Advanced Government Countries Call For $10.2 Billion for 2011 Financing Needs

Japan and the United States are among the top advanced nation governments needing to borrow the most in 2011. Financial debts have risen to levels that haven’t been experienced since the after effects of World War II. According to estimates from the International Monetary Fund, Japan, the United States, and 13 other major developed-country governments will have to raise $10.2 trillion. This estimate is up 7% from last year. Most countries are not having problems raising the money needed to finance their budget deficits. Even so, there are issues related to the increased borrowing. Some of these concerns include, rising interest rates, continued tapping of government borrowers into smaller international capital flows, and increased pressures on China to allow its currency to appreciate against the dollar. In the U.S., the Federal Reserve recently said it will buy $600 billion of U.S. government bonds over the next eight months in an effort to drive interest rates down and promote more borrowing and growth. Where recovery is a primary focus right now, the chances that investors will lend to governments is highly unlikely. In the end, risk of serious financial trouble is growing as global borrowing is increasing.

Stock Ends at Fresh Two-Year Highs

The stock market ended Friday with a slight gain. All three major indexes hit a two year high point. After the Fed announced a $600 billion addition to the economy, the market rallied. There was also a response to the large number of Republicans elected into the house and Senate which is favorable for Wall Street as the Republican Party favors business and fiscal conservatism more so than the Democratic Party.

Economists Share Nobel for Studying Job Market

This is an extremely interesting article written about three men who won the 2010 Nobel Memorial Prize in Economic Science. The article related well to our class discussion talking about how fiscal and monetary policy were needed to speed up job growth. The article explains that the slower things happen the more workers are discouraged and people lose their skill sets relating to the jobs they once held. The article also explained how unemployment benefits in good or bad economic times can increase the amount of people unemployed. This is an idea we discussed earlier in the semester saying that the higher the unemployment benefit is the less the cost of being unemployed is.

In India, Obama pushes U.S. jobs

President Obama recently unveiled that new contracts with the Indian government and private firms will increase U.S. exports about $10 billion. These new contracts consist of selling to India military transport planes as well commercial airlines form Boeing, also engines and gas turbine technology from General Electric. Obama also declared that the government understands the importance of exports. "And the more we export abroad, the more jobs we create in America. In fact, every $1 billion we export supports more than 5,000 jobs at home.”

Yes, a Recovery Did Begin

The European debt crisis is being looked at as a factor of the slow down of our economic progress this past spring. The beginning of 2010 looked like a good start to our recovery, but so far the second half has not been looking too promising. Looking at graphs of non census employment we can see the slow, but nevertheless increase in job findings. Regardless of what has happened we still are showing positive signs of recovering.

Voters to States: No New Taxes

This article discusses some of the tax cuts that have been occuring at the state level in the U.S. Many tax laws that are being voted on are either not being passed or getting erased if they already exist. This shows people's concern for money in our economy right now. People are trying to reduce all of these taxes in order to increase consumption due to their large desire to consume. The state residents want to be able to spend more and see an opportunity to achieve this desire by voting against taxes. This is proving to be a successful strategy for the people. On the other hand, the government is at a point where they claim to need the money that comes from taxes more than ever. So, this creates a dilemma between the state residents wants and needs and the wants and needs of the government.

Power Shift in U.S. Stirs Economic Worries Overseas

With the recent election, congress will shift from democratic control to republican control. Overseas trading partners worry that this change in power will create new challenges for the global economy.

Based on campaign agendas, republicans are expected to curb government spending and extend the Bush tax cuts to address the unemployment and growth problems facing the US. Unfortunately, these plans do not go together. Continuing the Bush tax cuts will add to the deficit and further weaken the dollar.

“Republican claims to fiscal probity are a little difficult to buy into,” said Simon Tilford, the chief economist at the Center for European Reform in London. “What they’re advocating would probably increase the deficit rather than effect the dramatic reduction which they claim they want to bring about.”

While the weakening dollar will make our exports more competitive, it will only do so temporarily. While the US continues to fall, other countries such as China, India and Brazil will continue to outpace us as drivers of global growth.

The Morning After

The world is now reacting to the US Treasury’s QE2 program to purchase treasuring bonds. Ben Bernanke comments that we are seeing inflation levels below those recommended for economic growth. When inflation is too low, it can lead to deflation. The low inflation combined with continued high unemployment convinced the Fed to take further action. Bernanke also admits that QE2 will not get the economy back to normal and will need help from fiscal policy as well.

Economist Menie Chinn is skeptical of the Treasury’s actions. “Treasury yields have fallen, equity markets have risen, and the dollar has tumbled.” With the American currency now depreciated 5%, the hiring and investment plans of domestic firms might have to change.

5 Options for Congress to Cut Taxes

This was a very interesting article. It suggest 5 options for congress to cut taxes in light of the Bush tax cuts expiring soon.

1) Fiscal responsibility : it suggest that the expiring tax cuts will show whether candidates meant what they said about the deficit. Ending the tax cuts in any way will help raise a significant amount of money to put towards our deficit. It suggested that letting all tax cuts expire will raise 260 billion dollars a yr over the next decade.
However, right now the democrats suggest renewing all tax cuts except for households over 250000 dollars a yr and the republicans suggest renewing tax cuts for everyone.

2) Close Loopholes : There are a lot of loopholes in getting tax returns. Taking out many of these, for personal income and for businesses, would create a lot of government revenue. " In all last year, they cost the Federal Government $1.05 trillion." This is striking next to the figure $915 billion which is the total revenue for all personal income tax combined.

3) JOBS,JOBS,JOBS : Many republicans claim that continuing the tax cuts will give people more money to spend. However, the tax cuts are not likely to help and after Bush originally implemented them, job losses continued for another two years. They propose businesses tax cuts and infrastructure investment.

4) A Millionaires Tax: They suggest creating a new tax bracket above the highest 35% level.

5) A Tactical Retreat: the final possibility if all these other suggestions fail - to permanently extend tax cuts for families making under 250000 and only extend for those above for two years.

Fed Fires $600 Billion Stimulus Shot

The Federal Reserve, in a dramatic effort to rev up a "disappointingly slow" economic recovery, said it will buy $600 billion of U.S. government bonds over the next eight months to drive down interest rates and encourage more borrowing and growth.

A sign of disinflation

The Labor department released its quarterly productivity report today which showed that the average cost of labor for all products fell 0.1 %. This shows that the economy is a long way off from inflation as some people are hoping and predicting,since wage increases are an early indicator of impending inflation. But according to this scenario, since labor costs have fallen slightly, the price of goods should go down a little (disinflation) instead of the crazy upwards wage spiral the FED and the recent bond investors are hoping for.

Full Speed Ahead

The Federal Reserve is planning to launch monetary QE2, the purchasing of bonds with newly printed money. Expert from Joseph Stiglitz predicts the move will prove ineffectual or dangerous. I agree with this assessment. In the short run, increasing the money supply will lower the interest rate further. In the long run, this increase will increase inflation and increase the nominal interest rate. If the fed isn’t careful, their policies may create additional trouble in the future.

The committee believes this program will “promote a stronger pace of economic recovery and help ensure inflation, over time, is at levels consistent with its mandate…” Seeing a drop in the 10 year bond yield from 2.65% to 2.53% may support the Feds position that we need to do something to help future inflation.

Don Kohn, former Fed vice-chair, says that while not impossible, it is unlikely QE2 will drive prices up dramatically. Instead, once credit loosens and spending accelerates, he believes the Fed will again tighten policy.

Fed to Spend $600 Billion to Speed Up Recovery

The Federal Reserve, getting ahead of the battles that will dominate national politics over the next two years, moved Wednesday to jolt the economy into recovery with a bold but risky plan to pump $600 billion into the banking system.

A day earlier, Republicans swept to a majority in the House on an antideficit platform, virtually guaranteeing that they would clash with the Obama administration over the best way to nurture a fragile recovery.

The action was the second time in a year that the Fed had ventured into new territory as it struggles to push down long-term interest rates to encourage borrowing and economic growth. In a statement, the Fed said it was acting because the recovery was “disappointingly slow,” and it left the door open to even more purchases of government securities next year.

Fed’s More Aggressive Move May Not Go Far Enough

For much of the last year, there were three basic camps on what the Federal Reserve should be doing.

One focused on the risks of the Fed’s taking more action to help the economy. This camp — known as the hawks, because of their vigilance against inflation — worried that the Fed could be sowing the seeds of future inflation and that any further action might cause global investors to panic.

Another camp — the doves — argued instead that the Fed had not done enough: inflation remained near zero, and unemployment near a 30-year high.

Freddie Mac Reports $2.5 Billion Loss, Warns of Weak Housing Market

Freddie Mac reported a narrower $2.5 billion third-quarter loss, the smallest shortfall in more than a year amid signs that mortgage delinquencies are slowing. But the company warned that delays in the foreclosure process could raise costs "significantly" and that losses also could rise amid a faltering housing recovery.

Fed Will Probably Start $500 Billion of Bond Buys, Survey Shows

Bloomberg News recently conducted a survey of about 50(It wasn't specified) of the country's top economic leaders to get their opinion on what The Fed will decide to do in reference to buying bonds over the next couple weeks. The survey found that a majority of those polled predicted a purchase of $500 billion.

My question is that if The Fed's purchases which at this point have totaled more than a trillion has not done anything significant to stimulate the economy, then why would they essentially throw even more money down the drain. I think a more reasonable idea (which 7 experts predicted would occur) is for The Feds to buy about $10 billion in bonds each month which would allow them to assess the effect that these purchases are having on stimulating the economy while still allowing them to minimize harm if the bond purchases prove to be ineffective.

American dream fades for more as homeownership falls

"Nearly 3 million fewer Americans now own homes compared to the first quarter of 2005, when homeownership peaked at 69.1%, the Census Bureau found. During the third quarter of 2010, the homeownership rate was down to 66.9%, unchanged from a quarter earlier. That's the lowest rate since the second quarter of 1999.

Meanwhile, a great number of homes sit empty. For owner-occupied homes, the vacancy rate remains at 2.5%, the same as in the second quarter, but well up from the sub-2% levels seen mid-decade.

For rental properties, the vacancy rate actually dropped in the third quarter, to 10.3% from 10.6% three months earlier. But that's still up from the 9.9% rate of 24 months ago.

US Stocks Close Higher Ahead of Election, FOMC Results

This article addresses how political expectations can affect the stock market. In today's case, the American stock market closed relatively high in anticipation of big Republican electoral wins. The Dow Jones increased by 64.10 points or 0.58%, which was a particularly large increase. Since the majority of the business and finance community perceives the Republican party to have interests that are more commonly aligned and friendly, the stock market optimistically expects Republican electoral wins to have an overall positive effect. Further dealing with voters' expectations, the S%P 500 has historically increased right after every mid-term election.

Kellogg Third-Quarter Profit Falls

Kellogg Co., the largest U.S. maker of breakfast cereal, said third-quarter profit dropped 6.4% as North American cereal sales continued to decline. Kellogg cut its 2010 earnings forecast last month for the second time this year because of slumping demand for cereal after a June recall and heightened competition. The CEO plans to introduce new products to help boost demand after they cut back on innovation during the recession. Kellogg will introduce new cereal products amid rising costs for commodities such as wheat, soybean oil, and sugar. The company said it expects costs to increase about 6% in 2011, which will be partially offset by cost-savings programs, and they will likely raise prices to counter the higher production costs.

CNNMoney.com Nov 2, 2010

Nearly 3 millions US families have home in comparison with the first quarter of 2005.

Rental properties drop down from 10.6% to 10.3 percent in the third quarter of the year.

The economic impact on the young is even bigger. 39.2% own a home, dropping down from 43.3% at the beginning of 2005.

However, that means houses are still low, which is quite encouraging if you are looking for a home. So there is still light in the midst of mist then.

How Immigrants Create More Jobs

IN the campaign season now drawing to a close, immigration and globalization have often been described as economic threats. The truth, however, is more complex.

Over all, it turns out that the continuing arrival of immigrants to American shores is encouraging business activity here, thereby producing more jobs, according to a new study. Its authors argue that the easier it is to find cheap immigrant labor at home, the less likely that production will relocate offshore.

U.S. Markets Higher on Strong Manufacturing Index

Shares on Wall Street rose Monday at the start of a week that is expected to bring long-awaited developments for financial markets with the midterm elections, expected changes in monetary policy and further insight into the nation’s jobs market.

Indexes opened higher in what some analysts are calling one of the biggest weeks in some time for market-moving events, and then it accelerated after new, upbeat reports on manufacturing, construction and corporate earnings.

The Fed's 'tax on the consumer'

Fed is planning to implement "unconventional measures" to keep economy stable. Those measures would likely be another round of asset purchases. The main purpose of this move is to boost the economy and lower interest rates. However, it would also put even more pressure on US dollar. Since Bernanke announced those plans the dollar index has dropped 7%, while commodities, priced in dollars have risen dramatically. Prices for corn, wheat, cotton and sugar have also rose during last months. In the end this will trickle down to consumers in the form of higher prices for pizza, bread, gas, clothing,etc, creating a sort of an additional tax on consumers. According to one report, even a 5% rise in food prices, would force an average family to add 350$ a year on grocery budget.

Personal Income Up 0.5 Percent, Consumption Up 0.4 Percent; Savings Rate Up to 5.8 Percent

In August, personal income grew at a brisk pace of 0.5 percent. The increase was boosted by an increase in government transfer payments associated with extending unemployment checks. Even so, wages still had a solid showing, growing 0.3 percent. From a year-prior, personal incomes were 3.3 percent higher.

Personal consumption rose 0.4 percent in August for the second straight month. Spending growth was primarily due to increased expenditures on non-durable goods. Big ticket item expenditures fell 0.1 percent, while services added modestly to growth. Consumption was 2.7 percent higher than a year prior.

The slightly slowest pace of consumption growth relative to incomes caused the savings rate to rise slightly by 0.1 percent to 5.8 percent. The savings rate has remained near this level since April.

This is consistent with the data that shows the recession is "over". People are spending more now than they have in a long time and that is in no small part because their personal spending income has increased. Hopefully this trend can continue.

New Home Sales Flat, Remain At Very Low Level – Median Sales Price Down 0.6 Percent

The pace of new home sales was unchanged in August at an annualized pace of 288,000 units. However, July’s number was upwardly revised to 288,000 (previously reported to be 276,000). Sales fell quite sharply in the late spring after the effects of the homebuyer tax credit wore off. Since the rush of sales leading into April, housing activity has failed to recover to its pre-credit levels.

Like sales in recent months, the median sales price has been volatile in part due to the credit. In August, the median sales price fell 0.6 percent to $204,700, the third decline. From a year prior, prices were down 1.2 percent.

The months supply of inventory of homes at the current sales price fell slightly to 8.6 from 8.7. This was due to builders continuing to reduce their inventories. However, this number remains very high. The historical norm is about 4.5 to 5 months. Values near 8 have historically tended to indicate short term price declines moving forward.

More students need (financial) facts of life

Ohio is making a requirement for all students to have some background financially before they graduate high school. This will be established by 2014, and all students will have the tools to know "what not to do." Students will learn and understand how to pay taxes, buy cars, pay utilities, and buy houses. So basically, upcoming generations should not make the same mistake that America has been making for the last ten years. A big reason for the big recession that hit a few years ago was people not being able to pay back loans. Banks would loan individuals money for houses and businesses, and these people would not be able to pay them back. Obviously, these people did not understand that if your going to take out a loan, make sure your able to pay back that loan. It's quite obvious this is the reason for housing market being down. Families thought they could afford houses they really can't. I really like the establishment of this class. It will help.

Airlines' hiring of pilots could be set to take off

According to this article pilots are going to start to find jobs in the upcoming months. Delta announced that it was going to hire 300 pilots, and this company has already hired 48 pilots last fall. This is good news because no one has really been hiring since 2008. This could actually be a really good indicator of how the economy is doing. In 2008, the United States economy was a historic low, which would make sense to why this company would not be hiring. Also, most people fly to places for vacation, and because of the recession, I am sure many individuals wanted to save money. At least people will find jobs, but hopefully this could be an indicator of how the economy is doing.

Nobel Economic Recipe: Help States, Add Stimulus

Co-winner of the Nobel Prize for Economics, Peter Diamond, can offer help for the latest economic crisis. His recommendation is to inject the economy with a second round of stimulus. He would hope for the government to help provide money to both state and local governments to prevent lay offs. This would push the US further into debt but would be beneficial in the long run, due to a stronger economy. Diamond believes the government need to start by initiating short term spending by creating jobs. One example includes construction, which will not only create jobs but also provide things that we are in dire need of.

Economic growth may slow as profits high short term highs

Many firms in the United States have posted record profit margins last quarter, but yet there is still great apprehension to hire new talent and expand. These firms fear a double dip recession and the possibility of the rising costs of raw materials. These two factors could distory profits and place the company the in the red, so many firms today are taking these profits and building up cash reserves to make sure they are in a postion great position no matter what occurs. By taking this stance it has greatly slowed job growth in the United States.

Now isnt the right time to cut the budget deficit

In this article, Christina Romer, a UC berkley economics professor and one of president Obama's advisor on the economy argues that even though the Budget deficit in the US has to be reduced, doing it now is not a good idea . She argues that austerity needs to set in but doing it now would make the current situation worse than what it already is. She says that macro economics has taught us that tax cuts and spending increases stimulate demand and raises output and employment. While Tax increases and spending cuts have the completely opposite effect. Since both the employment rate and demand are substantially low at this point, it doesn't make sense to start cutting the deficit right now , because this is going to lead us into more unemployment and less demand, something we definitely don't need more of. She also mentions that instituting austerity measures right now is going to result in a double dip recession, something that happened in 1937 when we tried to incorporate austerity in a recession. This theory is based on the recent reports by the IMF and the World Economic outlook which confirm that fiscal consolidation reduces growth substantially. This can be further verified by the failed attempts of economies such as Ireland, Spain and Greece who tried to stimulate the economy by being more frugal and instead they had to contend with more unemployment and less growth. SO cutting the budget deficit should definitely be on the watch list but doing it now would be short sighted and create more problems.

The Rise of China.

It is a common theme in the world of economics and politics, that the rise of China will undo the power that the United States had gained since WWII. The point is that China needs more than the US output in order to obtain a GDP per capita that the US has. The economic growth rate also will decline as the "optimum" capital is reached.

"In contrast, China still lags far behind the United States economically and militarily, and has focused its policies primarily on its region and on its economic development. While its "market Leninist" economic model (the so-called "Beijing Consensus") provides soft power in authoritarian countries, it has the opposite effect in many democracies. Soft power is the ability to produce preferred outcomes by attraction rather than coercion or payment, and China has announced major efforts to increase its soft power.

Even if China's gross domestic product passes that of the United States around 2030 (as Goldman Sachs projects), the two economies would be equivalent in size, but not equal in composition. China would still have a vast underdeveloped countryside, and it will begin to face demographic problems from the delayed effects of the one child per couple policy it enforced in the 20th century. Moreover, as countries develop, there is a tendency for growth rates to slow.

Assuming a 6 percent Chinese growth and only 2 percent American growth after 2030, China would not equal the United States in per capita income until sometime in the second half of the century. China is a long way from posing the kind of challenge to America that the kaiser's Germany posed when it passed Britain at the beginning of the last century."

Looks like China will have a long way to go.

Housing woes hit job seekers where it hurts

CNN reported that the third quarter showed a record low percentage of managers and executives moving to take up new jobs, at just 6.9%. This is not due to a lack of labor demand for these types of workers but rather because employers have become less willing to help compensate for moving costs, and with the current housing markets it’s almost a certain that anyone selling their house will suffer a significant monetary loss. Also the internet has made it increasingly possible for people to work out of their homes, minimizing the need to relocate for jobs out of town. The internet is likely one of the leading causes of a movement away from executives relocating in general, a trend that has been evident since the early 90s.

There have been small gains for the job market, with many metropolitan areas reporting a drop in unemployment and 500,000+ jobs created in just 27 states alone. Hopefully this trend in large cities continues and extends into more rural areas.

Stock market may turn more volatile

Early in November, the stock market may begin to reflect three major changes in the US economy that some are referring to as a "triple-play": 1) the Federal Reserve is meeting, 2) the mid-term elections on November 2, and 3) the release of the October jobs report. The Federal Reserve meeting will play a role in the volatility of the stock market by shedding light on the amount of money the FED will use for 'quantitative easing'. This method of stimulating the economy has the potential to be larger than the stimulus introduced by the Obama Administration in early 2009. Second, the mid-term elections on November 2 are being watched closely by many Wall-Street representatives because the Republicans are expected to make major gains. And, thirdly, the release of the October jobs market will serve as an indicator to Wall-Street whether the second 'stimulus' by the FED was needed.

The Fed's 'tax on the consumer'

The FED is planning on inputing more money into the economy. According to Bernanke last August, they will institute quantitative easing, which is designed to lower interest rates and expand the economy.

But, with that promise, came a rise in commodity prices, which will further hurt consumers. The 10 year Treasury note yield was as low as 2.33% because of expectations of QE2. This rate is the key to setting mortgage and loan rates, so it is of vital importance. Banks will have more money, and lower rates will hopefully cause some people to borrow. Yet, debt-ridden Americans are unlikely to do so.

Housing Woes Hit Job Seekers Where it Hurts

The combination of a buyer's market in both talent and real estate has pushed the percentage of managers and executives relocating for new jobs down to just 6.9% in the third quarter of this year, a record low, down from 13.4% in the same period in 2009.The Bureau of Labor Statistics reports that 167 metropolitan areas have seen unemployment rates drop over the past 12 months. And as of August, joblessness in 232 cities fell below the national average of 9.6%, and employers in 27 states had created a total of 500,600 new jobs.

Job seekers who own a home and want to sell it really have no other choice but to stay there because they will face a huge loss if they leave. Relocation has been declining since the early '90's. From a record high of 49.2% in 1993, the number of managers and executives moving to take new jobs fell off gradually through the rest of the decade and has stayed below 20% since 2001. This decline is mostly from the Internet because the Internet not only helps look for jobs, but it also gives people the opportunity to work from their homes or anywhere for that matter.