Bernanke to Testify on Fed Exit Strategy on Feb. 10

This article discusses that on February 10 Bernanke and his colleagues plan to testify before the House Financial Services Committee about Fed's exit strategy to end the economic stimulus. Fed upgraded its economic outlook for near future, and decided to stop the liquidity and lending programs which sum up in a $1.25 trillion of stimulus to buy mortgage backed securities. Some of the tools that Fed may use to unwind stimulus would be reverse repurchase agreements, selling the assets on its balance sheet, and paying interest rate on excess reserves. Althought there is a great pressure from Congress for such an early action, without planning an exit strategy, the fear of expected inflation might cause uncerainty that might lead to bad consequences.

Is Debt Trashing the Euro

The article discusses how debt occurring especially in Greece could be bringing down the price of the Euro in all countries. This was brought on in Greece due to the fact that Greece was riding the strength of the Euro as well as lending money at extremely low rates causing huge debt. Now the problem facing the EU is whether or not they will have the ability to say no to Greece which will allow them to declare bankruptcy.

Stimulating debate

In this article, the author, Buttonwood casts his doubt on whether government’s policies are effective enough to overcome the economy recession. Buttonwood thinks of that the effect produced by governments is far less than the influence generated by the market itself. He believes that the stimulus measured by governments will not last long. He makes use of the example of Greece, where ten-year bond yields reached 7% last month. It is a rate that may even higher than the rate of Greek GDP growth. Therefore, it predicted that an austerity package is needed in order to prevent Greece from falling into this debt trap. Further, admitted that the stimulus may have inhibited the global economy from slipping into depression, he says, according to academic studies, higher government spending may actually slow down the rate of economic growth. Moreover, Buttonwood points out that the stimulus initiated by government has not really coped with the problem of debt; rather, it merely transferred the problem from the private to public sector.

In summary, Buttonwood argues that the authorities are facing a dilemma; reducing the stimulus now would probably plunge the economy back into recession, but if keep the stimulus for too long governments may risk damaging long-term growth prospects. Therefore, he concludes that economies need to stand on their own two feet.

Women Now a Majority in American Workplaces

In this article, the number of men and women holding payroll jobs are compared. It was the first time in recorded history that women outnumber men on the nation's payroll. It comes largely at men's expense because men have been losing their jobs faster than women. According to seasonally unadjusted data released on Friday by the Labor Department, women held the majority of nonfarm payroll jobs in January. They also did so during February, March, November and December last year. Women's slender lead was highest last month, when they held 50.3 percent of the nation's nonfarm payroll jobs in the raw numbers.
This is due to the differences between the types of jobs that are held by men and women. Men are more likely to work in industries like manufacturing, which rise and fall with the economic cycle. Women are more likely to work in government, health care and education, among the safest categories in a downturn. Male-dominated industries are actually especially cyclical in two different ways: they are not only influenced by the business cycle, but also by the seasonal cycle. Industries like construction, which tend to employ men, get more work in warmer months.

Steel

Although the steel industry declined in 2009 compared with 2008(World Steel Association); there are some graphical variations. The industry grew in China, India, and the Middle Age and had a large decrease in the United States and other countries. In the United States, the biggest steel-producing states include Indiana, Ohio, Arkansas, Alabama, North Carolina, South Carolina and Texas (United States Steel); but not at the levels they use to have.

Global Markets Shudder

This article is about the effect of the problems in Greece on the global market. Many of these dire effects on the world market are likely to be caused by expectations. The author seems to worry that the troubles in the European bond market will slow the world economic recovery from the recent real estate crisis. The price of gold even dropped, which is unusual in a time of crisis. The euro is actual at an eight month low against the dollar. This is causing investors to take their money out of the European market and put it into the safer U.S. Treasury bonds and even some are investing in the yen again. I liked this article because it really shows how an economic failure in one small part of the world affects everyone else. The world markets are competing, but a powerful nation cannot do too poorly or it will take the others down also.

The big jobs hole

This is an article about the situation of labor markets; it says that although the unemployment rates fell unexpectedly in January to 9.7%, yet 20,000 jobs that are created in this month are far fewer than the 150,000 jobs that were lost in December. Also it mentions that according to the government monthly report on Friday, it showed an unsettling reality that 8.4 million jobs have been vaporized since the recession began. Besides other adverse economic factors, it points out that another reason for the unoptimistic labor market is that employers are still very cautious about hiring people.

The reason I chose this article is because I think it analyzes the current situation of labor market from a relative objective view, neither too optimistic nor too pessimistic. In this article, it includes improvements and existing problems.

Sovereign Risk Meets Sovereign Reality

After months of shrugging off debt problems in Dubai, Greece and other smaller economies, markets yesterday seemed suddenly aware of the risks of sovereign default.

Back in November, when the question of Dubai's solvency came to a head, it was ultimately bailed out by its rich older brother, Abu Dhabi. Now, the European Union is doing its best to avoid promising a similar bailout to Greece, though in the end few believe Brussels will allow Athens to go under.

The current crisis in Greece is only the worst example inside the EU. The PIGS—Portugal, Italy, Greece and Spain—all boast public debt above or headed for 100% of GDP. Though the PIGS acronym was apparently coined by British bankers, Britain, Ireland and Iceland also smell distinctly of bacon.

The problem isn't confined to Europe. Japan and the United States, by most reckonings the world's largest economies, also face pressing questions about their sovereign debt levels. To be sure, the U.S. and Japan can sustain such deficits more comfortably than small countries like Greece or Portugal where the government's ability to curb public-sector spending is rightly suspect. Yet even in economic giants, bad policy could cause investors to move out of debt they have long considered a safe haven. The moment is approaching when the artificial line separating the wealthy from emerging markets will lose much of its relevance...

European debt fears plague world markets again

Unexpected up's and down's of the world economies is a cause of concern. After the reduction in the unemplyment rate of US in December this downfall of the stocks is certainly a shock to the people; on the other hand Portugal's plan to reduce budget deficit causing debt crisis to the world markets. The stability seem out of reach at the moment. Hope this article will be helpful in keeping track of the world stock markets.

Goldman Sach's Bonus

I think its great that they gave a smaller bonus then most originally believed. Plus it is in stock and can not sell for many years. This shows that the CEO must have confidence in the company and that they feel that the stock price will grow in the near future and that the company will be better in the near future (in my opinion). This also shows that they understand the difficult climate in the economy and are not willing to shell out millions of dollars for one position. I think this was a great showing by them and many companies should follow this trend.

Labor Market Shows Signs of Reawakening in New Data

As of this morning, the unemployment rate has dropped 0.3% to 9.7%. Although this is a positive sign, it is not as good of news as many had hoped. Some are contributing the drop in the unemployment rate to a statistical glitch resulting from the Labor Department’s revision of the way they estimate population. However, there are signs that businesses are finally starting to add laborers instead of just increasing production without expanding labor. For example, the number of involuntary part time workers fell from 9.2 to 8.3 million workers.

Uncertainity Reigns

I like this article because it is an economist talking about the difficult and largely arbitrary act of forecasting the future of the economy. I am not trying to insult all economic scholarship in my sentiments, just hoping that in the future economists (and more importantly, the politicians that oftentimes formulate economic policy) can have a little more humility about what they actually know is happening or going to happen.

Jobs will grow in 2010, but then what?

This article states that even though the end is near, it still seems so far away. The prediction is that more jobs will soon be available but job growth hasn't happened just yet. A strong sign of growth is the increase in GDP in the fourth quarter compared to the third quarter in 2009. GDP in the fourth quarter was 5.7% compared to 2.2% in the third. This is a dramatic increase, and a great sign that the recession is beginning to fade away.

Even with the economy being on the rise, and the positive prediction of jobs growing in 2010, there is still an issue with jobs in the long run. Since larger economic expansions are needed in order to decrease the unemployment rate, more frequent recessions are likely to occur in the next decade which will effect the decrease in unemployment. Therefore, the Fed needs to be careful with their actions so that it helps the business cycle continue to grow, and not stay idle or even worse, continue to fall.

Americans must start saving again by David Newville

Are Americans spending more? The crucial variable to bring about the balance in savings and investment is interest rate. And Americans' inclination to spend a lot and to save less might become a future problem. For instance they might need to make loans from foreign economies and this is exactly what is happening at the moment. Two third of American economy constitutes from consumer spending but spening a lot causes the interest rate to rise so does the cost of borrowing from foreign economies. This article only poses the questions; answers lies in policy makers mind.

IMF Says India Can Raise Rates Gradually as ‘Conditions Ripe’

As growth accelerated and inflation threatened to hold back the economic recovery, the Indian Central Bank decided to raise the cash reserve ratio, the proportion of deposits banks are required to set aside as reserves, by 0.75 percentage points to 5.75. We have previously discussed about contractionary policies which the Chinese Central Bank has recently carried out in order to reduce the risk of a bubble economy. Similarly here, tighter credit control would serve to restrict lending from commercial banks in India, hence cooling down the heating economy.

It was also mentioned that there would be long time lags before new policies had perceivable effects on the economy (the lag is usually between 6 to 12 months), making a timely start of the withdrawal of monetary stimulus highly necessary. By taking early actions, the Indian Central Bank should be able to help the economy maintain a long-term healthy growth rate.

Concerned Over Jobs and Revenue, Wall St. Wanders

The article mainly talks about investors’ concern over high unemployment although a report showed smaller-than-expected job loss on the private sector. The expected high unemployment rate exerts great influence on the market as traders will not buy stocks until Labor Department’s monthly unemployment comes out on Friday. According to William Schultz, the chief investing officer for McQueen, investors’ confidence will be restrained until the economy begins to add jobs. It also talks about concern about whether business can increase revenue in the future. As the unemployment rate still remains very high, economists worry that businesses are hard to draw customers. Although 77 companies reported their quarter results which beat Wall Street’s estimate, investors do not seem to be satisfied with short-term revenue. Instead, they are look forward to robust long-term revenue.

---Jinglin Yang

No Help in Sight, More Homeowners Walk Away

This is a very depressing article about the home crisis we still are in.

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

Time Warner’s Movies Help It Swing to a Profit

Time Warner has recently surpassed expectations and has actually produced a profit.

After recently spinning off from AOL, and focusing more on producing movies, running cable TV networks and, to a lesser extent, publishing magazines.

Echoing comments from Mr. Murdoch a day earlier, Mr. Bewkes also said the economy was improving in a way that suggested the worst might be over for the media industry.

“There is increasing evidence that industry trends are going our way,” Mr. Bewkes said.

Changes in commodity money, gold.

Gold is a common commodity money in the economy.
In the article, it is said: "Gold futures continued their risk-fueled bounce as concerns about Greek sovereign debt eased and the U.S. dollar faltered." As the Greece's budget deficit is eased, we may expect a strong support to the euro against the US dollar. The result of this is gold price increase. So, as the US dollar become weaker, the gold price will rise.
From this article, I realize that there is an inverse relationship between the gold price and the value of dollar compared to other currency. In other way, the US$ gold price and Dollar Index trend is moving in the opposite direction. It does not just happen daily or weekly but over a long period of time. By looking at the change in gold price, we may assume that US dollar value is also changing compared with other currency. It is a opposite change between fiat money and commodity money.

White House Sees U.S. Unemployment Rate Averaging 10% This Year

The Obama administration has forecast continued GDP growth by 2.7% this year however provided grim news, informing the nation that forecast unemployment rates will still remain around the 10% mark it currently lies around. This forecast is 0.2% higher than the initial forecasts predicted in August however in the State of the Union, President Obama emphasized the necessity to create jobs.

Unfortunately the current labor market is very weak and firms are still unwilling to hire the more than 7 million jobless Americans out there. However there is optimism in the recovery of firms, where third-quarter 2009 productivity rates increased gained 8.1% and labor hours increased. The first step for firms are to increase their current employees' hours before even considering hiring more. Hopefully these trends continue to move in a positive direction to decrease the rate of unemployment.

inflation and expectations

Japan Retail Sales Unexpectedly Slide for 16th Month

This article is a great example for our discussion in class on Monday. We were talking about how expectations for inflation/deflation greatly affect how prices actually change. We also mentioned that once deflationary expectations set in in an economy, they are extremely hard to get rid of. Just that is happening in Japan right now and there are huge drops in sales. A survey also showed that people are beginning to expect deflation and are waiting to buy until prices fall.

~Cassie

Banks on defensive as Davos ends

Banks on defensive as Davos ends

By Tim Weber
Business editor, BBC News website, in Davos

Bankers have indicated that they may agree to far-reaching reforms, as the World Economic Forum in Davos ends.

Top regulators warned that they could take drastic action to take some of the risk out of the financial industry.

However, the annual meeting of some of the world's most powerful business leaders and politicians ended with few new plans or real achievements.

There was agreement though that job creation and free trade had to be key ingredients of any economic recovery.

Larry Summers, economics adviser to US President Barack Obama, probably coined the most memorable phrase of this year's Davos when he said the world was experiencing a "statistical economic recovery, but a human recession".

A B20 to complement the G20

The lack of results of the discussions at this year's forum are arguably a perfect reflection of the general uncertainty that has gripped most political and business leaders here in Davos.

While overall chief executives are much more confident now - "the world is a better place than 12 months ago" said Peter Sands, chief executive of Standard Chartered Bank - there is little agreement on how exactly the recovery will play out, and whether the economy could still experience a "second dip" downturn.

Capturing the tenor of most economic forecasts was the phrase of a "LUV-shaped recovery" - an L-shaped long-term low growth recovery in Europe; a U-shaped slow growth recovery in the United States; and a sharp upturn in emerging economies like India, Brazil and China.

Business leaders, like Azim Premji of Indian IT services giant Wipro, warned that the real issue of this economic crisis was employment, while others warned that Western economies especially could face years of jobless growth.

The biggest worry of most chief executives - from both developed and emerging economies - was that politicians could give in to populism and approve protectionist measures.

"Open trade is absolutely critical to development, to lift people out of poverty," said Mr Sands, whose bank operates mainly in Asia.

Josef Ackermann, the boss of Deutsche Bank, proposed the creation of a B20 group of business leaders, to ensure the voice of business was heard when the G20 group of leading countries met again to co-ordinate economic policies and financial regulation.

Banker bashing

Most of the discussions, however, centred around the failings of the financial system and how to fix it, and discussions often descended into some form of banker bashing.

While at the start of the forum many bankers robustly defended their position, speaking out in favour of high bonuses and against tough regulation, by the end they had softened their tone.

Some of the world's top bankers - including those at Deutsche Bank and Barclays - indicated that they might be prepared to pay a global financial insurance levy, so that the next bank bail-out would be financed by the industry, not by taxpayers.

It probably helped that the many bosses of financial watchdogs and central banks in Davos, while talking softly, carried very big sticks. In numerous private meetings they outlined their numerous options to take the risk out of the banking system.

Davos, however, also illustrated that regulators are not anywhere near to agreeing the actual details of regulation - except that another financial crisis could only be averted if there was some kind of global framework for financial regulation.

Both Mr Sands and Mr Ackermann warned that there would have to be a trade-off between making the financial system safer and raising the cost of, or even limiting, the availability of credit.

A business Davos

One possible reason for the lack of any deal on trade or financial regulation in Davos was the absence of key politicians.

While French President Nicolas Sarkozy kicked off the meeting with a stirring call to reform and renew capitalism, many countries were notably under-represented at the forum.

There was hardly any US presence, Brazil's president Lula cancelled for health reasons, while the German foreign minister, the Pakistani prime minister and the Afghan president all cancelled at short notice.

China and India had sent key officials, but Russia none.

As a result, this year's event World Economic Forum was much more business-focused - probably to the relief of most business people here, who in recent years had grumbled that key issues had been pushed aside by political posturing and Hollywood glitz.

It also made the forum an early signal for the coming global power shift, where emerging economies grow larger than the West, and political power moves from the West towards the South and the East as well.

Humanitarian commitment

Arguably the most tangible result of Davos was probably a series of commitments to humanitarian causes.

Microsoft co-founder Bill Gates and his wife Melinda made the most spectacular announcement, pledging $10bn (£6.3bn) over the next 10 years to help research, develop and deliver vaccines for the world's poorest countries.

Many business leaders also made detailed promises on how they or their companies would help Haiti to cope in the aftermath of the earthquake.

This was not a normal year for Davos - it had few outcomes, but an intensity of discussion and debate that is unusual even for this high-powered event.

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/8489946.stm

Published: 2010/01/31 14:21:16 GMT

© BBC MMX

Fear da boom and bust

Economic history and rap?. I don't know where to start... I'm not one to grade youtube videos but this is relatively glorious. From the hotel lobbyist not knowing Hayek's name, to Keynes confident attitude with the women, this video truly makes one want to party with the Fed (- the mustaches). Take what you will.

"Huge Deficits May Alter U.S. Politics and Global Power"

The deficit for the U.S. as of now is 11% of the country's entire economic output. The crazy thing that this article discusses is that buried deep inside Obama's budget plan America's deficit will not return back to sustainable levels over the next ten years. The reason for this is that his plan is trying to create jobs now to lower the unemployment rate. If they do not spend money now and create a bigger deficit, the unemployment rate is going to soar. Obviously no one wants to hear this kind of news. It is honorable that Mr. Obama is being completely honest with his plan and not sugarcoating.

Obama Vows to Press Health Care, Act to Boost Economy

President Obama reiterates the same agenda from his campaign where his main focus is to increase employment. There has been upwards of 7 million jobs lost since the beginning of the recession in 2007 and unemployment rates still remain high at 10% at the end of 2009.

Obama also would like to continue to provide tax incentives worth $38 billion this year for small business and middle-income families to continue to stimulate spending and investment. He defended the government bailouts because they were necessary and proposed to use $30 billion in TARP paybacks to assist community banks providing loans to small businesses.

Obama unveils $3.8 trillion budget

Today President Obama unveiled a $3.8 trillion budget for 2011 that will hopefully control the nation's deficit and boost our fragile economy through continued government spending. The budget is built on the assumption that the nation's unemployment rate will average 9.2% in 2011 and the nation's GDP grows by 3.8% next year. If Congress passes the budget, the deficit decrease from 10.6% to 8.3% and hopefully by 2014 it would drop drastically to 3.9%. Furthermore, good news for us students, $17 billion will be allocated to help students pay for college.

Fed vows low rates for ‘extended period’

This article talks about why the Fed will continue to keep interest rates low. It says that although the economy has started recovering, it is doing so at a slow pace, hence it still has a long way to go. It also talks about how the Fed has to be carefull in pulling out the stimulus money without significantly affecting the economy.

Stimulus funds nearly 600,000 jobs last quarter

This article, by Tami Luhby, is about the large effect the stimulus package had on the U.S. economy. Overall, the stimulus raised employment from 1.5 to 2 million jobs, and this figure doesn't take into account the jobs created from people spending tax cuts and companies spending on supplies for stimulus projects. The problem, however, is that there are many errors in the study and many republicans question its validity.

http://money.cnn.com/2010/01/30/news/economy/stimulus_jobs/index.htm?cnn=yes&hpt=T2

Ticking Up

In the fourth quarter of last year American GDP grew by an impressive 5.7%, at an annual rate, the best quarterly performance since 2003. Expansion was driven by growth in private inventories and an increase in exports. This fourth quarter increase shows that the worse is over. However, there are reasons to doubt that the impressive performance in a single quarter will be repeated in the coming months. That brief buying spree brought some workers back to assembly lines, but unless a new source of demand arises the boost from restocking will fade and growth will slow. It is not clear where the new demand will come from.

Investment may also disappoint in 2010, because of overcapacity. Oversupply in both residential and commercial property has discouraged investment in the sectors and meant that construction employment is not rising. Nor does it help that government economic support will fade during 2010. Nonetheless, the performance of the American economy in the fourth quarter is encouraging, suggesting firmly that America has pulled free of recession. Yet caution is in order.

China Leading Global Race to Make Clean Energy

TIANJIN, China — China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world’s largest maker of wind turbines, and is poised to expand even further this year.

China has also leapfrogged the West in the last two years to emerge as the world’s largest manufacturer of solar panels. And the country is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants.

These efforts to dominate renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China.

“Most of the energy equipment will carry a brass plate, ‘Made in China,’ ” said K. K. Chan, the chief executive of Nature Elements Capital, a private equity fund in Beijing that focuses on renewable energy.

President Obama, in his State of the Union speech last week, sounded an alarm that the United States was falling behind other countries, especially China, on energy. “I do not accept a future where the jobs and industries of tomorrow take root beyond our borders — and I know you don’t either,” he told Congress.

Formula shows why it's so hard to cut jobless rate

This article gives insight to the reason(s) why the unemployment rate is lagging so far behind economic recovery. I just thought it was interesting to think about.

Bail-Out Goals Still Not Met!

This BBC news article focuses on the bail-out plan that is supposedly still running it's course. While the US economy may be on a rise the main purposes of the $700 billion bailout have not yet been met. Bank lending is still prohibitively low and no measures have been put in place to stop, or at least prevent, future economic crises. However, I feel this article fails to acknowledge the proposed banking reform. Yes, the bail-out plan may not have worked yet but, the country is still coming out of the recession. It seems the author may be trying to insinuate that nothing will be done to reform and restructure the current economic systems. Thoughts?

Regulators shut down banks in 5 states

By MARCY GORDON, Jan 29 2010

This article explains the amount of bank failures since 2007 has been increasing, with the highest amount last year in 2009 with a total of 140 banks. In 2010 the number of bank failures thus far has reached 15, most recently in California, Georgia, Florida, Minnesota and Washington. The increase is due to the high amount of failed commercial and residential real estate loans, as well as the drop in housing prices and the rise in unemployment. Building developers have also begun to default on their loans as development projects fell short last year. It is believed that defaults on high risk loans could spike in 2010, and the amount of failing banks to be on the rise this year. So far the amount of bank failures has cost the Federal Deposit Insurance Corp $30 billion. The FDIC expects the total costs of saving banks to reach $100 billion over the next four years. In his State of the Union address, the President agreed to begin a $30 billion dollar program for community banks at low rates in exchange for increased lending to small businesses. This money would come from what is left of the $700 billion bailout fund.

A Needier Era

The 2010"s will be known as the age of scarcity for many people.  In the 1990's, incomes were rising; capital markets were processing endless flows of money and investment; technological gains meant that ever more information was available ever more cheaply.  But now as we move on to the new decade, the main problem for scarcity are water and food shortages. This could in fact have a direct impact on politics.  The sort of problems governments increasingly face will be much less predictable than those associated with old great-power rivalries.  It will be interesting to see how scarcity will play a role in politics for the next decade.