Consumer sentiment unexpectedly fell in October

The U.S. consumer sentiment unexpectedly fell in October. This worries economics because consumer spending accounts for such a high level of our economic recovery stimulus. Dropping from 68.2 to 67.9.

What do you think is causing this decrease in consumer confidence?

Bank stocks keep falling as mortgage fears mount

Mortgage fears cause bank stocks to fall on friday. Mortgages that are left over from the housing collapse, however, there are not fears of fraud. For example Bank of America now has to review several thousand mortgage papers that were filed. In doing so legal fees will be tremendous. Furthermore, there is new uncertainty on how healthy banks really are, and weather they will be able to be able to pay bondholders.

Do you think that the government might have to provide money to banks again? Will the uncertainty effect only the finance sector or the whole market?

Bernanke suggests that the FED is weighing further expansionary policy

On Friday, Chairman of the Federal Reserve Ben Bernanke suggested that the FED would do more to pump money into the economy and to keep interest rates down. While the FED is traditionally concerned about inflation, those concerns have been assuaged by small increases in the core-CPI. So, many are convinced, including Bernanke, that even if the results are minimal, the FED must do all it can to counter any deflationary trends and to encourage lending and investing to reduce the unemployment rate. Bernanke did suggest, though, that the unemployment rate has almost everything to due with demographics and trends, and that the FED can only play a limited long-term role by making monetary adjustments. The article also highlights the impact that quantitative easing - purchasing US treasuries - will have on the world market for US goods. Many people are concerned that this will weaken the dollar too much, and destabilize international trade relations and agreements.

Deficit tops $1 trillion again

This is the second year in a row the U.S tops $1 trillion in deficit. Even though it has relatively dropped to $1.29 trillion from $1.42 trillion last year, it is still historically high. Tax raise and decrease in government spending has contributed to this drop yet it seems the government is still way too far from finding a solution. President Obama has been passing several policies to get this problem under control and one of those was trying to let the Bush tax cut. What should the government do to stop this?

New Push on Social Security Benefit Checks

The Obama administration is planning to give $250 each as bonus to the 58 million recipients of Social Security due to the lack of increase in benefits last two years. However, this has still not been approved and has been postponed after November 2nd elections. The administration further states that another bonus will not be given till the consumer spending reaches the same level as the 2008 spending. But, is it feasible for the administration to undergo more debt and pay the bonus?

Three Economic Development consensus

This article highlights the three different approaches to Economic Development. One is the free market development model followed by Washington also called as Washington consensus. Second one called as Beijing consensus which is followed by China. This type of development is backed by export-powered growth. A possible third one is Mumbai consensus which is followed in India wherein the economic development is "people-centric" and driven by growth in consumption. This is interesting as it gives a different perspective on economic development in these times.

Oil, gold, corn... oh my!

Commodity prices are on the surge as the bet for the Fed to aid the stumbling economy continues. The Fed is expected to purchase assets to pump more money into the economy. "The anticipation of the central bank flooding the economy with more dollars has weakened the U.S. currency and boosted the appeal of commodities as an alternative investment." This is a scary sign that the people is trying to move away from the ever fluctuating paper currency toward something more tangible (which holds stable value): commodity.

Stock Market Rising

Stock prices are skyrocketing for many businesses, especially those that can jump on the dollar being so low, like companies that can purchase assets for cheap. Apple for example is over $300 for the first time ever, thanks to the success of the iPad and new iPhone.

Imports are also rising in price, as many people have noticed from gas prices. Oil rose over a dollar and a half a barrel.

Some companies seem to be doing pretty well, while others are going in the other direction. It will be interesting to see how sustainable these trends are.

Turbocharged Germany

The article states that German economy doing well. The economy grew by 2.2%, unemployment is slowly decreasing and exports to emerging economies increasing, proving that there are people out there buying. Export of luxury cars to India and China increasing, showing increased purchasing power of developing nations. Countries with strong ties to Germany also increasing exports... Is this growth stable? and if so, how long until we feel it in America.

More Stimulus to Come?

Infrastructure seems to be the best, most assured way of return for stimulus we have now in our present economy and political stance. Obama is calling for $50B for yet another stimulus package for construction and improvement to America's infrastructure. Obama is trying to get a bipartisan vote of confidence for this bill, keeping jobs and benefits solely here in the US. I think this is a good idea, and agree that infrastructure stimulation is a great way of creating jobs and improving the look and effectiveness of our roads, bridges, etc.

One thing I would like to see with more infrastructure spending, however, is more advanced construction. Let's start on a commuter rail project instead of filling more potholes.

Protectionism in China

The Chinese currency, the renminbi, has been undervalued due to the Chinese government keeping 2.5 trillion American dollars in Reserve. The government has been using foreign exchange markets to buy dollars in order to keep them expensive and selling renminbi to keep them cheap. The currency is currently undervalued by 20 %. This policy is very protectionist, it puts automatic subsidies on exports and tariffs on imports and therefore protects domestic made goods. If the government were to revalue the renminbi to what its value should be, it will have a positive effect on our economy. US imports from China will be driven down, and US production will rise and export more goods. This will also decrease unemployment in the US by creating new jobs. From our economic perspective, it would greatly benefit us to push China to revalue their currency. However, there will be other effects to both the Chinese and World Economy that are negative and even unpredictable.

The big squeeze

The article observes how american investment banks, which have been successful in the past, are now facing harder times. They have gone through bail-outs, experienced the debt bubble clasping and in some cases bankruptcy. It goes into details as, "American banking giants’ third-quarter results, starting with JPMorgan Chase on October 13th, will show that trading revenues fell by perhaps 20-30% from the previous quarter. With nervy investors sitting on their hands, client activity was “painfully slow across the board”, according to Jefferies, a middle-sized bank." Even the top banks such as Goldman used to have returns of about 30% and now they are lucky to have half of that. With this storm approaching, how will banks adjust to this and will they be able to hold their weight with increasingly diminishing returns.

"Fear the Boom and Bust" - Hayek vs. Keynes

I stumbled across this video - a rap duel between John Maynard Keynes and F.A. Hayek. It actually captures their differing perspectives on fluctuating economic and business cycles quite well, and in a hilarious way.

The video's description -

In "Fear the Boom and Bust", John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis. Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there's a "boom and bust" cycle in modern economies and good reason to fear it.