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
Wednesday, March 18, 2009
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
Wednesday, February 11, 2009
Unemployment and the Economy
Unemployment has become a big fear for everyone in the US this year as the economy worsens and big companies as well as small businesses have already begun to layoff some of their workers. Companies such as Target have let "go about 9 percent of its headquarters workforce, the deepest cuts in company history." (Star Tribune). Because of the recent factors in the economy, corporations like Target have had to let go several workers from their labor force to try and save their company from losing money and to cut costs to seek better profits. Even small businesses are being hurt also and many have been forced to go out of business and liquidate their products. In December 2008 a reported 524,000 jobs were lost and the number of unemployed workers is said to continue to rise to almost to 9% by 2010. Even some economists are more worried about the new economic stimulus plan Obama has created because "Obama claims his plan will 'create or save' 3 million jobs over the next two years. But the crisis is presently destroying over 500,000 jobs a month. Even if his plan is adopted and implemented in full, the jobs it creates will be overwhelmed by the ongoing contraction, leading to a further rise in the unemployment rate to double-digit levels" (wsws.org).
This crisis of unemployment rates relates heavily to what we are currently learning in the class room. For one, it shows how the economy can effect large and small businesses through the supply and demand of the world economy. While the economy has started to dwindle down less people are willing to pay for the goods they usually buy, like luxury items, and some have even been using substitutes to lessen the cost of their bills. While the demand for some products might be up, like basic goods such as milk or bread, others have gone down, such as companies who sell new cars, or homes, because of the recent housing market crisis. Also the Market System has been a major factor in the role of these companies, mainly because of competition. As we have seen, Target sales have gone down because of current incomes being reduced or slashed, while dollar stores have actually increased their profits.
My opinion is that our government should stop wasteful spending on luxuries for the cabinet members and start to get to work on the economy to stop the current rate of unemployment to rise. If we don't, I believe that the economy will get even worse and the sales of big corporations will fall do to the lack of money in these future jobless households. These companies will be forced to lower their prices and soon they'll probably brake even or worse on their luxury goods, since the demand would be low because of effect of lower incomes. Hopefully our unemployment rate will lower in the next year or two to balance out the economic downfall happening as we speak, but for right now this number of unemployed people will probably get higher and higher.
http://www.startribune.com/business/38457219.html?elr=KArks8c7PaP3E77K_3c::D3aDhUxWoW_oD:EaDUiacyKUnciatkEP7DhU
http://www.wsws.org/articles/2009/jan2009/jobs-j10.shtml
This crisis of unemployment rates relates heavily to what we are currently learning in the class room. For one, it shows how the economy can effect large and small businesses through the supply and demand of the world economy. While the economy has started to dwindle down less people are willing to pay for the goods they usually buy, like luxury items, and some have even been using substitutes to lessen the cost of their bills. While the demand for some products might be up, like basic goods such as milk or bread, others have gone down, such as companies who sell new cars, or homes, because of the recent housing market crisis. Also the Market System has been a major factor in the role of these companies, mainly because of competition. As we have seen, Target sales have gone down because of current incomes being reduced or slashed, while dollar stores have actually increased their profits.
My opinion is that our government should stop wasteful spending on luxuries for the cabinet members and start to get to work on the economy to stop the current rate of unemployment to rise. If we don't, I believe that the economy will get even worse and the sales of big corporations will fall do to the lack of money in these future jobless households. These companies will be forced to lower their prices and soon they'll probably brake even or worse on their luxury goods, since the demand would be low because of effect of lower incomes. Hopefully our unemployment rate will lower in the next year or two to balance out the economic downfall happening as we speak, but for right now this number of unemployed people will probably get higher and higher.
http://www.startribune.com/business/38457219.html?elr=KArks8c7PaP3E77K_3c::D3aDhUxWoW_oD:EaDUiacyKUnciatkEP7DhU
http://www.wsws.org/articles/2009/jan2009/jobs-j10.shtml
Thursday, January 29, 2009
gas prices
As you all know, gas prices in the US have increased and decreased dramatically in the past three years. When increasing we were shelling out as much money as we could to pay for the blood of the USA, and now when they have decreased dramatically to historic lows allowing American families to yet again enjoy the goodness of life before gas rose considerably. But why is it that prices can be so high, yet so low in a short span of time. This is due to the law of supply and demand, and various fiscal policies our government with the middle eastern countries.
When a barrel of oil rose in price tenfold, we saw the price per gallon only triple or quadruple. This does not make sense, but this is due to fiscal policies our government uses to subsidize the true cost of oil. The federal government subsidizes the oil industry with numerous tax breaks and government protection programs worth billions of dollars annually. These benefits are designed to ensure that domestic oil companies can compete with international producers and that gasoline remains cheap for American consumers. The cost of securing our access to Middle East oil - deploying U.S. forces in the Persian Gulf, patrolling its water and supplying military assistance to Middle East countries - is estimated at $50 billion per year, which adds additional dimes to each gallon of gasoline we purchase. If our government did not pay for this, the cost of gas would be even greater, as oil makes up 75% of the gas we use in our vehicles.
Supply and demand also caused the great flux in oil we have seen in the past couple of years. When supply was cut short not too long ago due to middle eastern conflicts disrupting the steady flow of oil we once received. This is reflected in the price as demand stayed just about the same, and the equilibrium point in the oil market shifted to a higher price for a lower quantity. From 2005-2008 prices soared from $50 to over $140, and gas prices reflected that (4.00 per gallon or more) as less quantity was supplied the sellers were forced to raise the price in order to compete at the equilibrium without causing shortages or surpluses. When oil prices decreased to a fraction of what they used to be, the equilibrium price of the oil market decreased as well, with more quantity supplied, this allowed sellers and buyers to come back into a favorable equilibrium point.
I think that what happened to the price of gas was fair. Sure it became very expensive, but if you just gave up one time going out to meet, or a couple of movies, then you could easily make up that price jump. For the cost of a barrel of oil to increase over tenfold, and have our prices max out at $4.00 a gallon is a pretty good deal. We can predict what will happen to price through the supply and demand curves, and maybe be a little more thankful for what we have, and the high standard of living we have achieved , and be thankful of our government fiscal policies toward the countries we are importing oil from.
Gas prices vary greatly in times and trouble, and was reflected in the past couple years to a price that was guided by the our governments fiscal policy, supply and demand, and Smith's "invisible hand".
http://www.gasbuddy.com/gb_retail_price_chart.aspx?time=24
http://www.iags.org/costofoil.html
http://www.dailywealth.com/archive/2008/jul/2008_jul_01.asp
When a barrel of oil rose in price tenfold, we saw the price per gallon only triple or quadruple. This does not make sense, but this is due to fiscal policies our government uses to subsidize the true cost of oil. The federal government subsidizes the oil industry with numerous tax breaks and government protection programs worth billions of dollars annually. These benefits are designed to ensure that domestic oil companies can compete with international producers and that gasoline remains cheap for American consumers. The cost of securing our access to Middle East oil - deploying U.S. forces in the Persian Gulf, patrolling its water and supplying military assistance to Middle East countries - is estimated at $50 billion per year, which adds additional dimes to each gallon of gasoline we purchase. If our government did not pay for this, the cost of gas would be even greater, as oil makes up 75% of the gas we use in our vehicles.
Supply and demand also caused the great flux in oil we have seen in the past couple of years. When supply was cut short not too long ago due to middle eastern conflicts disrupting the steady flow of oil we once received. This is reflected in the price as demand stayed just about the same, and the equilibrium point in the oil market shifted to a higher price for a lower quantity. From 2005-2008 prices soared from $50 to over $140, and gas prices reflected that (4.00 per gallon or more) as less quantity was supplied the sellers were forced to raise the price in order to compete at the equilibrium without causing shortages or surpluses. When oil prices decreased to a fraction of what they used to be, the equilibrium price of the oil market decreased as well, with more quantity supplied, this allowed sellers and buyers to come back into a favorable equilibrium point.
I think that what happened to the price of gas was fair. Sure it became very expensive, but if you just gave up one time going out to meet, or a couple of movies, then you could easily make up that price jump. For the cost of a barrel of oil to increase over tenfold, and have our prices max out at $4.00 a gallon is a pretty good deal. We can predict what will happen to price through the supply and demand curves, and maybe be a little more thankful for what we have, and the high standard of living we have achieved , and be thankful of our government fiscal policies toward the countries we are importing oil from.
Gas prices vary greatly in times and trouble, and was reflected in the past couple years to a price that was guided by the our governments fiscal policy, supply and demand, and Smith's "invisible hand".
http://www.gasbuddy.com/gb_retail_price_chart.aspx?time=24
http://www.iags.org/costofoil.html
http://www.dailywealth.com/archive/2008/jul/2008_jul_01.asp
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