Recently in the news was the interview of Ben Bernanke, his comments on our current economy, and of what the future economy will look like. He is currently in defense of the Fed's effort to try and contain the economic crisis and is devoted to do whatever it takes to get out of this "downward spiral". During the interview of Ben Bernanke at the National Press Club, the first time a Federal Reserve Chairman has ever spoken to journalists, he tried to lessen the concern of the dangers of printing all the money they had recently printed by backing the Fed's and expressing his trust in them to do a good job and said: “The Federal Reserve has done, and will continue to do, everything possible within the limits of its authority to assist in restoring our nation to financial stability,” (New York Times). He also focused on the rate of unemployment and how it would for sure rise this year (now at 8.1%, up from last months 7.6%). Even after these statement were said, the central bank gave a report on how the Federal Reserve "had become considerably more pessimistic" (New York Times) about our unemployment rate, which could be even higher than predicted. The Federal Reserve also came out with its predictions on economic growth for the next five years and said that it would rise about "2.5 to 2.7 percent anually" (New York Times). Another major issue Bernanke focused on was the government spending that has gone from $900 billion last September to approximately $2 trillion this year. This spending was issued to help the Financial System and improve the economy with new programs that it will issue and will hopefully not fuel inflation to rise or lose money from these risky loans.
My opinion on this matter is that Ben Bernanke has been hit with a hard and difficult crises and has a lot on his hands right now. I believe this economic crises will take a lot of work to overcome and will be a slow process to heal at best. I also think these economic recovery plans and programs will eventually work with a lot of the money being poured into them. With this government spending it will hopefully reduce unemployment and act as an Expansionary fiscal policy. This expansionary effect with a bit of luck will fuel our economy, lower taxes, and increase our demand. With the 3 basic tools our Fed uses, it would decrease the reserve requirement, decrease the discount rate, and buy more securities, so that the economy, with the increase in money supply, will soon decrease our interests rates and increase investment. Well, times call for extraordinary measures, and this is certainly one of them.
http://www.nytimes.com/2009/02/19/business/economy/19fed.html
Thursday, March 19, 2009
Wednesday, March 18, 2009
The Fed's power over our economy
The Fed is a powerful department of our government, able to print limitless amount of money quickly and easily to help in times of trouble. Our country is currently in a deep recession, and the Fed is now going to print about 1 trillion dollars worth of money to buy "up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac". With the Fed's tool of open-market operations, they hope for money supply to increase, interest rate to decrease, and investment to increase, causing an overall expansionary effect on our economy. With easier credit lending, banks will feel safe lending to those in need, who will in turn use that money to buy consumer goods, or invest in the stock market. This will hopefully yield an escape from our recession, and bring us to the positive slope of the business cycle. The Fed is able to do this easily as they have instant speed and flexibility, as well as isolation from political pressure.
In my opinion, I think that this plan may work in the short run. Already in the past week the stock market has grown to mid 1700's, and even Fannie Mae, and Freddie Mac stocks have increased about a quarter of a dollar. Bank stock prices have also increased, which may lead them to begin lending again, just as the Fed is trying to do by employing their open-market operations tool. The big thing which I am concerned about is the fear of rapid inflation in the future. This may occur due to this massive printing of money, which may cause the Fed to sell securities. This will cause a decrease in money supply, increase in interest rate, and a decrease in investment. This may yield a displacement of 0, only prolonging the effects of our housing crisis.
http://finance.yahoo.com/news/Fed-to-buy-up-to-300B-apf-14679757.html
In my opinion, I think that this plan may work in the short run. Already in the past week the stock market has grown to mid 1700's, and even Fannie Mae, and Freddie Mac stocks have increased about a quarter of a dollar. Bank stock prices have also increased, which may lead them to begin lending again, just as the Fed is trying to do by employing their open-market operations tool. The big thing which I am concerned about is the fear of rapid inflation in the future. This may occur due to this massive printing of money, which may cause the Fed to sell securities. This will cause a decrease in money supply, increase in interest rate, and a decrease in investment. This may yield a displacement of 0, only prolonging the effects of our housing crisis.
http://finance.yahoo.com/news/Fed-to-buy-up-to-300B-apf-14679757.html
Recession or Depression???
Times are hard. But is the world economy turning into a Depression? My opinion, no. I believe what goes up must come down. Everything bounces back right? Stocks go up and down all the time. So why in this cartoon, are people worrying so much? One thing, misinterpretation. Everybody in the world misinterprets things all the time, but that's not just a bad thing, it could also be a good thing too. Why? Well, for one thing we learn from our mistakes all the time and learn to take caution towards those same issues in the future (well, currently not so much, our government can't learn to stop bailing out all these companies, especially AIG).
Now, back to the cartoon. It displays, mainly the stock market, and how the stock prices can rise and fall in an instant from careless thinking of CEO's to the little guy, the stockholder. The cartoon goes from a calm perspective when the stock market doing just fine, until someone brings up a fact that may or may not be harmful to the opinion of the of the shareholders keeping or selling their stocks. And when they are harmful the stocks could plumet or rise in value because of the buying or selling of their stocks. This could also turn into panic as seen with the last man on the right yelling "SELL! SELL!", but it's not very probable unless you have your entire life savings in stocks.
This cycle of ups and downs is commonly known as the Business Cycle. It operates and is controlled mainly by the levels of GDP, inflation, unemployment, and many other factors. Currently the US would be categorized as in a period of Recession, where the real GDP has been in decline for at least six months. Hopefully, as the DOW seems to be going up in the last few days, we'll overcome this Recession and hit the recovery stage of the business cycle and then the peak, to benefit the economy.
Now, back to the cartoon. It displays, mainly the stock market, and how the stock prices can rise and fall in an instant from careless thinking of CEO's to the little guy, the stockholder. The cartoon goes from a calm perspective when the stock market doing just fine, until someone brings up a fact that may or may not be harmful to the opinion of the of the shareholders keeping or selling their stocks. And when they are harmful the stocks could plumet or rise in value because of the buying or selling of their stocks. This could also turn into panic as seen with the last man on the right yelling "SELL! SELL!", but it's not very probable unless you have your entire life savings in stocks.
This cycle of ups and downs is commonly known as the Business Cycle. It operates and is controlled mainly by the levels of GDP, inflation, unemployment, and many other factors. Currently the US would be categorized as in a period of Recession, where the real GDP has been in decline for at least six months. Hopefully, as the DOW seems to be going up in the last few days, we'll overcome this Recession and hit the recovery stage of the business cycle and then the peak, to benefit the economy.
Tuesday, March 17, 2009
market economy
As any rookie investor has noticed in the past year, stock market prices have fallen considerably across the world. Trillions and trillions of dollars have been lost in world wealth, due to the housing crisis we are now experiencing. In the past 5 of 6 trading days, we have begun to see this process reverse. Housing companies are reporting positive gains in their stock prices, and even the major banks pouring out bad loan after badc loan have reported a positive gain in their stocks. Home building in February grew, and investors have rallied around this, creating a mini bull-market. The sign of home prices stabilizing has created a key economic stabilizer. With this stabilizer incomes will now correlate with home prices, and retail capitalists will follow suit, and soon the economy shall pick up. With this restored confidence, everyone will soon spend their money, creating huge increases in demand, which will in turn create many jobs to create the supply needed. The government may soon follow suit by de-privitizing major corporations which they have taken into their control. With less Keyseian economics, and greater classical markets, and global market may soon restore to their pre-housing crisis levels of wealth.
My opinion is that beginning signs are appearing towards a stable economy. We may not attain the levels of wealth we once experienced soon, but I believe if this momentum keeps going then we will have a favorable increase in our countries GDP on a year to year basis. We, as a world, have learned now to invest in stable long-term assets that will yield a profit to them, while creating a multiplier effect to create great wealth. I think we are in the trough region of the economic cycle, and soon will get to the growth period of the cycle.
http://www.startribune.com/business/41392437.html?elr=KArks:DCiU1OiP:DiiUiD3aPc:_Yyc:aULPQL7PQLanchO7DiUr
My opinion is that beginning signs are appearing towards a stable economy. We may not attain the levels of wealth we once experienced soon, but I believe if this momentum keeps going then we will have a favorable increase in our countries GDP on a year to year basis. We, as a world, have learned now to invest in stable long-term assets that will yield a profit to them, while creating a multiplier effect to create great wealth. I think we are in the trough region of the economic cycle, and soon will get to the growth period of the cycle.
http://www.startribune.com/business/41392437.html?elr=KArks:DCiU1OiP:DiiUiD3aPc:_Yyc:aULPQL7PQLanchO7DiUr
Subscribe to:
Posts (Atom)
