved through a chain mail system. I figured it was just one of those stupid political emails, bashing one candidate or another, but then I actually read it and it sounded rather interesting. The email is as follows...

I have received this email 3 times this week...it's amazing how cool it is to even dream for a second about this! I think I would like to hear the 'real' reason why this would 'never' work.

Okay I'm in ...Finally a 'plan' that makes sense...If only this was the plan and it worked...
I'm against the $85,000,000,000.00 (Billion) bailout of AIG.

Instead, I'm in favor of giving $85,000,000,000 (BILLION) to America in a 'We Deserve It Dividend'.
To make the math simple, let's assume there are 200,000,000 bonafide U.S. Citizens 18 yrs yrs and older.

Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up. So divide 200 million adults 18+ into $85 billon that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a 'We Deserve It Dividend'.
Of course, it would NOT be tax free. So let's assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam.
But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?
- Pay off your mortgage - housing crisis solved.
- Repay college loans - what a great boost to new grads
- Put away money for college - it'll be there
- Save in a bank - create money to loan to entrepreneurs.
- Buy a new car - create jobs
- Invest in the market - capital drives growth
- Pay for your parent's medical insurance - health care improves
- Enable Deadbeat Dads to come clean - or else

Remember this is for every adult U S Citizen 18+, including the folks who lost their jobs at Lehmann Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.

If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 ( 'vote buy' ) economic incentive that is being proposed by one of our candidates for President.

If we're going to do an $85 billion bailout, let's bail out every adult US Citizen 18+!

As for AIG - liquidate it. Sell off its parts. Let American General go back to being American General.
- Sell off the real estate.
- Let the private sector bargain hunters cut it up and then clean it up.

Here's the rationale. We deserve it and AIG doesn't.
Sure it's a crazy idea that can 'never work.'
But can you imagine the Coast-To-Coast Block Party!
How do you spell Economic Boom?
Surely our fellow adult Americans to know how to use the $85 Billion. We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC.

And remember, the plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.



So my question for the blog is this: I realize this plan probably wouldn't work because of inflation, among other things, but why isn't the 60 billion dollar plan not more inflationary than this one???

Socialism, the oil way?

Hugo Chavez did it in Venezuala. He nationalized all the oil companies and started using oil money to distribute public goods and services. It worked, albeit limitedly, till now. The real test is gonna come once oil prices drop to a more naturalized price and stays there for long. No longer will Iran, Russia or Venezuala (this can cliqued, i know) have the same political clout or the adbundant pecuniary source to fund their campaigns and their socialist-isque endeavors. 

This brought me to an interesting debate I had with a fellow student here. What if American oil companies were nationalized. I mean, the government is doing it with banks, buying their stock, providing them with capital and shoring up their financial reserves to "save the economy". Aren't $14 billion dollars in oil profits from just ONE company, i.e. Exxon, worth it? I know, it might not last too long and with the current downward pressure on oil prices, the profits aren't guarenteed at these record levels, but oil companies have historically had great margins and are usually cash generating cows. Who gets to the reap the benefits of this? The "shareholders". Who would they be? Well, executives, their friends, "George Bush", his vested interests(think Haliburton), and every other filthy rich owner who really does not need $500 million to satisfy his most outrageous needs. 

So why is the government and the country so pro-socialism for the bank sector which has milked millions of investors of their money? Why can't they try and buy stock in Exxon, or BP or any of the other oil giants that have and will continue to reap huge profits once the oil demand goes back up. Isn't that long term planning. Instead of a few hundred millionares, we'd have ONE rich rich shareholder, who inturn would share the wealth or the gains, atleast in the most fundemental sense.

I'm not against the bailout. It was necessary. But if we're being socialists, atleast temporary, why not be smart at it? 

China: Rich Country, Poor Country

We learned that China has a large and growing income inequity due to opening to the market economy in selective regions. This Forbes article tells you how China, once centrally planned economy, is changing to the market economy and becoming more open to the world and how severe imbalances China has in its areas of development. I think it's a good summary of what we covered in the class.

Risky Industries for jobs

I thought this was an important article especially for Seniors who will shortly be entering the job market after college. This article mentions six major industries which will (or continue) to take a hit as the year progress's. The housing and finance industries are obviously mentioned as two main markets that will continue to decline and thus suffer job losses. Retail is another industry taking a hit as consumers are purchasing less "non-essential" items in the market. The publishing industry, which includes digital media and broadcasting will be downsizing due to less advertising towards unwilling consumers. Sales for the big three automakers have decreased by 20% and is expected to fall further in the next year. Last the travel industry along with other "leisure activities" will continue to fall and cause further layoffs throughout the country and overseas.
How should the average graduating college student expect to cope with the struggling market? How should graduating students learn to enter the industry they wish to w/o the fear of layoffs or downsizing of companies?

Stocks likely to recover no matter who's president

"Wall Street prefers Republicans, McCain supporters argue. But stocks have done better under Democratic presidents, Obama supporters fire back.

When it comes to the stock market — especially this turbulent market — does it really matter who is elected president?"

Analysts agree that no matter who is the next president neither one will be the cure for the problems that face Wall Street right now. The one thing most analysts agree on is that the only place the stock market can go is up right now. Because of the financial crisis both candidates agendas will be most likely altered to try and combat the crisis and help turn the economy back around.

There is a theory that the stock market has a four year cycle where the year after the election the stock market falls but then continues to rise until the next presidential election, but this is said to be tested by the two terms of our current president. The article points out that this theory is just like the "Super Bowl Indicator" and has no real indication of the outcome of the stock market, based on election year or any other year for that matter.

Gloom Spreads in EU's economies

The Spanish economy has been a strong point for the EU for quite some time with higher than average growth rates. However, for the first time in fifteen years the Spanish economy experienced a downturn and that gave economists some worry that the country is inching ever closer to a recession. This also puts more pressure on the European Central Bank to cut the interest rates to try and prevent the recession. Some economists believe that the onset of the global financial crisis was the reason for Spain's decade long housing boom was brought to a halt and that it is causing the overall downturn of the economy. Not helping the case for Spain to be saved from recession is the fact that inflation has fallen all across Europe and employment has risen.

Are We Finally in a Recession?

Third quarter results have been posted and the economy and he GDP have been declining for three consecutive months since July to September. Technically a recession is defined as 6 consecutive months of negative growth and declining GDP. Amazingly with the current financial crisis and dismal economic environment. Some have already considered the United States to be in a recession according to declining GDP and unemployment figures, but it has not been technically declared so far. Last month GDP fell by 0.3%, which is the sharpest decline in 7 years. Consumer spending has also dropped along with business investment.

Americans unemployment aid rose to 3.7 million, the highest in almost 5 years. European consumer confidence has also declined, driving U.S unemployment even higher. The federal reserve also lowered its interest rates by 0.5% to promote business lending of credit. Even after the government gave business 700 billion dollars, they are not doing anything but holding onto the money. Keeping the interest rates low will not help his situation, banks will barely make a profit off of such low interest rates and have more incentive to hold onto the money. This is exactly the opposite of what the government intended for the bailout plan, the months ahead will be dismal for the U.S economy. Other countries around the world are experiencing the effects of the declining U.S economy, the question is now how do we turn things around. The bailout plan seems to have had little effect so far, so what is next? how are we going to increase consumer confidence and get the U.S economy back on track?

Despite Low Gas Prices Auto Sales Suffering

Auto sales are said to be the lowest now since the early 1980's. October will mark the 12th consecutive month of sales declining. Sales for October are expected to be down 30%, due to weak consumer confidence and tight credit. Sales had already been doing poor before the credit crunch because of high gas prices and deflated home values. Manufactures have been taking desperate measures to keep sales afloat. Toyota launched a zero percent financing on most all its models and Honda keep sales up with employee pricing. Even though gas prices have been falling rapidly, sales have not seem a significant increase. George Pipas, Ford's US sales analyst says that gas prices are no longer peoples main concern, "They're worried about jobs, their homes, and rising health care costs." Demand on small cars has stayed high despite low gas prices, but profits on these models is small.
The fact that people are not going out and suddenly buying new cars because of lowering gas prices does not surprise me. Most realize that oil prices are bound to increase again and will be back to $4.00 a gallon in no time. Also like Pipas stated, people have bigger concerns right now and cannot afford a new car right now.

Japanese-Brazilians in Japan

Japan's labor shortage might force Japan to open its door to immigrant workers from other countries. This article talks about how Japan is coping with these "outsiders". It is exemplary of yet another case of globalization, of greater labor mobility and the challenges it entails.

Inflation in Vietnam seen through ceramics industry

This series of photos illustrates how inflation affected the Vietnamese economy, in particular ceramics, a type of goods that yields export gains. The rise in costs of raw materials has made the final product more expensive. Consumers and export sector of ceramics get hurt. The real estate boom affected ceramics production indirectly, as brick price increased.

Story of 2 Chinese who opposed the Cultural Revolution

This New York Times article told the tale of two Chinese women who suffered due to their opposition to the Cultural Revolution: Nie Yuanzi and Wang Rongfen. I think it is very interesting as it gives us a portrayal of a segment of what happened in revolutionary China in the 60s and 70s.

Interestingly, Nie was the one who helped fuel the frenzy of the revolution by writing a poster attacking Mao's political rivals in the CCP. She was appointed the leader of Mao's Red Guards (student activists that carried out the revolution against "counter-revolutionary" elements), but she realized that the Cultural Revolution was getting out of control and finally opposed it.

"Looking back, she insists that she had no idea that the poster she made would have such terrible consequences. "I didn't know we were heading toward disaster," she said, describing herself as a party loyalist who executed orders. "Once I understood, I stopped following them. I opposed them, and for that I was punished."" She was jailed for 17 years.

Wang Rongfen wrote a letter criticizing Mao's Cultural Revolution. "The letter, which has never been published, earned her a life sentence, which was lifted after 12½ years, following Mao's death in 1976, which also spelled the end of the Cultural Revolution."

China's Land Use Policies

The Communist Party in China has announced a new land use policy. The plan is an attempt to jump start the agricultural sector that is still hurting by the old collectivization policies of Mao Zedong. The goal is to help the agricultural sector of the economy, which has mostly been bypassed by the recent economic boom.

Currently, farmers retain the proceeds from their crop sales, but do not own the land. Under the new plan, farmers will be able to lease, swap, subcontract, and transfer land use rights. Government officials hope that this new plan will double the disposable income of over 73o million residents to more than $1,200 by 2020.

(Article from Time Magazine; November 3, 2008)

What we can learn from the Japanese

The head of the Société Générale Asset Management Japan Core Alpha team commented on how the past can inform the future.

Almost 20 years ago Japan entered a protracted financial crisis, bear market and economic downturn. What lessons does that experience hold as the West struggles with a financial crisis?

The specifics of every banking crisis vary by country and by cycle, but the general forces are the same. When expanding gearing gives way to contracting debt, the stage is set for a liquidity crisis.

Three kinds of adjustment are needed before stability can return. First, asset values must discount the credit- constrained world. That is already happening with a vengeance, but take care not to assume too quickly that the process is complete.

Second, the banking sector needs to write off bad debts, consolidate (a polite way of saying shrink), and rebuild its capital base. In banking terms, completing the MUFG merger in October 2005 marked the end of the crisis.

Third, the real economy must also adjust to the new credit constraints. In Japan’s case, car sales, land prices, bank lending and the household spending index have, like share prices, returned to the levels of the early 1980s.

Rough Seas ahead

New figure show that even with a small gain in income, Americans are spending less and less, due to the gloomy outlook of the economy. The Commerce Department reported that household in come only had a small 0.2 percent gain, but consumer spending had sharp drop; of 0.3 percent in the month of September. Figures also shows that the U.S economy shrank 0.3 percent during the third quarter. That combined with the current Bush administration hinting to automakers and other industries that they might not be qualified for the government $250 billion stock purchase program. but they could be the benefactor of a separate government purchase program in which the government plans to spend $100billion in purchasing stocks in banks to remove the bad assets on the bank's books, such as bad auto loans.

With consumer confidence dropping fast and hard times ahead, Federal Reserve Chairman Ben Bernanke warned the government that whatever system is set up after the government take over of mortgage giants Fannie Mae and Freddie Mac, that this system much have better safeguards to keep the system functioning in times of stress.

"The boom in subprime mortgage lending was only part of a much broader credit boom characterized by underpricing of risk, excessive leverage and the creation of complex and opaque financial instruments that proved fragile under stress," Bernanke said

With the holiday season coming in stores are bracing for lowest sales. And Economists expects Armenians to further cut spending and it looks like hard times ahead.

India May Actually Benefit in the Long Run

Although high interest rates and resulting higher costs—coupled with high oil prices, decelerating global growth, slowing export markets, depreciation of the rupee and the global financial turmoil—have taken their toll on India's economy the Indian government maintains that the Economy will continue to grow at close to 8%. The Economist Intelligence Unit, is however less optimistic and estimates a growth of close to 6.5% for the next two fiscal years. The article claims that this is not all bad news because although the country’s growth rate will slow down it will still be among the fastest growing economies of the world. Moreover, the article claims that the current global situation is making India’s measured pace of economics reform look “wiser than before.” “At a time when Western countries are frantically nationalizing banking assets, the Indian government's reluctance to sell more than 49% in its state-owned banks—which control some 70% of banking assets—now seems reassuring. In addition, India has not yet introduced full capital-account convertibility, which protects its currency, while its careful control of foreign borrowings by domestic companies limits dependence on the global financial system. Regulators have also periodically introduced curbs to slow the formation of potential asset bubbles, such as higher provisioning and prudential requirements on real-estate lending.” The article claims that once the world moves towards a more stable platform, India is likely to emerge as an attractive destination for investment. Although India has not escaped the global crisis, Indian companies seem to be looking for opportunities in the crisis.

Being from India, I think I somewhat identify with this never say die attitude. Having lived in Mumbai, the commercial capital of India I can well picture how the country is ready to bounce back and make the best of what it has. I think its really interesting that in spite of being caught in the crisis, it is expected that the country may actually benefit in the long run.

Parsing the Google, Yahoo, Microsoft “Global Network Initiative”

The big three U.S. internet giants (Google, Microsoft, Yahoo) have agreed upon a common set of principles to guide their business in nations such as China that restrict free speech and expression.
Members of the Global Network Initiative, which include both companies and well-known human rights organizations such as Human Rights in China, are quick to point out that the initiative isn’t just a set of rules for doing business in China. Unlike the tabled Global Online Freedom Act that would have made it a crime for U.S. companies to turn over personal information to governments in “Internet-restricting countries,” this voluntary initiative applies to doing business everywhere — and works more as a framework to help Internet companies do the due diligence that can help them avoid the ethical lapses for which they’ve been roundly criticized. (In front of Congress last year, Yahoo’s Chief Executive Jerry Yang apologized to the mother of journalist Shi Tao, who was jailed after a unit of the company handed information about him to Chinese authorities in 2004.)

They know that this will not fix all of the situations. However, the key idea behind this is to start thinking about the problems before they start to get worse.

Fed Cuts Rates

In lieu of the current economic downturn, the Fed cut interest rates to 1% along with other countries including China and Norway who are cutting their interest rates as well. According to the article "Lower interest rates are usually a powerful tool to boost economic growth, because they reduce the cost of borrowing for businesses and consumers, giving them an incentive to start new projects or spend money. Lower rates also reduce the cost of funds for banks, which theoretically should make them more willing to lend."
However, the Fed is concerned that cutting the interest rates will not boost the economy as it traditionally does. For example, Japan cut interest rates to 0%. Due to the economic crisis and people gearing towards risk adversity "zero percent interest rates failed to revive the economy earlier this decade"

Dear Mr. President

This article interviews seven Nobel laureates and gathers their advice on how they think the next President should go about fixing the economy. The Nobel lareates range from Paul Krugman, Joseph E. Stiglitz and Edmund Phelps. This is a really long article but is very informative and interesting to read.

Dear Mr. President
Advice from seven Nobel laureates on fixing the economy.
By Katie Paul NEWSWEEK
Published Oct 22, 2008