Bank of America Freezes Foreclosure Actions to Ensure Documents Are Proper

The Bank of America Corp. has delayed foreclosures after a federal regulator called for a review. This is due to the suspect of lenders submitting defective documents when repossessing homes. The Bank will carry out an investigation process where "tens of thousands" of documents will be studied and the process will take from "several days to a couple of weeks."

Meanwhile, JP Morgan Chase & Co. and Ally Financial Inc. employees may have submitted affidavits without confirming their accuracy - the court documents reported. It leads to the case that such practices could amount to fraud and JP Morgan has said to ask judges to postpone foreclosure in response to the situation.

This even further the problem of the housing market, add the inability to sell properties and declining property values. Moreover, the economic downside from this problem is even more monumental.

In response to the case, the State and Federal has taken steps to carry out some investigations about home lenders and loan services taking shortcuts to speed foreclosures.

Number of the Week: 41.7 Million Spend Too Much on Housing

41.7 million: U.S. households who face excessive housing costs

In the conventional narrative of the recession and recovery, one bright spot has been the speed with which U.S. households are shedding their debts and getting their finances back in order.

The latest data from the Census Bureau, though, offer a less encouraging picture: Even as the average household debt burden improves, an increasing number of households are finding themselves financially stretched.As of 2009, some 41.7 million U.S. households, or 36.7% of the total, faced housing costs that exceeded 30% of their pretax income — a level typically defined as the threshold of affordability. That’s an increase of 1.5 million from 2007, despite a sharp drop in house prices and policy makers’ extraordinary efforts to bring down mortgage payments.

Liquidity preference, loanable funds, and Niall Ferguson (wonkish)

This article is very closely related to issues we have been discussing in class lately. It talks about supply and demand for loanable funds. First they show the basic model where savings is equal to investment. It then discusses how Keynes explained this model to be incomplete because it assumes that the economy is operating at full employment. The article then discusses the model for 2009 economy. This model assuming the economy was operating at full employment showed the interest rates at -5%. This would show that banks were actually discouraging people from saving money and that it would be better to hold money rather then save it. This is why the title says there would be a liquidity preference, because people and companies would want to hold money rather then save it in banks.

2Q GDP Revised Upward Slightly to 1.7 Percent

Second quarter real GDP growth was revised upward slightly to an annualized 1.7 percent from an annualized 1.6 percent. The adjustment was due to an upward revision to consumption and inventory accumulation. However, most of this improvement was offset by downward revisions to net exports and government spending. The updated GDP number is consistent with a modestly growing economy.

Net-exports were a huge drag on growth in the second quarter. This was partially due to the fallout following the Euro debt crisis in the spring, causing exports to fall and the dollar to strengthen, which supported greater import growth. In addition, the inventory adjustment cycle on the part of businesses, which had been the primary factor of growth in the three quarters prior, has mostly run its course. Moving forward, the real GDP number will come more in line with the real final sales number, which measures only present use of production. As such, growth has been, and will likely continue to be in the near future only modest.

Look to Europe to Understand Why This US Recovery is Jobless

This article compares the current employment situation within the United States to the conditions faced in Europe of the past 30 years.

A Tax Cut Both Parties Should Love--But Don't

Workers may receive a 6% increase in paycheck as a form of economic stimulation for their next pay check. For the holiday season, the government may cut the 6.2% payroll tax paid by both employers and employees. This is a highly regressive tax, only taxing up to $106,800. This means that low and middle wage earners are hit the hardest with the tax. Economists argue that a high payroll tax prevents employers from hiring, stunting economic growth. However, Democrats are afraid of weakening social security and Republicans are more focused on cutting taxes for high wage earners.However, economic stimulus may be necessary to prevent a double-dip recession.

US growth in 2nd quarter still stagnant

Economic growth in the second quarter has been revised to 1.7 percent, up .1 percent from the last projection, but this is down substantially from the first quarter and down from much of last year's figures on growth. This is an indication for many economists that the economy is slowing down from the momentum it gained from the 2009 stimulus. Also, many economists see this as an indication that unemployment will remain at or around the current level of 9.5 percent. According to the article, consumers are saving at a much higher rate than they were before the financial crisis, and the drop in MPC has led to a reduction in sales that has prevented employers from hiring again. Fortunately, the number of those applying for unemployment benefits has dropped slightly, indicating that while firms have not been confident enough to hire more people, they have been able to hold on to their current employees.

Want To Get In On Gold?

For those of us wanting to cash in on the recent surge in gold prices, there is good news for you. All you have to do is to travel to Las Vegas or Boca Raton in order to buy gold from a vending machine.

"Gold to go won't reveal exact locations. But Thomas Geissler, CEO of Ex Oriente Lux AG, which owns Gold to go, told CNNMoney that the ATMs will open in "a well-known Las Vegas casino" and a Floridian resort city -- most likely Boca Raton.

Contracts have been signed for both locations. And the opening dates, which are expected to be in early November, will be finalized early next week.

The ATMs, which dispense gold coins and bars weighing up to eight ounces at prices updated every 10 minutes based on the real-time spot price of gold, churn out 20 to 100 gold pieces a day depending on traffic."

Sounds like an armed guard will have to be posted in order to ward off the eventual vending machine hackers.

China manufacturing sector grows

Most of the world believed that China was facing a potential slowdown until the manufacturing sector picked up pace this month. The growth of the manufacturing sector in the Chinese economy is very good for the global market, as consumers find the price of products decreasing tremendously. On the contrary, the undervalued Chinese currency has become a big problem. Trade tensions between the U.S. and China are becoming more prevalent due to this undervalued currency. So the U.S. has to make a decision whether to impose duties on imports from China, which is why the House has just passed a bill aimed in this direction. These factors all create a difficult scenario because of the global economy's reliance on China.

How Recession Hit N.Y.

The nation's economic collapse caused many New Yorkers life changes, driving some into poverty and making the poor poorer. The number of New Yorkers living in homes without kitchens in increasing. From census data from 2007 to 2009, the income of single people changed the most; poverty ranged from 15 to 64 years old; home values dipped; the share of renters increased compared with owners; the gap between very rich and very poor rose slightly and still remained very high, especially in Manhattan.
The bad news is we have not seen any changes of unemployment rate when unemployment benefits and other cushions fall away. The bad economy had a broader impact on the way people lived: unmerried women increased; the birth rate decreased; and more people were living with roommates.
The good news is the government strengthened the safety net, expanded job training and supported entrepreneurs. What is more, the government expanded tax credits and increased food stamp participation. These efforts were not included in the official measure, so we cannot see changes in census data, but the government did spend a lot of efforts to cushion the blow of the recession on low-income families and did their best to recover the economy.

More Quantitative Easing on the Way?

William Dudley, president of the Federal Reserve Bank of New York warned that we are getting closer and closer to hitting levels of deflation. He thinks things need to be changed quickly, like increase in asset purchases. Charles Evans, president of the Federal Reserve Bank of Chicago states similar thoughts. He thinks that because of the unemployment gap, incredibly low inflation which meets price stablility, that there needs to be an "increase monetary policy accommodation to boost aggregate demand and achieve our dual mandate."

A Single Sale Worth $4.1 Billion Led to the ‘Flash Crash’

One sale of futures contracts by a mutual fund (worth 4.1 billion) started the series of events that led to the flash crash on May 6th. The crash erased more than 600 points from the Dow Jones industrial average. This is based on a report by the Securities and Exchange Commission and the Commodity Futures Trading Commission.
The firm Waddell & Reed Financial out of Kansas started a program to sell 75,000 E-Mini Standard and Poor's 500 future contracts. Because a sale this large was completed in 20 minutes in stead of the normal 5-6 hours, the market reaction was drastic.
Although this trade caused the Dow to drop 990 points or 9.1% , the average quickly rebounded, rising 543 points in about 90 seconds.
Although the Dow recovered, the events on May 6th could have easily contributed to the current distrust people are feeling. In May alone, $19 billion was taken out by investors from domestic stock market funds.

Official Hints at Fed Resuming Bond Purchases

The president of the New York Fed on Friday called for the Fed to resume large-scale purchases of long-term government bonds increasing the conviction that the central Bank will be continuing doing that throughout November. The president stated that the situation with trying to reach maximum possible employment and keeping price stability at the same time, is very unsatisfactory right now. The Fed has already held short-term interest rates at nearly zero since the end of 2008, however this didn't prove to be working. It also bought $1.7 trillion in long-term securities from January 2009 to March 2010 to put downward pressure on long-term rates.

Now, with unemployment stubbornly near 10 percent and showing no signs of going down soon, the Fed is contemplating a second, even bigger, round of debt purchases. One practical effect would be to lower 30-year mortgage rates even more than they have already fallen.

Infrastructure Bank Proposal Would Spur Economic Growth

President Obama has re-introduced a proposal which garnered a lot of support during his campaign however, has been all but forgotten in the recent months. He hopes to enact a sort of infrastructure bank in hopes of boosting investment and employment in the nation.
The idea behind this proposal is Obama's understanding that although there has been a number of tax cuts in hopes of boosting the economy, these haven't been successful due to the fact that we are in a period of "economic crisis" and thus and money saved from taxes on the consumer side will be used to pay off debt instead of re-investment into the economy.
The proposal does face two potential opposition though; the first having to do with whether it could feasibly pass due to mid-term election coming and second, the fact that it could be a huge disaster unless the architecture for this institution is framed just right.

Construction Spending Rises and Manufacturing Falls

The pace of growth in the U.S. manufacturing sector slowed in September, an industry report on Friday showed, and employment in the sector also declined.

The Institute for Supply Management said its index of national factory activity slipped to 54.4 last month from 56.3 in August.

The median forecast of 79 economists surveyed by Reuters was for a reading of 54.5. A reading above 50 indicates expansion.

While manufacturing has expanded every month since August 2009, the pace of growth has slowed in recent months amid signs a broader U.S. recovery was running out of steam.

In September, sector employment slipped to 56.5 from 60.4 in August.

Dollar slips while stocks post September in decades

The dollar continued to slide this week, as market uncertainty and worries about intervention by Japan and the United States held the currency market hostage.

The dollar index, which gauges the greenback against a basket of currencies, retreated to a low of 78.1, a level not seen since February. That's down from 83.2 at the beginning of the month, and far below the June high above 88.

But it's not a huge surprise that September has been a lackluster month for the dollar. Hedge funds and other big money investors typically pour money into commodities following Labor Day, said Michael Woolfol, senior currency strategist at Bank of New York Mellon. That can take its toll on the U.S. currency, since commodities like gold, oil and grains are priced in dollars.

Jobless claims edge lower

The number of Americans filing for first-time unemployment benefits declined last week but continued to drift in the same range they have been since November, according to a government report released Thursday.

There were 453,000 initial jobless claims filed in the week ended Sept.18, down 16,000 from an upwardly revised 469,000 the previous week, according to the Labor Department's weekly report.

Economists surveyed by Briefing.com were expecting 457,000 new claims.

The modest drop returns jobless claims to the same level they were two weeks ago. Claims have been stuck in the mid- to upper-400,000 range for about 10 months.

Stocks post best September in 71 years

U.S. stocks fizzled Thursday, but that didn't stop the market from logging its best September in decades.

Dow Jones industrial average (INDU) slipped 47 points, or 0.4%, after soaring more than 100 points at the start of trading. The S&P 500 (SPX) fell 4 points, or 0.3%, and the Nasdaq (COMP) ticked down 8 points, or 0.3%.

Economic jitters have kept stocks from breaking out of a narrow range this week. And while upbeat readings on employment and economic growth helped spark an early rally Thursday, gains subsided as worries about the euro zone bubbled up.

Despite the stomach churning month, stocks ended September on a high note. The Dow jumped 7.7%, the biggest September gain in 71 years. The S&P also posted the biggest gain since 1939, rising 8.7% in the month, while the Nasdaq climbed 12%.

Small Gifts Sent to Ease U.S. Debt

Right now the U.S. debt is around 14 trillion, which is number 14 followed by twelve zeroes (14,000,000,000,000). Anyone seeing this number for the first time would be overwhelmed, but not the 6th graders of Montgomery elementary school in Alabama. They raised $324.50 last year by selling cookies, all to be donated, when they learned about the national debt. And they are not alone in this noble feat, as last year the U.S. treasury received $3.1 million in donations to ease the current debt.

This 50 year old program might come as a surprising thing to many of us as the government does not advertise the program, and the officials try to avoid the attention. When asked about why the program is little known, the commissioner of bureau said that soliciting donations might "seem straightforward and benign, but could rub the taxpayers the wrong way."

So far since 1961, when the program first started, the U.S. treasury has received $80 million in donations.

Car maker Ford to add 120 UK jobs

Ford, which was the only one of USA's three biggest car giants did not undergo bankruptcy during the current recession is now also creating jobs and hiring up to a hundred people in its UK branches.

The secret behind this "Mr Mulally said, was to reduce the number of brands in the company's portfolio and to concentrate on the core Ford marque. A more limited range of models with more common parts is now being rolled out globally".

To back up the strategy, Ford also borrowed 15bn pounds before the credit crunch-which was the best time- for restructuring and to develop new models.

Ford is growing around the world and so now they want to grow in the UK as well. "Mr Mulally was upbeat about his British operations, having recently confirmed £1.5 billion of investment over five years, partly underwritten by Government loan guarantees".

At least there are some signs of growth in the industries around the world if not in the USA.

The Unluck of the Irish?

Well, Ireland is now paying for the massive nationalization of the main private bank. The country now has debt equal to 32% of GDP. Compounding the problems is the EU mandate that the yearly debt has to be 3% of GDP.

"The country's budget deficit will balloon to 32 percent of gross domestic product this year, but Ireland aims to cut it to the European Union-agreed 3 percent by 2014, the Finance Ministry said.

The government will announce later on Thursday plans to recapitalise Allied Irish Banks, the central bank said. Dublin already has a near 19 percent stake in the lender."

There is a price to pay for overspending.

Los Angeles city officials vow to aid small businesses

Los Angeles is finding a way to help its small business owners and entrepreneurs in the current uncertain economy. The creation of jobs will prove to be the engine to recovery from the recession. A small-business team has been organized to support small businesses and help them go about the city's labyrinthine permit and tax procedures. They want to create awareness of the opportunities that exist in LA for small businesses (including non-profits offering free consulting services and private banks making grants available to some small businesses and start-ups). The government is also arranging information sessions on how to obtain funding in the tight credit economy and provide advocates for small businesses in order to give them a voice. This small-business team seems like a great step in the direction of recovering from the recession. It will help create jobs, lower unemployment, increase consumer spending and thus stimulate the economy.

Senate Outsourcing Bill Stalls

Senate Republicans voted to defeat an effort by the Democratic majority to bring up legislation that would take aim at U.S. multi-national corporations moving manufacturing jobs overseas. The bill would have used a combination of tax penalties and credits to induce large employers to retain manufacturing jobs in the U.S.It would have ended two tax measures currently available to large corporations that Democrats argue allows firms shipping jobs overseas to benefit from doing so.

China: Economic Juggernaut or Overinflated Bubble?

Is China an unstoppable economic juggernaut or an overinflated bubble ready to burst?

That question is one of the most important long-term macro issues facing policymakers, politicians and pundits - as well as anyone else who cares about the global economy.

Right now, China is BOTH an economic juggernaut and a bubble, says Gordon Chang, a Forbes columnist, who sees two major problems with China...

I find this article very surprising not only because of the United States having a stimulus program that involves 5.5% of its GDP but China has a stimulus program that involves 24% of its GDP! I wonder if it is a good thing for China to have such a stimulus package that takes a big chunk of its GDP? Any opinions on this matter?

Tax Cuts-What is there effect?

This article discusses the Bush tax cuts and the effects they have and had on the economy since they have been enacted. Now President Obama is faced with a tough economic decision whether to keep to the tax cuts running at cost of running 3.7 trillion dollars over the next 10 years or end them and raise taxes on the American public next year. Both of these decisions for the short term and long term impacts on the economy if the deficit continue to increase it will effect the value of money which will also increase crowding out investment. If tax cuts where to expire and the tax rates where to rise it would rise the rate of government saving adding to the supply of government funds but with the rise in tax rates it would greatly effect consumption and decrease ones disposable income which could in the short term have a disastrous effect on the nations already troubled economy.

Stock futures climb on drop in unemployment claims

With recent economic reports showing moderate economic growth, stocks are set to finish the month of September in a strong way. Investors have been biding up stocks in response to the slight growth of the economy and recent news from the labor department that first-claims for unemployment benefits last week fell more than economists expected. This is a continuation of the steady drop in claims to unemployment benefits from previous weeks, which might suggest that job growth is coming sooner rather than later. However, businesses are still reluctant to invest and hire additional employees due to the possible tax changes that would occur under the new health care and regulatory reforms.
While September will show stocks are rising, not all traders are convinced that the investment climate is safe enough to bid up stocks. These traders have turned to less risky investments like 10-year Treasury notes and Gold.

The Case against Gold

With the current unemployment rate, it is hard to decide whether we want to buy Gold now or later. The current price of Goldis indeed very tempting, but should we really spend the little money that we have on it?

In Europe, a Mood of Austerity and Anxiety

According to Wikipedia: "Austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to reduce their deficit spending while sometimes coupled with increases in taxes to pay back creditors to reduce debt."

Soon enough such could be the scenario of a European nation, Greece, and the European Union eventually. The European Commission in its statement affirmed that the European Union’s economic growth rate has slowed down with unemployment rate fixed at 10 percent in the last few months. While some individuals in Europe view the current economic situation as an opportunity for innovation, most of the Europeans fear of the high unemployment rate and the difficulty that they would have to face to make ends meet when their savings run out.

Car sales: cloudy today, sunny tomorrow

Debate over the future of the car industry continues. According to a JD Power & Associates’ report, car sales are expected to rise in September over August's sales. Another report put out by Edmunds.com argues that September sales will be below August's sales. The final numbers for September's sales will be released Oct. 1.

In addition to the short term projections, Morningstar has released its five year projection. They estimate that car sales will rise considerably in 2011, maybe even by 50 percent. Since 2007, people have delayed their car purchases but many won’t be able to delay much longer. This need to replace older cars coupled with an increasing population of licensed drivers is one reason for Morningstar’s projections. So, if you need a car, don’t put it off. Now may be the time to buy.

In Tax Cut Plan, Debate Over the Definition of Rich

With the approaching elections, politicians are afraid to voice their opinion about the on-going debate determining the fate of the Bush tax cuts. The Obama Administration feels it is important to eliminate these tax cuts for the wealthiest Americans as the economy cannot afford to have them continue. The problem arises when defining who fits in the 'wealthiest Americans' category and who is lucky enough to not be rich. The current level being debated on is $250,000 and up. But many feel that is too low and it should be raised. The argument supporting the elimination of these tax cuts is that the economy cannot afford it anymore and one proposal put forward is the Millionaire Tax. However, many Americans earning above the level stated can relate more to middle-class than to millionaires. The opposition claims that this will hurt the economy more by affecting small businesses. But it is important to take geographical locations into account as it is likely an income of $200,000 in one city will not bring you to the millionaire lifestyle in another. With unemployment rate at 9.6%, and the tax cuts expiring on Jan 1st anyway, the government must come up with a plan and fast.

Home prices up, but growth rate slows

NEW YORK (CNNMoney.com) -- Home prices have risen for five straight months, but the rate of growth has slowed, according to an industry report released Tuesday.

Prices inched up 0.6% in July compared with June, according to S&P/Case-Shiller 20-city home price index. On a year-over-year basis, prices rose 3.2% compared with July 2009.

Gold rallies to another record high

NEW YORK (CNNMoney.com) -- Gold prices continued to push higher Tuesday, reaching another record high, amid ongoing concerns about the economy.

Gold futures for December delivery rose $9.70 to settle at $1,308.30 an ounce, topping Monday's all-time closing high of $1,298.60 an ounce

Gold is up 4.7% over the last month, and has gained more than 30% so far this year.The metal has hit a series of record highs in recent weeks, including a new all-time trading high of $1,311 an ounce earlier Tuesday.

Fed Mulls New Bond Approach

Federal Reserve officials are considering new tactics for the purchase of long-term U.S. Treasury securities to bolster a disappointingly slow recovery.

Jon Hilsenrath discusses the likelihood that the Federal Reserve will act gradually if it decides to act again to stimulate the economy.

Rather than announce massive bond purchases with a finite end, as they did in 2009 to shock the U.S. financial system back to life, Fed officials are weighing a more open-ended, smaller-scale program that they could adjust as the recovery unfolds.

The Fed hasn't yet committed to stepping up its bond purchases, and members haven't settled on an approach. After its meeting last week, the Fed's policy committee said it was "prepared" to take new steps if needed.

A decision on whether to buy more bonds depends on incoming data about economic growth and inflation; if the economy picks up steam, officials might decide no action is needed.

The Fed's internal debate about a bond-buying strategy is emblematic of the challenging position in which it finds itself. In normal times, it simply raises or lowers short-term interest rates to guide the economy.

But having pushed short-term rates to near zero, it now has to devise new, untested approaches at almost every turn. A misstep could lead to unintended consequences, one factor that makes officials wary and investors jittery about its every move.

In theory, buying long-term bonds pushes other interest rates down because it reduces the supply of debt available to investors, pushing up the price of this debt and the yield down.

In March 2009, the Fed said it would buy $1.7 trillion worth of Treasury and mortgage-backed securities over a six to nine month period—known inside the Fed as the "shock and awe" approach.

Most Fed officials believe that helped to drive down long-term interest rates and spurred the economy.

Under the alternative approach gaining favor inside the Fed, it would announce purchases of a much smaller amount for some brief period and leave open the question of whether it would do more, a decision that would turn on how the economy is doing. This would give officials more flexibility in the face of an uncertain recovery......

America Tops the List for Best MBA Programs

For those of us looking at going into an MBA after OWU, good news - the best programs are right here in the USA. Six out of the top ten in the world, including University of Chicago, Dartmouth, U of C Berkley, and Harvard, are located in America. This means that if America continues to have an edge in education and human capital, we will likely remain towards the top in terms of business and innovation. America's greatest advantage in the global economy right now is that is had superior education. This seems to be particularly true of business, which hopefully will give us the strength and leadership necessary to rebound out of the current recession.

Home Prices Up, but growth Rate Slows

CNNMoney.com

House prices rise means that more investment is put out in the market. This is also a result of the rock-bottom low interest rate in the past year, and now stays at 4.125% .

Some cities receive positive gains, like San Francisco, house market rises by 11.2%. The Bay Area is recovering from the mortgage hit last year, and most likely houses in Berkeley, Oakland, San Jose and other cities in the region are also climbing back to where they were prior to the recession in terms of its high prices.

Out of the Recession...Out of Debt??

The legalization of marijuana has become an increasingly popular subject of conversation nowadays, with pot use increasing in every single demographic. Our government has shown strong distaste for the small plant, but some have shown that pot could be our country's way out of not only our recession, but out of debt. The global war on "drugs" has taken the control of a substance no more harmless to one than alcohol, and given control of it to crime syndicates and drug lords across the world, increasing the number of those incarcerated (tax dollars spent) and doing everything to prevent the use of the now seemingly harmless drug.

"The racial disparities are appalling. As Michelle Alexander so eloquently shows in her new book, "The New Jim Crow," a drug conviction automatically makes a person a second-class citizen who can be legally discriminated against in housing and employment, denied school loans, and barred for life from serving on juries, accessing public benefits and even voting. While African Americans make up only about 13 percent of the U.S. population and about 15 percent of drug users, they make up about 38 percent of those arrested for drug law violations and a mind-boggling 59 percent of those convicted for drug law violations.

Like Prohibition did for alcohol, drug prohibition is also enriching organized crime. Instead of regulating marijuana to control who can access it, policymakers have ceded control of the $400-billion-a-year global drug market to crime syndicates and thugs.

In Mexico, where parts of the country are like Chicago under Al Capone on steroids, 28,000 people have died since President Calderón launched a war three years ago against well-armed, well-funded drug trafficking organizations. The U.S. government doesn't report its prohibition-related deaths, but law enforcement officers, drug offenders and civilians die every day in our country's war on drugs, too."

Is it finally time to really considering legalizing what was once thought to be the worst thing to come to our country? It seems that the tax revenue from the sales alone will help our country's economic growth in huge ways.

Universal Taxes?

It appears that across different cultures, the value of the tax increase to satisfy public debt is different. In developed countries the people want service cuts instead of higher taxes. In developing counties people would rather raise taxes.

"Many countries, especially developed ones, have a problem with their government finances. Just over half of respondents supported action to cut government borrowing.

The preferred method of doing it was cuts in services, rather than increased taxes, in every country except Egypt (where taxation was the more popular option).

The preference for spending cuts was especially marked in Brazil, China, Germany, France and Azerbaijan."

Looks like governments have to have a feel for what the governed want in order to legislate properly.

Portugal Minister: Debt Reduction a 'Priority'

LISBON—Bringing Portugal's public finances in order is an "immediate priority of the Portuguese government," the country's Finance Minister Fernando Teixeira dos Santos said Monday.

Reducing the budget deficit and public debt is "fundamental to regain the confidence of investors and ensure that conditions for the financing of the Portuguese economy [exist]," Mr. Teixeira dos Santos said at a press conference presenting the Organization of Economic Coordination and Development's most recent economic survey on Portugal.

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Bloomberg News

Fernando Teixeira dos Santos, Portugal's finance minister.

The cost of financing Portugal's debt has been rising as international financial markets are worried about the minority government's ability to get its 2011 budget approved and to meet its deficit-reduction targets. Portugal's biggest opposition party, the Social Democratic Party, last week said it won't approve the budget if the government insists on further tax increases.

Portuguese Prime Minister Jose Socrates said on Friday that if the budget weren't to be approved, the government wouldn't be able to function. Portuguese media interpreted his statement as hint the government could resign if the budget weren't passed.

Mr. Teixeira dos Santos Monday said that the government will continue its program of structural reforms, including reforms of the labor market, education system, and reforms intended to increase the competitiveness of the Portuguese economy and reduce red tape. He also said the government will soon propose legislation that sets budget spending limits within a framework of multiyear planning.

OECD Secretary General Angel Gurría said that Portugal needs a fast consolidation of its public finances in order to win back investors' trust. "The best way to regain their confidence is a rapid reduction of the deficit," Mr. Gurría said. Mr. Gurría supported the government's focus on structural reform, but also stressed the need for strong political consensus to achieve "ambitious budget cutting."

Euro-Zone Lending Picks Up

LONDON—Bank lending to euro-zone businesses increased in August following a decline in July, boosting overall lending to the private sector, the European Central Bank said Monday.

The euro zone's recovery from the deep recession that followed the global financial crisis has been hindered by weak bank lending, particularly to businesses.

However, the ECB said lending to businesses was €17 billion ($22.93 billion) in August, more than reversing a €11 billion decline in July and trimming the annual rate of decline to 1.1% from 1.4%.

"The fact that broad money and overall credit growth have moved back into clear positive territory is encouraging," said Martin van Vliet, an economist at ING Bank NV. "But the still-sluggish growth rates highlight the underlying fragility of the economic recovery. We are hopeful... that... growth in bank lending to non-financial firms eventually... turns positive. This would bring the prospect of a self-sustaining recovery a step closer."

Lending to households picked up, rising to €14 billion during August from €5 billion in July, with the annual rate of growth rising to 2.9% from 2.7%. As a result, the annual rate of growth in loans to the private sector picked up to 1.2% from 0.8% in August.

The ECB said the M3 measure of broad money supply grew at a more rapid annual rate in August, up to 1.1% from 0.2% in July. The three-month average for the annual increase in M3 over the period from June to August was 0.5%, up from 0.1% in the period from May to July.

The increase in the money supply was much more rapid than expected. Economists surveyed by Dow Jones Newswires last week had estimated that M3 increased by 0.4% on a year-to-year basis, while the three-month average was estimated to have risen to 0.2%.

"Despite the significant rise in August, the euro-zone money-supply data still point to muted underlying inflationary pressures," said Howard Archer, an economist at Global Insight. "Consequently, the ECB still looks likely to keep interest rates down at the current level of 1.00% not only throughout 2010 but deep into 2011, given that the euro zone's economic recovery continues to face serious including tighter fiscal policy increasingly kicking in across the region and slower global growth."

Currency Union Teetering, 'Mr. Euro' Is Forced to Act

LISBON—On May 6, top officials of the European Central Bank were sitting down to dinner with their spouses in the elegant Emperor's Room of the Palacio da Bacalhoa, a 15th-century estate and winery south of the Portuguese capital, when stocks in New York began a terrifying slide.

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Trichet: Life's work on the line.

The bankers' BlackBerrys lit up with frantic notes. The euro was swooning. The Dow Jones Industrial Average had plummeted 1,000 points in the "Flash Crash."

Jean-Claude Trichet, the ECB's president, feared that a fiscal mess in tiny Greece, which had consumed Europe for months, was now touching off another global financial crisis.

It was perhaps the worst of many stomach-churning moments that spring for Mr. Trichet, an urbane 67-year-old Frenchman known as "Mr. Euro" for devoting much of his 40-year career to building the common currency. It now seemed possible the panic could derail his life's work.

Small Businesses Uncertain due to Political Wavering on Tax Cuts

An unforeseen effect of the tax cut debate is currently hampering growth in the US. Small business owners are currently reporting that they will not be hiring new employees until Congress comes to a decision regarding the Bush tax cuts. They claim that they have limited information and cannot expand until they are certain of the impacts of tax legislation on their businesses. The delays are making them uncertain about their bottom line, making it so that they have no idea whether it is economically advisable to invest or hire. Considering that unemployment is far above the natural rate, this uncertainty can only make matters worse. Politics cannot come in the way of economic recovery and growth when it is at all possible to avoid this.

What the Rich Don’t Need

According to top Washington insiders, there is a push to enact a tax cut targeted towards the rich. Essentially, Obama seeks to bring back the financial plan enacted by Clinton officials a decade and more ago. Under this framework, couple's with a household income exceeding $250,000 would receive a yearly tax cut of approximately $6,000 which nationally would equate to what the author referred to as "a $700 billion gift over the next decade." The philosophy behind this is that since the poor spend nearly all of their income, giving them tax cuts wouldn't invigorate the economy. However, the rich would be more likely to spend this tax cut money and re-invest into the economy thus helping the nation out of the current recession.

The only question I have is, Does NO ONE in Washington remember what happened during the Reagan era?

Number of the Week: When Job Creation Is Troubling

36%: The share of the U.S. population that is obese, according to the OECD

Does economic growth always mean our lives are getting better? The case of obesity and the U.S. health-care industry offers reason to wonder.

Through good times and bad, health care has consistently been a driver of the American economy. Even in the latest recession, from 2007 to 2009, the sector added 413,000 workers as the wider economy lost 7.3 million jobs. That’s partially because we have an aging population that naturally pays more visits to doctors and hospitals. But it’s also related to the fact that people in the U.S. are getting troublingly fat.

As of 2009, about 36% of the U.S. population was obese and another 32% was merely overweight, according to estimates from theOrganization for Economic Cooperation and Development. That makes the U.S. the fattest among advanced nations, where the average obesity rate stands at about 16%.

Our weight isn’t a function of our wealth. Rather, obesity tends to be concentrated among the poorer and less-educated parts of the population. These people, according to a new OECD report, are more vulnerable to a convergence of factors — including changes in processing technology, government subsidies and marketing — that have made fats and sugars cheaper and more easily accessible than healthier foods, particularly in the places where the poor tend to live.

Obesity has been a boon for parts of the health-care industry. Consider kidney disease, which according to a 2006 study is three times more likely among the obese. From 1991 to 2009, the share of U.S. workers employed at kidney dialysis centers has more than doubled, tracing a path similar to that of the obesity rate. Population aging probably can’t account for much of the change: The number of people aged 65 or older grew 28% over the same period, while the total number of dialysis workers grew 164%.

To be sure, the health-care industry also works to prevent people from getting fat and sick — one of the aims of expanding health-insurance coverage. But where it’s growing along with our own misery, it’s hard to see that growth as progress.