Investing Curiouscatblog

Category: Economics

  • Fed to Loan AIG $85 Billion in Rescue

    Fed to Loan A.I.G. $85 Billion in Rescue

    Fearing a financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government control of the troubled insurance giant American International Group.

    The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history.

    This whole meltdown of the companies that exemplified the mantra that government regulation is bad (when they would like to make money by avoiding regulation) that now come begging for government bailouts because of the risk to the economy of failing to provide bailouts sure is disheartening. You might even think real changes will be made. I am sure changes will be made for awhile and then people will forget and special interests will pay politicians to get special favors and we will find ourselves in a different but similar mess a few decades from now.

    Related: Fed Continues Wall Street Welfare – 2nd Largest Bank Failure in USA History – Estate Tax Repeal

  • Federal Deficit To Double This Year

    Federal Deficit To Double This Year

    A weak economy and a sharp increase in government spending will drive the federal budget deficit to a near-record $407 billion when the budget year ends later this month, and the next president is likely to face a shortfall in January of well over $500 billion, congressional budget analysts said yesterday.
    …
    The budget picture is likely to grow even bleaker once government analysts factor in the anticipated costs of the Treasury Department’s decision last weekend to take over struggling mortgage-finance giants Fannie Mae and Freddie Mac.

    It is no surprise those that spend what they don’t have personally elect those that do the same thing for the nation. But as those that spend money they don’t have eventually realize you have to become responsible at some point.

    Related: More Government Waste – True Level of USA Federal Deficit – Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren

  • Ignorance of Capitalism

    Chatting with Obama by Bill O’Reilly

    You can decide if that’s change we should believe in, but keep in mind that the unintended consequences of government interference in the marketplace are impossible to predict. Free markets have a way of chafing under government imposition.

    I really wish people understood capitalism. Capitalism requires regulation. It was known to all the economist in Adam Smith’s time that the government must regulate or powerful forces that would not allow the free market to function as it should – which destroys the potential of capitalism. This is not some minor point, it is absolutely essential to the theory of how capitalism provides value to society.

    The ignorance that equates allowing manipulation of the market by powerful forces undermining capitalism (which is supported by those that claim to support capitalism – “regulation distorting free markets”) with disrupting the free market annoys me. I know I should accept that ignorance is just rampant but sometimes I can’t get over it. I truly support capitalism and seeing it abused by so many ignorant pundits and politicians is distressing.

    And when those with influence constantly reinforce ideas based on ignorance then many, that can’t think for themselves, accept idiotic ideas like “free markets” should allow oligopolies to consolidate reducing the benefits of capitalism, that polluters should be allowed to push negative externalities onto the public, that allowing trust fund babies to receive massive inheritances is good (capitalism is meant to reward those that contribute, not reward those who were related to someone useful) and that the inheritance tax is bad (it is the BEST tax that exists, arguably along with taxes on negative externalities) and on and on.

    The idiotic idea that government regulation of markets is interference is equivalent to saying police interfere with freedom by enforcing laws against violent crime. Yes the watchmen must be watched. You can have bad policing and bad regulation; but the idea that policing the free market, in itself is wrong, is so ignorant we have to stop accepting such claims as if they were anything but ravings of radicals or ignorant people (or people that are both).

    By the way I am using ignorant with the sense of “lacking knowledge or comprehension of the thing specified.” Sometimes the word is used to claim the other person’s opinion is wrong, which is not an accurate way to use the word. It is my opinion that those espousing crazy ideas like, free markets are those without regulation, don’t understand capitalism is based upon the idea of perfect competition. If they do, but have decided that fundamental aspect (along with negative externalities, rewards based on who your parents are instead of what you produce…) of capitalism is wrong, but they have a new theory that somehow updates capitalism I am waiting to hear about it. I am basing my guess of their ignorance on their statement seeming to be completely disconnected with capitalist theory.
    (more…)

  • Bad News on Jobs

    The growth in the number of jobs in the USA continues to be bad. The growth in jobs has been very poor thus far this century. The good news has been unemployment has been fairly low, it now sits at a 4 year high of 5.7% (which is not great but not horrible by historic standards).

    Update: today the labor department announced the unemployment rate increased to 6.1%.

    This year the news has been worse, with actually declining numbers of jobs and some economics see No job turnaround on horizon:

    Economists expect another weak job report when the government releases its August employment figures Friday. But many also are predicting job losses to continue deep into 2009 as well. USA employers have already trimmed 463,000 jobs from the payrolls during the first seven months of the year.
    …
    “I’m not expecting increases in employment until next year because in the second half of this year we’ll see very lethargic economic growth,” said Joel Prakken, chairman of Macroeconomic Advisers. The Conference Board has created a new reading called the Employment Trends Index, which combines a number of different economic readings to predict when employment will turn higher or lower. The index, which typically signals three to six months before job losses will turn to job gains, has yet to show signs of a recovery.

    “We think the unemployment rate will keep growing, probably reach between 6 to 6.5% by mid 2009 and only start declining in the second half of next year,” said Gad Levanon, senior economist at The Conference Board.

    Related: What Do Unemployment Stats Mean? – Economic Fault: Income Inequality

  • More Americans Working Into Late 60’s and Beyond

    Americans working past retirement

    While the average retirement age remains 63, that standard may soon be going the way of the gold watch — a trend expected to accelerate as baby boomers close in on retirement without sufficient savings.
    …
    Twenty-nine percent of people in their late 60s were working in 2006, up from 18 percent in 1985, according to the Bureau of Labor Statistics. Nearly 6 million workers last year were 65 or over. Over the next decade, the number of 55-and-up workers is expected to rise at more than five times the rate of the overall work force, the BLS reported.
    …
    Working another three years — from 62 to 65, for example — and continuing to save 15 percent of salary could raise annual income from investments by 22 percent. Make it five years and boost savings contributions still higher — even better.

    Putting off retirement also may enable people to delay when they start taking Social Security benefits, which can significantly increase payments.

    “The longer the delay, the better” financially, said Fahlund. “To me the ideal would be 70, because you get the biggest Social Security benefit possible and all those additional years of employment. And it keeps you going mentally and physically too.”

    The economic reality is retiring at 62 is not realistic for most people today. Retirement age has barely budged at life expectancy has increased by 20 years. I have long felt the best practice for the economy is to provide part time work to transition into retirement. This allows people to slow down their work lives, but not completely leave it behind. And the financial benefits are very helpful to all those that did not save enough early in their lives.

    Related: Retirement Delayed, Working Longer – Our Only Hope: Retiring Later – Many Retirees Face Prospect of Outliving Savings – Retirement Savings Survey Results – Saving for Retirement – Spending Guidelines in Retirement – Tips To Allow Retiring Sooner

  • Google’s Underwater Cables

    I respect the management of Google. They are not tied to conventional ways of thinking. When they bought huge amounts of dark fiber (fiber optic cable that had been laid down in the internet bubble period, but was sitting unused). I figured they had made good investments while the cable was very cheap (pennies on the dollar). I watch with interest as they continue to build their own (with partners) fiber network. I am guessing this may be partially because they are smart enough to know the business oligopolies providing internet infrastructure will try to exploit their positions and government cannot be counted out to play their proper regulatory role, which is required in a capitalist system. And partially due to their huge bandwidth needs and projections for future growth.

    And since those oligopolies are not very effective companies (that rely largely on paying politicians, in order to undermine the proper role of government in a capitalist system, to gain government granted monopolist profits). That increases the benefit of Google buying into their own distribution network since excess capacity can likely be sold at a large profit: the competing companies are so used to charging monopoly prices leaving lots of room for profit. The second point can be debated but I don’t think if the economy functioned properly, with intelligently regulated natural monopolies providing internet bandwidth, I doubt Google would invest in this, but, of course, I could be wrong.

    About the Unity bandwidth consortium

    Collectively we just signed an agreement to build a new high-bandwidth subsea cable system linking the U.S. and Japan (more detail in the press release). This cable system, named Unity, will address increasing broadband demand by providing more capacity to sustain the unprecedented growth in data and Internet traffic between Asia and the U.S.

    Google stretching underwater comms cable?

    says a comms-happy research outfit dubbed TeleGeography, Eric Schmidt and crew are planning a second cable system that would connect Japan to Guam, Hong Kong, the Philippines, Thailand, and Singapore.
    …
    Meanwhile, ITWeb reports that Google is looking to run a third underwater cable to South Africa.

    I own Google stock.

    Related: Monopolies and Oligopolies do not a Free Market Make – Challenges in Laying Internet Fiber Under Oceans – Plugging America’s Broadband Gap – Not Understanding Capitalism

  • Kiva Fellows Blog: Nepalese Entrepreneur Success

    photo of Rita Bashnet

    Kiva has added a fellows blog – which is a great idea. The fellows are funded by Kiva (fellows are unpaid) to go to spend time in the countries Kiva facilitates loans for working with the local partners. This post is about Rita Bashnet (in photo) an entrepreneur from Nepal:

    Field visits are by far the best part about being a Kiva Fellow. You’re given the opportunity to hop on a motorbike, hike up a village trail, and actually see the impact of a Kiva loan firsthand.
    …
    Five years ago, Ms. Rita took her first loan of NRs. 10,000 (USD $150) and purchased some extra seed and fertilizer in the hopes of expanding her small vegetable patch. With the profits from this initial investment and a second loan from Patan Business and Professional Women (they offer a graduated loan program), she then purchased her first dairy cow.
    …
    After hearing about a program that subsidized the installation of methane gas storage tanks, Ms. Rita took another loan and applied for the program. With this new system, she is now able to capture the valuable gas released from her cow’s waste in a simple controlled-release storage tank. Today she no longer purchases gas from the city and can even sell some during times of shortage.
    …
    Ms. Rita exemplifies the potential of microfinance. A combination of access to capital and strategic investment has allowed her and her family to drastically improve their economic situation in a short five years.

    Great story, and exactly my hope for using capitalism to improve the standard of living for people around the globe. I notice today, for the first time, some of those seeking loans are about to have their listings expire unfunded. Kiva gives listings 30 days to be funded. I have no problem if some loans are not funded (I want to help entrepreneurs by providing funding to build a business – some loans are for things like adding a room onto their house, which is fine but not what I want to support with interest free loans from me). But, this is a big change from when I couldn’t find anyone to loan to (they had so many people looking to lend that they didn’t have enough loans to fund). If you haven’t loaned money through Kiva (or you haven’t added to your loan portfolio recently), please consider it now. If you do, send me your Kiva lender link and I will add it to Curious Cat Kivans. My biggest wish for this blog is to get more readers listed on that page.

    Related: Using Capitalism to Make a Better World – Funding Entrepreneurs in Nicaragua, Ghana, Viet Nam, Togo and Tanzania – 2006 Nobel Peace Prize to Economist – Frontline Explores Kiva in Uganda – Trickle Up

  • Entrepreneur Results

    The Entrepreneurship Lottery by Scott Shane

    The 83 percent of companies that have less than $500,000 in sales at age six account for only 4 percent of the value of the cohort of companies. By contrast, the 1.6 percent of the companies that had sales of $5,000,000 or more accounted for 54.2 percent of the value of the cohort. In fact, just the 175 companies that had reached $100,000,000 in sales or more in year six accounted for 14.5 percent of the value of the 1996 cohort of start-ups.

    Generating significant financial value is something done by a very small percentage of start-ups, but a handful that do generate a lot of value.

    Scott Shane is a Professor of Entrepreneurial Studies at Case Western Reserve University

    Related: Easiest Countries from Which to Operate Businesses – Capitalism in China – Frontline Explores Kiva in Uganda

  • More Bad News on Inflation

    Wholesale Prices Rising at Fastest Pace Since 1981

    Wholesale prices jumped in July at the fastest rate in more than a quarter century, furthering concern about a continued increase in inflation at a time when economic activity has ebbed.

    New federal government data showed that the cost of materials used by businesses increased 1.2 percent in July and have risen 9.8 percent during the past 12 months. It was the largest yearly increase since 1981, as businesses absorbed sharp increases in energy and other commodity costs.

    Today’s report follows recent news that consumer prices are also rising faster than expected — and faster than the Federal Reserve’s generally accepted target rate of around 2 percent.

    Inflation can cause serious damage to your personal finances. As prices increase if you don’t get a raise (or your investments don’t raise) to match the increased costs you must pay your financial situation deteriorates. One benefit, to those with 30 year fixed rate mortgages, is that you get to pay back your loan with inflated dollars. This can be a huge advantage for some, and a huge loss for whoever holds the mortgage.

    Related: inflation risk for investments – Inflation is a Real Threat – Food Price Inflation is Quite High – posts on inflation

  • Salaries with a College Degree

    The Declining Value Of Your College Degree by Greg Ip:

    A degree, she says, “isn’t any big guarantee of employment, it’s a basic requirement, a step you have to take to even be considered for many professional jobs.”

    For decades, the typical college graduate’s wage rose well above inflation. But no longer. In the economic expansion that began in 2001 and now appears to be ending, the inflation-adjusted wages of the majority of U.S. workers didn’t grow, even among those who went to college. The government’s statistical snapshots show the typical weekly salary of a worker with a bachelor’s degree, adjusted for inflation, didn’t rise last year from 2006 and was 1.7% below the 2001 level.
    …
    To be sure, the average American with a college diploma still earns about 75% more than a worker with a high-school diploma and is less likely to be unemployed. Yet while that so-called college premium is up from 40% in 1979, it is little changed from 2001

    The job market is more challenging than it was, it seems to me. Counting on being able to steadily progress during your career, without any gaps or times when you must accept much less than you hoped, is risky. This is one more reason why it is so important to spend less and save more in the good times in your career.

    Related: What Do Unemployment Stats Mean? – Engineering Graduates Again in Great Shape – USA Job Growth – The IT Job Market