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.

Crude Under 37 Dollars a Barrel... Expected?

Alright people, regardless of what anyone else has told you, after the economy began to worsen precipitously in September, there was no doubt that crude would fall as our economy did. As Global Markets have been hit extremely hard by a virtual worldwide recession, the demand for crude has dropped, while supply has not dropped to anywhere near the same extent. 

Another thing that some of you may be thinking about, is when prices will go up again, since they surely will. After the world is able to get past these rough times, then developing countries, along with America, due to their own seemingly insatiable thirst for petrol, will begin consuming the same massive amounts of crude as before, probably more.

 As I said last month, the steps Obama plans to take in order to lessen our dependence on foreign oil will thwart any future time where an oil supply shock will occur, increasing inflation, and moving us away from our potential GDP. 

Chrysler Closes Plants... A Company That Has a Brain

Yes! Chrysler's management can think! They finally feel compelled to do something productive about production, haha. This is exactly what Ford and GM should do. Closing its plants for a month is exactly what it'll take to get inventories under control, and impede any further product gluts from occurring. Although I'm unsure as to whether the autoworkers will continue to be paid, yet knowing their contracts they must be, at the very least a storied and old company such as Chrysler will be able to stay afloat for the time being. For once, I can actually compliment a move made by the Big Three for the first time in a long time.  

Apple Sales and the Target Rate

Seeing news of falling sales for Apple inc. appeared to have been a major alarm for Apple investors, sending the stock price down today after-hours, yet what else would people expect? The economy is currently and utter mess, and many are much less likely to go out and drop 1200, 1400, 1600+ dollars on a new computer. Falling sales during this time period do not prove anything about Apple, other than that its sales are also subject to the ebbs and flows of the business cycle. Furthermore, many are alarmed that Steve Jobs will not be giving a keynote address at the next MacWorld conference, something which leads many to believe that Jobs is sick and unable to give such a presentation. I believe most people are overreacting and need to realize that all of this speculation about Jobs' health isn't confirmed at all, and that even without him Apple still has many other bright individuals who can lead the company in the right path.

On another note, the Fed cut it's target rate to the lowest it has ever been, with many saying that the Fed has run out of ammunition. This is probably true, yet eventually with such lax monetary policy the economy will get going again, especially if our friends at Obama and company can ensure the passage of a stimulus package at the beginning of his term. 

Auto Bailout Passed in the House.. Will it Survive the Senate??

Yes, the the bailout plan for our Detroit automakers has made it through the House, yet the bill is a bit stripped down from what some legislators originally wanted. Apparently, a measure was removed from the bill which would bar the automakers from challenging state laws regulating greenhouse gas emissions, the removal of such seems absurd to me, and appears to be one provision worth keeping, since it's worthless to bailout these companies just to finance lawsuits against states. 

Furthermore, there is some conflict in the Senate, specifically with the GOP, whether this new position of "car czar", basically the person overseeing this plan, has enough power to force concessions. This seems like a legitimate worry, and such power should be ensured so that he or she is able to enforce what's necessary in order for this plan to work, especially since all of these companies already ran their companies into the ground, we don't want them doing it again on taxpayer dollars.