Insurers' new reality: More for care, less profit

Beginning on January 1, insurance companies will have to spend between 80 to 85 percent of the premiums they collect on medical care -- an allotment known as the "medical loss ratio". Insurers believe the deadline is much too soon for such a policy change and would rather see a phase-in approach to implementing the rule in 2014. The concern is that small insurers will be forced to exit the market, leading to increased market control by the big insurance companies.

Competition with small businesses will take a hit. I don't believe the policy will do well to stimulate local economies. Medical care will see increased revenue, however, with the new health care reform, the health care industry will not be the one struggling.

State unemployment picture improves

The economic outlook continues to improve in the fourth quarter of 2010 with a new report out about the unemployment rate in the united states. Twenty-Three states and the district of Columbia reported a drop in their unemployment rate with two states (Illinois, and Mississippi) dropping under ten percent. Of the remaining states eleven had an increase in the unemployment rate, with the rest staying at the same unemployment rate. The National Unemployment rate stayed constant at 9.3% for the third straight month. Nevada continues its five month streak as the state with the highest unemployment at 14.4%, and north Dakota had the nations lowest rate at 3.7%. While the national unemployment rate is still above the normal rate, the fact that states are beginning to drop down under ten percent is a positive sign for the economy as a whole. If people are able to find and hold jobs, it encourages spending which will help the economy recover.

Proving Innovation in Medicare

In the near future a main cause for deficits in the US will be from Medicare. It is projected that by the year 2035 payments for Medicare will increase by $1 trillion. "But Medicare today doesn’t pay for good outcomes. It pays for any treatment that it deems reasonable and effective. Obviously, the medical industry — drug makers, device makers, hospitals and, depending how they’re paid, doctors — has an incentive to promote the most lucrative treatment. So too many people end up persuading themselves that the most lucrative one is the best one." It is being proposed that only a portion of peoples medical bills would be covered. Some people are afraid that spending money on things that are not beneficial or helping patients is a wast of money. They propose using the money to increase medical research or increase incomes.

G-20 pledges to refrain from currency wars

G-20 countries have agreed to not go on currency wars to allow emerging nations' currencies to appreciate, and to reduce barriers to trade.

Protectionism by China Is Biggest Since World War II

This article found in the New York Times discusses China currency manipulation. It calls the manipulation the largest protectionism measure since World War II, by any major economy. We discussed protectionism in class and we are now seeing it by China in real life. It is said that China has intervened in the foreign exchange market by $1 billion dollars a day for the last five years. Over this time, they have built a reserve of $2.5 trillion dollars by buying dollars to keep them expensive and selling renminbi to keep them cheap.

Nations Agree on Need to Shrink Trade Imbalance

The G-20 have met and agreed on the need to calm the exchange rate tension that has threatened to disrupt a global economic recovery. The tentative plan is to curve the surpluses and deficits that may create the next financial crisis. The US proposal was backed by South Korea, Britain, Canada, and Australia but met with resistance from Japan and Germany. China, a bog player in the debate given the currency balance between the US and China, did not pick a particular side. After a lengthy debate, the G-20 agreed to the goal of “reducing excessive imbalances” and called on the IMF to examine the causes of “persistently large imbalances.” The US, Canada, and Britain have trade deficits while Germany, China and Japan have surpluses.

Income Inequality a Cause of Financial Crises?

Some economists are speculating as to whether income inequality played a factor in leading to the economic crises of the Great Depression and current recession. Income inequality in 2007 was the greatest it had been since 1928, and some economists are wondering if this is more than just a coincidence. Theories include the idea that increasing inequality caused lower income earners to demand credit beyond their means to keep up, and the idea that concentration of wealth at the top led to riskier investments. Inequality may also slow the economy because the consumers do not have enough money to consume. This article shows that inequality is not simply a moral concern, it may be an economic concern. Regardless, public opinion is mostly tolerable of inequality because the myth of the "American Dream" leads lower income earners to believe that they too can prosper if they work hard.

Search and employ

Economics Nobel Prize winners are Peter A. Diamond, Dale T. Mortensen, and Christopher A. Pissarides, due to their significant contributions to 'search economics' - concerning the various factors involved when workers search for jobs and employers look out for new workers.

Their works focus on the job search processes and matching mechanism of the labour market. Their researches have shown us the many underlying factors that influence structural and frictional employments, the possibility of various natural rate of unemployment, and the prospect of higher structural unemployment resulted from extended cyclical unemployment.

With the timely award, Diamond is called out for applying his insights resulted from his researches into the real world today. He was nominated by President Obama as a board member for the Fed. The nomination is rejected at first by the Congress who questioned his competency. But note that the rejection is made before the announcement of the Nobel Prize.

Plunging Mortgage Refinancing Rates Aid Thrifty

Mortgage rates are now going down, with an interest rate that "would be considered stealing" in any other era. The frugal population is reaping the benefits. One couple just refinanced their home and are now saving $300 a month. Many economists expect this trend to continue as the economy is bolstered. People with less worthy credit are now being able to benefit from these low mortgage rates, when before it was only for the credit elite. Another couple had a problem with their escrow account and had to put a home equity loan on their old apartment to help cover the mortgage for their home, but since the rates have been dropping, they've been told the mortgage payment should drop by $1,000 a month.

Trade policy the only tool left for America: Capital Economics

A macroeconomic research consultant at Capital Economics believes trade policy may be the only option left to raise the United States’ economic growth.

The economist believes the U.S needs to lower its trade deficit by forcing China to give up its unfair trade advantage by imposing tariffs. The idea is that China’s undervalued yuan is allowing the country to sell goods, thus gaining a large share of the global purchasing power. Because China also grossly under-spends, it takes away demand from the global and US economy.

By imposing tariffs, the U.S. will appreciate the yuan allowing the U.S. to sell more goods domestically and to the rest of the world. The economist believes this will raise unemployment in the U.S. and shift purchasing power back to the U.S.

I can’t help but question this technique. We learned that by restricting imports our net exports will remain constant while our exchange rate appreciates. I don’t believe imposing these restrictions will lower our trade deficit as this economist believes.

Auto-parts sales ramp up as fewer new cars sold

This article explains the effects that a weak economy is having on the automobile industry. Presently, with consumer credit tight and unemployment high, American's are unlikely to purchase a new automobile. This recent trend has led to dramatic increases in the stock valuations of auto suppliers like Advance Auto Parts, AutoZone, and O'Reilly Automotive. This increased business has come from the fact that consumers are more willing to repair their cars now before purchasing a new car. Until the unemployment rate decreases and banks decide to extend credit to consumers for new car purchases, things will likely remain unchanged.

China Faces Concern Over Inflation

SHANGHAI — China’s roaring economy slowed in the third quarter, rising 9.6 percent after the government took steps to prevent overheating, according to data released Thursday. But inflation last month hit its highest rate in nearly two years.

The inflation report, and other economic data released in recent weeks, point to one of the central challenges now facing Beijing policy makers: how to prevent soaring food and property prices from creating social problems and undermining the nation’s economic boom.

The decision was meant to force borrowers to pay more interest and to provide higher interest rates for savers. The government has indicated it hopes the decision will slow property purchases and encourage people to keep money in the bank rather than spending and driving up inflation.

But some analysts say the initial move may not be enough. While consumers are benefiting from strong economic growth, with the nation’s gross domestic product moderating from about 10.3 percent in the second quarter of this year, they are increasingly anxious about rising prices for a wide variety of goods.

Europe Seen Avoiding Keynes’s Cure for Recession

Keynes theory says that deficit spending by governments is crucial to avoiding a long recession but England, his birthplace, is ignoring his teachings.
George Osborne, chancellor of the Exchequer, said Wednesday that the U.K. must raise its retirement age one year, from 65 to 66, and $130 billion in spending cuts. This will eliminate nearly 300,000 jobs and will affect the poor, the military, the old, and middle class the hardest. This is the proposed solution to the country's massive and growing government deficit.
Ireland is also planning to start another round of spending cuts and tax increases, despite their alarming economic troubles earlier this year (their budget deficit reached 32% of its GDP). France too is following this same strategy but is meeting even more opposition from their public - see the article also on nytimes.com.)
Analysts argue that this plan will not help and will lead to slow growth, slow demand, lower tax revenue, a less skilled unemployed population, and an overall increase in the national debt.

Market rebounds as dollar falls; Dow up 129

NEW YORK (AP) -- A decline in the dollar helped fuel a market rebound on Wednesday that nearly erased a big-sell off the day before brought on by fears of a slowdown in China.

Stocks had fallen more than 1 percent Tuesday after a surprise interest rate increase in China, the first time the country had raised rates in nearly three years. That made some traders concerned that slower growth in China might put a drag on the global economy.

Some of those concerns were erased after the Shanghai Composite Index, China's main stock market benchmark, rose slightly in overnight trading. Those gains "helped create a more constructive tone for the trade this morning," said Nick Kalivas, an equity analyst for MF Global.

Looks like a good day for the U.S. stock market, especially after a drop yesterday due to concerns about the banks. Other than the fact that a weakening dollar benefited the rally. What are the cons when it comes to a weakening dollar in this particular market?

A New Model for Predicting Social Media Impact

Because of the large amount of people using social networking sites, such as facebook or twitter, the information we put on these sites is used in many ways by all different kinds of companies in different industries. This highlights one aspect of pulling data from these sites. Jason Harper, an economist, developed a model that is able to predict sales of products by measuring the rate that they are mentioned on social media sites.

Slumping Housing Market Offers Alternative Investment: Apartment Buildings

With a struggling housing market, this article offers a unique view into an alternative way to invest in the market...Apartment Buildings. It's been found with landlords that people are a bit more reluctant nowadays to move into houses, and are moving closer to cities and choosing apartment life. This is a win-win for both buyer and seller as the landlords are buying the properties for cheap and getting very high returns on them, and at the same time, the tenants are getting the type of housing they want at a good price.

What exactly is a currency war, anyway?

Many are speculating that the world is soon to enter another "currency war" like the one that occurred during the Great Depression. But what is a currency war? We've discussed this idea in class before: countries try to devalue their currency so that they can improve trade abroad. With their dollar worth less, their goods also become relatively cheaper in the global market.

However there is much debate over whether or not this is occurring, and not surprisingly the debate is international. The Brazilian Finance Minister (who coined the term "currency war") claims said war is already happening, while US Treasury Secretary doesn't even acknowledge the problem.

Whether or not the war is real it should be noted that many treasuries are seeking drastic measures to improve their economies, such as cutting interest rates or printing money. While these may not be acts of war they do have a "domino" effect that raises the value of other currencies which isn't helping other countries.

Intel plans 1,000 high-tech jobs in 2 states

CNNMoney.com. Oct. 19, 2010-

The two lucky states are Arizona and Oregon.

Intel says the implementation of microchip manufacturing plants will create up to 1000 permanent jobs , which is delightful judging how permanent jobs are hard to find in our current economic framework.

This is an exemplary move of an US company trying to create domestic jobs for the US. Even though building plants in foreign countries, such as in China, is almost a "gratis," according to Intel's spokesperson, plants in the US help boost up the current domestic economy, which is expected to grow at a slower than usual rate.

This means Net Export in the US will go up as US buyers will spend less money on electronic imports and indeed, the country might export its high-tech products to other countries in the world.

Most Intel chips and electronic products are labeled "Made in China." Now you may see a laptop "made in the USA" again soon in the future.

Surprise Interest Rate Move by China Roils Markets

Many countries, especially the U.S., have been pressuring China to allow its currency, the RMB or yuan, to rise to a level that many agree is more accurate and fair. However, China has been resisting because in keeping their currency artificially low their exports look more favorable to consumers abroad. this export trade is what is fueling China's 8-10% GDP growth for the past decade or so - a source of much pride for the government and possibly the one thing that is keeping their democratic leaning population from resisting their tight control.
Now, China has maybe found a way to tame its economy and appease other countries without raising the price of its currency.

Today China announced that it will raise the price of interest rates to hopefully "dampen inflation and cool off the country's hot property market". This is the first indication that "Beijing is having difficulty managing the country's growth"

The announcement had immediate affects on markets and stock exchanges worldwide - the major Wall Street stock indexes are down sharply already. Oil prices also reportedly fell right away.

The Chinese central bank said it would " raise the benchmark one-year lending and deposit rates by 0.25 percentage points. Deposit rates will rise to 2.25 percent, and a key lending rate will climb to 5.56 percent."

U.S. Trade Deficit Widens as Gap With China Reaches Record

This article talks about the trade imbalance that the U.S. has with China. U.S. politicians want to force officials in Beijing to allow their currency to appreciate. However, as some economist point out this will not automatically fix the issue.

Bernanke Has A Plan

In today's speech, Mr. Bernanke announced a new "quantitative easing." In the speech, Bernanke outlined the path toward stabilization and recovery of the stagnant economy. In the plan, he described how moderate inflation would be good for the economy by making our exports cheaper and will allow people to hire more people.

"A weaker dollar helps the Fed achieve its dual mandate, by making US exporters more competitive - stimulating job creation - and by increasing inflation through higher import prices.

The dollar has lost 15% of its value against the euro since early June, on growing speculation that a slowdown in the US economy in the second half of the year would force the Fed to ease monetary conditions further."

Hopefully the inflation is not too much.

Bank of America to Revive Foreclosures

The Bank of America Corp. said it will start resubmitting foreclosure affidavits next week for 102,000 cases in which judgment is pending. This comes after shares of the company gained as much as 3.3 percent. Last week, Bank of America shares declined 9.1 percent, reaching their lowest level in more than a year. This comes at a time where there is scrutiny of foreclosure practices and speculation that investors may force lenders to buy back faulty loans. The lender said October 8th it would stop foreclosure sales nationally pending a review of its practices over the next few weeks.

Recession-Hit Areas Lag for Years Afterward

According to the Booking Institution’ s Hamilton Project, research has shown that communities hit hardest during the recession potentially falter behind the rest of the country for many years to afterward. A few democrats from the Clinton administration created a policy to improve the parts of the economy that was, and are still, effected by the late recession.
Unfortunately for those “ under-water” home-owners, the policy may not offer a solution to the mortgages needing to paid, especially those that are over the value of their homes, $10,000 may not suffice for those individuals.
The proposal consisted of loans provided by government-sponsored banks to individuals who are looking to move and have been laid off for the last 5 years. On the downside the government would be spending between the $500 million to $800 million annually according to the University of Chicago’ s Jen Ludwig.
The government is making a valiant effort to help the US out of this crisis but it doesn’ t seem to be enough to shake the country back into place. Hopefully this policy will be a viable crutch to a recovering economy.

Housing Starts Jump 10.5 Percent, Single Family Starts Up 4.3 Percent

After falling considerably in the months following the expiration of the home buyer tax credit, housing starts rose 10.5 percent in August. This brings the annualized sales pace to 598,000 units, the highest level since April. As with housing activity in general, housing starts have been very volatile over the past half year due to the effects of the home buyer tax credit. Housing starts rose in the early part of the year through April, then fell off heavily in the months following. August displayed a rebound and starts were up 2.2 percent from a year prior.

The increase over the month was heavily driven by the volatile multi-family unit component, which rose 32.2 percent over the month. Still, the single family component grew significantly, rising 4.3 percent over the month, after falling heavily for the prior three months. Unlike total starts, single family starts remain down 8.9 percent from a year prior.

New building permits, which tend to lead future starts, rose 1.8 percent. However, this was entirely due to an increase in multi-family unit permits. Single family permits declined by 1.2 percent.

NBER Officially Declares Technical End of Recession - June 2009

The National Bureau of Economic Research, the organization in change of officially declaring peaks and troughs in the business cycle, made the official declaration that the economic contraction that began in December 2007 came to an end in June 2009. The recession lasted 18 months, making it the longest of any post WWII recession. The longest prior recessions lasted 16 months, which were those of 1973-75 and 1981-82.
This is good news, if the National Bureau of Economic Research is correct. Only time will tell though. Hopefully the expectation that the recession is over will cause people to spend more and actually end the recession.

http://www.youtube.com/watch?v=1tcR19y7GPM

For three decades the Fed has kept inflation low. However, now they are worried that we will drop into deflation.
The Fed has kept interest rates at very low levels yet this has not helped the economy like they had hoped. Letting inflation raise to higher than normal levels in the future might help.
Many worry that the U.S. will slip into the same economic trouble that Japan has had since the '90s.
Critics did agree that the recent purchase of mortgage backed securities has helped.

How Blockbuster Failed at Failing

This article is about Blockbuster video, and how it is failing. There is no secret to why Blockbuster is failing, because of technology. This video store use to be a monopoly of video rentals, but now it seems like it is on the outside looking in. Netflix and Red box seem to be taking over, not to mention the cable companies that can use movies to increase their revenue as well. Moving forward, Blockbuster filed for bankruptcy on September 23, but because of lenders were able to erase a billion dollars worth of debt. There is no question blockbuster is behind in the technology race, as Red box has three times as more Kiosks, and Netflix has had a six year head start and better bargains. Moving forward, Blockbuster has to find a way to compete with these companies, or they will be in even more trouble that they are already in.

U.S. Deficit Totals $1.29 Trillion In 2010

The US budget deficit for 2010 is the second largest in modern record. On Friday the Treasury reported that the nation's deficit fell from $1.42 trillion last year to $1.29 trillion now. The federal government collected higher taxes and spent less on housing and financial aid. The government's tax intake rose $2.16 trillion or 2.7% in fiscal 2010.

FDIC Shutters 132nd Bank, Sixth In Missouri

The Premiere Bank of Jefferson City, Missouri was closed by regulators Friday. On Saturday it was reopened as branches of Providence Bank, as reported by the Federal Deposit Insurance Company. The tally of US bank failures this year is now at 132. The FDIC estimates the failure of this bank will cost the deposit-insurance fund $406.9 million.

CPI: Inflation rate stays uncomfortably low

The consumer price index is slightly over last years rate but still uncomfortably low for the Fed's liking (it rose 1.1% since last September). The results continue to point toward the Fed buying additional long-term treasury bonds -- capital is still too cheap. The CPI report was significant because policymakers used the data to determine Social Security beneficiaries in 2011. However, due to the negligent amount of inflation, they will not receive a cost of living increase.

Treasury Takes No Action on Chinese Currency

The Treasury has made the decision once again to remain undecided. They have delayed a decision to label China a "currency manipulator," despite China's announcement in June that it would allow the exchange rate to move higher. The Treasury announced that it wanted to see global leaders meet at the G-20 before it came to a concrete decision. This also puts the decision off until after the midterm elections, which will allow candidates to campaign on the issue. In September, the House passed a bill authorizing the Commerce Department to impose duties on imports from nations with undervalued currencies. This is merely another example of how politicized the economy ha become. Many would argue that this is dangerous because it takes the focus off of actual necessary economic decisions and policies.

The true costs of bad loans

The mortgage crisis has exposed the fundamental flaws of the overall mortgage system. With thousands of foreclosures occurring throughout the United States daily, the process of foreclosing on a house has developed into a major undertaking for financial institutions. In there effort to streamline the process companies have cut corners in protocol and paperwork, but this week investigations nationwide have forced many companies stop all foreclosure procedures. The slowing of foreclosure only grows the number of houses that need to be sold which holds back the market from finding the true equilibrium price only delaying recovery.