About the economy

Vladimir Gonzalez asked:


Mexico Economy

Despite the fact that Mexico has a well-developed and stable economy in general, there is still an obvious difference between the rich and the poor, the north and the south, as well as between urban and rural areas. These differences will continue to grow unless they are taken care of. The percentage of population in extreme poverty has decreased between 2000 and 2004, but income inequality remains a problem. This inequality problem needs to be attended in order for Mexico to improve its economy and avoid political and social instability.

Mexico’s GDP passed the trillion-dollar mark in 2004. Therefore, it has become one of the major middle-income countries that have an advanced economy. It is the 12th largest economy in the world and, according to the World Bank, and it has the highest Gross National Income per capita in Latin America. Goldman Sachs’ recent study of emerging economies predicted that by 2050 Mexico will hold one of the largest economies in the world, alongside China, United States, India, Japan and Brazil. As for the Mexican Peso, its exchange rates are high, therefore the country has the highest purchasing power parity of the countries in Latin America.

In 1994, Mexican economy was put to the test, but it has recovered and now it is modern, diversified, with recent administrations improving infrastructure. Moreover, there is intense competition in seaports, railroads, telecommunications, airports, electricity generation, as well as natural gas distribution.

Mexico is part of the North America Free Trade Agreement (NAFTA), so almost 90% of Mexico’s export goes to the United States and Canada, while 65% of the country’s imports come from these two. Mexico is in agreement with the European Union, Japan, Israel and other countries in Central and South America as well, making it an important part of international trade, as it is the 15th largest exporter in the world, 10th if the European Union is considered a single entity. When it comes to Mexico’s largest source of foreign income, oil holds first place.

Mexico’s main concerns are keeping interest rates and levels of inflation low, although, like other countries, Mexico was affected by rising prices in oil, food and commodity in 2008. The infrastructure needs to be improved as well. The industry is a combination of businesses that are advanced technologically speaking and industries that are in need of reform, with the private sector taking up an increasingly important role in agriculture and industry as well.

Further reading on EconomyWatch.com:

Overview of Mexican Economy

Imports and Exports of Mexico

Economic Structure of Mexico



How To Build A Fireplace

Australasian Investment Review asked:


According to the economics teams at three leading investment banks, the Australian economy is slumping right now and will continue to worsen well into 2009 at a rate lower than the forecasts from Treasury and The Reserve Bank.

The economics teams at Goldman Sachs JBWere and Merrill Lynch have slashed their estimates of 2008 and 2009 economic growth for Australia and are now predicting recession.

And ABN Amro reckons the economy is stalling right now and growth is close to zero.

They all agree that as a result the Federal budget will go into deficit, unemployment will rise to 7.5%, and the Reserve Bank will cut interest rates to a low of 3.5%, a point suggested late last week as well by Macquarie Bank interest rate strategist, Rory Robertson.

He and the two teams now say we will get a 1% cut in interest rates from the Reserve Bank at its meeting next Tuesday, which will take the cuts since September to 3%, a measure of how seriously the RBA views what is happening in the economy.

But debt futures market are tipping the RBA to cut the cash rate by a massive 1.25% next Tuesday, which if it happens, would be the largest official rate cut since the 1990 recession.

ABN Amro’s chief economist Kieran Davies said a shrinking Australian economy, falling asset prices and recession-like levels of business confidence will make the RBA more inclined to cut rates aggressively.

“The wealth effect of falling asset prices is snowballing and the Chinese economy is slowing very sharply. Also, we think the economy is contracting now. We are close to zero.”

A 1.25% rate cut in December would take the cash rate to 4%.

The cash rate was at 4.25% in late 2001 and has not been below that level since the RBA began publishing its cash rate target in 1990.

Economists point out that the debt futures market is signalling a cash rate low of around 3%, which would be the lowest level for rates since 1960, when the credit squeeze hit that year and

Federal Treasurer Wayne Swan still claims the budget won’t go into deficit: the forecasts reckon it will, and they were supported by the latest update from the well-connected Access Economics team in Canberra.(Source).

Goldman Sachs JBWere’s downgrade follows one in the US from their economics group there for the US on Friday:

Goldman Sachs said US GDP was shrinking at a 5 % annual rate in the current quarter and will drop 3% and 1% in the next two quarters.

It said in a note US unemployment will reach 9% by this time next year. In contrast the US Fed reckons unemployment will get to 7.6% next year (it’s 6.5% at the moment).

This morning in a note to clients sent out over the weekend, Goldman Sachs JBWere said:

“We have revised down our economic growth forecasts from 2.0% in 2008 and 1.7% in 2009, to 1.8% in 2008 and 1.0% in 2009.

The new forecasts incorporate a deeper recession through 2H08 than we first forecast in early October and a shallower recovery path through 2H09.

“We have also revised our interest rate forecasts, with the RBA now expected to cut the cash rate to 3.5% by March 2009 (75bp lower than our previous forecast).

“The combination of dramatic financial wealth destruction, debilitating tightness in money markets, rapidly slowing credit growth, sharp falls in commodity prices and evidence that Australian house prices are declining led us to formally adopt a recession in Australia as our base line view on 12th October.

“Since that time our conviction that Australia is poised for its first recession in 17 years has strengthened.

“The reduction in commodity prices by our resource strategy team suggests that Australia’s terms of trade will decline ~20% year on year by end- 2009, sufficient to strip around 3.0% from domestic demand growth.

“We now expect business investment to decline 7.0% in 2009 (was -1.7%) and domestic demand growth of just 0.6% in 2009 (was 1.8%). As such, we have also raised our estimate of the unemployment rate from 6.5% by end-2009 to 7.5%.

“We believe economic growth will contract -0.5% in the September quarter, -0.3% in the December quarter and -0.1% in the March quarter.

“This would be sufficient to see GDP decline -0.6%yoy in the March quarter 2009 and -0.3%yoy in the June quarter 2009 before an acceleration to +3.25%yoy by December 2009 as the combined effects of the interest rate cuts, A$ weakness and fiscal stimulus coagulate in 2H09 and drive a rebound in demand.

“We remain convinced that the Australian economy faces a debt-deflation cycle. The risk of deflation was brought home to all policymakers by the sharp fall in US inflation in October.

“In essence, we believe the threat of deflation (no matter how small) will accelerate plans of interest rate cuts and we now expect the RBA to cut interest rates 100bp in December, 50bp at its next meeting in February and a further 25bp in March.

“This will take the RBA cash rate to 3.5% by March 2009, a 375bp cutting cycle since September 2008.

“We believe the government should worry less about protecting an underlying surplus and more about providing the conditions to promote aggregate demand growth.

“We have downgraded our Market Forecasts reflecting a reality check due to the current market turmoil as well as incorporating the recent revisions to our commodity forecasts and domestic economic growth forecasts.

“Reduced our Industrial top-down FY09 EPS forecast from -5.0% to -15.0% (bottom-up forecast is +3.3%). - Reduced our resources FY09 EPS growth forecast from 0.0% to -15.0% (bottom-up +4.4%) and our FY10 from +15% to -5.0% (bottom-up +20%).

“Our revised forecasts for the ASX200 are: Dec’08: 3400 (previously 4525; -25%) - Jun’09: 3780 (4975; -24%) - Dec’09: 4100 (5350; -23%). The ASX closed at 3374 yesterday , so it’s already under the 2008 forecast of GSJBW.”

Merrill Lynch wrote yesterday:

The Australian economy is being overwhelmed by the global financial crisis and external growth shock, impaired credit markets, collapsing asset prices, and imbalances on the household sector balance sheet.

We are downgrading our 2009 GDP forecast to 0.2% (down from 1.7% previously).

We expect the economy to contract on a through the year basis over FY09.

In our view, the very substantial monetary and fiscal policy response and adjustment in the exchange rate will not be sufficient to avoid a recession over 1H2009.

Our business cycle analysis and leading indicator frameworks are pointing to a rapid deceleration in domestic demand growth over the next 3-4 quarters.

Lead indicators of employment (and income growth) have deteriorated significantly over the past quarter.

Our downgrade to GDP growth covers all components of private demand (household spending, housing and business investment) and export volumes.

Business investment in particular will be negatively impacted by the global recession, the fall in the terms of trade and the tightening in the supply of credit.

Global lead indictors have fallen deep into hard landing territory. ML is forecasting global growth of just 1.5% in 2009, down from 3.4% in 2008.

The commodity price and terms of trade decline in 2009 will sharply reduce gross domestic incomes (both directly and indirectly).

The steep decline in asset prices over the past 12 months and need for households to lift savings and de-lever reinforces a very weak outlook for household spending through 2009, despite the cash-flow relief coming from lower interest rates and petrol prices.

We expect the labour market to weaken significantly over the next 12-18 months with employment growth falling to -2.0% by late 2009 and the unemployment rate rising to 7.5%.

The household savings rate is assumed to rise to 3.75% (from 0.9% currently) as de-leveraging intensifies.

We are more optimistic about 2010, with substantial global and domestic policy stimulus expected to support a recovery in growth. We expect GDP growth of 2.2% in 2010, led initially by a cyclical recovery in housing activity and strengthening global growth.

We expect the RBA to lower the cash rate to 3.5% by Q1 2009 in response to the global downturn, the deep slump in domestic demand growth and reduced inflation pressures.

The main focus of policy over the next 6-9 months will be addressing falling corporate and household income growth, which run the risk of exacerbating the de-leveraging underway in the economy.

And on Friday:



Citigroup’s global economic team issued its weekly update with these gloomy forecasts:

Financial conditions in the United States continue to deteriorate, increasing downside risks.

Collapsing US bond yields reveal considerable scope and need for fiscal action. Fed officials seem poised for further aggressive steps.

With a deepening recession in the euro area, and inflation likely to undershoot the ECB’s target, we expect the ECB to lower rates to 1% by mid-2009.

The Japan economy is likely to contract further, and we expect the BoJ to lower rates again.

The UK economy faces a long, deep contraction. But substantial policy action should eventually generate a recovery.



Scented Floating Candles

shootandkillmexx asked:


As the title says. In the simplest form, how does the US economy work.
Also, how does our economy effect foreign economies? (How does out financial crash cause other economies to follow suit?)

Outdoor Bamboo Fountain

gimpyshake asked:


California’s economy is especially faulty now. If I were offered a job in Cali and were considering moving there, how should the current status of the economy effect my decision.

would a dismal economy substantially harm my ability to relocate. Or is there a sense that moving now might be akin to “getting in on the bottom floor”?

Candy Vending Machines

Money Morning asked:


If there’s a proverb that captures the outlook for the U.S. economy in the New Year, it’s the one that says: “It’s always darkest before the dawn.”

Regardless of any formal announcement of whether or not the United States drops into an actual recession, the ongoing credit crisis guarantees a contraction of the American economy by virtually every measure we know. That period of darkness will be marked by a dramatic slowdown in economic activity, as well as by rising unemployment, additional declines in U.S. stock prices, and constant volatility. It could last as long as 12-18 months.

But when the dawn does come, it will be one to remember. If U.S. President-elect Barack Obama gets it right - and I have every reason to believe that he will - then investors will be presented with the greatest investment opportunity of our generation. At that point, shares of American companies will be at such low levels that wholesale buying by individuals, mutual funds, pension funds, institutional money managers, and foreign-controlled sovereign wealth funds, will generate gains that will not only make us whole, they will make us rich once again.

A Market Mandela

Creating an analysis of the U.S. economy’s outlook for the New Year is akin to creating a mandala, a geometric work of art whose pattern, symbolically or metaphysically, represents a microcosm of the universe from the human perspective. In some Buddhist temples, mandalas are made of tiny colored beads, painstakingly created by several monks as a form of meditation. In celebration of the ever-changing nature of the universe, the mandala is then joyously shaken by its creators, until it is once again nothing more than chaos embodied in a box of colored beads.

Regardless of the big picture, analysis of a mandala - or the economy - always starts at the center and emanates outward. With the U.S. economy, that centerpiece is credit. The credit crisis has shaken the complex mandala that is our economy and transformed the United States economy into chaos. It’s complex because this economic-forecast mandala derived its form from thousands of individual pieces - in the case of the economy, from scores of data points, many of which are currently dark and foreboding.

The credit crisis we are experiencing results from the contraction - or worse, the cessation - of lending. Under normal circumstances, institutions and markets freely facilitate capital movement between lenders and borrowers. But that’s not happening, now.

Because of a lack of transparency into the balance sheets of borrowers holding such complex and illiquid securities as collateralized debt obligations, credit-default swaps, and non-performing loans, and because of increasing recessionary fears affecting businesses and households, lenders don’t want to increase their loan exposure. Banks are holding onto the cash and liquid securities they control, using them as a cushion against their own potential losses. The U.S. Treasury Department’s direct-to-bank capital injections do not alter these banking realities. In fact, as a Money Morning investigative story recently demonstrated, instead of using these taxpayer-provided infusions to increase their lending, these banks are using the money to finance takeover deals.

The Recipe for a Recession

Whether or not the United States is technically in a recession ultimately will be divined by the National Bureau of Economic Research (NBER). The business-cycle dating committee of this privately run, nonprofit economic research group is right now studying five factors in an attempt to determine if the United States has entered a recession and, if so, when that downturn started, MarketWatch.com reported. Those five factors are:



Gross Domestic Product (GDP).

Industrial production.

Employment

Income.

Retail sales.

Regardless of any formal announcement by the NBER of whether we’re in a recession, the credit crisis guarantees a general contraction of economic activity, by every measure.

“Any doubt that we’re officially in a recession can be put aside,” Anthony Karydakis, former chief U.S. economist for JPMorgan Asset Management (JPM) - and now a professor at New York University’s Stern School of Business - recently wrote in Fortune magazine. “The rapid deterioration of labor markets points to a sharp decline in hours worked and output in the fourth quarter. This is likely to lead to a decline in personal consumption to the tune of 5.0% or so for that period. Since [consumer spending] makes up about 70% of the economy, the stage has already been set for real GDP to shrink at a more than 4.0% rate in the fourth quarter.”

Confirmation of that belief is evident by looking at each of the NBER’s five key indicators.



Gross Domestic Product (GDP): The U.S. Commerce Department estimated that the U.S. economy, as measured by GDP, rose 0.9% in the first quarter. In the second quarter, GDP advanced an estimated 2.8%. For the third quarter, GDP declined an estimated 0.3%. My own econometric models suggest that GDP actually contracted at a 1.5% pace in the third quarter and will decline another 2.75% in the fourth quarter. For the year, that would mean the U.S. economy actually fell 0.55%. The U.S. economy last posted a full year’s negative GDP in 1991, when it declined 0.2%. Verdict: Recession.

Industrial Production: This measure of output by the nation’s factories and mines dropped 2.8% in September, and a very steep 6.0% in the third quarter. Verdict: Recession.

Employment: The U.S. Bureau of Labor Statistics announced Friday that October’s unemployment rate was 6.5%, a jump of 0.4%, which was double what most economists expected, and also its highest level in 14 years. The economy has now lost a total of 1.2 million jobs since the beginning of the year, with nearly half of those losses occurring in the last three months alone, pointing to an acceleration in the pace of erosion in labor markets. Karydakis, the Stern School professor, wrote in

Fortune : “By way of comparison, during the 2001 recession and in the sluggish growth that followed in 2002-03, the unemployment rate reached a peak of only 6.3%, in June 2003. We’ve already exceeded that mark and, given that we are still in the early phase of the current recession, the unemployment rate should be expected to push toward the 7.5% range - and possibly higher - during the next three months to six months.”

Verdict: Recession.

Income: Personal income increased $24.5 billion, or 0.2%, and disposable personal income (DPI) increased $25.7 billion, or 0.2%, in September. Personal consumption expenditures (PCE) decreased $33.6 billion, or 0.3%. Excluding the rebate payments made to U.S. taxpayers under the Economic Stimulus Act of 2008, DPI increased $30.3 billion, or 0.3%, in September, and increased $44.0 billion, or 0.4%, in August. Verdict: Too close to call.

Retail Sales: October retail sales are coming in well below already-diminished expectations, and some reports have been downright depressing - including The Neiman Marcus Group Inc. -26.8%; The Gap Inc. (GPS) -16%; The Nordstrom Group (JWN) -15.7%; J.C. Penny Co. Inc. (JCP) -13%; Kohl’s Corp. (KSS) -9%; Ltd. Brands Inc. (LTD) -9%; Target Corp. Inc. (TGT) -4.8%; and Wal-Mart Stores Inc. (WMT) +2.4%. In a report last week, Moody’s Investors Service (MCO) projected that the retail sector’s woes will continue into 2009 as consumers cut back on buying apparel, footwear and accessories “in order to save money for essentials.” The credit rating firm said in a separate report that holiday spending “will prove even weaker than expected,” amid October’s financial-market swoon. Verdict: Recession.

If U.S. exports are taken out of the GDP calculations going back to January, it’s apparent that there has been very little domestic growth in the economy. And when revisions are finalized in the next few months, we’ll be looking back at the recession that we’re all but certain is upon us right now. Until the credit markets are freed up and borrowers are extended credit at reasonable rates, it’s unlikely that credit, the centerpiece of the economy, will be anything other than a major cog in the wheel.

There are some signs of a thaw, but not anytime soon. The U.S. Federal Reserve’s lowering of the Fed Funds target rate to 1.0%, and coordinated rate reductions by the Bank of England and the European Central Bank, as well as other major world-wide central banks, may start to ease the stranglehold gripping the worldwide credit markets. The London interbank offered rate (Libor), a critical interest rate against which trillions of dollars of mortgages, bank loans and derivatives are priced, dropped to 2.39% last week from a high of 4.82% on Oct. 10.

The prospect of President-elect Obama’s choosing a different means of attacking the credit crisis will be closely watched and, by itself, may create an air of confidence that perceptions will change. But changed perceptions will not be enough.

The truth about our economic outlook is that it is predicated on demonstrably better transparency. If U.S. banks follow the lead of their European counterparts, which have recently been freed from fair-value, mark-to-market accounting, and which may retroactively mark assets to “internal models” back to July, then balance-sheet clarity will continue to be cloaked in darkness. Lack of confidence in the banking system will persist, especially among the banks themselves. The first order of attack needs to be the creation of a fundamental leadership position that leads to an open, transparent and accountable measure of balance sheet assets and liabilities. As long as failing banks are being propped up, this cycle of credit contraction will persist.

The outlook for the economy is inextricably tied to the price of oil. The run-up of benchmark crude this summer to the record $145 a barrel level, and its subsequent fall to half that level, has wreaked havoc throughout the economy. Similarly, the run-up in commodity prices, and their subsequent fall, also has caused a lot of damage. Together, the dramatic rise and fall in the pricde of oil and other commodities is a harbinger of greater volatility in the future.

Follow the Money

Follow the money. Capital rapidly inflated the tech-stock bubble. When that bubble burst, capital flowed into and flooded the hard-asset world of real estate. When that bubble burst fast, speculative money dove into oil and commodities. When the U.S. and world economies looked weak, those bubbles burst. The looming threat of inflation this past summer instantly gave way after the drop of oil, gold, metals and agricultural commodities. And now, deflation is seen as the looming threat on the horizon.

Which threat should we worry about?

The answer is - both. The prospect for near-term deflation seems all too real. As raw material prices fall and finished good prices fall due to a lack of purchasing power resulting from lack of credit and world-wide recessionary fears, the U.S. consumer has fundamentally changed his or her collective psychology. Is U.S. consumerism, which is responsible for 70% of GDP, in full retreat? If it is, as all measures project, then it’s likely that government stimulus efforts will overshoot their intended mark.

Just look at what the United States has done already as it battles this financial crisis. It has:



Handed out more than $150 billion in stimulus rebate checks.

Floated a $700 billion financial bailout rescue plan - almost $160 billion of which has already been placed.

Bailed out American International Group Inc. (AIG), to the tune of $125 billion.

Covered JP Morgan Chase & Co.’s bet on taking over

The Bear Stearns Cos. - to the tune of $29 billion.

Looked to lend struggling automakers $25 billion.

Agreed to guarantee depositors at all banks.

Stepped in to buy commercial paper that no one else will buy.

Guaranteed money-market-fund investors.

And backstopped the Federal Deposit Insurance Corp. (FDIC), Fannie Mae (FNM) and Freddie Mac (FRE).

And now we’re getting wind of another stimulus package and more help for everyone.

If, in six months to a year, the credit markets are facilitating borrowers again, the massive buildup of U.S. debt will result in a falling dollar and higher interest rates.

That spells inflation.

A massive re-inflation of the economy portends another flood of speculative money into oil and commodities. The cycles are increasingly condensed, more volatile and will be increasingly more disruptive.

Welcome to the brave new world of global finance and speculation.

The Federal Reserve’s balance sheet has ballooned from $900 billion to more than $1.8 trillion. That’s 13% of GDP. The Treasury Department has telegraphed its intention to float $550 billion of debt in the fourth quarter and estimates it will have to float another $368 billion in the first quarter of 2009. Our national debt will then be close to 49% of GDP.

If there is an easing of credit in the economy, and borrowers come to market with the pent-up demand that has not been met for the past year, the competition for funds will raise interest rates. Higher interest rates will counter any stimulus effect from government programs.

Who will buy U.S. Treasury debt if the world is less apprehensive about credit quality? Lenders will once again seek higher returns, potentially forcing the Treasury Department to increase its rates. The potential of this event may sink the dollar if investors perceive that the U.S. economy is stagnant and the world is awash in dollars. The yield curve - the spread between the Treasury’s two-year and the 10-year paper - has been steepening. A steepening yield curve, where short-term borrowing costs are low and long-term rates considerably higher, is good for banks that borrow short and lend long.

But if the perception of risk diminishes, and the perception of future inflation increases, the yield curve will invert and the threat of rising rates will cause a sell-off in the short end of the curve and a rush into longer-dated maturities. Any increase in short-term interest rates would be painful for struggling banks. An inverted yield curve would be devastating, and inevitably would lead to more bank failures.

Home on the Range …

At the core of the U.S. economy sits a desperately ailing piece of the mandala - the U.S. housing market. The once bright prospect of home ownership, which historically formed a beautiful economic picture, right now doesn’t exist. For most Americans, the family home constituted the bulk of their wealth. Or at least it did. And this family financial portrait will get worse before it gets better, since the real estate collapse is far from over. Goldman Sachs Group Inc. (GS), for instance, projects another 15% drop in housing prices.

I think that’s conservative. Mortgage rates are actually rising as Fannie and Freddie have to pay higher interest on their short-term notes and bonds. Thirty-year fixed-rate mortgage paper averaged 6.47% last week, up from its 52-week low of 5.36%. The 15-year fixed paper was trading at 6.18%, up from its 52-week low of 4.91% (based on Bankrate.com (RATE) rate surveys). This trend is definitely not our friend. As housing prices continue to fall, and inventories stagnate and grow in many areas, homeowners are increasingly underwater and are increasingly entertaining foreclosure as a viable economic alternative to indentured servitude.

The Hope for Homeowners Plan, which looks to lower interest rates and reduce principal on mortgages, and which makes homeowners pay a share of the appreciation on their home to their lender when they sell it, was initiated in October and was expected to garner some 400,000 takers. As of last week, according to The Wall Street Journal, there had been only 42 takers. That’s not a misprint - 42 - I even checked with The Journal.

In the real estate realm, the proverbial “other shoe” hasn’t dropped yet, but certainly is dangling - and that’s commercial real estate. As homeowners writhe in agony and stop spending, retailers will go out of business, businesses of all stripes will suffer and commercial real estate will implode. The leverage left over from just the private equity foray into commercial real estate in the acquisitive 2006-2007 period is staggering. Refinancing will be impossible. Banks are stuck with hundreds of billions of dollars of leveraged loans that they took on as bridge and mezzanine financing from the private-equity shops alone, at the time believing they would be able to securitize those loans and sell them off to investors.

There’s no chance of that, now.

One deal in particular illustrates this entire mess. Private equity behemoth The Blackstone Group LP (BX) took Hilton Hotels Corp. private for $26 billion. Blackstone put up $6 billion of its own money as equity and borrowed the other $20 billion from Bear Stearns, Bank of America Corp. (BAC), Deutsche Bank AG (DB), Goldman Sachs, Morgan Stanley (MS), Merrill Lynch & Co. Inc. (MER) and Lehman Brothers Holdings Inc. (OTC: LEHMQ).

Based on a current analysis of the deal at the multiple of seven times projected cash flow that the market currently puts on Starwood Hotels & Resorts Worldwide Inc. (HOT) - Hilton’s nearest rival - if Blackstone values its property comparably, it will have to mark its Hilton holdings down 50%, because it paid 13 times projected cash flow. That wipes out all of Blackstone’s equity in the deal. What’s more, the $4 billion portion of the loan that Bear Stearns took on, courtesy of JP Morgan Chase casting off Bear’s orphaned liabilities, now sits on the Fed’s balance sheet - and isn’t likely to go anywhere anytime soon.

Until the real estate cycle completes its implosion and begins to stabilize, there’s nothing that will fundamentally alter the outlook for the economy. This is Ground Zero. President-elect Obama must resist creating only a political solution to the overwhelming economic problem of declining house prices and declining real estate prices in general. Any attempt to put a band aid on this economic plague will only delay the day of reckoning. I regret deeply the conclusion that the lake must be drained before we can realistically climb out of it. But there just aren’t enough ferrymen to get us all to shore.

Always a Silver Lining - My Forecast

The outlook for the economy is not rosy - and that’s an understatement. But there is a silver lining. Even in the near term, the stock market will present innumerable wealth-creation opportunities.



First, there are plenty of shorting opportunities out there now, and more will present themselves in the future.

Second, in due course - in perhaps 12-18 months - we will be presented with the investment opportunity of our generation. If President-elect Obama gets it right, and I believe he’s got the potential to bring us all together and get the country through this (and if you’re reading this Mr. President-elect, I’d like to put in my vote for [New York Fed President] Timothy Geithner as next U.S. treasury secretary), American companies will be able to be purchased so cheaply that fortunes will be made. The recovery will not only make us whole, it will make our people and our nation rich again.

I have absolutely no doubt that the United States will lead the world back into balance. The sea change that has arrived is the result of the conservative experiment having lost its true moorings, pushing the economy into disaster. Not that a wholesale swinging of the pendulum to the other side would be good. In fact, it would be disastrous. We have the potential to end up with a new, fair, transparent and judiciously regulated environment where capital formation can again spread its wings and the U.S. economy can fly.

There are new hands reaching into the colorful box of beads that comprise the American landscape and economy. From any human perspective, the United States is more than a microcosm of the universe; it is the center of the world as we know it. It will take time to construct the new mandala. We all need to meditate on the process to ensure that the design we embrace will ultimately be inclusive, forward-looking and - like all great art - an inspiration to all who view it.

[Editor’s Note: Contributing Editor R. Shah Gilani has toiled in the trading pits in Chicago, run trading desks in New York, operated as a broker/dealer and managed everything from hedge funds to currency accounts. In his recent investigation of the U.S. credit crisis, Gilani was able to provide insider insights that no other financial writer or commentator could hope to match. He drew upon the experiences and network of contacts that he developed through the years to provide Money Morning readers with the “real story” of the credit crisis - and to propose an alternate plan of action. It’s a perspective on the near-financial meltdown that more than a quarter-million readers have read in Money Morning alone - to say nothing of the hundreds of other Internet outlets worldwide that have picked up and published Gilani’s unique insights.

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Outdoor Bamboo Fountain

Vladimir Gonzalez asked:


Spain Economy

Now the 8th biggest economic power, by the nominal GDP, Spain has come a long way and has gradually evolved and prospered, after the fading out of the regulated economy of Francoism in 1975.

The deregulating moves implemented by the Francoism, such as the large infrastructure projects together with the opening towards tourism, have culminated in the unforeseen economic rise, also known as the “Spanish Miracle”. Democracy was installed relatively late, but even so, Spain’s economic creativity, and that of its citizens soon helped the country to recover.

Now member of the EU, former European Community (1986), Spain had to adjust its economy and also make improvements to its industrial base, along with revising its economic legislation. Infrastructures were improved, with the help of funds coming from the European Regional Development Fund, while an increase in the GDP was registered, which reduced unemployment from 23% to 10%, and inflation to less than 3%.

Having a population of 40 million and a Gross Domestic Product of $1.352 trillion in 2007, according to the World Fact book, Spain was among the first countries to change to Euro currency. Starting with 1999 economic growth was averaged at more than 3% yearly, which helped the country keep its stability and prosperity.

In 2007 Spain’s economy experienced an underlying growth, by 3.8%, with service sector making up 67% of the country’s economy, industry sector 30% and agriculture sector close to 3%.

Despite this growth, there are some chances that Spain may be subject to some problems, due to the rate of unemployment, still high, at 8.6 per cent, and surely to rise above this rate, more than 10 per cent by the end 2008. This situation is made worse by the overgrowing number of aged population and declining birthrate. As member of the EU, and with a Euro strong, outside the boundaries of the EU exports are uncompetitive. Now Spain is undergoing the largest trade deficit worldwide the housing market and domestic demand being troublesome.

More than that, another issue Spain is confronted with, has to do with income generated by the structural funds of the EU. Spain and Ireland were the two beneficiaries of funds from the EU, to help boost their economies. However, having a per-capita GDP of $30,000, and since poorer states have started to join the EU, these funds are likely to be re-allocated.

Further reading:

The Effects of the Property Market Collapse in Spain

Overview of Spanish Economy

The Economic Markets in Spain



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Dan asked:


As a retarded man seeking a new job, my concern is that employers will overlook me because I’m handicapped in pursuit of the “best of the best” (It well deserves the quotes because I see mentally challenged people as superior but that’s beside the point.) Do you see discrimination against the disabled on the rise in these tough times? I will do any kind of job I’m capable of doing. While I know that getting our economy fixed is top priority right now, we must not forget how important it is to be compassionate.

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Robert asked:


Economy downfall has apparently been the talk of every sector affected. It is with this special reason that psychics are going to work on some amazing things that will help the economy back to normal and help in fulfilling some of the things that Britain has been able to get through with.

The physics dubbed all-female group including psychic mentor Amanda Hart of the Admirals way, will be focusing on undertaking a big physic experiment in Britain by basically using positive thinking to do away with recession. This is one amazing exercise that will transform the minds of those people widely affected by the economic crisis and in the long run change the economic status of the country. Positive thinking implies that people should view the economy in a different perspective, with undying hope and belief that it will surely come back to normal.

The psychic believe that hopeful thoughts of over 60 million people will help in changing the current tough economic times. This is just one way of transforming the minds of the majorities to a positive way of doing things, in the industry of challenges and life in what is expected to be done.

There was also a silence work dubbed the Faith of Britain Day, which took place some few days ago which was attended by many people around the country, and the organizer Amanda discovered  her spiritual needs after he survived a deadly disease, this was therefore an inspiration enough to bring back the economy, back to its state. The work helped the many people suffering from the economic crisis get renewed hope.

The psychic business in Canada has called in many improvements on sales when the business operator consulted a psychic who gave the association financial advice especially on economists, who have been greatly affected by the economy crisis.

Another psychic in Toronto says that his business improved this year because of the undying hope within them; this gets us back on the positive thinking that has been embarked by psychics to bring the economy back to normal and much more to a stable state. He says that he was willing to try on anything despite the economic crisis. Psychics offer financial advice as well just like financial advisors; taking risks to get what you really want and dream of, this in the long run bring in financial stability for everyone.

As much as the economy appear to take a long period of time before it gets back on track, psychics have prove to stand tall against the tough times. Some consider this as a challenge to fight for, their business at some point triple with clients from all over the world even as many cry because of the tough times. This is what really keeps psychics going.

With all the hard work and dedication, physics will not stop at nothing to improve and bring the economy back on track. They maintain that the future is bright and people should try and dwell on the positive side of life; the positive things that life offer and various ways to improve the economy, instead of complaining on the negatives.

 



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Alicia asked:


A. New England relied more on agriculture.
B. New England had a much weaker economy.
C. New England had a much more diverse economy.
D. New England had little trade with England.

High Efficiency Gas Furnace

Darren Ng asked:


Writer:  Darren Ng

Op-Ed

Can Tax Cuts Help Improve the American Economy?

In this paper, I intend to pursue a discussion which fundamentally affirms the relative benefits of Senator Barack Obama’s plan to increase taxes, in view of the telling need to rescue the American economy, against the disadvantages of Senator John McCain’s proposal to push for tax reductions. I intend to take cue from the manner by which these two senators have capitalized on the current state of the American economy to proffer their respective views on the economy. Surely, the American people are a witness to the epic battle between Senators Barack Obama and John McCain, especially in respect to the contrasting stance they took on thorny issue of tax levies; i.e., while Senator Obama has staunchly supported the concept of keeping the American economy afloat through a tax increase scheme, McCain has, on the other hand, espoused the more populist tax-reduction approach. Through this brief paper, I intend to prove that Senator Obama’s proposal to relatively increase taxes is what the American society needs right now, so as to restore the people’s confidence in the state of the economy.

I must admit that I am hardly surprised at all to see that Senator McCain’s proposal for tax cuts has been gleefully welcomed by a majority of the Americans, who feel that they are to become the direct beneficiaries of such a program. As far as McCain himself is concerned, he believes that by lowering taxes, he would be able to stimulate the economic trends of the country. In an article by a political reporter named Abdon Pallasch, she reports that according to Douglas Holz-Eakin, adviser to the McCain camp, the latter’s proposed tax policy is essentially a “job-first plan that keeps small businesses in the game” (SunTimes). But what McCain’s tax reduction scheme unfortunately undermines is no less than the wellbeing of the already battered American economy. I have reasons to believe McCain’s tax-cut scheme would end up benefiting the rich enterprises with large sum of money inasmuch as tax cuts would give them more money to invest more on than place their assets on commodity consumption and/or providing services. There is only a need to show why and how.

In order to explain why tax cuts would most probably not yield considerable benefits for the American economy, I find it appropriate to cite the principles which enable economist to measure the economic growth of a given country. Under normal circumstances, a country’s economy is measured by rate of its Gross Domestic Product - “the goods and services produced and consumed in the private, public, domestic and international sectors of the economy” (Frumkin 114).  And what determines the real expansion of GDP, according to The World Book Encyclopedia, can be summed in the following: private consumption, investment expenditures, government purchases and total value of exports. Put in other words, personal consumption and expenditures - i.e., for food, clothing, cars and household appliances - contribute directly to a given economy. Second, the expenditures of business enterprises, specifically when they spend for buildings, machineries and tools, also keep the economy robust. Third, the government’s public spending relative to education, healthcare or social services is also crucial. And last, the summary cost of a country’s export is likewise constitutive of real GDP growth and value (WBE 382).

I feel the need to further underscore the fact that financial investments - i.e., those investments placed in bonds, stocks or trust funds - by big businesses do not translate to real GDP growth rate and value. This is because they do not actually fall into the category of goods or services produced by a country. This is where I believe tax cut proposals fall short of stimulating a given economy. Since tax cuts proposals yield greater returns for big business than they do for average American families, then it is highly likely that these tax benefits shall be translated to financial investments, which in turn would leave the GDP growth as is. The academic entry from The World Book Encyclopedia is very crystal about the fact that “consumption” is a direct determinant of GDP growth. Without it, there can be no driving force to get the economy back in shape from a serious slump.  In fact, according to Kogan Richard - a critic of tax-reduction schemes - since “the economy expands so much as a result of tax cuts that it produces the same level of revenue as it would have without the tax cuts” (Kogan), then there is no point at going through the risky business of tax cuts that can leave the economy scathed from yet another crisis. And if tax cuts would not translate to real GDP growth, then we have all the more reasons to believe that the converse holds true - i.e., that increasing taxes can in fact stimulate the American economy; specifically, a relative increase in tax cuts can provide greater stimulus not only for private consumption, but even more so for public spending.

To this end, it would be insightful to look at the wisdom of Senator Obama’s economic roadmap. On the one hand, raising taxes may not look rosy for average Americans; but it certainly would give big corporations more reasons to spend for projects that may qualify them for tax incentives. This usually happens when they contribute a part of their revenues to funding certain projects, say construction of roads and schools, which would benefit the people in the long run. In the process, they could have these expenses lined up for tax exemptions. The point here is that increasing taxes would encourage, if not force big businesses to spend for goods and services. When they are spared from taxes, they would tend to keep their resources, and have them re-diverted to non-measurable financial investments. On the other hand, increasing taxes would also stimulate public spending - i.e., those types of spending entered into by the government on behalf of the people. This is because the continued inflow of tax levies would ensure that the greater American public would benefit from the government’s provision of basic services such as education, healthcare, and social services, among many notable others.

Now, since it would appear that Obama’s tax increase would benefit the American economy by way of stimulating large-scale private and public spending, I wish to therefore propose that, in order that the plan may not hurt average Americans, the government under the leadership of Barack Obama must implement a discriminate tax increase scheme. This means those big enterprises, as well as those who belong to the upper classes of the American society, are the ones to be levied with more taxes in the next few years. This is certainly far from being unfair. Instead, it would ensure that those who are capable of spending for goods and services are given welcome avenues to jumpstart the growth of the GDP.

For such reasons, I wish to briefly conclude that Obama’s tax plan - which is to increase taxes for the rich, and keep them the same for the rest - is the most viable solution for our battered economy right now. With a significant increase in taxation, the government can inspire large-scale spending so as to keep the economy afloat. Conversely, I strongly disagree in McCain’s tax cuts, as his proposal cannot promise to stimulate private or public spending on goods and services. In the final analysis, I find it imperative to remind the ever passionate Senator McCain of the fact that taxes constitute the backbone of the great American economy. 

 

 

 

 

 

 



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