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January 2010 - Posts

  • Bubbles, Unemployment and Other Economic Problems

     
    Lori: Under Obama the America’s Trouble Asset Relief Program (TARP) will end up costing tax payers less than 1% of GDP. In the past the average cost to resolve such a crisis was around 13% of GDP.   Great news right?!

    Andrea: Well banks have found other ways to reestablish their financial health; for instance with interest rates so low it is easier for them to borrow from the Feds and invest that money in US bonds. The US bonds pay considerably better interest rates and earn a substantial profit without having to engage in public lending, an activity that can entail some risks for them.

    Lori: Nevertheless banks have returned money they owe the government. This action has demonstrated their good will.

    Andrea: By returning the money they owe quickly, banks free themselves of government supervision. Now bank executives can once again earn huge bonuses every year, bonuses that sometimes are worth millions of dollars.  Also banks have benefited from the Feds low interest rates in other ways, for instance; a large number of the savings deposits that banks now hold, were earned without having to offer high rates to their clients in order to attract them. Savers have nowhere to go but to banks in order to park their money without risk.

    Lori: I tell you what worries me the most about the economy is the unemployment situation 10+% is too high and with such numbers it is doubtful the economy will recover soon.

    Andrea: With the banks reluctance to give loans, even to small businesses, and with so many unemployed workers, the economy will not likely recover for a long time. In deed, Joseph Stiglitz a Nobel Peace Prize winner economist said recently that he and other economist believe the financial system today is even more frail than before the crisis. Stiglitz believes that another crisis is probably around the corner and that it would be a good idea to reform the global financial system to avoid more financial disasters.


    Lori: I read Stiglitz's article too.  He believes we need a global response to the problems we are facing. He also advises there should be a new reserve only coin to be backed up by some of the countries with stronger economies in the world.

    Andrea: On top of all the problems we have, the Stock Market, according to The Economist, is about “50% overvalued on the best long-term measure” and although the market rebound was needed in order to stabilize the economy last year, it appears now excessive growth is creating dangerous bubbles. On the other hand the Feds can not respond by raising interest rates to break the bubbles that could crush economic growth.

    As The Economist indicated; the problem is not just that valuations look high by historic standards, but it is also that the current combination of high asset prices, low interest rates and massive fiscal deficits is unsustainable.

    Posted Jan 27 2010, 06:25 PM by cartoon with no comments
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  • The Employment Situation Isn't That Bad

     

    Robert: I studied ecological engineering and never thought I was going to end up working in a garbage dump.
     
    Jim: Consider yourself lucky that you have a job.
     
    Robert: Well by separating the garbage in two group, organic and inorganic stuff, at least I am helping the environment.
     
    Jim: That is interesting. I see what you mean.
     
    Robert: I guess in some ways I have a green job since I contribute to help save the world from an ecological collapse.
     
    Jim: You're right; and you are one of the very fortunate ones that have a green job like the jobs Obama promised.
     
    Robert: That’s true, I am helping the environment, earning  money and helping feed my family as well. I found a few rotten oranges in the garbage and some chicken leftovers for dinner that maybe won’t make my wife and kids sick.


    Jim: Yeah, one has to be optimistic in order to survive. When the new government investment to create jobs is implemented I am looking forward to become garbage analyst II, then I can work on separating plastic container from cans. Gosh I am so happy living in a tent on a community park close to nature. I see crickets and mice close to me all the time besides I even get wet when it rains. You couldn’t be any closer to nature than me and my family are right now.

    Posted Jan 21 2010, 03:33 PM by cartoon with no comments
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  • The U.S. Economic Crisis: The Employment Situation

     
    Charles: Unemployment has gone from 10.2% to 10% both figures are close to the historical high figure of 10.80 in the winter of 1982.

    Richard: Yes and unfortunately the average amount of time it takes someone to find employment is now 28.5 weeks; that is six and a half months!

    Charles: And six and half months is one of the worst averages in history, even worse than in 1982.

    Richard: That's right.

    Charles: We can also say we have a new record in terms of a worker’s time to get a job in the first place. The last time it took that long was back in the spring of 1983, 26 years ago.

    Richard: And I recall the winter of 2003 has been pretty bad too. Many families went hungry or actually broke up because of the situation.

    Charles: All those were terrible years and now it is even worse; it's going to take a long time for full employment to return and it might never be 4.5% again, instead we may have 6% or 6.5% as full employment. Our total labor force is about 154 million people, therefore the over 15 million that are unemployed at present represent the more than 10% unemployment figure although some analyst believe that the actual amount, allowing for those that stop searching for employment and those that work only a few hours a week, is approximately 17.5%.

    Richard: you are right; and for those that are lucky enough to have a job they are working 4% more hours than what they were working in 2008. These are rough times. No doubt about it.

    Posted Jan 18 2010, 04:40 PM by cartoon with no comments
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  • Money and Happiness

     
    George:  My parents are wrong, we don’t need money to be happy.
     
    Cathy: You're right!  Happiness comes when you make the decision to be happy!  We can be happy if we want to; all we have to do is decide to choose that wonderful feeling!
     
    George: Who needs a bicycle,  car, home or even toys to be happy? I don’t!
     
    Cathy: Me neither!
     
    George: Love is all that counts.
     
    Cathy: That’s right. By the way aren’t you hungry? Let’s go home to eat, my mother is making stuffed turkey and we got chocolate ice cream and brownies for dessert.
     
    George: Yeah and afterwards we can go to the mall with my mom, there is a new computer game that I want. I know my mother wants to buy you the new dog robot you wanted for you birthday on Sunday.
     
    Cathy: That’s great!  I am so happy; I love you. Its so easy to choose to be happy.

    Posted Jan 06 2010, 12:08 PM by cartoon with no comments
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  • Is the Economic Recession Over?

     


    Maggie: I am disenchanted that after all that has taken place in the banking industry there is little transparency in the banking sector. Also it is unfortunate that banks have only raised a small portion of the capital they need.  They sadly remain insolvent and incapable of lending.
     
    Miriam: Banks are now claiming legal but false earnings quarter after quarter; eventually however they will have to face reality and let everyone know the truth. They lack liquidity; new accounting rules allow banks to demonstrate they are solvent when in actuality they are not. If a bank is unable to sell it's securities, they may remain on the bank's balance sheet at a value decided by the bank itself. That allows banks to set their own securities price. God only knows a bank's real financial status and it's liquidity capacity.
     
    Maggie: Also the recession is far from over. In November the 3.5% GDP growth for the third quarter was revised and adjusted down to 2.8%.
     
    If we take into consideration that auto sales and new home construction was due to the government stimulus plan we can come to the conclusion that GDP for that quarter was close to a zero real increase.
     
    Miriam: I know and unemployment figures do not include people only working part time and wanting a full time job or those unemployed for more than a year who have not found work. A true and real evaluation would probably yield about 18% unemployment or perhaps even more, not the10% the government claims.

    Maggie: Yes and 70% of GDP growth comes from consumer spending therefore if unemployment is so high we might as well forget about true consistent growth for next year.
     
    Miriam: Right! And there has been a 1.5 trillion dollars reduction in consumer credit in the past 18 months, and must probably there will be another trillion dollars credit reduction next year. With less credit there is less spending and less economic growth.
     
    Maggie: The way I see it, it will take sometime but the Chinese economic bubble will likely burst, meanwhile China by having the Yuan pegged to the dollar, and deliberately holding the Yuan's value down against the dollar, is robbing us of possible new job creation.
     
    Miriam: Things look pretty bad, I wonder why we bother going to school, we aren't likely to get jobs when we graduate.
    Posted Jan 05 2010, 04:41 PM by cartoon with no comments
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