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Bev-enomics!

Beverly blogs about economics

October 2006 - Posts

  • economic performance

    Inflation has slowed down 0.5% in September due to a drop in oil price however consumer prices were 2.1% higher than last year a not too good indicator . On the other hand core prices that exclude energy and food went up 0.2% last month and 2.9% for the year while housing sales was 17.8% less than last year.
    We got mix results from economic indicators, but because of inflation and poor GDP results(1.6% last trimester) the prognosis in terms of future performance for the economy doesn’t look too good.

    Posted Oct 31 2006, 05:00 PM by amparo with no comments
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  • The economy and the housing market

    Impacted by a summer slowdown in the housing market, the economy was held to a growth rate of 1.6 percent in the third quarter, the lowest since early 2003, the government reported yesterday.

    But evidence of a decline in inflation coupled with vigorous consumer spending left most economists saying that the overall economy is unlikely to be dragged into a recession even as the housing market continues to falter.

    The government report, which showed growth slowing from a 5.6 percent pace in the first quarter and 2.6 percent in the second, appeared to validate the expectation of the Federal Reserve chairman, Ben S. Bernanke, that the economy is settling softly into a pace consistent with what he considers an acceptably low level of inflation.

    Stocks fell and bond prices rose as investors factored in the weaker than expected growth this summer, concluding that the Fed was less likely to raise interest rates next year.

    The economic deceleration in the third quarter was almost single handedly brought about by the strong contraction in home building.

    Residential investment plummeted 17.4 percent in the quarter, its biggest decline in more than 15 years. This alone reduced economic growth in the third quarter by over 1.1 percentage points.

    The building of factories, warehouses and commercial structures picked up some of the slack. Business investment, including structures and machinery, added nearly 0.9 percentage point to gross domestic product in the quarter.

    But what is most remarkable is that the deflation of the housing bubble has barely spilled over into consumer spending, which is still going along well. The government reported that consumer spending grew 3.1 percent in the third quarter nearly twice as fast as overall economic growth.

    The housing freeze had long been expected to put stop on consumers’ appetites. Sales of existing homes have declined almost 14 percent over the last year. The median price of new homes has fallen by almost 10 percent in the last 12 months and existing home prices have started to decline nationwide.


    Posted Oct 26 2006, 05:05 PM by amparo with no comments
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  • European Superavit

    The European balance of payment’s deficit went down to 7,600 millions(Euros) approximately 9,583 million dollars in the second trimester of this year, about 42.8% less than in the same period of 2005. Meanwhile the commercial balance register a superavit or surplus of 19 thousand and 800 millions during the first 8 months of the year 2006 according to the office of Eurostat. This positive credit balance was the result of exports with a value of 794 thousand 500 million Euros 11% more than last year. The Europeans imported 774 thousand 700 millions Euros about 17% more than last year.

    Europe’s small GNP growth is in some way helped by a balanced trade with even a surplus.


    Posted Oct 21 2006, 05:10 PM by amparo with no comments
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  • October 20 2006

    During the last 9 months of this year the Chinese economy grew 10.7 % approximately. A GNP of 1,79 trillion dollars, according to the National office of Statistics. During the second trimester it grew 11.3% his highest record in a decade. The impressive Chinese growth appears to be unstoppable.

    China’s capacity to grow as well as its world’s competitive performance is a clear message to us that we need to find a solution to improve our manufacturing technology in order to make it more productive. American corporations need to spend more capital in R&D instead of buying more of their own stocks.


    Posted Oct 20 2006, 05:14 PM by amparo with no comments
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  • Chinese Investment

    The Chinese sell a lot of merchandise in the United States and, in the process, accumulate a lot of dollars. They then loan many of those dollars back to the United States in exchange for all manner of American i.o u’s including Treasury bonds, federal agency bonds, and private-sector debt.

    America’s indebtedness to China, as a result, is staggeringly high, although the Bush administration which needs foreign loans to help finance the budget deficit seems unfazed. But there is reason for pause. The Wall Street Journal reported this week that China’s holdings of foreign currency and securities would soon top $1 trillion, a fivefold increase since 2000. Roughly 70 percent of that is believed to be in dollars or dollar based assets.

    Of course, $1 trillion does not confer significantly more clout than, say, $990 billion. But the size and growth of China’s holdings mean increasing vulnerability for the United States.

    For several years, China’s loans have helped to keep prices and interest rates low in the United States, and to finance big tax cuts. If the lending began to dry up because Chinese officials decided to diversify into other currencies or to spend more at home prices, interest rates and taxes in the United States would very likely rise. If the loans dried up quickly a worst case scenario the result could be a sharp financial crisis. A gradual shift could mean a long downward trend in American living standards as a higher cost of living took its toll.

    China might never pull back in a way that harmed the United States. But the fact that it could already makes the global financial system more volatile. Investors and traders are hypersensitive to any hint that Beijing may switch allocations.

    The Journal also reported that administration officials are concerned that developing nations, unhappy with conditions on loans from the International Monetary Fund, may decide to borrow directly from China. That would give Beijing more influence over emerging markets and their governments.


    Posted Oct 19 2006, 04:40 PM by amparo with no comments
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  • Bancomunidad Oaxaca México

    A replica of the Grameen’s Bank is working now at the state of Oaxaca in Mexico. The Bancomunidad has as a prime objective to give microcredits to the poor. Beggars, seamstress, farmers and craftsmen are among those that have benefited from the banks small loans. The amount of financing works according to ability to payback and to save of the prospective borrower.

    The Grameen’s foundation in Washington gave five years ago the first 100,000 dollars to Bancomunidad. With this small capital the bank started financing small business mostly to women, who are considered in every country to be more responsible and reliable than men with money, as well as more trustworthy and capable of paying back.

    Today Bancomunidad has as many as 3,000 clients that are denizens of the city of Oaxaca

    Thanks to the philosophy of Muhammad Yunus of teaching the poor how to earn money instead of given them a handout

    millions of people around the world have gotten out of poverty.

    Even if Yunus program cannot eradicate poverty it surely helps.


    Posted Oct 18 2006, 04:21 PM by amparo with no comments
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  • The Nobel Prize 2006 to Muhammad Yunus

    A Bangladeshi economist, Muhammad Yunus, and the bank he founded 30 years ago won the Nobel Peace Prize yesterday for pioneering work in giving tiny loans to millions of poor people no commercial bank would touch destitute widows and abandoned wives, landless laborers and rickshaw drivers, sweepers and beggars. .

    The Nobel Committee praised Mr. Yunus, 66, and the Grameen Bank for making microcredit, as the loans are called, a practical solution to combating rural poverty in Bangladesh and inspiring similar schemes across the developing world.

    “Microcredit has proved to be an important liberating force in societies where women in particular have to struggle against repressive social and economic conditions,” the committee said in announcing the prize.

    Mr. Yunus has long been an influential champion of the idea that even the most impoverished people have the drive and creativity to build small businesses with loans as small as $12, and Grameen Bank has dedicated itself to helping the poorest of the poor.

    The borrowers used the money to buy milk giving cows, or bamboo to craft stools, or yarn to weave into stoles, or incense to sell in stalls, among myriad other money making schemes.

    Reached in Dhaka, Bangladesh, by telephone yesterday, Mr. Yunus recalled the day in 1976 when he reached into his own pocket to give his first loan, $27, to 42 villagers living near Chittagong University where he said he was then teaching “elegant theories of economics.” The borrowers invested the money and repaid him in full, though they had no collateral and signed nothing.

    He said he asked himself that day, “If you can make so many people so happy with such a small amount of money, why shouldn’t you do more of it?”

    Still, over the years, Mr. Yunus faced skeptics and detractors, as it became clear that microcredit loans, alluring as they were, were not by themselves a panacea for poverty.

    Some in the microfinance business have questioned the Grameen Bank’s focus on serving the poorest, arguing the industry would grow faster and have more impact if it aimed at a wider pool of borrowers, including those struggling just above the poverty line.

    Others have sometimes criticized what they see as Grameen’s unconventional accounting practices (which Mr. Yunus said yesterday were fully transparent) or maintained that Grameen should have been more of a leader in combining microcredit with health and education services, or in lending to poor people who need money not to start businesses, but to pay their bills, or cover their children’s school fees.

    But in interviews yesterday, Mr. Yunus’s skeptics and fans alike credited him and Grameen with helping to fundamentally change the way the world saw the potential of poor people and to popularize the movement to provide financial services to the poor.

    Yunus was one of the early visionaries who believed in the idea of poor people as viable, worthy, attractive clients for loans. That simple notion has put in motion a huge range of imitators and innovators who have taken that idea and run with it, improved on it, expanded it.

    Or, as the Nobel committee put it: “Yunus’s long term vision is to eliminate poverty in the world. That vision cannot be realized by means of microcredit alone. But Muhammad Yunus and Grameen Bank have shown that, in the continuing effort to achieve it, microcredit must play a major part.”

    The prize was another that fell under a broader definition of peace, awarded by the committee not for traditional conflict resolution, but rather development work, and followed the 2004 award to a Kenyan environmentalist, Wangari Maathai.

    Indeed, in the decades since Mr. Yunus’s first loan, microcredit has become one of the most popular antipoverty strategies in the world. Last year, more than 100 million people received small loans from more than 3,100 institutions in 130 countries, according to Microcredit Summit, a Washington based nonprofit advocacy group that Mr. Yunus helped found. The average loan from Grameen Bank was $130.

    Over the years, the movement to provide financial services to the poor has become more capacious, stressing the need for services beyond loans for safe places to save small amounts of money, for crop and life insurance, for inexpensive ways to transfer money earned in distant cities and foreign countries to families back home.

    In the 1970’s, when Mr. Yunus was getting started, the idea that poor people were a good credit risk seemed far-fetched. The United States Agency for International Development conducted a global survey of banking services in poor communities and found failure after failure.

    Many of the lenders then were state owned banks that gave credit to politically connected elites rather than the poor people they were supposed to serve. And often at election time, vote-seeking politicians pressed the banks to forgive loans wholesale, leaving the institutions in terrible financial shape.

    In 1974, Mr. Yunus, trained as an economist at Vanderbuilt University ,and latter found himself teaching economics at Chittagong University when Bangladesh was struck by famine. “I decided I must do something,” he said. He began working in nearby villages, among them Jobra, where he made his first loan in 1976.

    He said he tried to persuade commercial banks to give loans to poor people who had no assets and had always been dependent on local moneylenders. But the bankers only did so when he personally co signed as a guarantor.

    Mr. Yunus’s new model of banking for the poor had several unusual features. It lent not only to farmers, but also to laborers and women who had a knack for crafts and shopkeeping. And it required borrowers to repay their loans in manageable, bite sized weekly installments.

    “He proved the impossible: that the poor were bankable,”.

    But Mr. Yunus’s approach went beyond giving the poor economic opportunity to seeking deeper social change, said Amartya Sen, who, like Mr. Yunus, is a Bengali, an economist and a Nobel prize winner.

    Mr. Sen, a professor at Harvard, noted that Grameen’s loans had gone overwhelmingly to women, giving financial clout to women who had little power in Bangladeshi society and often lived cloistered in their homes.

    In the overwhelmingly Muslim nation of Bangladesh, Mr. Yunus’s approach also offered hope and ideas to compete with the allure of fundamentalist Islamic causes.

    “It’s a very secular movement,” Professor Sen said, “very egalitarian, market friendly and socially radical.”

    Those who have watched Mr. Yunus over the years remarked on his gifts as a salesman his personal warmth, his talent for telling a story, his sheer ability to charm an audience. Those qualities were very much on display last month when he participated in a panel at a Sheraton hotel in New York during Bill Clinton’s gathering of international do gooders.

    The theme was “Building a Sustainable Future,” and Mr. Yunus told about how Grameen gave loans to beggars. He made hundreds of rich people many of them looking for causes to support laugh out loud and also tugged at their heartstrings.

    “All we are doing is telling beggars that, well, since you go house to house begging, would you like to take some merchandise with you, some cookies, some candy, something?” he asked a crowd that hooted with delight at this clever notion.

    “A typical loan for a beggar is something like $12,” he said. “With $12, she has a basket of merchandise she carries around and goes house to house.”

    “Today, we have more than 80,000 beggars in the program,” he said. “Many of them have already quit begging completely.”


    Posted Oct 17 2006, 05:19 PM by amparo with no comments
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  • The Future ahead

    From 1945 to 1970 the United Sates experienced a long period of hegemony over the world economy distinguished by sustained growth in the agricultural, industrial and commercial sectors. Our markets expanded world wide and we had no competition from other countries.

    In the period of 1970 to 2000, due to the growth of the European economy as well as the ones of Asian countries such as Japan, our development and expansion started to decelerate. At present we are facing harsh economic competition from Asian countries such as China, Japan, South Korea and others located farther in the oriental sector of that region of the world. Europe has also become a commercial challenger and other growing economies as India Brazil and Russia are claiming too their world market’s share.

    In the near future we might have to face that currencies such as the Yuan (Renminbi), Yen and Euro could be competing with de dollar for the world’s currency leadership. We will also be facing shortages in resources as important as water and oil and dangerous, even perhaps catastrophic, ecological problems. Thinking again about Schumacher could help us break with our rigid economic schemes and learn to accept new economic models as possible solutions to our dilemma. We need to obtain a different perception of our future economic reality and look for alternatives in order to face a new world order and to come out ahead. It will take a lot of creativity, perseverance and hard work to move forward and do relatively well, in the mist of the future chaos that lays not too far away.


    Posted Oct 14 2006, 05:25 PM by amparo with no comments
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  • An alternative Economic Model.

    Fritz Schumacher’s book Small is Beautiful is based on a series of papers and essays written mostly during the fifties and sixties. Influenced partly by Gandhi and partly by his experience of Buddhism during an extended visit to Burma, Schumacher promoted a nonviolent economics, one that would cooperate with nature rather than exploiting it. He advocated the use of renewable resources as early as the mid fifties, at a time when technological optimism was at its height, when the emphasis everywhere was on growth and expansion, and natural resources seemed unlimited. Against this powerful cultural current Schumacher, prophet of the ecology movement that was to emerge two decades later, patiently raised his voice of wisdom, emphasizing the importance of human scale, quality, “good work”, an economics of permanence based on sound ecological principles, and a “technology with a human face”.

    The key idea of Schumacher’s economic philosophy is to introduce values explicitly into economic thinking. He criticizes his fellow economists for failing to recognize that all economic theory is based on a certain value system and a certain view of human nature. If that view changes, Schumacher points out, nearly all economic theories have to change, and he illustrates his point very eloquently by comparing two economic systems embodying entirely different values and goals. One is our present materialist system, in which the standard of living is measured by the amount of annual consumption, and which therefore tries to achieve maximum consumption along with an optimal pattern of production, the other is a system of Buddhist economics, based on the notions of “right livelihood” and the “Middle Way”, in which the aim is to achieve a maximum of human well being with an optimal pattern of consumption.


    Posted Oct 10 2006, 05:47 PM by amparo with no comments
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  • Hedge funds and the law

    October 6, 2006

    Hedge funds are in general investment pools for the wealthy as well as for investment institutions. The funds could become highly unstable and potentially harmful to the economy specially if interest rates keep coming up. Congress should reject a 2000 law that limits regulators ability to monitor over the Counter Derivative securities financial instruments not listed on the exchanges.
    Posted Oct 07 2006, 06:58 PM by amparo with no comments
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  • Real Estate

    October 5, 2006

    The real estate market has barely started to come down (3.5%), if the market goes down slowly a soft landing will be negative to the economy and it’s destructive capacity could be reduced considerably, however if the market goes down faster its effect in the Economy might be more harmful. In the second case construction jobs will be lost as well as the jobs of many mortgage brokers too. In the worse scenario as many as 20,000 jobs a month could be lost.

    The behavior of long interest rates will have a lot to do with how fast the Real Estate market decelerate. If interest rates go up quickly the market will be badly affected, if on the other hand interest rates go up slowly the impact on the economy will be less destructive. We ought to think that fast growing interest rates will not only be bad for our economy but to the world’s economy in general.
    Posted Oct 07 2006, 06:53 PM by amparo with no comments
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  • Hedge Funds 2.6t

    October 4, 2006

    There are approximately 2.6 trillion dollars of hedge funds circulating in the world today. If interest rates go up we might see several more cases similar to Amaranth where Hedge Funds Companies fall apart
    Posted Oct 07 2006, 06:47 PM by amparo with no comments
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