Irish Bank Debt and European Central Bank worries

The current Irish Debt crisis has created even higher level of borrowing by banks in the country from the European Central Bank, this after traditionally always being a net borrowing nation. Banks in Ireland have now borrowed about 130 billion euros from the European Community and this coupled with recent economic data suggesting a further reduction in consumer confidence and higher runs on the banks since the last quarter have left the European Central bank considerably worried and ready to put a cap on this arrangement. The Irish central banks guarantee on loans has still kept its rating in S&P at an 'A' even after the recent reduction and this is allowing Irish Banks to still borrow at low rates of discount. This situation is leading to a scenario where many risky debts are being financed by European loans leading to a scenario where the Irish Central Bank may not be able to guarantee all the loans that have been taken out, and thus according to some figures could lead to a 78 billion euro loss, an amount that would require recapitalization for the European Central Bank itself. This potential scenario of bad loans being payed for by foreign debt could very well cause a situation similar to the recent United States banking crisis and poses many problems for the Irish Central Bank as well the Euro community as a whole. These 'bad' debts are currently just shifting hands and this doesn't make them any more liable to be paid in the future.
The Irish Central Bank is also at a knife edge in its decision-making as its own foreign reserves are too weak to stem the problem, it doesn't have the authority to print its major trading currency the European Euro either, and finally it is also fast reaching maximum limits of taxpayer burdens the country can tolerate.
This leads to scenario where borrowing from external sources has become the only alternative; one that is increasingly coming under scrutiny of late. The fact that 10 billion euros worth of bank funds have been transferred out of the country in the third quarter of this year along with other demoralizing Irish financial indicators leads to a further problem of a run on the banks thus further compounding this already imminent threat of default. The central bank in the country is in dire need to come up with innovative solutions to this problem and will need to tackle the issue at hand aggressively if the economy is to be kept afloat and with it the economic stability of lender nations.

Europe's new contagion worries

The economic crisis in Europe is back, posing a new risk for the U.S. economy. The situation in Ireland is gray; the huge amount of debt is forcing the government there to take drastic measures. The Irish government announced an austerity plan of deep cuts in spending, a lower minimum wage and higher taxes. Spain is suffering from 20% unemployment and a decline in its tourism and construction industries. One thing is for sure if the crisis in Europe does not stop the US markets will be hurt too. EU is the second largest market for U.S. exports, behind only Canada. The U.S. exports to EU were $175 billion in the first three quarters of this year. That's up about 8% from a year ago.

Demonstrators in Ireland Protest Austerity Plan

Ireland's bailout is set at 114 billion but many Irish are not grateful. Tens of thousands took to the streets in Dublin to protest cuts in the welfare programs and public sector jobs. Ireland will have to lay off nearly 10% of their private sector workers. They will have to implement a four year $20 billion tax increase. State pensions and minimum wage will also be lowered.
In the past two years Ireland's economy has shrunk 15%, larger than any other European economy.

Your paycheck is about to shrink

At the end of the year, the Making Work Pay tax credit will expire. The credit benefited over 90% of Americans in 2010, allowing individuals to save $30 a paycheck (the credit was subject to a phase out for those individuals who made over $75,000 and couples who made over $150,000). However, with all the talk surrounding the Bush Tax Cuts, it seems unlikely that the credit will be extended in 2011. Additionally, any policy with the word "stimulus" attached onto it is very unfavorable in our current state. By extending Making Work Pay, it would cost the government $60 billion in 2011. As one tax analyst explained, "Most people may have no idea they received it and no idea that it's going away...But what you can be certain of is that they'll have less money and they'll spend less -- and this is a terrible time for the economy to lose $60 billion of spending." Although I agree that the economy cannot lose any more spending, I disagree that 100% of the credit would be spent. Meaning, those people who would benefit from the credit are more likely to save rather than spend - additional debt is more likely to be paid down versus spending more at the local Walmart.

CPI Up 0.2 Percent; Core Prices Unchanged – Lowest Annual Change Since Before WWII

In October, the Consumer Price Index rose 0.2 percent. This was the fifth consecutive monthly increase in the index. As was the case in most recent months, the index was pushed upward by energy prices, but which rose 2.6 percent in October. The core index, which excludes prices of energy and food products, was unchanged for the third straight month.

From a year prior, the CPI was 1.2 percent higher, just barely above its recent low of 1.1 percent in September. The core CPI was up by just 0.6 percent from a year prior. This was lowest year-over-year change in the index’s history going back to the 1950s. Despite rising energy prices as of late, there is a very low level of underlying inflation. This number further supports the Fed’s view that inflationary pressure is currently very mild if not outright deflationary.

Retail Sales Up 1.2 Percent – Core Sale Up 0.4 Percent

In October, retail sales grew at a brisk pace of 1.2 percent, following an upwardly revised increase of 0.7 percent in September (previously reported as a 0.6 percent increase). This was the fourth consecutive monthly rise. Sales were given a strong jolt by the volatile autos component, which grew 5.0 percent over the month. However, even without auto sales included, sales were still solid. Core sales, which remove autos and gasoline rose by 0.4 percent. Most retail subcategories saw significant sales improvement in October. Electronics and furniture were the only notable areas of sales declines.

Jim Chessen, ABA Chief Economist noted, “Solid retail sales growth shows that consumers have become more confident as the stock and labor markets have shown improvement. In addition, the strong sales growth was led by autos, which would suggest an increase in the demand for consumer credit.”

From a year prior, sales were up 7.3 percent. Core sales, which exclude autos and gasoline, were up 5.2 percent from a year earlier. This was the highest annual rate of growth since before the recession.

Europe's new contagion worries

CNNMoney.com- Nov 27, 2010

The debt crisis on Greece last spring has a negative effect on the value of the Euro now, which causes fear of a double-dip in the last global recession.

The independent US dollar can be printed more in the US to boost government spending, but since the Euro is used for all countries in Europe, Greece cannot print its own currency.

The crisis is spreading throughout several countries in Europe, according to this article.

Since EU is a big market, effect on the economy in the continent will cause a shift in the aggregate demand in the US market too.

The Federal Reserve's new voting members

The move -- known as quantitative easing -- is meant to keep interest rates low and stimulate spending, but has recently come under fire, as some economists think the plan could boost inflation, and even create asset bubbles.

Byte of the AppleIs Apple's Customer Satisfaction Slipping?

This article taken from businessweek.com discusses a study done by the University of Michigan about Apple and it's customer service. Even though apple is still at the top of the industry it recently tied Dell with a 5% decline fro the biggest drop since last year. The article says that major increase in sales are what is causing the decline in customer service. The company has more then 21 billion in revenue, has grown nearly 400% in sales, and recent demand for mac computers is up 25%. This has given apple a further advantage in market share and made it difficult for their customer service people to keep up. The article also discussed how much of this growth in demand is caused by ipod users switching over to mac computers because of the quality of the ipod.

Shoppers Flock Back to the Mall to Hunt Deals

On this year's Black Friday, there was a surge in traffic at stores and malls over last year. And shoppers snapped up discretionary goods rather than gifts or necessities. Still, many consumers looked for major deals in order to stay within strict budget because of the recession and its aftershocks.
The lines were longer than recent years. To reduce frenzy, many stores or malls tried crowed-control technique. For example, Wal-Mart near Chicago handed wrist bands to shoppers who wanted access to the 5 a.m. electronics prices.
Consumers seemed to be spending more. But concrete assessments as to whether sales were up over a year ago, and if so, whether they were enough to lift major retailers out of their long-term recession, will not be available until later this weekend.
Many shoppers said they spend more this year, but they got great savings. Because of their great savings, people spent more on theirselves, and the "buy one, get one free" stimulated their spending.

The Social Security Deficit

This article discusses how the government pays Social Security benefits with the revenue collected from the payroll tax. Not all the money is used, so the extra money is put into a trust fund that earns interest. Each year, the government will begin paying more in benefits than it collects in taxes each year. The tax revenues will surpass the programs costs in 2012 through 2014 before falling below in 2015. With Social Security building surplus over the years, it will be able to cover until 2025 with all the interest it has earned over the years on the trust fund.

Although some consider that Social Security should not be apart of the federal budget, doing this would make cuts for Social Security only large enough to close its own deficit. Will this approach lead to fewer or more Social Security cuts?

Way to Increase Labor Efficiency

When we looked at the Solow model in chapter 8, we talked about the importance of increases in labor efficiency to growth. We added the variable E to account for labor efficiency and talked about the need to increase the quality of labor through human capital. One way to increase human capital is to decrease the prevalence of smoking among workers. According to the study posted, smokers were correlated with lower productivity and higher absenteeism than nonsmokers and former smokers due to higher rates of sickness and the need to take smoke breaks. This is one reason why employers are increasingly hiring nonsmokers and creating smoke-free workplaces.

G.M. Finds a More Receptive Public

A little over a week ago GM finally got rid of the government as its majority owner. It is down to 26% instead of over 60%.
It also is experiencing excellent returns on sales in its "coming out" weekend - conveniently black Friday weekend. GM held the largest public offering (coming out on the public stock market) ever in the history of the U.S.
The public is also beginning to feel less hostile towards GM for their tax dollar funded bailout. Most still agree that the government should not have gotten involved but they are aware of GM's prestige when it comes to car shopping.

Median price of a homes sold drop to new lows

Median home prices have fallen to a seven year low. As home purchases slow to levels lowest on the records dating till 1963. Prices continue to fall as supply out weighs demand, there has been some signs of stabilization as home builders have cut back and this can be seen in the 29% drop in housing related GDP. It is clear that the troubled housing market is still have a traumatic effect on the nations economy and will not be section of the economy that will lead growth.

Simpler Ways for the Worlds Poor to Slave

This article discusses the new opportunities technology has allowed for the world's poor to save. The two developing forums of micro savings come from kiosk's and cell phone money transfer's. Both opportunities allow for small deposits and transfers of funds that allow the poor to grow wealth. As we learn it is important for people to have some savings for investment and still consumer and the proper banking options will make both more accessible for the worlds poor.

Holiday Shoppers Watch Budgets, Look For Deals

Black Friday is considered to be the begging of the holiday seasons. Though it seems that the shopping season begins earlier and earlier. Given the trend, expectations are for people to spend more this year. The last recession has truly left many house holds shaken and ability to spend at a minimum. The national average for spending during the holiday season is $518. Fortunately people are using debit as a form of payment over credit. Use of debt payment during this season is at its ultimate low since 2002.

'Next financial crisis could stem from Washington'

Chief of the FDIC, Sheila Bair, urged policy makers in a Washington Post op-ed piece to confront the US' rising debt, so as not to trigger another financial crisis. Bair asserted that allowing the US debt, now at close to 14 trillion dollars, makes US treasuries seem less stable to investors. And, if investors and governments around the world lose confidence in US treasuries this will have dire consequences for the world financial system. Bair said that, although their suggestions have been met with mixed reactions in Washington, the proposals suggested by President Obama's fiscal commission and the Bipartisan Policy Center are "credible first steps."

Corporate Profits Were the Highest on Record Last Quarter

Although the unemployment rate in the U.S is still at 9.6%, the American businesses just had the best recorded profit in the last 60 years. According to the report released by Commerce Department, the corporate profit totaled up to $1.66 trillion in the last (third) quarter. The profit numbers have not been adjusted for inflation as the government does not have pricing index for each individual companies. The article mentions that productivity growth could be accredited for the increase in corporate profits, as companies are making more with less factor (labor) of production. Also, companies with its factories and offices located in rapidly emerging economies such as India and China are doing really well too.

Despite the fact that corporate profits make up around 11 percent of the total U.S GDP and that it has been growing, many economists fear that the U.S economy is not growing fast enough to battle its high unemployment rate. On the good part, the U.S consumer spending has been rising with a positive effect on the economy, and hopefully will get better with the Thanksgiving and Christmas sales.

Fed Adopts Political Tactics on Critics

Apart from the political content, the article mentions that the Fed chairman Ben S. Bernanke plans to spur the economic recovery by lowering interest rates through buying $600 Billions of governmental bonds. I think this is a solid real life example of the effect of monetary policy that we learned in our IS-LM and Aggregate Demand Curves. Increase in Money supply- in this case through buying $600 Billion of governmental securities by the Fed- shifts the LM curve to the right. This increase in supply of money provides a new IS-LM equilibrium with lower interest rate, which eventually boosts up Investments and Output. Given our understanding of the IS-LM and Aggregate Demand curve, I think Mr. Bernanke's plan to revive the economic recovery through buying of governmental bonds should work unless there are shocks, such as huge increase in expected inflation and/or huge rise in Price level.

Black Friday 2010: We want the deals of our lives

The holiday season is critical. Combined November-December sales can account for as much as 50% of stores' sales and profits for the full year. In the past couple of years, black Friday sales have dipped from their norms due to the Great Recession. This year however, experts believe sales will increase from years past, driven by high and middle income families who feel more secure about their employment situation.

A new wrinkle in the Black Friday madness is the sweeping trend to open stores earlier. Many department stores nationwide, Walmart included, will be opening at Midnight this year. As it has been a theme every year, Black Friday, and Christmas for that matter, is being pushed earlier and earlier. Although great for the economy, I foresee political action stemming in the form of protests in the near future. Personally, I believe our country is moving too far away from "giving thanks" and moving too close to thanking ourselves.

Fed Will Purchase $600 Billion in Additional Long-Term Treasuries

The Federal Open Market Committee voted to keep the Federal Funds Target in a range between 0 and 25 basis points. The Fed’s language continued a recent trend of more accommodating language. The FOMC for the second straight meeting explicitly stated that inflation is below the normal long term trend:

"Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run… "

"Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow. "

With this being the committee’s assessment, the Fed went forward with initiating the much anticipated second round of quantitative easing:

"To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. "

The Fed will move to purchase on net an additional $600 billion in long-term treasuries through Q2 2011. This amounts to about $75 billion per month. The FOMC also stated that it will continuously review both the pace and the size of the purchases, leaving open the potential for even further buying going forward.

Thomas Hoenig, as in most recent meetings, voted against this action believing that the risk of additional purchases to future inflation outweighed any benefit.

Existing Home Sales Rise 10.0 Percent; Sales Prices Fall 3.3 Percent

In September, existing home sales continued their rebound for the second month following a 27 percent plunge in July. Sales rose 10.0 percent to a pace of 4.53 million annualized units. Sales have been volatile in recent months. Sales were boosted in the spring due to the homebuyer tax credit. When the credit expires, sales plunged. Now, sales are beginning to recover, though they are still at a pace lower than the pre-credit surge. From a year-prior, sales were down 19 percent.

With the increase in sales over the month, the months supply of inventory fell to 10.7 from 12.0. Though this is an improvement, it is still above the ratio of most of the past year. Long term, the historical normal is around 5 months of inventory. Ratios well above this level are historically correlated with short term price declines. Until the sales pace increases and/or the supply of inventory gets further worked off, price stability is unlikely. In September, the median sales price fell 3.3 percent to $171,700. This was the third month of price declines. From a year earlier, prices were down 2.4 percent.

Corporate Profits Were the Highest on Record Last Quarter

U.S. business earned profits at an annual rate of $1.66 trillion in the third quarter. This is the highest in 60 years since the Dept. of Commerce began recording.
Since the low in the fourth quarter in 2008, profits have grown for seven consecutive quarters.
This growth has been attributed to efficient production - making more with less - and profits coming from abroad.
The national output grew at a higher pace than predicted - 2.5 vs. 2.
However, the article does point out that this 2.5% is way too low to regain the ground lost during the recession. IT will not lower the unemployment rate or keep us out of deflation.

Amid Bailout Dangers, Spain Poses the Greatest Risk

Greece's bailout has moreover been easily absorbed by the EU economy. The rescue proposed by Ireland this week is also predicted to be absorbed easily. Even if Portugal has to apply for a bailout, the size of the EU's economy will most likely ensure that a bailout would be possible.
However, the other country that is failing - Spain - is another problem all together.
Spain's economy is at least twice the size of any of the other three countries.
Luckily, Spain's government has done a good job of absorbing its deficit and their banks are mostly solid enough to take the bad loans. Spain's finance minister is also saying they will not need a bailout.
Spain's construction sector is in trouble.

White House Seeks Chinese Help With North Korea

The U.S. is pressuring China to 'rein in North Korea'. ( Another article I was emphasizing the importance of China's realtionship with North Korea - as their only friend, communist similarities, source of aid, etc.)
This is immediatly relevant to Americans because the U.S. has long held a military alliance and support with the R.O.K.
I have noticed that since this attack, which is agreed to be isolated, Americans have already begun to worry. Watch the markets in response to this.

F.B.I. Agents Raid 3 Hedge Fund Offices

Level Global Investors of New York and Diamondback Capital Management of Stamford, Conn. , two hedge funds managed by SAC Capital Advisors were raided by FBI agents for insider trading.
The third firm was not managed by SAC Capital Advisors - Loch Capital Management.
This raid was part of an ongoing investigation into insider trading and hopefully will be the last.
The firms are said to be voluntarily cooperating and are not accused of wrongdoing.
An interesting note - the use of search warrents and surprise raids instead of court ordered subpoenas to produce documents means the FBI is worried about the destruction of documents.

Kocherlakota Says Fed's Asset Purchases Won't Ignite `Inflationary Fire'

Many critics of the current Fed purchasing of assets have contended that this move is going to lead to dangerous inflation. Federal Reserve Bank of Minneapolis President, Narayana Kocherlakota, however said that "This basic logic isn’t valid in current circumstances." The reasoning behind his feelings towards the matter stem from the fact that the The Fed currently has $1 trillion is excess reserves scattered throughout the nation's banks.

Kocherlakota did however suggest a plan to mimic the effect of lowering the interest rate which already has been gravitating around 0 for the last year or so. He beleives that the combination of a consumption tax of 1 percent, a labor- income tax cut of 1 percentage point and an investment tax credit implemented in 2011 would have the equivalent impact of a 1 point interest-rate reduction by the central bank, Minneapolis Fed research shows.

Unfortunately I don't have the knowledge to evaluate this assumption however, it will be interesting to assess this plan next semester in macroeconomics.

Buffett: Rich should pay "a lot more taxes"

Billionaire Warren Buffett told ABC News that taxes for the lower, middle class and possibly upper middle class should be cut even further.

He said, "I think that people at the high end - people like myself - should be paying a lot more in taxes. We have it better than we've ever had it."

Buffett says the rich always insist that if their taxes are lower and they have more money in their pockets, they will spend it and then it will trickle down; but he says that hasn't happened for the last 10 years. Buffett's not the only super-wealthy person to advocate paying more taxes. A group of 45 people who call themselves "patriotic millionaires" agrees.They're asking President Obama to allow the Bush tax cuts to expire at the end of this year for incomes over $1 million.

Do you think that the rich should be paying more taxes? If they were to pay more, would it be more effective than now?

Thai economy back in recession: official data

After two consecutive contracting quarters, the Thai economy is officially back in a recession. This is due to the stronger Baht and a weak global economy, which has considerably lowered exports. While the economy withstood the blow of deadly political violence, it is not immune to the slowdown of the American and European economies. The Baht is at a 13-year high which undermines the competitiveness of Thai exports. Thailand has tried many things to curb the growing strength of the Baht. Monetary policy makers are due to meet again on December 1. Despite the recent contraction, however, the government upgraded its GDP forecast due to a strong start at the beginning of the year.

The Blur Between Spending and Taxes

In this article ,N Gregory Mankiw ( author of our very own macro econ book) argues that instead of haggling over what kind of fiscal policy needs to be employed to counter the deficit, it is better to reform the tax code. He states that there are traditionally two ways in which we can reduce the deficit; either cut government spending or raise taxes . However what we don't realize is that our tax code is full of tax credits which are actually "tax expenditures" or another disguised form of government spending.The tax code is full of tax expenditures like 'credit for hunting snipes",(made up example)and it is estimated that if we got rid of all of these we will save 1 trillion dollars a year. This is not a crazy idea. In fact, the chairmen of president Obama's commission on deficit reduction proposed this idea in their draft proposal. This approach will be equitable since tax expenditures enrich people's after tax income in the bottom quintile by 6 percent, but the people in the top 1% of income distribution receive twice that gain. This plan will also reduce tax rates, but it will widen the tax base, ultimately earning more revenue for the government but ensuring that the new tax laws are equitable.

After Months of Resisting, Ireland Applies for Bailout

Entirely contradicting my previously posted article (also from the new york times) Ireland has asked for a bailout from the EU.
The bailout is estimated to be around $100 billion. This is $10 billion less than the bailout given to Greece last spring.
This move caused stocks in the EU to rise and helped boost the global stock market. Also immediately, Irish bond prices dropped by 18 basis points.
Another surprising move is that England, although not part of the EU, has pledged to give about $11 billion.
Although Ireland has been trying to survive for months by implementing strict budget cuts, the main reason given for the country's failing is their banking system. Many banks will have to be bailed out .

One Way to Trim Deficit: Cultivate Growth

This article alludes to the effects of the late 1990's when the government implemented fiscal policy to expand the economy. On the other hand, to try and repair the deficit in todays time, the Fed implemented a policy in which taxes should be highered. This led to growth; people's income increased and it casued more tax revenue to flow into the Treasury. This article also relates to the Economic Outlook Conference held in Hamilton Williams- in regaurds to growth in the Midwest.

The Fed Did Its Job, Now Washington Needs To Come Through With Fiscal Policy

The tone of this article is fairly optimistic about the current direction of the United States. The author suggests that Bernanke's monetary policy has been exactly what the current state of the economy needed, and now it is up to U.S. fiscal policy to further the economy's recovery. Bernanke has limited the short-term effects of a slow economy, while not sacrificing the long-term economic growth potential. However, the author is pessimistic about the U.S. implementing an appropriate fiscal policy given Obama's track record in recent history; he goes onto suggest that the future fiscal policy should promote investing and business growth.

States Raise Payroll Taxes to Repay Loans

State governments are borrowing heavily from the federal government to keep paying unemployment-insurance benefits and, even with the weak job market, most states are raising payroll taxes to pay off the loans.

Thirty one states, their unemployment-insurance funds empty, have borrowed nearly $41 billion from the federal government. California alone has borrowed nearly $8.8 billion as of mid-November, according to the Labor Department.

China raises reserve requirement again

The People's Bank of China raised the reserve requirement ratio for its banks by a half-percentage point on Friday in an attempt to control the flow of new money and combat inflation. I wonder how Bernanke feels about this. China's increase is the second such move in days.

Bernanke: Fed's right on stimulus, China

Bernanke's appears to be putting the pressure on China. Bernanke stressed at a recent conference that nations need to work together to correct the global economic issues at hand. He also defended the need for the $600 billion money supply increase against critics, including officials from Germany. He emphasized the high rates of unemployment were a significant problem that might helped by the money pump. Also, he reminded everyone that the FED also has the tools to scale back the expansionary policy when things improve. Certain foreign countries accused the U.S. as being somewhat hypocritical as their manipulation of the money supply causes the same results as China's policies. Nations need to cooperate as these situations become stickier and stickier.

flying for the holidays won't be cheap

If you are thinking about waitng for the last minute to book tickets for airlines, that is not such a good idea this christmas. Some experts are calculating the airline travel to be a 17 % increase this year as opposed to last year. The last couple of years, many people could buy cheap tickets at the last minute due to the demand of air travel being down. This may be an indicator of how the economy is on the rise. People obviously have more money, and are more willing to spend it. Air travel usually is not a need, so any time a luxury item increases, it can be good for the holiday. People are starting to spend more money, and that is a good sign.

U.S. Is Said to Pursue Broad Insider Trading Inquiry

There is an investigation of insider trading that can lead to criminal charges on Wall Street. It is not clear whether or not the investigation is a "sweep" of everything or individual charges. This is apparently being looked at as a big case that will be charging people in the double digits. The Wall Street Journal said on Friday that the charges " “could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation.” So far 23 people have been charged in this investigation, and Goldman Sachs is one under investigation.

T.S.A. Grants Airline Pilots an Exception to Screenings

Pilots in their uniforms are not being subjected to the new screening processes at airports. Passengers have not been very positive about the new processes and are angry about the invasiveness of the new process. For the pilots, they just have to go through the metal detectors and show 2 forms of identification. Unions for pilots have been lobbying for 2 years because "their members had already been through extensive background checks by federal law enforcement officials, there was no need for the added security searches." Flight attendants have been arguing that they should also be allowed to skip the pat downs and invasive security processes.

Study supports U.S. auto bailout

Was the bailout of the auto industry the right thing to do? Did it help or hurt the economy? Well one study shows that the bailout was a better plan than doing absolutely nothing. According to this study, more than 1.4 million jobs would have been lost if it wasn't for the government bailing the auto companies out. And, even though the economy was not in very good shape, if there was no bailout the economy would have been even worse. This is because 1 auto worker creates jobs for 10 people. But also, if these auto companies went under and were liquified, there would have been a loss of about 121 billion in personal income. So, it shows that the bailout did help the economy. This makes sense because the auto industry is a big part of the United States economy.

New Lending Guidelines From Fannie Mae

Take a look at the graph at the beginning of this article.....
Recap -- Fannie Mae is the now government owned company that sets lending standards and buys mortgages from lenders. Also heavily blamed for the real estate crisis and resulting recession.

Previously lenders had to put 5% down of their own money and could use gifts and grants from non profits for more of a down payment. Their was an exception for those who made a down payment of 20% - all the funds could be from a non profit.
Now, since many require a 10% down payment minimum, people are finding it harder to raise funds.
There is a limit on the properties one can use this new exception for - single family homes, condominiums, etc. and a limit on how high the loan balance can be.
Fannie Mae is also getting tougher on the debt to equity ratio accepted - down to 45% from 55%. - This is excellent. In Financial Management (EMAN 361 with Prof. MacLeod) we learned to evaluate a company based on ratios and found that the debt to equity ratio is one of the most important. A high ratio means that the company has more debt than equity for financing and is therefore riskier (debt payment must be paid and are a major liability. equity payments (dividends) can be waved in a year the company is not doing well and therefore will not default).

Irish Prime Minister Says Budget Plans Are Already in Place

Although many see Ireland next on track for a large EU bailout, the Irish Prime Minister Cowen is claiming that they will not need one.
Cowen assures us that the low corporate tax rate and the four year plan to reduce the budget would not be changed. However, other leaders are extremely skeptic. How can no change in their policies bring about a change in their financial situation ?
An interesting point - if Ireland does need a bailout, French President Sarkozy promised that raiding their corporate tax rate (now at 12.5 %) would not be a condition of their bailout. This is interesting because Greece is currently battling political instability as many of their citizens are protesting the forced changes that Greece submitted to when they received their bailout.
Irish officials are still holding meetings with the IMF and the World Bank.
A specific claim that the Irish people are most concerned about is simply lifting restrictions that limit the amount of salmon they can catch in the surrounding waters.

Bernanke: stop calling it QE!

According to Chairman Bernanke, the use of the term ‘quantitative easing’ is erroneous since it involves policies geared towards changing the quantity of bank reserves and, that is not exactly what the Fed is targeting. The precise term would be ‘securities purchases’, which are transactions that will affect the yield on those securities and on other assets as a result of substitution effects on investors’ portfolio.
The use of the term QE might generate negative reactions because of its failure in Japan. About a decade ago, Bank of Japan pumped money into commercial banks to combat deflation. However, the banks ended up keeping the money back, causing deflation rates to remain unchanged.