Sustaining Stimulus Efforts

As Ben Bernanke has declared that the recession is nearing a slow end and many around the world are looking to reduce stimulus efforts in an effort reign in out of control spending, the U.K. has affirmed that they will continue their efforts. This WSJ article further details what our European friends are thinking.

I applaud their efforts, as I insist to all anti-New Deal conservatives who claim only WWII brought America out of the Great Depression, I would argue that the scaling back of federal spending and other measures around 1937 slowed the return to "normalcy" in the economy as the country needed continued stimulus. Governments around the world must recognize such a potential mistake as one may devastate the progress many countries have seen in getting out of recession.

The Say On Pay: Should the Federal Reserve be Empowered to Regulate Risk-Inducing Pay?

A year after the economic meltdown that brought on bailouts and ultimately an economics stimulus package to the tune of trillions of dollars, the government looks to be trying to stop such an occurrence in the future. The proposed antidote being a new authority assigned to the Federal Reserve where compensation packages will be analyzed to see if they could bring down the economic system.

I don't really buy this. The government should not have any say on how companies pay their executives unless when federal money is involved. Whilst the bank bailouts of '08 could create a moral hazard problem whereas financial sector companies could not feel compelled to limit risk and stay solvent thinking that the government will help them regardless, I believe that even those companies that have been saved see the value in limiting risk. The fact of the matter is that it's the pay that drives the best talent to these companies and if American companies are going to be put at a severe disadvantage in terms of offering superior pay over overseas competitors such as Deutsche Bank and Barclays.

While stopping another 2008-like economic meltdown is important, it should not be handled by allowing the government to put limit pay packages that put American companies at a competitive disadvantage.

Has not much changed?

This WSJ article talks about the lack of realized reform nearly a year after the collapse of Lehman and the rescues of numerous financial institutions.

While realized reform is not present, the mindset of firms, regulators, and of consumers has changed the landscape of financials. The scrutiny that these corporations are now put under when it comes to executive bonuses and debt holdings has increased exorbitantly and there aren't any signs of that changing.

Health Surtaxes, ObamaCare, and Incentives

While it is admirable that President Barack Obama is looking to ensure that all Americans can receive adequate healthcare coverage, the more I hear about how he wishes to accomplish it the more I cringe and worry for the fate of American Capitalism. Proposed surtaxes on the very richest of Americans threaten to destroy the incentives to work hard in the pursuit of a more comfortable life. 

I'm going to introduce a certain scenario. A person goes off to an Ivy League university coming from the inner-city projects. He works extremely hard there and lands a very lucrative job upon graduation. He works and he works sacrificing in the hopes of rising to the uppermost ranks of his field. His salary increases and increases and the person lives an increasingly comfortable life. If this person has worked so hard for so long to reach a point where he is CEO, why should our government decide that he must give up more? The man deserves to keep what he has earned. It is unfair for our government to decide that the burden of taxes must be laid upon those who worked the hardest, had the most talent, and ultimately had the skills marketable enough to rise to the top and receive appropriate compensation in a free market economy. 

Although the idea of healthcare for all is a just cause, diminishing incentive and taking from those who have toiled greatly to receive large salaries do not deserve to be discriminated and picked out to face extremely high marginal tax rates at the upper brackets of U.S. taxes. 

Two Sides to a Piece of Paper

There's a very amusing article in the WSJ today that talks about how the federal government is cutting about 100 million dollars from the deficit by doing various things including photocopying on two sides. How have they not done this already...

Why the Fed's Autonomy Must be Saved

While many question the competence and effectiveness of the strategies taken by  Ben Bernanke's Federal Reserve, the semi-autonomous nature and whether it will remain in such a way have come under fire from many critics, most notably Ron Paul. The libertarian hailing from Texas has supported a measure that would authorize audits of the Federal Reserve's actions during the financial meltdown this previous Fall and the current economic recession. While Paul calls for complete abolition of the Fed, many others are calling for an increase in oversight the board must face. 

I have a few issues with these happenings. Primarily, Paul's support of a complete removal of the current Federal Reserve Board is ludicrous. There is no better way to combat the danger of inflation and deflation more quickly or effectively. Without Bernanke, it is quite possible that the current downturn would be much worse if it weren't for Helicopter Ben swooping in and helping save the financial sector. The target for the Federal Funds Rate had to be dropped in to keep the credit flowing throughout the economy. Without such Monetary Policy, our economy would have been even worse off.

Furthermore, the board must remain autonomous. It takes too much time to pass a stimulus bill in Congress, so why should the Federal Reserve be limited by whatever Congress imposes or even the President? What kind of knowledge advantage do congressmen or the President have over a man as qualified as Bernanke. None. Increased regulation of the Federal Reserve system would be devastating as it could delay the implementation of highly needed increase/decreases of the Funds Rate and/or may result in improper action. 

And The Supreme Court Puts a Stay on the Fiat Deal...

With junior creditors given a subordinate status to senior lenders, consumer groups and the Indiana teacher's pension fund won a battle today when the Supreme Court put a stay on the sale, possibly leading to a review and overturn of the sale. 

This was definitely needed. Obama and his grandiose visions and execution of a quick sale to Fiat pressed along by the sheer zealousness of the Treasury Department and the President himself represent an appeal to special interests while neglecting those of others. Clearly politicians can not be trusted to bargain a deal to the likes of this one...

But should the Supreme Court rule the sale unconstitutional and potentially force a liquidation by Chrysler? This may raise more problems, since such an action would only give creditors 800 million dollars to fight over and result in massive job losses across the nation. 

A gray area is probably best. Ruling in complete favor of the pension fund will only cause liquidation and upholding the actions by the Obama Administration wholeheartedly would set the stage for the Executive Branch to continue to take precedented action in helping strike private sector deals, an unfavorable possibility. The Supreme Court must censure the administration and rule that such dealmaking is not a full right of the branch, and that culling who deserves the most simply based on what the government thinks is a breach of the laws of the land. The pension funds should be given a fair chance to recover their lost investments. 

How far Will Oil Go Now?

After a dreadful time of having oil over $100 a barrel for a seemingly endless epoch, oil prices fell precipitously following multitudes of bank failures amid a foreclosure-laden housing market. Now that storm has settled and the stock market is on the, America's favorite commodity is trending upward. 

Where will it go? No one really knows, but Goldman Sachs predicts that oil will continue to rise in the long run. My only hope is that Obama's ambitious green energy plans and increased efficiency ensure that we stay out of a recession (for some time) with any price of oil. 

GM's New Capital and Union Concessions

In addition to receiving new federal funds, General Motors has gotten labor concessions from both its American and Canadian auto workers' unions. With these recent events, will GM be bolstered enough to propel itself out of this downturn, or will it ultimately fail? 

Mankiw's Times Article

Dr. Mankiw of the Harvard Economics Deparment wrote this article about how intro econ courses will have to change because of recent economic events. Definitely a must-read article. 

Facebook's Newest Suitor

This article outlines the recent overture by a Russian internet investment group to Facebook to purchase 200 million dollars of preferred stock. With 70% revenue growth forecasted and an estimation that the company will be cash-flow positive by 2010 makes the company attractive. I'd like to see an IPO by 2010 or 2011, allowing the company to raise a lot of capital and perhaps expand in ways that it hasn't before. 

The Elimination of Foreign Tax Havens

With the Obama Administration's populist agenda, they have found it as their duty to clamp down on lack of taxes paid by companies since some of their elements are overseas. Obama is oh so proud of finally having the federal government strike down on big businesses that have no heart and...

Yes, but what about the change in tax incidence? Who ultimately pays the price for the federal government's divine crackdown on tax havens? It is the very person who Obama wishes to help. If corporations are suddenly being inflicted with average tax rates then  how are they expected to maintain the salaries of their employees, their levels of R&D research, or even their sheer numbers of employees? The fact of the matter is that the elimination of these so-called "tax havens" can greatly hurt the economic well-being of many Americans, and increase the ever increasing unemployment rate. Obama would be cripple the financial statuses of many of the Americans he has been trying to help. Not to mention the potential decrease in the competitiveness of American firms with those from different nations...

Stress Tests and The Stock Market

Despite some banks being tagged as needing more capital to stay solvent, the stock market rallied today. Such an occurrence is representative of a current rise in optimism in the country that the economy will recover by year's end. 

Sometimes I'd like to think that what people think is more important than what actually is true. In this case, a rise in faith coming from the American people can only help the nation recover as better spirits should increase consumption just as stimulus packages can. 

Obama's Pledge to Not Micromanage

This article mentions President Barack Obama's recent vow to not micromanage private sector companies in which the federal government has shares, but to allow them to act by their own volition. He claims to only have say as any other shareholder would, and ensure that taxpayer dollars aren't going to go to waste. 

This seems pretty reasonable, and hope he follows what he says. A true pragmatist in my opinion. 

The Cost of Getting Into College

While each school has a limited, and for the most part inelastic supply of spots, the high cost of getting into college is easily explainable by examining a vertical supply curve at, let's say 2000 acceptances, with an ever increasing demand curve, driving the "cost" of acceptance ever higher, thus requiring even more and more from each student if they are willing to go and meet the "equilibrium price" of acceptance, especially if it's a top university.

I always knew economics would be useful for something...

Citi Bonuses... They really are needed

This WSJ article discusses how Citi is requesting permission from the Treasury Department to issue bonuses to "key employees". This is "key" to a banking revival in the US, since without this experienced talent, American financial firms will be at a major disadvantage when competing with foreign firms.

With this in mind, it is an absolute no-brainer for the Treasury to allow for these bonuses. I don't want to hear BS (and this is BS free remember) populist ramblings that it's taxpayer money and these are filthy individuals. Without these individuals, the American banking industry will not be able to thrive once again, and will have unfavorable effects on the entire economy, including our friends the populists. These bonuses must be approved if the United States is to rebound from this current downturn. 

The Unpalatability of Economically Sound Remedies

I've been meaning to post this story from The Economist, which discusses the lack of taste the public has for what may be the best solutions to economic crises. It's phenomena like such that convince me that we should have unelected heads of state with a PhD in economics. 

Bernanke for President!

Legislative Action to Alleviate the Principal-Agent Problem

This WSJ article outlines a new bill being pushed through Congress requiring that shareholders have "Say on Pay". It introduces a number of measures meant to bolster the power of shareholders in determining executive pay. Is this a roundabout way of "capping" executive pay or merely a move by Congress to help shareholders?

Watering Lawns and Negative Externalities

With spring coming into full swing in recent weeks in the Northeast, I have begun to deal with commonalities of season, including sprinklers. On my property, there are electronic sprinklers designed to go on at midnight to minimize the chance that someone would get wet, and are also placed to minimize water reaching the sidewalk.

However, most people don't have such an effective system, and have sprinklers that consistently launch water at innocent pedestrians. Recently it occurred to me that people should be fined for such egregious "sprinkling" of water to account for the negative externalities that include someone getting wet, and the forced movement into the street, which may increase the chance that one could be hit by a car. While the second may seem a tad absurd, the first is a clear showing of how "other people" must take the cost of people watering their lawns. 

My Initial Venture into Capitalism and Freedom

The great Milton Friedman treatise defending 20th Century right wing politics is simply one of the greatest books discussing the relationship between economic and political freedom. As America was conceived as a state of all sorts of freedoms, Friedman makes it clear within the first few pages of his book that with an increasing shift toward being a general welfare state that people are giving up their freedom, regardless of whether they believe so or not. 

While I'm into the book a mere 1o pages, I am thoroughly enjoying what he has to say

Keynesiansim Prevailing In China

As China seeks to shift it's GDP growth from exports to consumption through its stimulus package exceeding 500 billion dollars, the country seems to be showing signs of recovery as demand for raw materials has increased, and the usually thrifty consumers of China's populace have spent more due to the stimulus packages efforts. 

The article also goes on to say that the passage of the package has raised the spirits of the people, and that a psychological effect has helped in improving China's economy. 

Jobs is still Working: The Announcement AAPL Needed

After reports of Jobs leave of absence from Apple Inc. was announced, the stock price went tumbling as investors worried about times ahead without Steve at the helm of the revolutionary firm. This article successfully assuages investors fears that Apple has been without the inspiration of the company's revered founder.

Such a release by Apple was a great decision, and will help my net worth recover.

(I'm a shareholder :))

Socialism...

Basically how it works...

The Motive to Work

With the current administration having greater interest in raising taxes on the rich and achieving greater "income equality," I have begun to think about incentives and their strong force upon economic systems. It is quite evident that people do respond to incentives, especially monetary ones.  Higher taxes unequivocally lower the incentive to work, and executive pay caps do so to an even greater extent. Some populists might ask why society should care about those at the top and whether they are able to reap the great pecuniary benefits of being a CEO or another top executive. 

Let's forget about the big men for a second, and let's focus on the youngest of adults, teenagers. Think about that senior high school quarterback who dreams daily of getting a Division 1A football scholarship, and having a shot to be drafted and play in the NFL, making millions of dollars. He works exceedingly hard to get to that point, yet only a miniscule amount of high school football players ever make it to the NFL. This is even translated to crack dealers, as seen in Freakanomics, where they discuss why youths in the projects turn to running crack, when there is a 1 in four chance of being killed (most dangerous job in the nation after lumberjacking, where there is a 1 in 200 chance), and a great risk of facing criminal charges among other consequences. One may ask themselves, why would they do that? It's to get to the top. As shown in the book, these drug cartels have a hierarchy, where they have a quasi board of directors, each of whom receives a six figure salary. Surprisingly enough, some of those guys are actually Ivy League educated. The kids in the projects see those at the top and dream to get there, therefore they start running drugs hoping to eventually get to the top. 

How is this relevant to executive pay caps? Well, why would people work so hard, so arduously to increase their paychecks and move up the proverbial "ladder" without the "pot of gold" at the end of the rainbow? The answer is that people wouldn't be motivated, if they knew that the top didn't exist, or that they would eventually have exorbitant amounts taken from them due to heavy taxation and have their pay capped, eradicating any motive to work harder for an end of year bonus. 

The moral of the story is this: the many at the bottom are cognizant of the top, and aspire to get there. With a marketplace that limits pay and reduces incentives to next to nothing. Adequate incentives to work must be present at all times, especially at the top, or else productivity will decline, since the motivation to work will decline as a result of poor economic policy. 

The Best Part of Socialism...

"In an aggressive, and peculiarly French, negotiating strategy..." as the WSJ referred to the recent practices by French laborers to keep their jobs, where they held CEOs hostage to attain the terms they wanted.

Quite riveting, isn't it? The exact problem that arises when workers obtain such liberal rights in a country like France. Or is it something else that incites such aggressive measures...?

A Great Economics Metaphor

The best metaphor regarding pure competition... I thought of this one while driving on a trafficky highway.

Think about when there's a good amount of traffic on the highway, not bumper to bumper, but enough to be stop and go at times. There's always one line moving faster than the other two (on a three lane highway). Whenever one is in this situation, they usually feel compelled to move into the that line. But then what happens? A lot of people move into that lane and then it becomes the slowest lane. 

Think about pure competition. When the firms present are experiencing a short term economic profit, more firms join the industry, lowering the equilibrium demand price for the industry, just like driver move into the fastest lane. Shortly thereafter, the industry's firms experience short term economic losses, just like the lane the drivers move into slows down to an even slower rate. In the long run, of course, the firms and the drivers alike receive a normal profit (travel at an average, standard speed that every car regardless of lane switching will experience).

Thoughts? I liked it. Goes to show how much of an economics nerd I truly am. :)

The Government and the Private Sector... Cooperating?

After the approval of a 90% tax on bonuses, it looked as if the Obama Administration wanted to be a foe to the private sector as opposed to being an effective facilitator. However, it looks like Tim Geithner's plan will involve incentives for the purchase of assets, with the federal government shouldering a portion of the risk. 

Participating firms would be exempt from any pay caps.

Bravo Tim.

Three Cheers for 90% Taxes on Bonuses!

The populists have triumphed. 

Now that "corporate excess" will be eradicated from those companies receiving bailout money, it looks as if some top American talent will leave for Deutsche Bank and Barclays, among other top global banks. 

Will the American financial industry ever be the same?

It's Time to Bash Unions

I vehemently oppose Unions, however, I have yet to fully strike those inefficient bodies. Now I will. 

Recently in my local High School, the teachers of the teacher's Union got together and voted on whether to all take pay cuts and save other spending and keep teaching jobs that could be rid of, or to decline pay cuts. Well that's like asking a little kid if they want their cookie or not, rendering the vote useless, since one would have to be quite vacuous to not know they would turn it down. 

Due to a large deficit, the BOE has been trying to make cuts, firing untenured teachers, and getting rid of miscellaneous other things, including a 20% proposed budget cut off the current arts and music appropriations. Many students passionate about those subjects are outraged, and I have been fervently fighting to keep their beloved classes and programs alive. As they attempt to limit or completely ameliorate any cuts, they often point at the complete lack of cuts from school athletics. Being an athlete, I do not enjoy such comments, especially when the full root of the problem comes from the true "gem" of public schools: the teacher's union.

Allow me to explain further: So these exceedingly special teachers are allowed to have their teacher's union to demand more and more ad infinitum, and they get whatever they wish for, yet this utterly neglects the interests of the students. Think about it: teachers refuse to take pay cuts, and things like arts and music get cut to some extent to make up for the lack of the cut in teacher's compensation. How greedy is that on the part of the teachers? With such attention being put toward outrageous Wall Street bonuses, why doesn't anyone look toward the public sector where the employees are employed with the specific pretense of HELPING the STUDENTS, while simultaneously the students are HURT by the practice of teacher unionization. Such a discovery has led me to tell the "artsy fartsy" kids that they should blame unionization for this one. 

Citi's Chief Economist to the Public Sector

The article is here about how Citi's chief economist, Lewis Alexander, is leaving the company to work for the federal government. 

Looks as if Obama will have his own "Brain Trust" like FDR did...

The "Classic Mistake" of Monopolies

Socially optimal price vs the "Fair Return" price vs. Their regular price

A great video that will stay in your head

Will Protectionism Be Our Downfall?

Mr. Obama talks about not rewarding companies who ship jobs overseas... 

I suggest he look up comparative advantage. 

I know that I have sufficiently argued my point against protectionism, why self-sufficiency undoubtedly hinders more than it helps, and why comparative advantage truly helps the entirety of our populace in the long run.

Here's my extremely simple example to really get my point across... Imagine there are two people working on the same project and allowed to work together, but are getting two separate grades. Let's say the project has two components, one being mathematical, the other being writing-based. Person A is exceptional at math, but only has average writing skills, while Person B has outstanding verbal prowess, yet lacks such a status at math. Each person can make the best project if Person A does their own math, and greatly helps Person B with their math, while Person B would do the writing portion by themself, concurrently substantially aiding Person A with their writing portion. 

By each person doing what each is most adroit at, both parties get the best grade, and both parties win.

Now, the people are countries, math and writing are two different goods, and the project is GDP. 

It speaks for itself... Protectionism will only kill us. 

The End of Incentives

It looks as if the upper class will have their incentive to work decreased... Exactly what we need when GDP is already under it's potential. This article talks about Obama's healthcare plan, proposed tax cuts to the middle and lower classes, and the tax increase for the richest Americans. 

While some of Obama's reforms include the government actually saving money, it seems as if the new taxes are a start to lowering our Gini coefficient, and increasing income "equality" in the United States, while increasing healthcare coverage provided by Washington. 

While this isn't necessarily socialism, it sure is a page out of Europe's book...

And the World Watches Washington

In Thomas Friedman's op-ed, he talks about how the world watches Washington, and how many are scrambling to the dollar, with the overall prominence of the U.S. in the global economic arena. 

He's unquestionably, right. I mean, it seems as if every new development in Washington is so closely examined, not only by the US media, but by all. 

I'd also like to say that his book on globalization, The World is Flat. If you question the value of globalization to America, or would like to reinforce your belief in its merits, it's undoubtedly a must-read either way. 

Greg Mankiw's Favorite Children's Books

Here

More than a Harvard Economist...

Best Purchase...

Yesterday I made two great purchases.... At least as economics goes...

1. Principles of Economics by N. Gregory Mankiw. The man is a genius, and I could use a more in depth textbook for learning the basics. I also plan on using it as a nice reference material.

2. Capitalism and Freedom by Milton Friedman. Invented Monetarism... I don't need to say more.

Obama's Dream Come true

While it was a prolonged struggle to pass a stimulus bill which included provisions for investment in "green" energy, it looks as if ex-gang members are being trained to install solar panels. Check it out.

Maybe some more of that stimulus should go to Homeboy Industries, the non-profit supporting this effort...

EXTREMELY NERDY! ECON JUNKIES ONLY!

Now that you've all been forewarned of the exceedingly nerdy nature of this post... I will not accept any asinines on the basis that this post was too nerdy... On the Freakanomics blog, I found this recent post about how at the University of Michigan, the band has started to play over inappropriate chants that are shouted by students when an opposing team's player gets a penalty... Naturally, it's examined in an economic light of what the students should do to attain a desired equilibrium. 

For Those VERY Obsessed with Economics... Like I

This website, run by MIT, has free courses, that have the lecture notes, problem sets, exams, and quizzes for economics courses, among those of other subjects. I know I'm going to be using that website... check it out. 

Poor Indian Farmers Buying Cell Phones

As the entire Indian Economy, and that of the world, nosedives, cell phone sales to poor farmers, despite the current economic condition, and their 1,000 dollar a year incomes. As the article states, they are able to be much more efficient by getting the best prices by calling.... read it

Obama "inexcusable and irresponsible"

Obama declared yesterday that the delay of the incoming stimulus package is "inexcusable and irresponsible." 

I couldn't agree more. The last thing we need are wavering politicians who won't just go for our best chance, currently, of getting out of the current recession. We don't want more unfavorable events occurring, further disheartening the public's faith in an economic comeback. A stimulus should not only help out consumption expenditures, and increase jobs, but also show the people that we can get through this, and give them the necessary faith to help bring our economy back to its full employment output. 

And for Libertarians this article, written by a Harvard prof, takes the Libertarian view as to how the stimulus should be. 

Some good thoughts, even in my opinion. I definitely agree with some things (certain tax cuts, fewer government expenditures than originally planned, cut benefits) but some others not so much. 

The Incoming Stimulus... Just Do It

Again, I want to voice my thoughts on the stimulus again since it seems that Republicans are still not satisfied with the current package... some have wanted more money and others less...

I'm with Obama and Geithner... pass the damn bill. 

I believe that the worst action in this case is inaction, and that is our current course of action. The clock still ticks yet our elected officials won't just pass the bill, and make a full-fledged effort to alleviate the current recession. 

Zimbabwean Hyperinflation

This link is to a CNN article announcing Zimbabwe's latest move to combat hyperinflation, which is to slash zeros off of it's currency's value, 12 to be exact. 

I liked this article very much, because it reminded me of how my own econ professor explained the situation to us, by showing an unusually large rightward shift in the money supply on a supply/demand graph for money. His ensuing explanation, "Mugabe does this every Thursday" along with his tone made me crackle, seeing as such a move is utterly absurd, and reduces interest rates to levels that will undoubtedly cause such absurd amounts of inflation. 

I pulled this off of Gregory Mankiw's Blog, a Harvard Economist, whose blog I read religiously, and I recommend you all do as well, in addition to your daily dosage of B.S. Free Economics. 

Geithner: A Speedy Recovery is Needed

As I was reading the WSJ, I saw an article on what incoming Treasury Secretary Timothy Geithner plans on doing. The title of the article itself pointed to his belief that a speedy recovery is necessary in order to recover from the current recession. 

If you look at my previous post, I pointed to this as well... 

Will *insert expletive" Congress Finally Pass The Stimulus?!?!

As a true believer in Keynesian Economics, I find it quite perplexing that this stimulus package has yet to be passed into law. It seems quite clear to me that such a package that is the precise medicine needed to treat the ailment at hand in the American Economy. Infrastructure overhauls, and tax breaks are exactly what the country needs in order to shift Aggregate Demand to the right in order to get experience economic growth, at least in the short term. Hell, any AP Macroeconomics student knows that, yet it seems that our exceedingly asinine and pygmy-minded bureaucrats can't seem to understand, therefore they believe that such a stimulus package is wasteful, a description that doesn't have any truth to it. 

Conversely, I do fully comprehend that Keynesian theories don't always work, but at this point I'm more or less willing to see our government try something as opposed to nothing. Specifically, I remember quite well reading an article about the many failed stimulus packages utilized in Japan during the 90's as their attempt to pull themselves out of a recession, yet didn't do much more than create a large national debt, and make extremely nice roads. Clearly our monetary policy isn't doing enough to encourage more domestic investment, to the chagrin of monetarists, thus we aren't making any progress in terms of trying to achieve economic growth. 

In conclusion, while we already have an exceptionally large national debt, we must practice deficit spending until our country can recover from the current economic crisis. 

The Bailout Game

I found out about this game courtesy of my economics professor...

Alright I'm For Real this Time

Due to much protest, and a tad of regret for ending my blogging, I have decided to commence my blog posts again. I hope those of you who have been reading my blog are elated by such news, and that you will read my posts as I churn them out.

Thank you.

The Money Multiplier

This article shows a great graph representing the precipitious fall of the money multiplier. This is the true problem, since as the graph shows the money multiplier is under 1, meaning for everyone one dollar increase in checkable deposits, M1, a particular measure of money supply, only increases by a fraction of any deposit. 

This is clearly something that is plaguing our economy, and if banks were more willing to "create" money and loan out more money, banks would not only make much more money, helping their own cause, but also would help the economy move forward with increased Gross investment. 

Will the Deficit that the Obama Team Will incur be Too Large??

As the final days of Bush's presidency fade away, and the monumental inauguration of Barack Obama nears, there is, as expected, much talk about the coming stimulus package, and the deficit that will be incurred. As of now, a 1.2 trillion dollar deficit is expected to be incurred in the first year of Obama's presidency.

Will we be able to handle it, especially if this type of a deficit will continue for years to come? Well I mean with a nearly unlimited ability to issue treasury bonds, I think we will, however, that doesn't mean that we shouldn't try to curb our spending.

Undoubtedly, the federal government is bloated beyond reason, and it is quite clear that money hasn't been spent wisely. Obama must be more efficient with his Government expenditures in order to stop such waster from occurring. Furthermore, after we get through this recession, it is absolutely necessary that our country begins to tackle the debt that has been accumulated, which can only occur through a surplus. By applying the Laffer Curve, I unquestionably hold that we can maximize tax revenue, and aid the coming of such budget. 

For now, however, we must spend spend spend in order to pull the economy out of recession. 

2009 Won't Be Amazing, But it Will be Good

Flipping through WSJ as of late, I read an article about the desensitization of investors considering we have already heard so much unfavorable news, nothing short of Armageddon could take down the market as much as previous news has. This is great news for those looking to make a buck or two in the market this year, in fact I think there are more great investments out there than one might perceive. 

Considering Obama will be quick to implement a stimulus package as soon as he's sworn in, I firmly believe that those with the guts to buy the right stocks to profit off of such a package now will be rewarded. Alternative energy companies, retailer among other companies will all seeing improving bottomlines  due to an economic stimulus. Companies such as Best Buy, GAP and other retailers will definitely see improvement, and I think investing there right now is a great move. Additionally, a stimulus will positively affect Starbucks, despite it's recent downturn in sales and recent closing of store, and help it build back up, especially since they have begun to offer new tea drinks, and Starbucks Gold Membership cards, both of which will undoubtedly better performance.

As a slightly riskier bet, go with Bank of America. Hell, if they could survive this mess and acquire a few companies, those with guys will be rewarded for their audacity in purchasing BAC today. With new talent pouring in, and a slow, yet sure, rise in borrowing due to incredibly low interest rates, the company will outperform what most would expect. 

 

Lastly, I would like to apologize for a lack of posts over the Christmas/New Years Eve period of time. I consider that a vacation from everything, therefore I didn't post. This new year will involve many great posts to come about Business, Economics, and whatever else I may feel discussing.