Bev-enomics!

You Can Almost Hear It Pop

2007-12-18T08:02:00Z

By STEPHEN S ROACH
December 16 2007
The American economy is slipping into its second post-bubble recession in seven years. Just as the bursting of the dot-com bubble led to a downturn in 2001 and ’02, the simultaneous popping of the housing and credit bubbles is doing the same right now.
This recession will be deeper than the shallow contraction earlier in this decade. The dot-com-led downturn was set off by a collapse in business capital spending, which at its peak in 2000 accounted for only 13 percent of the country’s gross domestic product. The current recession is all about the coming capitulation of the American consumer — whose spending now accounts for a record 72 percent of G.D.P.
Consumers have no choice other than to retrench. Home prices are likely to fall for the nation as a whole in 2008, the first such occurrence since 1933. And access to home equity credit lines and mortgage refinancing — the means by which consumers have borrowed against their homes — is likely to be impaired by the aftershocks of the subprime crisis.
Consumers will have to resort to spending and saving the old-fashioned way, relying on income rather than assets even as mounting layoffs will make income growth increasingly sluggish.
For the rest of the world, this will come as a rude awakening. America’s recession is likely to shift from homebuilding activity, its least global sector, to consumer demand, its most global.
There is hope that young consumers from rapidly growing developing economies can fill the void left by weakness in American consumers. Don’t count on it. American consumers spent close to $9.5 trillion over the last year. Chinese consumers spent around $1 trillion and Indians spent $650 billion. It is almost mathematically impossible for China and India to offset a pullback in American consumption.
America’s central bank has mismanaged the biggest risk of our times. Ever since the equity bubble began forming in the late 1990s, the Federal Reserve has been ignoring, if not condoning, excesses in asset markets. That negligence has allowed the United States to lurch from bubble to bubble.
Fixated on the narrow “core inflation” rate, which excludes the necessities of food and energy, the Fed has ignored new and powerful linkages that have developed between economic activity and increasingly risky financial markets.
Over time, America’s bubbles have gotten bigger, as have the segments of the real economy they have infected. The Fed needs to rethink its reckless, bubble-prone policy. Once the current crisis subsides, the economy will require the tight money of higher interest rates — the only hope America has for breaking the lethal chain of endless asset bubbles.

We need stronger government actions.

A recession is at the door as Stephen Roach explained above, we need strong measures from the feds to put an end to this situation since the current and recent proposed plan is not good enough (the markets know it and that is the cause of their poor performance). The implementation of strong actions as for instance a freeze on mortgage interest rates or an special line of credit with low interest rates for those home owners with subprime loans so that they can pull out of the crisis they face at present, a crisis with a name: foreclosure

The Unpredictable Economy

2007-07-14T12:49:06Z

July 14, 2007

The Unpredictable Economy

Retail sales declined 0.9% during the month of June the worse fall in two years. According to the commerce Department the reduction was caused by a decline in car and gasoline sales.

On the other hand Consumer Confidence went up registering 92.4 points probably due to the good performance of the Stock Market, the index reached its highest point since January.

Although the economic signs are relatively good our economy as a whole is not as healthy as it should be, if we consider the excessive dollar weakness in relation to the Euro and the recent increase in the Commercial Deficit we find deep structural problems that need a great deal of work, if we first find the solution of course.

The European Union and Russia

2007-07-12T12:45:00Z

July 12, 2007

The European Union and Russia

Representatives from the European Union and Russia will hold talks next week in order to strengthen their economic cooperation.

At present Russia is the third European economic partner and the exports proceeding from Europe to Russia amount to a total of 99 billions, for the 2000 – 2006 period, while European imports from Russia reached for the same time period 193 billion dollars.

The European economy has shown signs of a healthy recovery its GNP registered last year a 3.1% increase. During the first trimester the economy demonstrated a 0.7% increase in relation to the trimester before that, and a 3.1% increase in relation to the same trimester of 2006.

Is good to know that the world economy will not fall apart in spite of our lagging contribution.

Commercial Deficit

2007-07-11T12:30:00Z

July 11, 2007

Our commercial deficit went up 2.3% during the month of May reaching the amount of 60 billions dollars according to the Commerce Department.

Exports grew 2.2% in May reaching the 132 billion dollars mark while imports increased 2.3% by the amount of 192 billion 100 million dollars.

Our economy nevertheless is the largest world wide, our next year budget alone reached the 623 billion figure and it represents only the 4% of the GDP.

We are number one but need to keep an eye in our financial investment growth abroad and the weakening of our economic structure at home, such a polarization might only bring about future dangerous and unmanageable problems.

Employment

2007-07-07T23:31:00Z

July 7, 2007

According to the labor department 132 thousand jobs were created in the month of June. Wall street analyst were expecting a number close to 120 thousand. On the other hand the labor department informed that 75 thousand more jobs were created during the months of April and May after a second evaluation.

Unemployment rate remained stable at 4.5%.

We continue to see an economic slow down mixed with some positive news an indication of a soft landing and the possibility of an economic recover sooner than expected.

Manufacturing Activity performance

2007-07-05T23:26:00Z

July 5, 2007

The index of manufacturing activity experienced during the month of June it’s largest increment since April of this year while price’s pressure declined.

The manufacturing index activity indicator showed a 56.0 in June depicting an increase if compared with 55 in May and 54.7 in April. Analyst expectation’s number was 55 for June.

Reading above 50 suggest an expansion of the activity while a number below 50 indicates a contraction.

After a weak first trimester the manufacturing sector improved it’s performance with relative strength for the second trimester.

Good news to counter the poor performance brought about by the housing sector an economic vector that has threatened to provoke an economic recession.

Latin America economies

2007-06-27T00:52:02Z

The strong economic growth of Argentine and Venezuela this year will probably help reach an average growth within 4.8% average for Latin America economies according to the International Payment Bank.

Argentine and Venezuela are expected to grow a 7.6% and 7% each while Chile will probably grow a 5.7% for 2007, Brazil a 4.2% and Mexico around a 3.0%.

Inflation will probably reach a 5% in 2007 for Latin America countries in the average and the level of inflation although expected to be of 5% could be higher, presenting a problem.

The slow down in the American Economy could present a challenge and a risk for the LA economies, the economic performance of China, Japan and Europe however could make up for our lower performance if their economies remain healthy enough.

Is borrowing keeping the economy still alive?

2007-06-25T20:01:00Z

If is only natural that our economy goes down for a period of time as it is to be expected of its corresponding cycle, it is nevertheless amazing that the down turn is taking so long to take place. If consumption has been healthy and employment has kept a decent level in spite of the house market and the poor performance of the automotive industry, is probably only because the average citizen can keep borrowing from the several credit cards they have available and the easy credit at their disposal.

Besides second and even third mortgages can keep a family economically healthy for over a year. Is very possible that this is the reason why our economy is still doing well. However borrowing too much can get us to unbearable levels of debt. A situation such as this could have worse economical consequences since greater debt will increase the number of bankruptcies and make it more difficult for the economy to recover latter on.

Unemployment

2007-06-24T20:49:00Z

The number of unemployment claims went up unexpectedly last week reaching it’s highest level in two months.

According to the Department of Labor unemployment insurance claims were 324 thousand a 10% increase over the week before.

In spite of the slowing down of the economy during last year the labor market had remain strong, this regardless of the negative news coming front the construction industry and the labor market.

Economic growth took a down turn at an annual index of 0.6% in the first trimester of this year. The worse performance in four years. However economic growth might recover in the second trimester with some luck.

We shouldn’t be surprised of what is taking place in the economy since is normal that after several years of economic growth our economy goes down for a while. This is due to the economic cycles that are expected in a capitalist economy such as ours.

Exports and inventories

2007-06-14T20:13:00Z

According to the labor department our export’s went up in price 0.1% during the month of may while imports were up too 0.9% for the same months. The increments were mostly due to an increase in oil prices. On the other hand inventories were up 0.4% for the month of April.

The rate inventories / sales decreased a 1.27 in the month of April and Corporation sales went up 0.7%.

The performance of the economy continues to send mix signals and is difficult to forecast what it’s behavior will be in the next few months.

Retail sales increase in May

2007-06-12T21:09:00Z

Retail sales increase 1.4% in the month of May the largest increment in 16 months according to the Commerce Department.

Department sales were up in every category including gasoline, cars, electronic equipment, clothing and construction materials.

The number coming from the month of May were better than the ones expected by analyst. They were only expecting a modest 0.7% since gas prices should have brought down consumer spending in other sector of the economy.

Entanglement

2007-05-31T21:02:00Z

Sixty percent of Chinese exports do not come from China but from other countries. Objects and products are only partially manufactured in China as it happens with other countries that are part of the Global Productive Chain. Sometimes the other 60% come from a countries such as Taiwan, Korea or Japan.

Asking the Chinese to revalue the Yuan might not be best of all solutions after all. Our economies are so interdependent that we could be negatively affected in other ways that we might not have taken into consideration. If the dollar depreciates against the Yuan or if the Yuan raises its value against the dollar, the average Chinese citizen that budgets its income carefully every month to allow for a portion of hers or his salary to buy dollars and save, might no longer do it. Therefore a stronger Yuan could have unwarranted repercussions for our economy. Every year most of Chinas savings (416 billions) come to the USA to buy U.S. Treasury bonds while at the same time in between 300 to 400 billion of annual Chinese savings go to buy Corporate bonds. If this capital flow was interrupted our economy would probably go into a recession because of a lack in liquidity and the fact that the feds will then have to raise interest rates.

On the other hand countries like Chile, Argentina, Brazil and Peru that buy our products, with a decrease in American productivity will see their exports to China( metals, minerals and commodities in general) seriously
compromised since Chinese production will slow down, and once their exports get cut down they will purchase less American products.

In deed since 1997 we have lost and average of 1% of yearly inflation because of Chinese imports being so cheap, something that is very good for our economy.

We certainly have to become more competitive and protect our industries and employment from moving abroad but at this point because of the economic entanglement and interdependence with China our protective strategies need to be carefully studied and analyze before implemented.

Important Economic Signs

2007-05-28T20:16:00Z

The American economy is slowing. According to the U.S. Department of Commerce, the economy grew only 1.3% in the first quarter. The slowest pace in four years.

The dollar is still falling. The dollar hit its lowest level against all other major currencies since the Federal Reserve began keeping records in 1971.

Inflation is rising. In March, the cost for importing consumer goods was the highest it’s been in 11 yers.

The housing market is in a depression. Home prices are falling in every part of the country. The supply of homes on the market 17% higher than a year ago. Foreclosures recently surged 47%.

Foreign markets are blowing past the U.S. market. While the Dow is up about 20% in the last 16 months, the Shanghai Composite Index skyrocketed almost 200%.

Industrial production is up

2007-05-17T11:49:42Z

May 17, 2007

Industrial production went up 0.7% during the month of April above most analyst expectations. An increment in the sectors of Automotive Production and Basic Services were mostly responsible for the raise. During the month of March industrial production suffer a contraction of 0.3% according to the Federal Reserve. During the month of April industrial capacity went up to 81.6% from 81.2% during the month of March.

Good news from one of the most important economic fronts.

Tony Blair's performance

2007-05-16T11:46:00Z

May 16, 2007

Tony Blair’s performance

How bad was Blair’s performance during his term, the price minister initiated a strong spending program in science and technology and backed up strict labor laws. Blair brought peace with Ireland and helped stimulate it’s economy which has become one of the most dynamics in the world attracting large amounts of foreign investments. He also promoted women’s rights. Blair got rid of inefficient and non productive politicians from the House of the Lords who basically earned a salary and did not work. During his term more than 2 million people came out of poverty implementing government programs to improve their education and health.

And yes Blair decision about Irak was a mistake however his general achievements in the social and economic sectors deserve our recognition and praise.