Power back in the Game!!!

I didn't want to post much politics especially since the election is over, and really this is more about governance, but I have to post this. One of our times greatest thinkers, the author of two amazing books one of which brought her the Pulitzer Prize, Samantha Power is back with president-elect Barack Obama. She served as a senior foriegn policy advisor during his campaign until she called democraitc nominee Sen Hillary Clinton a "monster" for her campaigning behavior in Ohio. This time she will serve on his transition team to prep the incoming secretary of state (all fingers and toes pointing to Sen. Hillary Clinton). I am extremely happy about this as Professor Power is one of my heroes and I would go to Harvard just to take a class with her.

Have Bailouts Worked in the Past?

More and more as the months go on, numerous countries and economic zones are all coming out with their own version of a bailout package. Though this idea of government bailout might seem to be something specific to the past twenty or so years, this article shows both the United States and the United Kingdom and the different bailout packages each country has seen, dating back to the first US bank bailout in 1792.

Japanese Production Falls Sharply

Japan’s industrial output has fallen sharply as fears of recession grow. Both consumer spending and industrial production have fallen more than 3%. Companies are having to adjust their outputs to compensate for the decline in consumption, and just like the United States, the auto industry is hit the hardest. Analysts predict that production will decrease by 8% in the next quarter. The reason for such sharp declines is because Japan relies heavily on exporting goods to foreign markets, which have also been hit by the global recession.

China Fears Unrest Amid Slowdown

The increase in economic slowdowns in China will lead to considerable unemployment, which could stimulate social unrest. The unemployment can be attributed to bankruptcies and production cuts. The forecast of growth for the fourth quarter is expected to be 8%, down from 9% the quarter before. Even with that, China is still growing faster than any other leading economy. To help fix these economic problems, the Chinese central bank cut interest rates fairly aggressively.

Eurozone Sentiment at 15-Year Low

Confidence among Eurozone residents has fallen to a fifteen year low. The economic sentiment indicator has dropped to 74.9 from an already low of 80.0. The Eurozone has experienced two consecutive quarters of economic contraction; therefore, putting them into a recession. Because of this recession, the European Central Bank is expected to aggressively cut interest rates. To also help fix the problem, the European commission has a €200 billion recovery plan in hopes of saving jobs.

Gas prices fall for 73rd straight day

Gas prices fell for the 73rd straight day today and there are only four states with prices above $2 a gallon. Those four states are Alaska at $2.778 and Hawaii next at $2.716. Hawaii makes sense but Alaska? I thought Gov Palin was supposed to this off-shore drilling energy expert? Next is New York at $2.208 which has one of the highest costs of living of any state in the nation, along with Hawaii. Then DC at $2.066; and Vermont, at $2.009. The two lowest states are Missouri at $1.541 a gallon and Kansas at $1.652.

The national average of unleaded fell 0.8 cent today to $1.827 a gallon, according to AAA. The price has fallen to the lowest it has been in about four years. HOORAY!

Real life M. Night Shyamalan Character

A man who crossed the tracks at an Amtrack station to get a cup of coffee got much more than he had bargained for yesterday morning. Jack Daniels, 61, of Canton, was crossing the tracks at the Canton Junction Station about 11:20 a.m. Thursday when he was hit by a northbound Amtrak Acela train heading from New York to Boston which was speeding by at 90 mph. An onlooker run up to Jack to tell him he was hit by a train and Jack didn't believe him and just wanted to know where his teeth were!! The only known injuries so far Jack has sustained are missing teeth and bruises all along his back. This reminds me of that M Night Shyamalan character, ya'll know which one! Except this one was inside the train.

South Korea to inject billions into banks through U.S. credit line

South Korea looks to the U.S federal reserves for a $30 billion swap line to buy out the bad debts from its banks. South Korean banks has been hit hard by this economic down turn due to its reliance on short term credit market, and has become increasingly reluctant to give out loans in fears for further bad debts. The banking crisis has lead to difficulties for small and medium sized business to borrow money as banks tightens up in this weakening market.
The Won(south Korea Currency) has loss nearly 36% of its value against the U.S dollar, lowest level in the past decade reflecting investors' worries about the South Korean economy. Bank of Korea has spend $10.2 billion since October to supply its local traders with foreign currency liquidity through swap deals, depleting its foreign reserves.
$4 billion of the $30 billion swap with be injected into the banking system via an auction. Some analysts were predicting that the nation could go into recession next year, and other criticise that it is to early to be talking about such financial moves for South Korea.

Bombs over Baghdad

Well technically rockets over Baghdad today over the Green Zone killing 2 contractors and injuring 15 others. The Green Zone is a highly secure area in central Baghdad where Saddams palace and other government buildings are held.

Hopefully this is all over in 16 months if not then by 2011 (Bush's new plan for withdrawal, which by the way gives unprecedented power to the Iraq forces and government over our troops). This man was willing to cut any kind of a deal before Obama took office.

Some sadder *ish

This is the link to what's been happening in the Mumbai the past few days. Indian police have reported that the attack has officially ended today this morning in the Taj Mahal Hotel. It started in the Chhatrapati Shivaji railway station when gunmen just started firing indiscriminately into the crowd. They then moved from hotel to hotel not seeming to have a particular target in mind, although they also attacked a Jewish outreach centre.

I remember talking on the phone with an Indian friend of mine the night it started and she said her parents were fighting about whether she could still continue with her trip to Mumbai over winter break. This is a crazy world. I am telling you guys the winning strategy in the bogus war on terror is not bombings and surges. It's giving people opportunities, and listening to them when they speak so they don't feel they have to blow up buildings and kill masses of people to be heard.

Some sad *ish

A Wal Mart employee was stampeded to death at a New York suburbian Wal Mart this morning. He was a 34 year old man. Several other employees and shoppers were trampled and he was the only one that died. Today is the first day of the shopping season before Christmas.

This is some sad stuff right here. I can't think of a more senseless way to die. Besides maybe what's been going on in Mumbai. What the hell?!?! A man died because people were so eager to spend money. And this is a time when we're supposed to be too scared to send money back into circulation! I'm really saddened by this. Maybe more sad than I was when on the day we voted for the first black president, we also took the rights for gays to get married.

Europe announces 200bn euro plan

The European Commission announced 200 billion Euro economic recovery plan, in hopes to save millions of European jobs. The European Commission hopes to boost consumer confidence and stimulus spending. Some of the money will will go to training, improving energy links and broadband access, and developing less polluting cars. But it is a difficult task for the European Commission because of the heterogeneity of Europe, there are many different countries, economic systems and institutions that translates to different needs. Some countries like the UK and German who has already taken step to battle against this economic crisis feels this stimulus package would be redundent. The EU would also have to start puerswading its 27 members to start pumping money into thier economy which could prove to be very difficult also.

Consumer Spending Down 1 Percent in October

Consumer spending dropped 1% in October which was 0.01% steeper drop than the expected nine percent. The drop was due to consumer's concern of the worsening economy. the government measure of the U.S GDP through the July - September quarter showed a 0.5% decline of the U.S economy, with October's steep decline in consumer spending it seems like that the annual GDP decline would be greater than 0.5%. Some projects a 4% annual decline in this quarter based on October's figures.

New Efforts for Stimulus in Europe and China

EU outlined an $258 billion proposal to stimulate the spiraling world economy due to the American sub prime mortgage crisis. China after announcing its $590 billion stimulus plan, the People's Bank of China has lowered its by 0.54% and cut the reserve ratio by 1% for larger banks and 2% for smaller banks. Though demands for real estate mortgages has slowed, lower interest rate would encourage small and medium size businesses to take out loans to help them through this economic down turn. China's $590 billion stimulus plan is largely hinges the ability for banks to create loans and fully employ the money multiplier effect.

The global economy is showing signs of improving

Recently, the stock market in Europe and Asia have improved, according to this article in the NY Times.  This may mean that things are beginning to look up; however, it could also be an anomoly.  The article also mentions that "savings rates are beginning to rise even as net pay falls."  I think that this is an interesting development-it should help the banks, because people are going to be putting more money into them if they're saving; however, retailers are going to be even more hurt by the recession, which will not be good for the economy.  

Japan Jobless Rate Falls to 3.7%, Consumer Cut Back

Japan’s unemployment rate unexpectedly fell in October as people stopped looking for work. Household spending fell.

The jobless rate fell to 3.7 percent last month from 4 percent in September, the statistics bureau said today in Tokyo. The median estimate of 35 economists surveyed by Bloomberg News was for unemployment to rise to 4.2 percent. Household spending fell 3.8 percent from a year earlier.

Toyota Motor Corp., world’s second biggest carmaker, said last week it will cut 3,000 contract workers, joining Isuzu Motors Ltd. and Mazda Motor Corp. in announcing job cuts. Consumers are now paring back spending because of concern about job security, rather than the risk of inflation that bothered them in the first half of the year.

Prime Minister Taro Aso plans to respond to the worsening outlook for consumer spending in Japan by asking Japanese corporate executives next week to seek higher wages for workers, Kyodo News reported yesterday, citing people familiar with the matter. The report didn’t mention whether Aso planned to ask companies to try to retain workers.

The government and the Bank of Japan downgraded their assessments of the world’s second-largest economy this month. Japan fell into its first recession in seven years last quarter.

Companies announced job reductions after exports declined at the fastest pace in almost seven years last month, prompting production cuts.

GM Said to Study Shedding Saturn, Saab, Pontiac to Win U.S. Aid

General Motors Corp., working to cut costs to win $12 billion in government loans, is studying whether to shed its Saturn, Saab and Pontiac brands in addition to Hummer, people familiar with the matter said.

Selling or dropping brands would save money and reduce overlap as the biggest U.S. automaker struggles to avoid running out of operating cash by year’s end, said the people, who didn’t want to be identified because no decision has been made. GM’s other U.S. brands are Chevrolet, GMC, Buick and Cadillac.

GM has been trying to combine Cadillac/Hummer/Saab and Pontiac/Buick/GMC brands into big dealerships able to benefit from higher volumes and lower marketing costs. Toyota Motor Corp., which includes the Scion brand, sold an average of 1,071 cars at U.S. dealerships in 2007 compared with 274 at Saturn, 118 at Pontiac and 115 at Saab, according to Automotive News.

Rubinomics Recalculated - What will president-elect Obama do to help the economy?

Many people are looking forward to what Mr. Obama will do to help pump up the economy. So-called Rubinomics is an economic formula that refers to balanced budgets, free trade and financial deregulation, a combination that was credited with fueling the prosperity of the 1990s.
It is testament to former Treasury Secretary Robert E. Rubin’s star power among many Democrats that as President-elect Barack Obama fills out his economic team, a virtual Rubin constellation is taking shape. The president-elect’s choices for his top economic advisers — Timothy F. Geithner as Treasury secretary, Lawrence H. Summers as senior White House economics adviser and Peter R. Orszag as budget director — are past protégés of Mr. Rubin, who held two of those jobs under President Bill Clinton. Even the headhunters for Mr. Obama have Rubin ties: Michael Froman, Mr. Rubin’s chief of staff in the Treasury Department who followed him to Citigroup, and James P. Rubin, Mr. Rubin’s son.

However, this time, Rubinomics might change to a total different definition.
-Instead of deregulation, Mr. Obama has sworn to usher in a period of re-regulation
-Instead of balancing budgets, the Obama team will be going deeper into debt for at least two years by spending hundreds of billions of dollars more to stimulate the economy, without concern for deficits, for aid to the jobless, states and cities; tax cuts for workers; and job-creating construction of roads, schools and other public works. This weekend the team has mentioned a stimulus plan that will create or save 2.5 million jobs.
..
Hopefully, these plans will actually work, and these few good news will help bring up consumer confidence.

Bush Urges Countries to Avoid Protectionism

This article talks about the global financial crisis that started in the United States. and how George Bush has tried to dissuade other countries from using protectionist policies. Bush says that the lesson to be learned from the great depression is that protectionism doesn't work, and can only add to the problems. Do you think he is right??

Is the Bailout Constitutional

This article was published on October 20, 2008. The author argues if the recent bailout was even constitutional.

A good read for those interested in politics and American national government.

Conundrum between Deflation and Inflation

The M1 money supply has been increasing and there are high levels of liquidity. Central banks around the world, including emerging economies, have used expansionary monetary policy (cutting interest rate) to ensure this. Besides that, large amounts of capital and liquidity are being injected into the economies around the world. Theoretically, from a monetary perspective, this is highly inflationary.

However, it is the banks and other investors who are increasingly unwilling to lend money. The rates at which banks lend money to each other remain extremely high and mortgage rates are rising, despite global interest rate cuts by central banks. Banks are not facing a liquidity problem as they have ample reserves. The problem is that they are unwilling to lend for fear that borrowers will default on their loans.

Banks are hoarding cash, and consumers have increased saving. So when there is enough money going around, but nobody wants to lend/invest it, the result is a credit crisis.

If demand collapses, and goods start to pile up, prices fall (due to a surplus),w which leads to deflation. This is what is happening in the current economy.

Currently, in the battle between inflationary forces (too much money floating around) and deflationary forces (the unwillingness to lend/invest), the deflationary forces are winning in the economies around the world as the severe credit squeeze and deleveraging that has been taking place are working their way through the system. But inflation lurks in the background.

Citigroup JP Morgan and Capital One Bid for Chevy Chase

Citigroup Inc, JPMorgan Chase & Co and Capital One Financial Corp are among the final bidders for Chevy Chase Bank.

Chevy Chase has $11.4 billion of deposits and 292 branches, according to the Federal Deposit Insurance Corp website. Though the asset side of the bank is not very attractive, the deposit side is incredibly valuable because it is in Washington, D.C.

Deflation: What Investors Need to Know

Forget inflation for now. Prices are falling on almost everything, including stocks.

Investors need to adjust to a new reality: A few months ago, inflation was a top worry, especially the impact of sky-high fuel prices. Now, although consumers can celebrate falling prices at the gas pump, investors' worry is exactly the opposite.

Instead of inflation, the problem is deflation, a downward drift in prices that could squeeze corporate profits and investor returns to uncomfortable levels.

This article talks about some trends and problems relating to deflation.

What does Hu Jintao's visit to Latin America mean?

Hu Jintao, Chinese President has sealed a deal of free trade with Peru. China wants lower tariffs on its exports and more access to Latin America's raw materials. The visit signals China's growing economic strength and influence in the region.

Hu Jintao also stopped by Cuba, agreeing to buy the island's sugar and nickel as well providing aid to the country.

Peruvian domestic sectors fear that this free trade deal will bring more harm than good with the influx of cheap Chinese goods to the economy.

I think the relationship between the USA and Latin American countries could grow more tensed...

IMF finally approves $2.1B loan to Iceland

The International Monetary Fund on Wednesday approved a two-year, $2.1 billion support program for Iceland designed to restore confidence and stabilize the country's shattered economy.
Iceland's most pressing need is foreign currency. The island is dependent on imports, and foreign suppliers demand foreign currency for payment. Trade in Icelandic kronur is limited since few investors want to buy it and the central bank has put restrictions on currency trade to prevent a massive outflow of capital.
The IMF funding had been delayed amid disputes between Iceland and other countries over how to compensate foreign depositors with money frozen in the island's collapsed banks. An acknowledgement Sunday by Iceland that it is responsible for the first €20,000 ($25,200) of foreigners' deposits appeared to have mollified the other countries.

Financial Crisis is Triggering More Smoking!

This article provides very interesting information about how the current economic crisis, which has of course led to higher levels of stress, has tempted snokers across the country to either increase their smoking and/or switch to a cheaper brand of cigarettes:

The American Legacy Foundation -- the nation's largest public health foundation dedicated to reducing tobacco use in the U.S. -- announced that, according to their new survey, 77% of current smokers reported increased stress levels due to the current state of the economy and 2/3 of those smokers say this stress has had an effect on their smoking.

November marks Lung Cancer Awareness Month, a time when smokers might reflect on the life threatening nature of their addiction, yet this new data indicates smokers are suffering more than ever as stress is causing smokers to delay a quit attempt, increase the number of cigarettes they are smoking, or switch to a cheaper brand instead of quitting. Moreover, some former smokers report they are starting to smoke again because of the stress over the financial situation.

Among the survey findings:
1. One in four smokers stressed about the economy say this stress has caused them to smoke more cigarettes per day, higher among women (31%) than men (17%).

2. A greater percentage of stressed smokers with a household income of less than $35k reported smoking more cigarettes per day (38%) due to the current state of the economy, compared to those with household incomes of $35-74k (24%) and those with incomes of more than $75k (13%).

3. A greater percentage of middle-income ($35-74.9k) smokers have delayed their quit attempts because of stress over the economy (20%) than those with household incomes of under $35k (14%).

4. Unemployed smokers stressed about the economy reported smoking more cigarettes per day (29%) in greater numbers than full-time or self-employed stressed smokers (17%).

2,375 U.S. adults aged 18+, of whom 1,347 had ever smoked, participated in the survey. The survey also found economic stress is causing smokers to re-evaluate their buying habits when it comes to tobacco products:

1. 1/5 of smokers stressed about the state of the economy have switched to a cheaper brand to save money.

2. More stressed smokers with household incomes of less than $35k (28%) reported brand-switching compared to those with household incomes of more than $50k (12%). One quarter of those with incomes of $35-$49k reported switching brands to save money.

Chen Shui-bian ordered held

Former President of Taiwan Mr. Chen Shui-Bian, faces corruption charges and is currently held in captivity. Chen Shui-Bian the two term president of Taiwan from 2000-2008 had gained his popularity through fighting corruption is now ironically being charged with embezzlement, fraud, bribe and money-laundering. Chen claims that he is innocent and that this is a "political persecution!" while hand cuffed and being hauled to a court hearing.

Foreign Companies Look to Investing in India

International brands are coming to India in search of safer markets and cash-rich customers. This is due to a bleak outlook in developed markets where purchasing power has been severely eroded and consumer confidence is low.

The most prominent has been in the airlines industry and in consumer goods.

In airlines industry, several global players such as British Airways, Virgin Atlantic, Singapore Airlines and Emirates have approached the Indian Airline Company, Kingfisher Airlines, to pick up a stake.

PepsiCo on Sunday is going ahead with its planned $500 million investment in India over the next three years. The CEO of PepsiCo India Holdings has said that the global slowdown has mostly affected consumer durables and the financial and banking sectors while there has been no slowdown in FMCG (fast moving consumer goods). This statement was made in September at the India Economic Summit organized by the World Economic Forum and the Confederation of Indian Industry (CII).

The investment would go towards manufacturing capacity expansions, agriculture, research and development, marketing infrastructure and ensuring environmental sustainability.

Pepsico has so far invested $700 million in India since its inception in 1989, and provides employment to 150,000 people directly and indirectly. It has 43 bottling plants in the country out of which it owns 15 and the rest are franchises. The new investment will add another 50,000 direct and indirect jobs.

Survey by Fed Showing the Magnitude of U.S. Economic Crisis

For those of you are interested in data and numbers, the Federal Reserve in Philadelphia has published a survey on November 18, 2008 measuring the magnitude of the current economic crisis in U.S. The survey, based on interviews with 51 leading economic forecasters, is published every three months.

Consumer Confidence Still High in India

There is no lowering of consumer confidence (unlike in the U.S.) in Indian banking as far as the diaspora is concerned. At a time when many overseas banks are
struggling to raise liquidity to stay afloat, non-resident Indians (NRIs) are reposing their faith in Indian banks and betting on the rupee having bottomed out. Lured by higher returns (the last time I checked, the interest rate on savings was 15%!!!), NRIs have poured in $513 million in NRI deposits in September this year — the highest since December 2006.

NRIs have infused a total of $513 million (on net basis) through its major schemes — 1. foreign currency non-resident (banks) or FCNR (B)
2. non-resident external (rupee accounts) or NRE(RA)
3. non-resident ordinary (NRO) accounts. Significantly, bulk of this has hit the NRE(RA) scheme
This reflects the attractiveness of rupee-denominated deposits to NRIs.

NRO deposits that are not repatriable and are meant for local use by NRIs. During April-September this year, banks raised a cumulative $787 million through various NRI deposit schemes as compared to an outflow of $78 million in the year-ago period. Bankers say that it is largely a case of flight to safety towards Indian banks by the diaspora, which has been accelerated by deposit rates becoming more attractive. Since mid-September, Reserve Bank of India (the central bank in India, similar to the Federal Reserve in U.S.) hiked the cap on returns offered on NRI deposits thrice.

The pattern of deposits mobilized indicates that depositors have preferred to park more in NRE (RA), where the currency risk is borne by the depositor. They are at the same time also shunning FCNR (B) deposits where there is no currency risk for the depositor. Earlier, NRI deposits had lost sheen as NRIs preferred the remittance route and earned a higher return on their investments in local fixed deposits, equities and realty through their relatives. Relatives, in turn, could send back up to $200,000 a year!

Interestingly, depositors’ current preference for NRE (RA) has strengthened at a time when the rupee is weakening against the dollar. Since the currency risk is taken by the depositor, whenever the rupee appreciates he gets to take home more dollars in addition to the interest income on the deposit.

Standard Chartered Bank expects the rupee to strengthen further against the dollar in the next financial year. It has projected the local currency at Rs 45 per dollar in 2009-10. Standard Chartered Private Bank global head of NRI Shiv Khazanchi said in Kolkata: "We expect India’s balance of payments to improve to $10 billion in 2009-10 from a negative $11 billion in 2008-09. With this, the rupee is also likely to appreciate to Rs 45 per dollar in 2009-10."

More trouble for auto bailout

The auto industry continues to ask for a federal bailout but was refused once again by Congress. CEOs of major automobile companies ( General Motors, Ford Motor, and Chrysler LLC) were dealing with criticism from Spencer Bachus of Alabama, the committee’s ranking Republican before the companies even started their requests to the House Financial Services Committee. He stated that they don’t understand why people’s tax dollars should support “less efficient businesses”. He said most of the people he works will earn less money than the autoworkers whose jobs would be saved. However, Barney Frank (House Financial Services Chairman) believes that we shouldn’t take into account the pay of the autoworkers because there wasn’t discussion of the pay of the average worker at the financial firms that received government bailouts in October.
The industry is asking for $25 billion in loans to support them through the current downturn and is offering the government an equity stake in the companies if they get the help. General Motors announced Nov. 7 that it could run out of money that they need for operations by the end of this year or early next year if they don’t receive federal assistance. But Paul Kanjorski, D-Pa., said, "I am not yet convinced that we must act so rashly," he said. "The American public demands that we get this right."
Kanjorski asked GM CEO Rick Wagoner for the minimum amount of money necessary to keep GM afloat through March 30 to give Congress more time to work on a bailout package. He asked when they would run out of money. However, Wagoner wouldn't give more details more than the company's statement that it could be out of cash later this year or early next year. He said, "I don't believe we have the luxury of a lot of time," and when he was pressured for an exact deadline he responded that he can’t say for sure. Nardelli said Chrysler had looked at filing for bankruptcy. But he said even if the company decreased costs and contracts under bankruptcy, it would find suppliers demanding cash on the delivery of parts, which would cause an even greater crunch on cash.

Russia Suffers Plunging Reserves as Ruble Struggles

Nov. 19 (Bloomberg) -- Russia's foreign-exchange reserves are draining fast and may take almost a decade of economic stability with them.

Russia's international reserves, the third-biggest after China's and Japan's, have fallen $122.7 billion, or 21 percent, since Aug. 8 as the central bank tried to shore up the ruble. At the same time, President Dmitry Medvedev, 43, has pledged more than $200 billion of tax cuts, loans and other measures to maintain economic growth, threatened by plummeting oil prices and investor flight.

A British Lesson on Auto Bailouts

This articles draws interesting comparison to the current auto-maker crisis in the United States to the British Layland car company. British Layland was once an auto-industry giant in Britain owning 36% of the British market in the early 1970's, but by 1975 faced bankruptcy due to strong competition from Japanese and German car makers, poor quality and poor management of labor relations. The company was bailed out in the 80's with an bailout package equivalent of $5.1 billion in today’s money. But in the bailout failed and the company gone under.

Arguments FOR the Bailout Plan

For those of you who are against the government bailing out the auto industry, this article provides an interesting read on how the $25 billion rescue loan would help maintain an essential industry. The author considers this more as an investment and not as a bailout.

Just to gain some perspective ...

Key Questions Remaining from the G-20 Summit

Five fundamental questions went unanswered in the G-20 summit this past weekend.

1. What is protectionism?
Many of the country's representatives were advocating against protectionism and had agreed to revive the Doha Round of global trade talks. But there are questions raised regarding this. If the three auto industries in U.S. are offered a bail-out, then would it be categorized under a subsidy, which is illegal under the WTO?

2. There is the question of whether governments should encourage or repress consumer spending. Proponents of increased consumer spending believe that it will help revive the economy. That is why the U.S. bailout package was revised to include support to credit card borrowing, student loans and auto loans. Opponents claim that the financial crisis was partly brought in due to excessive spending and borrowing. Therefore, cutting back is exactly what Americans must do to restore balance to the global economy.

3. Is it important to put a price floor on homes?
Treasury's Paulson has argued that the financial crisis will not come to an end until the decline in home prices reaches a bottom. Therefore, many people are trying to prevent more foreclosures and are trying to offer incentives to buyers.

But other experts say that buyers who expect prices of homes to further decline would put off buying them until later when the actually drop. Therefore, trying to prop prices above the level they naturally seek would merely delay the necessary market adjustment resulting in keeping prices unaffordably high.

However, there is no universally approved answer to what the correct or equilibrium level or prices should be, so it is hard to take sides in this situation.

4. Should world leaders try to ensure that a financial crisis such as this one never occurs again?
The obvious answer is yes but there is a catch to it. The G-20's statement instructs the various nations to report back by the end of March about the progress they have made on restructuring financial regulation. In their zeal to show progress, government officials may push lenders to tighten up, offsetting the elaborate efforts to provide fiscal and monetary support.

5. Do we need global coordination?
The obvious answer is again yes. But the government officials focused more on the long run, and they do not have specific guidelines as to how to work together in the short term. This may be good since in the short run, each country has to use different policies to get out of the current situation. While the U.S. may need to consume less and save more, Chine may have to do the exact opposite to boost its economy.

The Onion

If any of you don't know The Onion, it is a satirical newspaper that prints fake articles parodying various aspects of society. This one is about a Fraternities attempt to save the economy, and so if you are in the mood for some lighter reading I suggest checking it out.

No Money, No Problems

According to an article in the New York Times, published yesterday, 7 senior executive from Goldman Sachs have opted to receive zero bonuses at the end of this year. This move serves as a challenge to Goldman's competitors to rise to the occasion and do the same. The article states, that "the move could also ease political pressure on Goldman Sachs and reduce negative reaction to what is expected to be a bleak fourth-quarter earnings report from the bank in December, including perhaps its first loss of the credit crisis."

With executive compensation in the spotlight these days, I find it somewhat noble for these top execs to forgo their bonuses during such a rough economy. That doesn't mean that I feel sorry for them, seeing as they already have millions of dollars in the bank to lean on, but I do think it is something for others to pay attention to.

Arguments against Bretton Woods II

Gordon Brown, many in the European Union and the media have been calling for a “Bretton Woods II” as the next step toward preventing future meltdowns of the international financial system.

This article provides a series of arguments against this:

1. Collaborating the World Bank with the IMF is not a good idea because unlike the IMF, the World Bank has no mandate to establish rules for the international financial system. While the World Bank has competence in fostering financial sector soundness in emerging market countries, they cannot not in the advanced countries where the current turmoil began.

2. Nothing useful can emerge from the Bretton Woods II system until the United States is ready to stop using the IMF as an instrument of U.S. policy.

3. Checks and balances -- If we consider the IMF to be a public health physician, then it has the responsibility to prevent diseases in addition to just identifying them or treating patients. The IMF has to look at the system as a whole, detect weaknesses and recommend corrective action.Today, the United States is not politically or emotionally ready to listen to, let alone adopt, the IMF's advice.

4. The article says that domestically, the United States advocates for checks and balances. But internationally, the United States, having won against communism, behaves as if it alone knows best how to deal with every other global challenge. After fighting enemies in Afghanistan and Iraq, with victory still elusive, Americans are beginning to comprehend the difficulty of trying to re-make the world in their image. But moving into listening mode represents a 180-degree turn.

5. The election of Barack Obama as the next President of the United States provides some basis for optimism, but there are other measures to be considered like giving up the U.S. veto and supporting a large capital increase.

Euro Zone Joins the U.S in recession

Euro Zone has fallen into its first recession after reports emerged last Friday. The European Central Bank is planning to cut interest rates again in December as inflation continues to fall. Tough times are ahead as financial systems around the world are experiencing the ripple effects of the U.S financial crisis. The economy of 15 countries using the Euro sank 0.2% since July-September, and sank as well in April-June. This is the first time since 1999 that the Euro zone contracted in two consecutive quarters.

Unfortunately this seems to be only the beginning. Banks are expecting negative GDP growth in the third quarter as well. Many are speculating that this negative growth will last well into 2009. "Now the recession has been confirmed, the debate is concentrated on its length and severity. It seems that the current financial crisis is going to affect more significantly the real economy than initially anticipated," said Maryse Pogodzinski, economist at JP Morgan.

Auto industry wants a bigger bailout too?? Seriously??

capitalism is on it's knees right now, with it's most fundamental clause: of letting weaker companies collapse so that newer, more efficient ones crop up in it's place, is being challenged by it's most vocal proponent, USA. I'm more aligned towards the democrats when it comes to whether the government should provide funding for all the big ticket items such as healthcare and education, but now the auto industry?? Seriously??? I mean I can't help but agree with the "conservatives" here because this has been brought on my their own failures to mold themselves into better, more efficient companies that make better cars with higher fuel efficiency. Didn't the 80's do anything to wake these guys up and realize their follies before it's too late.
The auto industry now wants a bailout too, but their is fundamentally different from what has been offered to the financial industry. If the government provides them 25 billion dollars, they'll spend it on their own capital needs. The financial package for the finance industry though, is a capital infusion for the country as a whole, cuz these guys just repackage the capital and lend it out. So really, do they "deserve" the money. Are they too big too fail too?? What about the numerous assembly lines and factories working down south, employing thousands of workers in factories owned by Honda, n toyota, n other foreign companies with domestic manufacturing facilities. Shouldn' t they be allowed access too?? Their workers are American's too... Hard working, blue collared workers...

The problem lies with the board of directors for these companies. They need to be penalized for their lack of insght towards the direction of their companies and for the fact that they allowed their companies t get in the position they're in.. And the companies should fail, cuz if it doesn't, america's free market thinking will come dangerously close to being socialistic in nature, with soft budgets and deficits galore.

Will capitalism survive this fight??