Ramanisblog

Category: Economy

  • America Without a Middle Class .

    History teaches us that without a strong middle class , it is an invitation to revolution, as French Revolution has demonstrated.To day, not only US, but countries like India are traversing the Capitalistic path with out bothering about the poorer classes, with their obsession with Stock market.Mere creation of wealth will not guarantee stability to society.Equitable distribution of wealth has to be ensured.Detailed blog on Communism in this site deals with it.Communists have missed the bus because of their obduracy and obsession with verbosity. Let us admit that Keynesian economics has failed to deliver.

    Can you imagine an America without a strong middle class? If you can, would it still be America as we know it?

    Today, one in five Americans is unemployed, underemployed or just plain out of work. One in nine families can’t make the minimum payment on their credit cards. One in eight mortgages is in default or foreclosure. One in eight Americans is on food stamps. More than 120,000 families are filing for bankruptcy every month. The economic crisis has wiped more than $5 trillion from pensions and savings, has left family balance sheets upside down, and threatens to put ten million homeowners out on the street.

    Families have survived the ups and downs of economic booms and busts for a long time, but the fall-behind during the busts has gotten worse while the surge-ahead during the booms has stalled out. In the boom of the 1960s, for example, median family income jumped by 33% (adjusted for inflation). But the boom of the 2000s resulted in an almost-imperceptible 1.6% increase for the typical family. While Wall Street executives and others who owned lots of stock celebrated how good the recovery was for them, middle class families were left empty-handed.

    The crisis facing the middle class started more than a generation ago. Even as productivity rose, the wages of the average fully-employed male have been flat since the 1970s.
    But core expenses kept going up. By the early 2000s, families were spending twice as much (adjusted for inflation) on mortgages than they did a generation ago — for a house that was, on average, only ten percent bigger and 25 years older. They also had to pay twice as much to hang on to their health insurance.

    To cope, millions of families put a second parent into the workforce. But higher housing and medical costs combined with new expenses for child care, the costs of a second car to get to work and higher taxes combined to squeeze families even harder. Even with two incomes, they tightened their belts. Families today spend less than they did a generation ago on food, clothing, furniture, appliances, and other flexible purchases — but it hasn’t been enough to save them. Today’s families have spent all their income, have spent all their savings, and have gone into debt to pay for college, to cover serious medical problems, and just to stay afloat a little while longer.
    http://www.alternet.org/workplace/144388/america_without_a_middle_class_–_it’s_not_far_away_as_you_might_think/

  • Dubai Debt Troubles Push Down Stocks in U.S. and Asia

    A country which is a thinly veiled totalitarian State,to which world has turned a blind eye because of oil,a country where Human Rights violations can not even be voiced because of monetary clout,a place where people flocked to to work for a people who do not know what to do, a Head of the country who is not accountable to any one, where economic transactions are limited to family coterie, with generous doles to foreign corporations, where ordinary citizens have been led to believe building skyscrapers could lead to their happiness, has burst.
    Worst is yet to come.
    Story:
    Wall Street turned lower on Friday, as traders scrambled to play catch-up after downturns in Asian and European markets over the Thanksgiving holiday.

    Investors were spooked by reports that Dubai World, the emirate’s investment vehicle, was seeking to suspend repayments on all or part of its $59 billion in debt. That pushed shares down more than 3 percent on European markets on Thursday; Asia markets posted similar declines on Friday.

    Immediately after the markets opened, the Dow Jones industrial average fell about 230 points, but shares then started to regain ground. In the last 40 minutes of trading, the Dow was down 1.3 percent or 133 points. The broader Standard & Poor’s 500-stock index fell 1.5 percent or 16 points, and the technology-dominated Nasdaq slipped 1.3 percent or 28 points. The stock markets will close at 1 p.m. Friday after being closed Thursday for Thanksgiving. The bond markets close at 2 p.m.

    The dollar was just below $1.50 to the euro, and crude oil prices fell $3.08 to $74.88 in New York trading. Treasury prices rose.

    Analysts said they thought Thursday’s declines might be overdone, and that a true picture of the market’s reaction would emerge next week as buyers return from the holiday and as more details on the Dubai situation come out.

    “I don’t think it’s devastating at all,” said Jeffrey Saut, chief investment strategist at Raymond James. “Nobody knows the collateral damage, but it is clear that our banks have exposure to European banks.”

    A research note Friday from Credit Suisse estimated that European banks may be the hardest hit if Dubai World cannot meet its obligations, with total exposure estimated at 13 billion euros ($19.6 billion). European banks on Friday played down their exposure.

    “Dubai is really a symptom, a legacy, from the previous boom, rather than symptomatic of a start of a whole new set of issues that are going to create a systemic crisis in emerging markets,” Kevin Grice, senior international economist at Capital Economics in London, said. “Markets assume the worst-case scenario.”

    The uncertainty in Dubai did not suggest a coming collapse of the global real estate market, Mr. Grice said.

    European markets closed slightly higher. The FTSE 100 in London was up 52 points, or 1 percent, while the DAX in Frankfurt rose 71 points or 1.3 percent. In Paris, the CAC-40 increased 42 points or 1.2 percent.

    In Europe, investors were concerned about the state of public finances and possible credit rating downgrades in Greece and Ireland.

    Asian markets fell. The Hang Seng index in Hong Kong declined 4.8 percent and South Korea’s key market gauge, the Kospi, dropped 4.7 percent. The Nikkei 225 index in Japan and the Taiex in Taiwan both sagged 3.2 percent. The market turmoil was touched off by Wednesday’s announcement from Dubai, one of the seven members of the United Arab Emirates, that it was asking banks to allow Dubai World to suspend its debt repayments for six months.

    Dubai’s move — the global high-finance equivalent of a homeowner asking the bank to allow six months of skipped mortgage payments because of a shortage of cash — sowed fear of a contagion of instability that could roil markets that are only now recovering from the near cataclysm of the last year.

    “This has sent shockwaves through the markets, even though the problems in Dubai have been known about for two years,” Emil Wolter, a Hong Kong-based strategist the Royal Bank of Scotland, said by phone from Paris.

    “But it is not the trigger for a brand-new crisis. Yes, the magnitude of the situation is dramatic for Dubai. But Dubai is not America — and a property crisis in Dubai will not cause the same global crisis as a property crisis in the States.”

    Some market experts noted, for instance, that while banks that have lent money to Dubai World could suffer significant losses if the company were to default on all or part of its debt, worries about the sovereign debt of oil-rich Middle Eastern countries were unfounded.

    Paul Schulte, head of multi-strategy research at Nomura in Hong Kong, commented in a note on Friday: “Dubai was a carbon copy of Thailand’s disastrous foray as an ‘international financial center’ in the 1990s. Happily, the U.A.E. has oil. Thailand did not.”

    Like many Western consumers during the good times, Dubai gorged on debt and borrowed too much to finance a building boom that has gone bust in the downturn.

    “Dubai was fairly much the worst example of overextension. It had the worst debt per capita in the world by far,” Christopher Davidson, an expert in Gulf politics at Durham University in Britain, said Thursday. “I would like to put it down as a really enormous white elephant that doesn’t have much in common with the regular economy of a regular state.”

    When credit markets froze last year, Dubai, like Iceland, found itself overextended. But Dubai, which has little oil, was backed by its Arab emirate neighbors, especially oil-rich Abu Dhabi — or so investors had assumed.

    Saud Masud, head of research at UBS in Dubai, said Thursday that negotiators would feel pressure to reach some kind of deal to present to the markets before trading in the region resumes next week after the Eid holiday. The Dubai government’s total debt is estimated at about $80 billion, of which, Mr. Masud estimated, about two-thirds is held by local investors.

    Mr. Schulte of Nomura commented in his note that, in his view, “it is not a matter of when but at what price Abu Dhabi will bail out Dubai.”

    Mr. Wolter of RBS said he too believed Abu Dhabi would have no choice but to ultimately come to Dubai’s rescue. Until that becomes clear, though, he said, markets would remain extremely nervous.
    http://www.nytimes.com/2009/11/28/business/28markets.html?_r=1&hp&emc=na

  • HBOS and RBS received secret bank rescue loans-BBC.

    Atrocious.Whose money is this for politicians to dole out without debate and arrange it secretly?
    How much more money has been paid or being to whom?What has the Treasury auditor’s doing?
    Banks are operated for share holders for profits?Why should public money be paid to them for their mess?They know how to blackmail , stating that ‘investor confidence shall melt?’
    The Mafia of Banks and politicians is far more dangerous than Drug cartels.
    Incidentally which party and politician has received how much?

    The Bank of England has revealed for the first time that it lent Royal Bank of Scotland (RBS) and HBOS £61.6bn in emergency funding last autumn.
    Bank governor Mervyn King told a committee of MPs it “was to prevent a loss of confidence spreading through the financial system as a whole”.
    The money was repaid in full by January this year, he added.
    A spokesman for the prime minister said it was “a powerful reminder” of how the banking system had nearly collapsed.

    It was also revealed that Chancellor Alistair Darling had agreed to underwrite any losses which the Bank may have made on the loans.
    The Liberal Democrats have called on Mr Darling to explain to the House of Commons why the Treasury guarantees were kept secret.
    Vince Cable, the party’s Treasury spokesman, called it a “shocking cover-up”.
    Shadow Chancellor George Osborne said the revelations about the secret loans showed the need to reform the system of banking regulation.
    “The scale of these loans raises the question of how Labour’s tripartite regulatory structure allowed these banks to come so close to collapse in the first place, and underlines the need for fundamental reform to put the Bank of England back in charge,” he said.
    Secrecy
    It is the first time that the central bank has detailed this support for the two institutions.

    We may feel numbed these days when there is talk of the hundreds of billions of pounds in taxpayer support to the banks.
    Even so, the revelation of these secret emergency loans to RBS and HBOS a year ago is breath-taking.
    The Bank of England only felt it was safe to reveal this covert support now, once the ink was dry on longer-term bailout deals agreed with the banks a couple of weeks ago.
    Lloyds shareholders were being asked to approve the takeover of HBOS. Yet they were not told about a Northern Rock-style cash bailout of HBOS.
    The authorities argue that disclosing the loans would have caused greater disturbance to the whole system. But bank shareholders might well see it differently.
    Mervyn King said the Bank was acting in its capacity as the lender of last resort.
    The loans, which were given in October and November of 2008, were in addition to other financial support measures extended to the banks by the government.
    The chairman of the Treasury Committee, John McFall, said that when he saw the amount there had been “a little bit of an intake of breath thinking how many universities, how many colleges, how many jobs you could support with this”.
    The Bank of England said it had carefully considered the public interest case for disclosure but decided that the assistance should only be revealed “once the Bank considers that the need for secrecy has ceased”.
    RBS has since signed up for the government’s Asset Protection Scheme while Lloyds Banking Group – which took over HBOS – has announced plans to raise capital from its shareholders.
    The BBC’s chief economics correspondent Hugh Pym said that the £62bn of emergency loans were agreed just as shareholders were being asked to approve the takeover of HBOS. He suggested that shareholders might be unhappy at not being told earlier.
    Profound challenges

    In his parliamentary testimony Mr King also discussed the wider UK economy, reiterating his view that the recovery was still in the early stages.
    He told the Treasury Committee that the economy still faced “profound challenges”.
    Regarding the Bank’s policy of quantitative easing – pumping money into the economy to try to boost lending by the commercial banks – Adam Posen, one of Mr King’s colleagues on the Bank’s Monetary Policy Committee (MPC), said he hoped the initiative was “coming to an end”.
    Last month, the MPC voted to increase its quantitative easing programme by a further £25bn to £200bn.
    However, minutes released subsequently showed a three-way split on the decision, with seven of the nine MPC members voting for it, one wanting a larger increase in the scheme, and one calling for no additional spending.
    Mr King also told MPs that he did not think there was any “immediate risk” of the UK having a credit downgrade.
    http://news.bbc.co.uk/2/hi/business/8375969.stm

  • U.S. Q3 economic growth revised down, house prices up

    Figures do not really make one cheerful.
    Apart from rise in unemployment, figures relating to investments in Commercial buildings,GDP growth and increased import do not augur well for the economy.
    Another paradox is slightly increased demand should have resulted in in higher inventories as compared to slow down period;yet decrease in inventories.Does the inventory level relate to consumer products or infrastructural products like steel, cement?If it relates to consumer products it is logical that demand for consumer products to have come down.If not, infrastructural products must have picked up.As commercial building investment is less, it is obvious that the figures relate to consumer products as reflected in increased consumer demand,which is the reason for US’s economic ills.Rather than promoting infra structure, it is not good for the economy to invest on non revenue yielding consumer products.
    Unless consumer product consumption is curbed and infrastructural products are given priority along with Agriculture, and less imports, the Economic slide down shall continue to haunt US.

    WASHINGTON (Reuters) – The U.S. economy grew more slowly than first thought in the third quarter, but house prices rose for the fifth month in September and U.S. consumer confidence was up in November in data published on Thursday, suggesting a slow economic recovery is still intact.

    The U.S. Commerce Department’s second estimate of third quarter economic output, published on Tuesday, showed growth at a 2.8 percent annual rate, rather than the 3.5 percent pace it estimated last month.

    It was still the fastest pace since the third quarter of 2007, reflecting government fiscal stimulus, but slightly less than expectations for a growth pace of 2.9 percent.

    The return to growth in the third quarter, after four straight quarters of declining output, probably ended the most painful U.S. recession in 70 years. The economy contracted at a 0.7 percent rate in the April-June period.

    Gross domestic product growth was constrained by consumer spending that was not as robust as first thought, and by strong imports and weak investment in commercial buildings. But corporate profits surged as businesses raised output even as they were cutting payrolls.

    “This will be a muted, slow recovery and it will be strewn with setbacks,” said T.J. Marta, chief market strategist at Marta on the Markets. “I don’t have a lot of high hopes.”

    U.S. stocks opened lower, while Treasury debt prices rose slightly after the report was released.

    U.S. DEMAND SATED BY IMPORTS

    An upward revision to U.S. imports was one factor behind the softer than previously reported GDP figures, showing more domestic demand was sated by overseas production.

    Imports jumped at 20.8 percent annual rate, the biggest gain since the second quarter of 1985, instead of 16.4 percent. They knocked 2.53 percentage points off the change in GDP.

    Another drag came from the construction of nonresidential structures, which dropped at a 15.1 percent pace rather than 9 percent, as previously reported, highlighting the problems in the commercial property market and shaving just over half a percentage point off GDP growth.

    Consumer spending, which normally accounts for more than two-thirds of U.S. economic activity, rose at a 2.9 percent rate, instead of the 3.4 percent pace reported last month. It was the biggest rise since the first quarter of 2007 and represented a turnaround from a 0.9 percent second quarter fall.

    Businesses also reduced inventories at a slightly faster rate than had been anticipated. While that revision trimmed third quarter GDP growth, analysts said it helps lay the groundwork for future production.

    “That sets up for a better fourth-quarter GDP with more restocking,” said John Canally, economist at LPL Financial in Boston.

    Excluding inventories, GDP rose at a 1.9 percent rate instead of 2.5 percent. That marked a pickup from the 0.7 percent pace in the second quarter, but showed demand was somewhat lackluster.

    After-tax corporate profits grew 13.4 percent in the third quarter, the largest gain since the first quarter of 2004 and more than double what markets had expected.

    The strong profit growth reflected deep cost-cutting by companies, mostly headcount reduction, to deal with tepid demand.

    Home building activity rose at a 19.5 percent rate in the third quarter, below previous estimates of 23.4 percent. It was the first time home construction contributed to GDP since 2005.

    HOUSING MARKET RECOVERING TOO

    A separate report on Tuesday showed U.S. home prices rose for a fifth straight month in September, the latest sign of stability in a sector that was at the heart of the recession.

    The Standard & Poor’s/Case-Shiller index of home prices in 20 metropolitan areas rose 0.3 percent in September. Analysts said a tax credit for first time homebuyers helped support the market.

    The 20-city index had an annual decline of 9.4 percent.

    “We have seen broad improvement in home prices for most of the past six months,” David M. Blitzer, chairman of the Index Committee at S&P, said in a statement. “However, the gains in the most recent month are more modest than during the seasonally strong summer months.”

    The national index for the third quarter increased 3.1 percent from the prior quarter, the same as in the second quarter, resulting in an 8.9 percent annual drop. That was a significant improvement from the 14.7 percent annual downturn reported in the prior quarter and 19 percent slump

    The November extension of the $8,000 first-time homebuyer tax credit, and the addition of a $6,500 credit for move-up buyers, should support home sales and prices in coming months, economists said.

    CONSUMER CONFIDENCE UP

    U.S. consumer confidence edged higher in November after an unexpected drop in October, with less consumers expressing doubt about the a worsening jobs market, according to a report from the U.S. Conference Board.

    The Board’s index of consumer attitudes increased slightly to 49.5 in November from 48.7 in October.

    Analysts polled by Reuters had forecast a reading of 53.1, matching the previous month’s figure.
    http://www.reuters.com/article/topNews/idUSN2429697120091124?feedType=nl&feedName=ustopnewsearly&pageNumber=2&virtualBrandChannel=11617&sp=true

  • China’s control over price of dollar

    Reverse swing US Vs World?
    Story;
    China has “far more control over the price of the dollar than the US”, says Leigh Skene, an associate at Lombard Street Research.

    Although some of the US currency’s weakness since March can be attributed to greater risk appetite and “carry trades”, there is a better explanation for the drop in the dollar, he says.

    “Changes in the dollar correlate far more closely to changes in international reserves than any other variable since 1999.”

    Skene notes that dollar loans from non-US banks to overseas borrowers to pay for anything other than imports from the US are completely separate from American trade and investment flows, yet affect both international reserves and the supply of dollars in international markets.

    “The proceeds of such loans will inevitably be converted into another currency and so end up in the foreign exchange reserves of a central bank,” he says, adding that growth in these dollar loans partly accounts for the increase in China’s foreign exchange reserves.

    Skene says America’s abrogation of its responsibilities as host to the world’s reserve currency has made its fiscal and monetary policies and its trade and investment transactions subservient to foreign influences. He believes the dollar will remain weak as long as China’s economic locomotive ensures robust global growth – but will strengthen once the global economy weakens
    http://www.moneycontrol.com/news/world-news/chinas-control-over-pricedollar_424670.html