Ramanisblog

Tag: Economy

  • US Bankrupt?

    Read my blogs on US and Economy for more.

    The United States national debt has passed $14 trillion. For each dollar spend by the federal government 40 cents is borrowed. So technically, the US is already bankrupt because it has a debt that is almost four times the size of its economy. Lawmakers in Congress are saying that their major priority is to tackle and find ways to reduce the national debt, yet they are unwilling to see that the only way to avoid fiscal insolvency is to have a dual approach: Cut spending on one hand, and increase taxation on the other. Short of this, the United States will never get out of this giant hole that it has dug for itself. During his state of the union speech, President Obama said that we need a new “sputnik moment”. America’s sputnik moment should be to make drastic cuts in its military spending by getting the US military out, sooner than later, of Afghanistan, Iraq, Germany, Japan and South Korea.

    On Tuesday, New-York state Governor Cuomo declared the state “functionally bankrupt”. Cuomo is proposing a $132.9 billion budget that would make drastic cuts on education and health care. Despite the cuts, the projected budget shortfall for the state of New-York for fiscal 2012 stands at $9 billion. In Governor Cuomo budget proposal, Medicaid programs and school would each be cut by $2.85 billion. If Cuomo is heading towards cuts on social services for the people who need it the most, in California, Governor Brown has a different approach. Brown is running out of ways to make budget cuts which were already made by his predecessor, and he wants to extend tax increases to balance California’s budget. Governor Brown has the intention to take the issue directly with California voters. Brown said it is a tough budget, but that people have the right to vote on his budget package.

    When democratic ideals and calls for the right to vote are stirring the imagination of young people in Egypt and Tunisia and other part of the world, we in California can’t say now is time to block a vote of the people. If you are a Democrat who doesn’t want to make budget reductions in programs you fought and deeply believe in, I understand that. If you are a Republican who has taken a stand against taxes, I understand where you are coming from. But this time things are different. In fact, the people are telling us- in their own ways- they sense something is profoundly wrong,” said Brown.

    Despite this dreadful reality, the Center on Budget and Policy Priorities (CBPP) is trying to diffuse the situation by calling the depiction regarding catastrophic states debt “alarmist”. The CBPP says that recent articles regarding the fiscal situation of states and localities have lumped together the current fiscal problems, due to the recession, with long terms structural problems such as debt in relation to pension and retirement obligations. But will states have to declare bankruptcy? Some policymakers are suggesting that federal laws should be enacted to allow states to declare bankruptcy. By doing so, it would give them the possibility to default on their bonds, pay vendors less than they are owed, and modify or even cancel union contracts.

    Historically, we have to go back to the civil war when several states defaulted on their debt obligations. During the Great Recession, only Arkansas defaulted on its debt. The CBPP argues that such bankruptcy move would be “unwise”, and adding that “States have adequate tools and means to meet their obligations”. The CBPP also points out that “it could push up the cost of borrowing for all states, undermining efforts to invest in infrastructure.”

    http://current.com/1ipth4c

     

     

  • The State of the Union.

    President Barack Obama Honors Teachers (201001...
    Image by nasa hq photo via Flickr
    • True.You need to have
    • Higher taxes from the haves
    • Develop the habit of savings
    • Reduce conspicuous consumption
    • Encourage small industries
    • Discourage use of credit cards
    • Reduce imports
    • Cut military Budget
    • Increase investment in infrastructure
    • Reduce subsidy for oil
    • Increase tax on oil
    • Reduce deficit budget
    • No body is going to like it.
    • But done, it must be.

    Mr. Obama took on those issues, and the Republicans, squarely. Rebutting their single-minded focus on slashing discretionary domestic spending, Mr. Obama said we have to “stop pretending” that cutting this kind of spending “alone will be enough.”

    The speech was a chance for Mr. Obama to talk about the need for government investment in highways and railroads, schools and new, clean-energy industries. And we were encouraged that Mr. Obama set national goals in these areas — 85 percent of the nation’s energy should come from clean energy by 2035; 80 percent of Americans should have access to high-speed rail within 25 years; and 98 percent should have access to high-speed wireless within five years.

    These are grand, and expensive, ideas, and it was vital that Mr. Obama talked about the need to pay for new spending.

    He proposed eliminating taxpayer subsidies for oil companies, for example, to help pay for his clean-energy initiative. “I don’t know if you’ve noticed,” the president said, “but they’re doing just fine on their own. So instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s.”

    Mr. Obama also is calling for extending his proposed three-year freeze on some discretionary programs to five years. The White House said that would create $400 billion in savings over 10 years — a deep cut at a bad time, but far saner than Republican calls to slash spending so deeply that it would surely cripple the recovery.

    The White House said Mr. Obama needed to make some proposal like that to remain in the debate. That is likely true. But he also made clear that there is no long-term solution without cutting military spending and mandatory spending on Medicare and Social Security.

    He made a strong case for ending the Bush-era tax cuts for the wealthy when they expire in two years. “Before we take money away from our schools or scholarships away from our students, we should ask millionaires to give up their tax break,” he said.

    That’s important, but letting high-end tax breaks expire won’t raise enough revenue to pay for needed investments or reduce long-term deficits. Mr. Obama proposed to simplify both the corporate income tax and the personal income tax, but he did not call for raising other taxes. Americans may not want to hear that taxes have to go up, but until Mr. Obama and other political leaders are willing to say so, credible deficit reduction will remain out of reach.

    Mr. Obama’s speech offered a welcome contrast to all of the posturing that passes for business in the new Republican-controlled House. On Tuesday, House Republicans pushed through a resolution calling for reducing spending on domestic programs to 2008 levels. In a fragile economy, cutting spending on transportation, education, scientific research, food safety and childhood nutrition will do huge damage.

    At times Tuesday night, Mr. Obama was genuinely inspiring with a vision for the country to move forward with confidence and sense of responsibility. Americans need to hear a lot more like that from him.

    http://www.nytimes.com/2011/01/26/opinion/26wed1.html

  • Labor’s Coming Class War, a Warning.

    A chart showing illegal firings in union elect...
    Image via Wikipedia

     

    That the public sector unions form a vote bank and help politicians who to retain their seat, accommodate them with scant regard for economy .
    Workers in the unorganized sector,say electricians , plumbers etc,. have their grievances unheard,
    In India politicians have descended to another level,that of offering freebies like electricity to sections of Society without bothering about economic repercussions or the unease it creates among the other sections of the society
    Blue collar r workers like IT professionals have no forum to represent their problems ;their problems in the private sector is as bad as in camp labor,only thing being they get paid substantially without having the time to eat or relax which has resulted in depression ,suicides,murders,marital disharmony and high rate of Divorce.
    Sociologists need to pay attention to both these problems along with governments,
    Also now that Communism is laid to rest, workers do not have effective forum to voice their grievances.
    Imperative that a responsible forum is in to represent the problems of those affected objectively.
    Private companies and public sector companies’ unions represent extreme views and they need to be regulated.
    If both remain unchecked a revolution on the scale of the French Revolution is not afar

    Story.

    The notion that Wall Street and Main Street are fundamentally at odds with one another remains a popular orthodoxy. So much so that we may be missing the first stirrings of a true American class war: between workers in government unions and their union counterparts in the private sector.

    In theory, of course, organized labor is all about fraternal solidarity. For many years, it is true, private-sector unions supported collective-bargaining rights and better benefits for government workers, while public-employee unions supported the private-sector unions in their opposition to legislation such as the North American Free Trade Agreement in the 1990s.

    Suddenly, it’s a different world. In this recession, for example, construction workers are suffering from unemployment levels roughly double the national rate, according to a recent analysis of federal jobs data by the Associated General Contractors of America. They are relearning, the hard way, that without a growing economy, all the labor-friendly laws and regulations in the world won’t keep them working.

    What’s more, “blue-collar union workers are beginning to appreciate that the generous pensions and health benefits going to their counterparts in state and local government are coming out of their pockets,” says Steven Malanga, a senior fellow at the Manhattan Institute. “Not only that, they are beginning to understand the dysfunctional relationship between collective bargaining for government employees and their own job prospects.”

    ….

    These days the two types of worker inhabit two very different worlds. In the private sector, union workers increasingly pay for more of their own health care, and they have defined contribution pension plans such as 401(k)s. In this they have something fundamental in common even with the fat cats on Wall Street: Both need their companies to succeed.

    By contrast, government unions use their political clout to elect those who set their pay: the politicians. In exchange, these unions are rewarded with contracts whose pension and health-care provisions now threaten many municipalities and states with bankruptcy. In response to the crisis, government unions demand more and higher taxes. Which of course makes people who have money less inclined to look to those states to make the investments that create jobs for, say, iron workers, electricians and construction workers.

    Some of these folks are beginning to notice.

    http://online.wsj.com/article/SB10001424052748704111504576060092978223976.html?mod=WSJ_comments_mostrecommended&mg=cmy-wsj&url=http://online.wsj.com/community/integration/leaderboard.html?mod=WSJ_comments_mostrecommended#articleTabs%3Darticle%26commentId%3D1927358

  • Micro Finance -Boon or Bane?Micro lenders struggling.

     

    Residents of Madoor village in Andhra Pradesh, India. Leaders in the state have accused microloan lenders of impoverishing customers.

     

     

    Problem for micro financing falling into dire straits is due to

    -Egged by Politicians who consider people as vote banks(a bane of Democracy), the borrowers do not repay.

    and

    the borrowers lend the money to others not covered by micro finance  who can not repay.

    As far as the first one is concerned ,even the select groups are hand-picked by politicians for political ends and the those who recommend sanctioning of the amount get a cut.

    No body bothers as they know they need not repay, for their party is in power.Even if the opposition were to come back to power, they dare not collect from the defaulters for fear of losing votes.over a period of time those who pay also see the wisdom(?) of not repaying.

    Groups as the Self Help Group in Tamil Nadu,India are being promoted vigorously with an eye on the election and in fact many benamis of those in power form a consortium by linking many groups and siphon off money.

    The principle of making people depending on State with out working must end as also freebies by the Government.

    This will play havoc with the Economy.

    Story:

    Microcredit was once extolled by world leaders like Bill Clinton andTony Blair as a powerful tool that could help eliminate poverty, through loans as small as $50 to cowherds, basket weavers and other poor people for starting or expanding businesses. But now microloans have met with political hostility in Bangladesh, India, Nicaragua and other developing countries.

    In December, the prime minister of Bangladesh, Sheik Hasina Wazed— who had championed microloans alongside Mr. Clinton at talks in Washington in 1997, while Mr. Clinton was president — turned her back on them. She said microlenders were “sucking blood from the poor in the name of poverty alleviation,” and she ordered an investigation into Grameen Bank, which had pioneered microcredit and which, along with its founder, was awarded the Nobel Peace Prize in 2006.

    In India, until recently home to the world’s fastest-growing microcredit businesses, lending has slowed sharply since the state with the most microloans adopted a strict law restricting lending. In Nicaragua, Pakistan and Bolivia, activists and politicians have urged borrowers not to repay their loans.

    The hostility toward microfinance is a sharp reversal from the praise and good will that politicians, social workers and bankers showered on the sector in the past decade. Philanthropists and investors poured billions of dollars into nonprofit and for-profit microlenders, which were considered vital players in achieving the United Nations’ ambitious Millennium Development Goals for 2015, which world leaders set in 2000. One of the goals was to reduce by half the number of people in extreme poverty.

    The attention lavished on microcredit helped the sector reach more than 91 million customers, most of them women, with loans totaling more than $70 billion by the end of 2009. India and Bangladesh account for half of all borrowers.

    But as with other trumpeted development initiatives that have promised to lift hundreds of millions from poverty, microcredit has struggled to turn rhetoric into tangible success.

    Done right, the loans have shown promise in allowing some borrowers to build sustainable livelihoods. But it has also become clear that the rapid growth of microcredit — in India, some lending companies were growing at 60 percent to 100 percent a year — has made the loans much less effective.

    Most borrowers do not appear to be climbing out of poverty, and a sizable minority of them are getting trapped in a spiral of debt, according to studies and analysts.

    “Credit is both the source of possibilities and it’s a bond,” said David Roodman, a senior fellow at the Center for Global Development, a research organization in Washington. “Credit is often operating at this knife’s edge, and that gets forgotten.”

    And with the results for borrowers mixed, some lenders have minted profits that might make Wall Street bankers envious. For instance, investors in the largest microcredit company in India, SKS Microfinance, sold shares last year for as much as 95 times what had been paid for them a few years earlier.

    Meanwhile, politicians in developing nations, some of whom had long resented microlenders as competitors for the hearts and minds of the poor, have taken to depicting lenders as profiteering at the expense of borrowers.

    http://www.nytimes.com/2011/01/06/business/global/06micro.html?pagewanted=1&hp

    Related:

     

    Prof.Younus.

     

     

    Norway says it is examining reports that Nobel Peace Laureate Muhammad Yunus allegedly diverted millions of dollars of aid money from a bank.

    International Development Minister Erik Solheim said that it was “totally unacceptable that aid is used for other purposes than intended”.

    A documentary maker has alleged that cash was diverted from Professor Yunus’ Grameen Bank to other parts of Grameen.http://www.bbc.co.uk/news/world-south-asia-11899506

     

     


  • In India, warnings of a microfinance bubble.

    The problem is more political than economical.More than 90% of those who receive the loans are party cadres of the ruling party,who have no scruples about repayment.So long as the ruling party stays in power,the creditor is safe in not repaying; we have seen instances of loans extended to people by the Government being written off keeping in mind elections.
    Those who take the loans are confident that even if the opposition comes to power the loan will not be called in as it might affect the vote bank of the party.
    So, so long as politicians keep on splurging money to further powerlust,economy will go for a six.
    Story;
    Lending to the poor has proved so profitable in India that microfinance institutions saw their loan portfolio jump from $252 million to $2.5 billion in two years, raising fears of a subprime-like microfinance bubble.
    Microfinance institutions (MFIs) watched their loan portfolio in India jump from $252 million to $2.5 billion between 2005 and 2009, according to data compiled by Sa-Dhan, an umbrella group for the sector. Last year alone the number of borrowers jumped 59 percent to more than 22 million people, and loan portfolio grew 56 percent. When including government-supported microcredit programs, the sector overall grew to more than 70 million borrowers and a $7.5 billion market.
    http://www.csmonitor.com/World/Asia-South-Central/2010/0630/In-India-warnings-of-a-microfinance-bubble