Dealing with America's fiscal hole

The deficit problem of the United States seems a big problem which do not have clear answers. The article explains that the United States held federal debt for 41% of GDP last year and it will double in the next decade. Even though a sudden crisis is unlikely from the case of Japan and Italy which holds much more debts, the US should think about tight monetary policy especially when inflation threatens private investment (crowding out effect). America's deficit problem is in essence a spending problem. However, American citizens seem to prefer bigger government and more help for health care as well. The author suggests the possibility of tax revenue reforms and explains some examples.

From the book (The Birth of Plenty) that I have read last week, I learned that the government should ensure property rights, scientific rationalism, capital market, and transportation and communication. I feel that the US already covers these four factors and government size is now becoming very big. The government might better off by giving out some of the roles to private firms. However, it might not be "now" since people are still suffering and need some help. I hope the gilemma will be solved in a few years.

Green With Envy

This article discusses the fundamental tension throughout the world between the effectiveness of carbon reducing policies and commitment to free trade. There is an urgency to deal with global climate change right now so naturally nations are drawing up policies to limit emissions. However, in the globalised world that we live in today, trade outside of a countries borders could have a problem with emission limits. Different countries will likely have different carbon emission, which could lead to political problems.

Should Government Policies Favor Owners Over Renters?

The author of this article argues that the tax credit given to those who purchase new homes is very inefficient. He says that those that who will receive the tax credit would have bought a house without it anyways. In addition, the sales spurred by the credit, will shift renters into owners, which does not absorb the excess supply of houses. He also notes that besides the inefficiencies, 70 percent of all the dollar benefits, "accrue to households with adjusted gross income greater than $100,000. The tax credit may unintentionally be weakening the rental market.

Government and poverty

An interesting piece on the role of government in providing an environment where prosperity is not reserved for only a few.

Thanks to prof. Gitter for pointing out the article.

Mixed Forecasts for Holiday Spending

This article discusses the difficulties in predicting the holiday shopping season this year. There is an odd mixture of positives and negatives that are making it significantly less simple to forecast how well retail sales will do. The overall consensus seems to be that sales will drop no more than 1%, and will increase no more than 2.4% during the period of November and December. Despite this relative agreement however, there are still many disagreements existing on how exactly retail sales will perform and which areas will or will not sell well.

State Unemployment Rates Rise in 29 States

Unemployment rates are unfortunately not going down as before in many states according to this article. There was a report of an increase in unemployment in 29 states in October - up to 15.1% in Michigan. However, there is good news that rates fell in 13 states in the same period. Despite the dismal title of the article, there are encouraging statistics later, describing the number of jobs added in several states recently.

Chocolate giants ponder Cadbury bid

Hershey and Ferrero are competing with Kraft's to buy Cadbury. Cadbury has rejected the Krafts bid of $16.4 bn. Shares in Cadbury rallied 1.21 per cent on Wednesday to close at 797.50 pence in London. According to Wall Street Journal Hershey is getting aggressive about getting Cadbury. But it will be for Hershey to come up with a higher bid than Kraft. Hershey owned $119 million in cash and $1.5bn in long-term debt. 85 to 90 % of Hershey's sales are in the relatively slow-growth market of the U.S.

10 biggest job interview blunders

This article is not directly related to class materials but it is still a good read for all of the seniors seeking employment after graduation.

$4.8 trillion - Interest on U.S. debt

This article highlights the high debt, mainly interest, that the government has incurred this year. What does this mean for the role of the government in economic systems, as well as what are the implication of interest on future government involvement.

Obama Trip Shows Gaps on Issues as Role of China Grows

The meeting between President Obama and Chinese President Hu Jinato was indicative of China's growing role on the world stage and the different approaches of the two. The two presidents discussed trade issues, and climate change as well as the threat of Iran and North Korean's nuclear programs.

Both presidents told reporters that the United States and China agreed to work togther resolve the conflicts between the two countries.  The article notes that they both used very general terms and consequently raised many doubts about how well the two will work together.

The rest of the article outlines the growing conflicts between the United States and China.

End protectionism, China tells US

The Chinese President has said that protectionism should be shunned between China and the U.S. during the recent visit of Obama in China and also they should work on their trade economic policies. They both agreed on working together side by side to make the current global economic crisis better.

1 in 6 Americans goes hungry

The Department of Agriculture report, which has been released annually since 1995, said the number of Americans that were hungry rose to 14.6%. In 2007, 13 million households or 11.1% of Americans had trouble getting enough food. The one-year jump is all the more significant, given the number of hungry Americans had never been higher than 11.9% since these surveys began. Obama is now urging Congress to pass a "strong" child nutrition bill to help ensure that American children don't go hungry. To combat the nation's rapidly growing hunger problem, the Recovery Act is allocating $20 billion to the nation's food stamp program, and hundreds of millions of dollars to food banks and school lunch programs, including the USDA's Emergency Food Assistance Program, which was allocated an additional $150 million from the $787 billion economic stimulus plan.

US gold hits record;dollar drop boosts sentiment

Whats happening right now within the gold market is fascinating and unheard of! Gold has hit an unimaginable record of $1,134/ounce within the United States market, as markets opened Monday morning. This is a direct result of a weakening US dollar, and has led to widespread reactions from people around the world.

The massive rise in gold prices have been good news for some and bad news for others. For my family back in India, the enormous growth in gold is a major disadvantage, as our business revolves around 'the manufacturing of gold and diamond jewelry.' As prices keep increasing as world markets open, its getting harder for jewelers to buy gold, since people are reluctant to buy jewelry in this depleting economy!

This article also refers to an increase in the prices of Silver, Platinum, and Palladium, as a result in the surge of gold prices.

Market insiders predict a further rise in gold prices with no immediate signs of a decrease in the metals growth.

Its a great time to have gold and sell within the near future!

Sinking Dollar Aids Exports, but Trade Gap Grows

The dollar's recent weakness is helping boost the sale of U.S. goods abroad, but it isn't yet narrowing the nation's trade deficit.

While exports of goods and services rose by a seasonally adjusted $3.7 billion in September, higher fuel prices and strong demand for imported autos more than offset the gain, pushing the trade deficit to its widest point since January and highlighting a dilemma for policy makers: As the economic recession winds down, the trade deficit is quickly expanding.

Obama’s Free-Trade Credentials Draw China, APEC Scrutiny

Among the many issues discussed at the Asia Pacific Economic Cooperation Conference in Singapore, free trade and the Yuan's value created friction between the US and China. Basically, the US was calling on China to loosen its managed floating exchange rate regime to reflect a higher valuation of the Yuan. The US argues that the Yuan has been kept unreasonably undervalued to make exports competitive, contributing to the US' trade deficit with China. China hit back at the US, accusing it hypocrisy in imposing trade barriers by levying tariffs on Chinese steel and tire imports, while pressuring China to liberalize the Yuan.

The outcome of this dispute will be interesting. With China's rising economic influence, the US will have less and less control over global economic issues. With this dispute, another issue arises - How much has the US lived up to its mantra of free market capitalism that it has championed since the cold war?

Oil rise 'could derail recovery'

There has been an increase in oil prices this year and it is being traded at the price of $77 a barrel. The price of oil fell $2.43 to $76.85 a barrel on Thursday after rise in US oil supplies. According to IEA the real economy suffering from recovering as compared to the financial one that is without stimulus spending the progress of the economy will die. There will be an increase demand for oil in the near future as there was an increase in oil demand in 2009 by 210,000 barrels to 84.8 million barrels a day.

Gloomy Jamaica: Unfixable?

This article discusses the massive debt of Jamaica. With the global financial crisis, Jamaica's exports have been hurt and their deficit has grown substantially. Discussions for debt relief are taking place with the IMF, but the economic situation remains grim. Corruption and gang presence, as well as violence, is still high. The government needs to eliminate high crime rates before they can create economic growth and pay back their debt.

Wall Street Makes It Hard to Earn Legal Living

This article makes an argument that it is very hard to make a living legally on Wall Street. Even though there are many honest and decent people on Wall Street, they work in such an environment that constantly compromises their ethics. “The goal of investing is to get an edge, whereas the securities laws presume all investors should have the same information at once. If ever there was a recipe for a system rife with abuse, this is it. The harder that money managers, traders and analysts must work to get information that gives them that edge, the more likely some are to cross a legal line.”

The Cult of the Faceless Boss

Is it better to be unforgettable or to blend in? This article discusses the trend for executives to be bland and boring rather than noticeable. Perhaps the trend for faceless CEOs is a reaction to yesterday's vivid bosses, or maybe it is a just a strategy for trying not to get fired in such a turbulent economic climate.

Yet it is possible to take things too far. The people who have revolutionized their businesses have been interesting, memorable people--think Henry Ford, Thomas Watson, and Bill Gates. The point of this article is clear: an unusual degree of turbulence requires unusual bosses, not identikit ones.

US Trade Gap Widens Unexpectedly

Recently released figures indicate the trade gap, the difference between imports and exports, grew 18.2% to $36.5 billion from August. The reason why we have seen such a huge trade gap is due to the deep recession that has crippled the US economy and plummet the value of the dollar. Furthermore, US imports from OPEC rose to $11.9 billion in September. We are heavily relying upon OPEC for our supply of oil and this can cause huge implications. However, imports have increased 5.8%, which is a strong indication the consumer spending and confidence is slowly recovering. If this trend continues it will be beneficial for the economic welfare of the US.

Obama vows renewed ties with Asia

This article highlights President Obama's attempts at renewing interaction with Asia. He mentions that the happens of Asia have a "direct impact" on the United States economy. What will renewed ties with Asia mean for the global economy?

Boom Times

Raising prices during a recession usually isn't a great idea. For America's colleges, however, it has been a successful strategy. College enrollment rates are at an all-time high across the country. In October, 41% of 18-24 year olds were enrolled, up from 39% a year ago. This is in spite of tuition fees that have risen 4-7%.

The economy seems the most likely culprit, as unemployment hit 10.2% in October. It was an even higher 19.1% for 16-24 year olds. Other possible reasons are the college premium and the fact that the pool of potential college-goers has grown.

Subcrime

"Wall Street 1, US 0." That was the headline after Ralph Cioffi and Matthew Tannin were acquitted of lying to investors about the state of subprime hedge funds at Bear Stearns.

Prosecutors tried to prove that emails between the two showed them panicking behind the scenes as they reassured the public. However, the jury decided that the emails had been taken out of context, even praising them for working so hard so save their funds. They decided that the losses of $1.6 billion resulted from poor judgment, but nothing illegal.

The trials likely aren't over, though; prosecutors are working on building cases against former bosses at Lehman Brothers and AIG, among others.

US trade gap widens unexpectedly

The US trade deficit gap widened in Sept. The difference between imports and exports grew by 18.2% to $36 bn from August. Import rose biggest since 5.8%. The trade gap with China has narrowed by 15.9%. US imports from the oil cartel Opec rose to $11.9bn highest since Nov 08.

Swiss Privacy Agency to Sue Google Over Street View

This article talks about the recent action Swiss officials have taken in to sue Google to get them to tighten privacy safeguards on its Street View online service. Street View shows a panoramic view of streets all across the world. Google blurs out faces and license plates that might show up and users of the service can also request that images of their homes can be removed or blurred. Initially, the Swiss had been accepting of Street Views but now are going back on their offer. The complaining agency said that Google was not clear with their intentions and they thought it would just be in busy areas. Google has gone into more secluded neighborhoods where people can be identified even if their faces are blurred. This is yet another case of Google being a large influence on technology and innovation. The courts have not yet made a ruling, but it will be interesting to see what happens in the future.

Arby's Slipping Down the Food Chain

This outlines the problems experienced by fast food restaurants hardest hit actor - Arby's. In the recession, McDonald's is said to be the overall "winner" and it's counterpart is Arby's - the "loser." This is partly because in consumer spending, the article says, it is a zero-sum game. Statistics have been low for the restaurant the last seven quarters it was measured. This year, the numbers have fallen even more dismally.

It then discusses possible reasons behind this issue - especially focusing on Arby's lack of options for healthy choices and lowering prices on items while selling less as well.

New Fed rules require customer consent on many overdraft fees

Financial institutions will soon be banned on charging overdraft fees to their customers without giving them consent. This is an effort by the Federal Reserve to protect consumers who are being hit hard from the recession.

Geithner Affirms Strong Dollar Policy

TOKYO -- U.S. Treasury Secretary Timothy Geithner said Wednesday that maintaining a strong dollar is "very important" for the country's economy, sticking to his mantra on foreign-exchange policy as the U.S. currency continues its broad downtrend.

"I believe deeply that it's very important for the U.S. and the economic health of the U.S. that we maintain a strong dollar," he said at a roundtable discussion with Japanese reporters. "We bear special responsibility for trying to make sure that we are implementing policy in the U.S. that will sustain confidence not just among American investors and .. savers but investors around the world" that the U.S. will fix its budgetary problems as its economy improves.

Lack of major changes in his tone indicates that, while he doesn't want any dollar freefall to shake the recovery in the U.S. economy, he may find it comfortable as long as the currency declines at a manageable pace. A weaker dollar could boost U.S. exports by making them less expensive abroad, lifting the nation's growth and cutting its trade deficit.

Job openings remain close to record-lows

WASHINGTON (AP) -- Job openings are at rock-bottom levels, according to government and private surveys released Tuesday, a trend that could keep the unemployment rate high even as layoffs slow. Small businesses in particular are reluctant to add workers as they struggle to obtain credit. Many are pushing their current employees to produce more. Economists say small businesses account for about 60 percent of new jobs.

U.S. Says Mortgage Help Is Reaching More Homeowners

WASHINGTON (AP) — After a slow start, the Obama administration’s mortgage relief program has reached one in five eligible homeowners, a government report said Tuesday.

Energy agency warns of falling investment

The global financial crisis has led to a dangerous drop in energy investment around the world which could choke off the nascent economic recovery, the International Energy Agency said Tuesday.

The EU has said that there should be a euro100 billion ($150 billion) annual package of public and private finance by 2020 to help poorer nations develop green industries and adapt to climate change.

The IEA, a policy adviser to 28 mostly industrialized oil-consuming nations, estimates that the financial and economic crisis is responsible for a $90 billion drop in global oil and gas investment this year, a 19 percent cut from 2008. The resulting drop in oil and electricity supplies could "undermine the sustainability of the economic recovery," the IEA warned.

Meanwhile, oil demand is set to continue rising over the next two decades, with a drop in developed countries oil use more than offset by increases in the developing world, mainly China and India, the IEA said.

It seems as if people's marginal utility for spending on "green" energy for the environment has decreased, which will not only result in the negative externality of further pollution, but could also lead to higher oil prices in the short term during the current crisis.

Health insurance tax = higher wages?

Many economists are beginning to assume that wages actually might rise over time if lawmakers end up taxing the most expensive health plans offered by employers. The tax is the leading proposal in the Senate to pay for the expansion of health insurance coverage to the roughly 46 million Americans who are uninsured. It would apply to high-cost health plans offered by employers, which typically include health, vision and dental insurance, among other health-related benefits. The proposal would raise an estimated $201 billion over 10 years, according to the Joint Committee on Taxation (JCT). But it could raise a lot more beyond 10 years, since the thresholds would rise on a formula based on inflation, and health care costs increase far faster than inflation. Translation: As health care costs rise, more and more plans will exceed the threshold.

Stock volatility is back, a sign of an aging bull?

This article points out that stock market volatility is back, which is a sign that the powerful rally that started in early March may be coming to an end. The Dow Jones rose and fell more than 100 points in seven of the past 12 days. The reason for this volatility is simple. Investor anticipation of an economic recovery played a large role in the stock market's advance over the last eight months, but recent economic indicators have been sending mixed signals, leading some economists to predict a double-dip recession and others to forecast a recovery as steep as the decline.

As Dan Deming, a trader with Stutland Equities, says, “it is a psychology that drives a big chunk of the market. This is not a typical year, and we've seen huge gains. People are looking to take risk off the table, and looking to get out of the market.”

Too Little Of A Good Thing

This article discusses the effects of Obama's stimulus plan. The author Paul Krugman explains that, as macroeconomists had predicted, the stimulus is far too small given the scale of our economic problems. Additionally, unless something changes drastically, we’re looking at many years of high unemployment. However, Krugman does go on to complement the Obama stimulus plan on its ability to do enough to break the vicious circle of economic decline. Aid to the unemployed and help for state and local governments were probably the most important factors. Overall, the most important thing is that the US continue with the stimulus plans, but to increase them much more.

Pay For Delay

This article discusses country's abilities to help domestic unemployment during these recessionary times. The US may lead the rich world in periods of prosperity, but Europe has shown a greater talent for dealing with recession. Unemployment in theEurope has risen by 30% from its pre-crisis levels. America’s jobless rate has more than doubled. Wage subsidies and fatter jobless benefits have softened the impact of the recession but may yet hurt recovery.

Medical Industry Grumbles, but It stands to gain from Overhaul

The Health Care issue still stands. The businesses in the United States are still unhappy and complaining about the House bill that will make huge changes in the health care system by providing insurance to millions more of Americans. The new bill is going to make a government-run insurance program, which upsets insurance companies. Also it is going to cause drug makers to give the government back billions of dollars of rebates over 10 years. On top of that it will cause providers of artificial hips, heart defibrillators, and other medical devices to put a 2.5% tax on their products, which upsets them. Large and small business employers are complaining because health care as been a long-time benefit for many of them, and will now be a "federally mandated obligation."

However, Steven D. Findlay, a senior health policy analyst, says that the new bill will not hurt any industries, but rather will help all of them. He said that as many more Americans receive health coverage, the businesses will receive revenue streams that they did not have before.

Although the analysts are making this bill sound like it will be a gain for all businesses, it will actually only be a gain for those businesses in the health product industry. For those businesses who are just providing health care coverage, the new bill is not something they are going to be happy about.

Twin deficits will help gauge economic health

Economist believe that more economic damage is ahead of us do to the fact that the United States is importing a lot more than we are exporting, thus causing a trade deficit. As well as deep budget deficit because the government is spending more money that it’s bringing in. In October it is set that the federal government spent $150 billion dollars more than it brought in.

Haute Couture, Available Through the Netflix Model

This article discusses how the fashion industry is taking advantage of the Netflix business model by renting out high end dresses.

China Pledges $10 Billion to Africa

China has recently offered a multibillion dollar package of assistance to African governments. They has also agreed to forgive remaining debt with Africa. This deal will include greater access to oil and minerals, which is important because Africa is very resource rich. The Prime Minister of China reported that this plan "represents a new stage of development in relations with Africa." However, China's clear focus on extracting Africa's resources has many Africans questioning the deal. In addition, reduced trade barriers will bring new Chinese goods into Africa, which might crowd out consumption of locally made goods.

As Downturn Eases, India's Leader Forecasts Growth

This article talks about India's incredible recovery from the global recession and its pledge on spending more on health care and education in the coming year.

India's Prime Minister, Dr. Manmohan Singh also promises to make his country more attractive in order to attract an increased amount of foreign investment, in the country's already massive $1.2 trillion economy.

At the recent World Economic Forum, he said India's growth in 2009 stood at 6.5%, and he further predicted that 2010's growth would be at a staggering 7%!

India's move away from recession was summed up in Dr. Singh's words that stated, 'the worst is behind us!'