Oil is a hard asset which is priced in U.S dollars around the world, and when the value of the dollar falls, global investors tend to shoot up the oil prices. One of the reasons for the weakening of the dollar has been the recent Fed’s Quantitative Easing, which led to the decrease in value of the dollar, and ultimately increase in oil price.
The Gasoline prices reached a two-year high last week with $2.98 per gallon; 35 cents more compared to last year, which could be traced to the weakening dollar and increase in imports by China. The Oil Price Information Service estimates that consumers will be spending $6.4 billion more in oil prices compared to last year, amount which could have been spend on holiday shopping.
Interestingly, the chief economist for the International Council of Shopping Centers, Michael P. Niemira, said that, “it doesn’t seem to matter much because we are getting accelerating economic activity, which is an offset”. But, he also predicts that the increase in oil prices will have a negative impact on the next year’s GDP as “when the bills come in after the Christmas shopping, there will be less disposable income in people’s pockets because of the increase in expenditures for oil, which they can’t avoid”.
Sunday, December 12, 2010
Tax Reform --not just cuts -- Needed
Many people have started viewing tax reform as a way to fix the U.S. economy. A tremendous amount of attention has been drawn to this subject because even with the lower tax rates, tax bills might rise due to closing loopholes and the removal of deductions and credits. Ben Bernanke believes that the current tax code is not efficient and stated that, "By closing loopholes and lowering rates, you could increase the efficiency of the tax code and create more incentives for people to invest". There are a lot of people that believe tax reform is one of the largest factors in deficit reduction. This belief is justified by the thought that the best way to increase government revenue is to do so through a more efficient tax system.
Chinese inflation spikes on food costs
As China continues at a fantastic rate, some problems are beginning to trickle down and present themselves. One of those issues would be the high rates of inflation that has plagued the food market especially. Food prices have grown 11.7%. Yes, 11%! In order to stave off runaway inflation, China has committed to both raising its interest rates as soon as possible and to exercise a more "prudent" monetary policy starting in 2011.
Gift cards could get the cold shoulder this year
CNN.com- December 12,2010
This year, shoppers are going traditional. Instead of buying gift cards, they opt to buy an actual gift.
It costs them less. So instead of spending $100 on one single gift card, shoppers now can buy more than that with the same amount of money.
Retailers, after a dismal sale last year, also distribute bigger discount this year. They experienced a cheerful Black Friday this year generally, because sale shot up much better than last year. Still, consumers want to be more discrete in spending their money in the current economy, which only receives a few glances of recovery.
Yet, gift card sale slow-down does not worry much retailers.
""Only 10 to 15% of retail sales in January come out of gift card redemptions", according to the article. But it is a change for the better.
This year, shoppers are going traditional. Instead of buying gift cards, they opt to buy an actual gift.
It costs them less. So instead of spending $100 on one single gift card, shoppers now can buy more than that with the same amount of money.
Retailers, after a dismal sale last year, also distribute bigger discount this year. They experienced a cheerful Black Friday this year generally, because sale shot up much better than last year. Still, consumers want to be more discrete in spending their money in the current economy, which only receives a few glances of recovery.
Yet, gift card sale slow-down does not worry much retailers.
""Only 10 to 15% of retail sales in January come out of gift card redemptions", according to the article. But it is a change for the better.
Oil demand to hit highest level ever
Due to rapid growth and development of certain nations over the past year. The worldwide demand for oil has increased to 88.3 million barrels per day. Yet, much to the relief of the American public especially, prices are not expected to spike as they did in 2007-2008, and consequently prices at the pump should remain relatively stable due to the increased production capacity of the world. China and India are largely responsible for the gross increase, as their oil consumption has increased by 11% and 10% respectively. Along the same lines, the figures on China's car consumption should indicate about a 32% increase in consumption over 2009.
Obama-Republican Deal Could Mean Tax Hike For One In Three Workers
The issue of tax cuts has become more political as time has passed. Citizens are arguing that the new deal reached between President Obama and the Republicans will only benefit those earning more than $20,000 (which is about 50million of the 150million population of the US). So technically, the poor citizens will be the one to suffer as these tax cuts will give them hardly any solace from the economic stress. Some claim that these tax cuts will benefit all citizens in a roundabout way as GDP growing by 1% will add about $2000 to the average American family. But everyone is aware of the unequal distribution of wealth. The higher-end people will get a much bigger tax cut than those who need it. At the end of this article is a table drawn out to illustrate the outcome of the extended tax cuts for the wealthiest in the next ten years.
Will rising mortgage rates spur home sales?
istorically low mortgage rates didn't encourage new home sales, but rising rates could finally push home-buying fence-sitters into the market.
Rates this week surged to a six-month high after President Barack Obama and congressional Republicans agreed to extend tax cuts for two years, including cuts for the wealthy. Though the deal is still being debated in Washington, financial markets interpreted the development as likely to accelerate the economic recovery but also swell the budget deficit. Though the yield on the benchmark 10-year bond has retreated some, it has still increased 21 basis points this week.
Because yields on Treasuries, especially the 10-year bond, largely influence mortgage rates, borrowing costs for mortgages have suddenly gone up. The average rate for a 30-year fix loan increased to 4.61% in the week ended Thursday from 4.46% the previous week, following a fourth week of increases, according to Freddie Mac(FMCC). The average 15-year rate rose to 3.96% from 3.81%. These rates are the highest they've been since June.
Euro will survive, said Merkel and Sarkozy
Germany and France told euro-area laggards to make their economies more competitive to help overcome the debt crisis, pledging to do whatever necessary to defend the currency at a European Union summit next week.
The euro traded at 1.3212, down 0.0027 cents, at 3:37 p.m. in Berlin. The single currency has fallen 7.8 percent this year.
The euro’s survival is “non-negotiable". “If the euro fails, Europe fails,” Merkel told reporters in the southwestern German town of Freiburg, calling for more economic “coherence” in the euro region. “We must find a way to overcome the gap in competitiveness,” she said. “It’s not a job for next Friday” at the EU summit “but for the future.”
They ruled out joint bonds and rejected any increase in the size of the 440 billion-euro ($583 billion) rescue fund set up in May. “Common bonds would make governments less responsible, when what we want to do is the opposite,” Sarkozy said. Both leaders also rejected any increase in the rescue fund set up to stem the contagion spreading from Greece.
“We will do what is necessary to defend the euro,” said Sarkozy.
The euro traded at 1.3212, down 0.0027 cents, at 3:37 p.m. in Berlin. The single currency has fallen 7.8 percent this year.
The euro’s survival is “non-negotiable". “If the euro fails, Europe fails,” Merkel told reporters in the southwestern German town of Freiburg, calling for more economic “coherence” in the euro region. “We must find a way to overcome the gap in competitiveness,” she said. “It’s not a job for next Friday” at the EU summit “but for the future.”
They ruled out joint bonds and rejected any increase in the size of the 440 billion-euro ($583 billion) rescue fund set up in May. “Common bonds would make governments less responsible, when what we want to do is the opposite,” Sarkozy said. Both leaders also rejected any increase in the rescue fund set up to stem the contagion spreading from Greece.
“We will do what is necessary to defend the euro,” said Sarkozy.
China Pledges to Change Growth Model in 2011
China’s leaders pledged to accelerate a shift in the nation’s growth model in 2011 and also focus on stabilizing prices after an annual meeting in Beijing to set economic policy guidelines. The government is seeking to shift from dependence on investment in industry and exports to bolstering private consumption and service industries, a move that could also aid the world economy. The nation is tightening monetary policy to cool inflation that accelerated to 5.1 percent in November, the fastest pace in 28 months.
The government will seek to boost revenue and “resolutely” cut spending. Officials aim to balance “stable and relatively fast” growth with adjusting the economic structure and managing inflation expectations, the report said. The nation needs to strengthen consumption as part of speeding change in the growth model. The China central bank raised lenders’ reserve requirements on Dec. 10 as part of efforts to tame liquidity and cool prices. The government will “further prioritize overall price stability,” Xinhua reported.
In 2011, the main tasks will include strengthening macro-economic controls; ensuring the supply of agricultural goods; altering the growth model; improving basic public services; and continuing to “open up” and promote global cooperation, the report said.
U.S. lawmakers and officials say a stronger Chinese currency would help to reduce global trade imbalances, boost private consumption and contain inflation.
The government will seek to boost revenue and “resolutely” cut spending. Officials aim to balance “stable and relatively fast” growth with adjusting the economic structure and managing inflation expectations, the report said. The nation needs to strengthen consumption as part of speeding change in the growth model. The China central bank raised lenders’ reserve requirements on Dec. 10 as part of efforts to tame liquidity and cool prices. The government will “further prioritize overall price stability,” Xinhua reported.
In 2011, the main tasks will include strengthening macro-economic controls; ensuring the supply of agricultural goods; altering the growth model; improving basic public services; and continuing to “open up” and promote global cooperation, the report said.
U.S. lawmakers and officials say a stronger Chinese currency would help to reduce global trade imbalances, boost private consumption and contain inflation.
Mortgage rates up...house market in for more trouble
For the fourth week in a row mortgage rates have increased and many real estate professionals fear the fragile market will only hit more trouble. The rise in mortgage rates have already seen a lowered interest in homeowners refinancing and many fear that it will keep potential home buyers on the sidelines. With less buyers in the market many fear that it could ruin the stability in the residential real-estate market as the cost of overall cost of homeowner ships raises and it will force houses prices to lower to compensate.
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