Fed leads drive to strengthen bank system

The global credit crisis doesn’t seem to want to ease. And the national banks have to do what they don’t want to do, especially in outspoken neoliberal countries, and that’s interfere in to economic play of the market. Although, that’s the very reason of their existence: correct and steer the economy.

The Fed cut the interest rates to make more money easily available for banks, that might be in a uncomfortable position. Analysts were disappointed because they had expected a bigger cut.
The Fed made an aggressive injection in the market: $40 billion this month for this month only.

Both measure indicate that the Fed start to take the crisis seriously, but they failed to convince investors. They claim they are too modest and maybe not the right ones to take away the underlying problems the world economy currently faces.
The markets proved that the investors were not convinced and indicated that there was an actual fear amongst them that the economy might slip into a recession.

However, other investors said they were pleased by the measures takes because it proves that the Fed will ultimately give back-up to them when they truly need it. One investors puts it like this: "This is basically a reinsurance policy, [...] Central bankers are saying, 'We will stand behind you.' "

It becomes clear that national banks and the Fed in particular no longer can nor do try to depict the crisis as a minor problem that will be resolved by the market itself. They realize that if they want to prevent an even worse global economical crisis, they have to act now in a thorough way.

Sarah Struyf
http://www.iht.com/articles/2007/12/13/business/13fed.php#end_main

Retail sales unexpectedly high

The retail sales in November were higher then expected. The fact that the consumers don't seem to care that much about the high energy prices and the crisis in the housing market may be an indication that the economy is doing better then it seems.
In November the retail sales increased by 1.2% when it was only expected to rise with 0.6%. In October it only rose 0.2%
These numbers really show were the people are spending their money. The luxury car sales rose 1.8%, the gas sales rose, boosted by the high energy prices, with 6.8%, this is the biggest increase in 2 over years. The other big increases were in the electronic (+2.5%), clothes (+2.6%) and the sportinggoods (+2.2%) sales.
Many economists fear that the American economy will have a recession in 2008. It will depend mostly on what the consumers will do.

I thought that for my final blog I would give some good news. As it seems that alot will depend on how the american consumer will react, this is indeed good news cause they are showing signs that the economy is in a better shape then we expect.
On this last postive note I will say goodbye. Let us hope that the economy can survive this and that I will get better again.

Sincerely yours,

Nico Cottry

Source: http://www.tijd.be/artikel/Retailverkopen_VS_onverwacht_sterk.6022565

Wall Street and interest rate drop due to decission Fed.

Central banks does something about the credit crisis.

The American, Canadian, British, European and Swiss central bank will cooperate and will take measures to remove the tensions on the money market. That becomes clear from a communication of the Federal Reserve. The Fed will coordinate the measures. the central banks will put extra money in the system against less heavy conditions which are now the case.

On the 17^th of December the Federal Reserve will make a first credit line of 20 billion dollar available. The American central bank will do it once more on the 20^th of December. Banks which want to lend at the Fed will be less strictly treated with de collateral when they want to take a credit line. Collateral is the capacity value which credit takers must transfer to the credit licensor if they can’t pay their loan back. The Fed will also take care less strictly on the bank who comes for a loan. The Fed will also cooperate with the European central banks and the bank of Switzerland.

I think that it is a good proposal of the FED. this will help the American economy.

http://www.tijd.be/artikel/Centrale_Banken_gaan_kredietcrisis_te_lijf.6021960

Benjamin

American House market isn't yet safe !

Some analysts predict that 2008 will be a very bad year for the American housemarket. Right now there are no signs which indicate on an improvement. According to Eric Rosengren, the situation will probably first deteriorate before it can improve himself. It can not be predicted how deeply the crisis will reach. By intervening as soon as possible on the house market, future problems can be prevented.

what was exactly wrong at the American economy the last months ?

The Americans took for almost 5,655 billion dollar mortgage credits since the beginning of 2000 to June 2007, as a result of which the meter stands in sum on 10,145 billion. Insiders believes that the end of the credit crisis is not yet in visibility.

It’s a consequence that the position of the dollar as world leader at the moment is in danger. But, not everyone is such pessimistic concerning the impact of the dollar value. In the United States John Dessauer indicate on the positive impact of the fall of the dollar value. The reasons that Dessauer says, is in fact very easy. The dollar decreased indeed strongly, but the financial markets aren’t decreasing, in opposite. Over the same period the rate of the Dow Jones has almost doubled and American companies made record profits. And that is also my opinion.

http://www.trends.be/nl/economie/beursnieuws/73-1087-120009

Benjamin

Subprime solutions

After the subprime mortgage mess emerged some months ago, the treasury secretary Hank Paulson refused to interfere. What was happening was a self-correcting free market at work. Intervening would be un-neoliberal and protectionist. The economical laws would sort out and clean up the mess themselves.
By the end of August, under pressure from Democratic politicians, Paulson was forced into a modest initiative in favour of the more prudent subprime borrowers, those who would have been able to pay their loans if the crisis would not have happened. They would receive help via a government-sponsored program.
With the crisis showing no intention of coming to a stable end, the treasury secretary has come up with a third approach. At first, the mortgage-holders will be divided into three groups, varying from those who can pay their dept anyhow, over those who ‘deservedly’ got their loan, to those who could plainly not afford the houses they occupied. Only the middle group would get help under the latest approach. They would get a debt-resettlement. The Treasury claims that under this program, there would be only winners, on both sides and it would not involve public money. That’s more than triple win.
However, questions remain. If this solution has only winners, why couldn’t have the market come up with it itself? An answer to that may be that the market is not transparent and that the government thus has to co-ordinate. Moreover, a side-effect of the interference of the state has as an implication that mortgage servicers get some legal protection against investor lawsuits
Other questions remain unanswered. Firstly, does this government interference not simply prolong the subprime mess? Shouldn’t we just let hard economic laws bring a hard but clear new balance? Secondly, governments meddling in private contracts may create an unwanted precedent. Thirdly and lastly, the impact of the new plan may well be very limited and modest.

As I perceive it, Paulson has put himself in a difficult position. As a neo-liberal he doesn’t believe in state intervention in the economy. However, here, he realizes that the market does need government support. In that way, he distances himself from his principles. On the other hand, his interventions that are contrary to his principles, are not enough to save the economy.

Sarah Struyf

http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348876&story_id=10251261

The expensive euro and the low dollar: what does it mean ?

The dollar stands historically low and the euro historically high. That comes because the American economy is in a dept and the European economy does it relatively good. The United States have an billions shortage on the trade assessment. The Americans buy and import more than they deserve. When the euro was born in 1999, it went much better in the US than in Europe. Meanwhile the roles have been turned over. Thanks to a low dollar is an American car in Europe suddenly thousands of euro cheaper. And that applies to all American products. There they deserve so much that they squeeze himself from the youngest credit crisis. The low dollar is for the Americans a blessing, the budget deficit melts away and this way also the trade deficit, the export can become at last larger than the import. The low dollar is exact what they want and necessary have.

http://www.overgeld.nl/rubriek/consument/2744890/

Benjamin

The American employment rate rises harder then expected

In November the number of jobs in the US rose more then expected. Next week the Fed wil have a meeting to discuss a possible decrease of the rate, the numbers about the jobmarket will have a big impact on their decision. The unemployment rate in November was as high as October.
The analysts expected an increase of 80.000 jobs but they increased by 94.000 last month. This bigger then expected increase can have as a result that the Fed will not lower their rates.
The average hour wage rose by 0,5%, this is a slight increase from the 0,3% they expected. In October it rose with 0,1% wich was less then the expected 0,2%.
The figures of the American job market are seen as a very important indicator of the developement of the American economy.

This good news for the economy but then again not so good news. Because because of the huge impact of these numbers it might be that the Fed will not lower its rate's while most other numbers suggest that they should lower them. The Fed better take their time and really investigate what would be the best thing to do for the economy cause any bad decision could have a really bad impact.
Lets hope the Fed will take the best decision.

Nico Cottry

Source: http://www.tijd.be/artikel/Amerikaanse_werkgelegenheid_stijgt_harder_dan_verwacht.3442038

The panic about the dollar

For the last couple of years the value of the dollar has been sliding gradually. The last couple of months, however, the dollar has lost value at an increased pace. Analysts have been warning for a full-blown collapse of the dollar. Many ingredients for a nasty crash are already present.

Since years, the US has been accumulating a gigantic trade deficit. That pain has been relieved somewhat in itself because of the lower dollar value. However, it remains an enormous problem.

More recently, the credit crisis has added troubles for the dollar and the Fed. Traditionally, America’s deficits have been sustained by two factors. At first, foreign national banks have been very willing to offer cheap loans to America and have, by doing so, sustained the Americans’ shopping spree and thus the foreign producing industries. Lately, however, these national banks have proven to be less willing to offer cheap credit to the American economy. Secondly, the intentions of some national banks to swap the dollar for the euro as the currency for their reserves may add to the woes of the dollar and the Fed.

All these developments make up a perfect mix that may herald a crash of the dollar. However, far too much is at stake. Analysts believe that self-interest and sensible policy can cut the odds of trouble.

I believe that the international markets already are very volatile. Further troubles with the dollar could increase this instability even more. The consequences would be disastrous, not only for the American economy but also for the entire global economy. An even more weakened dollar would kill European export to the States and would thus harm the European economy. Such an dynamic would put economies in recession for years.

Sarah Struyf

http://www.economist.com/opinion/PrinterFriendly.cfm?story_id=10215040

American house prices

Things look bleak for American homeowners, and not only for those with subprime and adjustable-rate mortgages. Market analysis shows that American house prices have fallen a 4.5% during the last quarter. A Yale University economist expects prices to fall a further 5%. Even worse: he does exclude a further decline up to 50%.

Recent evolutions have come as a shock for many homeowners. Some of them have found solace in virtual reality. Realius developed a game that allows players to guess the price of houses on the market. ( www.realius.com) American homeowners can use some escapism these days. The current crash of house prices contradicts popular American wisdom that house prices in America do not fall.

As the chart indicates house prices witnessed a previous slump in 1991. But soon afterwards prices started to climb again steadily. However, there is no guarantee whatsoever that the current crises will evolve in a similar rebounce.

I believe it can be considered as ‘American’ to create a game out of similar painful, economical situation. One can consider it as a nice practical joke to make a game based on so much personal misery. On the other side, it also puts a finger on a very delicate topic for such a broad segment of the population.
Next to that, Americas habit of the past decades to live on borrowed money was always to come back one day. Few, however, expected such a large fallout with so many people involved.

Sarah Struyf

http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348876&story_id=10225023

Diggest drop house prices since 1970.

The prices of new houses in the U.S have dropped by 13% annualy-based, last month. The price of a new house is $218000, $44000 less than in Mars.
Dimitry Fleming, economist at ING, says that these figures prove that the housing crisis is still on a role. He also points out that sales of houses can be very volatile on a monthly basis, therefor he works with a
3-monthly average.
Wednesday evening, The Fed announced in the latest version of the "Beige Book" that the demand for residential property is keeping to decrease with only few points of stabilization. Secondly the Fed will have to lower its interest rate (-0.25%) to sustain the "labour market". This is somehow strange, despite a growth of 4.9% of the American economy, the Fed still wants to lower its interest rate.
ING economist Rob Carnell explains why we should look with caution at this 4.9%. First the housing crisis hadn't yet fully kicked in. Secondly the figures were "improved" by a rase of stocks. This even could mean that companies aren't able to sell all their goods , so it's actually bad news.
The expectation of lowering the interest rate is giving the stock markets a boost, despite the bad economical news.

I fully agree with the fact that the housing crisis is still on a role. I even think that the full effects will only kick in within 2 months. The Fed said that de demand is still decreasing, so we'll first have to see an end to this decrease before we can talk about full effects.
The Fed will probably lower its interest rate to sustain the labour market. I agree that they have to be more concerned about employment, at this point, than about inflation and the dollar rate.
With the housing market causing social dramas, they can't aford less employment.
The latest figures were smukked up... Well, that's almost the case every month. We'll just have to be carefull with our interpretation.

Thomas

source: de tijd, editie vrijdag 30 november 2007, pg 17, huizenprijzen VS kennen grootste daling sind 1970

Chavez treathens to cut off petroleum supply to the US.

The president of Venzuela, Hugo Chavez, announced that he is sending his army to the petroleumfields in his country. With this he is threathening to cut off the petroleum supply to the US.
The president said this in his adress this friday in Caracas.

Sunday a referendum will be held in Venezuela about to socialistic revision of the constitution. Chavez used these threats in front of an audience excisting of thousand of supporters in Caracas. He said there will not go another drop of petroleum to the United States if Washington does not revise their plan to destabelise Venezuela. Venezuela is the sixth lagergest petroleum distributer in the world. Half of their production is exported to the United States.

This is offcours very bad news for the United States. If they lose this much petroleum it will have a bad impact on their economy. This could well be a devestating blow to the economy. The goverement is doing their best to stabelize the economy and this could cause a blow to their industry and that would be very bad.

I don't know what Washingtons plan is but they better revise it cause they don't won't this to happen. Im curious what Bush will do.

Nico Cottry

Source: http://www.tijd.be/nieuws/buitenland/artikel.asp?Id=3423588

Huge discounts on the American house market.

New statistics indicate that the American house market will not recover immediately. In November there were sold more new houses than in the month before but that was due to the considerable discounts which the customers received. The average price for a house in the United States decreased in October with 13 per cent, the largest fall in more than 35 years.

In November 728,000 new houses were sold in the USA, a lot smaller than the average expectation of 750,000. Compared with previous year the quantity decreased with 25 per cent is. Many people can’t buy a house because of the new credit conditions. Everyone fears that the crisis on the house market will give a bad influence to the rest of the American economy.

In the third trimester the American GDP still grew with 4.9 percent but for the last three months of 2007 economist counts on less than 1 per cent increase.

According to me, the American economy will indeed be in a debt point due to the house market prices. However, I think that the American policy have to intervene much more is this subject in stead of making war in other countries.

http://www.tijd.be/nieuws/economie_financien

Benjamin

Credit crisis just started.

The American credit crisis will become much more terrible, warns the bank of America, the largest bank in the United States. According to the bank the interest feet of the mortgage loans are accelerated soon, as a result of which today people want to be able to pay back their credit. The credit crisis has already caused a disorder on the financial markets since the end of June.
According to the newspaper it’s assumed that many Americans can’t longer pay off their loan because the interest of their credit has increased. Sale of houses decreased in October to the lowest level in eight years. An estimate says that the prices in the twenty main cities shrank this year already with at least 5 per cent. Houses which have been confiscated by a bank or credit supplier, are being sales with a discount of 20 up to 25 per cent. The energy prices are also increased and it’s much difficult to get consumer credits, as a result of which people with financial problems don’t have a solution for the upcoming months.

For the population of America it will become difficult the upcoming months. In America they don’t know social benefits like in Belgium, it will be very hard for most of the families.

http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3405775

Benjamin

Recession, mortgage crisis

Due to the crisis in America the house prices stand worldwide under pressure, in Spain for example, complete streets are standing already for sale. In our country the damage seems to be better than expected, mainly by our almost unique mortgage interest calculation.
Meanwhile we know that the credit crisis is much deeper then we thought and that the impact will remain a couple of months. The American economy is still well for 26% of the world economy. The rest of the world has little choice and must participate to solve the problem. The American economy is (still) too large and (still) too powerful and the American question is (still) too important for the rest of the world. America has less credit possibilities, meanwhile for example China has a surplus of almost 1500 billion dollars. Without American question the Chinese economy survives also, purely on the internal question, the same applies to Europe. The USA can’t continue lend no longer. concerning a couple year the rest of the world will not care what happens there in the USA.

It is true in this way, that how more we show that we want to help America with there bad economy, how less they will solve the problem themselves. Problems must attain solved by looking at to the causes. I am convinced that a bad political policy influence to a bad economy.

http://www.dft.nl/goeroes/finanscoop/2613367/Een_spelletje_kwartetten.html

Benjamin

Fed lowers growth prognosis for the year 2008.

The Fed now believes that the American economy will grow between 1.8% and 2.5% in the following year. The average of 2.15% is a lot less than the 2.4% that Wall Street predicts. In June when the subprime crisis started the Fed still predicted a growth of 2.6%. In order to become more transparitive, the Fed is going to give a growth prognosis four times a year in stead of 2 time a year.
It's remarkable that the Fed only estimates a maximal growth of 2.5%. This depressed point of view is bad news for Wall Street. Due to this negative point of view it is not likely that the interest will be lowered soon, dispite a deceleration of the growth. The Fed is doing so because she is the only central bank in the world who has double objectives, price stability and full employment.
The Fed admits that the lowering of the interest on October 31 was a close call. Big problems in the housing market were eventually the incentive to lower the interest.
The Fed also states that a significant decrease of the dollar could bring inflation along. Hereby they are leaving the door open for a possible increase of the interest rate.

If the Fed wants to become more transparitive they'll have to hurry up. Nobody knows what to expect: higher or lower interest rates? There are discussions about interest rates but such decissions should be unanimous.
Secondly it's becoming very hard to interprete the released figures. Mostly they are smukked up and only in the next period they are adjusted. This means that people are working with the wrong figures for months. Therefor I think it's a good idea to give 4 growth prognosis a year instead of 2. But this is hardly enough...

Thomas

source: http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3395594

American mortgage crisis will even get worse.

Next year many people who have a mortgage will have to deal with an interest adjustment adjustment. Many of those borrowers won't be able to deal with this, so there will be even more house who get sold. The interest adjustment will eventually result in a surplus of 362 billion dollar interest. The main part of the subprime adjustable-rate mortgages are the
2-28-loans. Here the interest rate is fixed the first two years but is adjustable every year in the following years. If a mortgage with a fixed rate of 7% gets adjusted to 9.5% in the third year, it means an extra $350 interest for the average borrower.
An other point wich indicates that the crisis will even get worse is that if houses eventually have to be sold, it will be hard to sell them and they will be worth less. The value of houses already decreased by 25%...
Meanwhile the American government is trying to do something about the crisis. Arnold Schwarzenegger made an agreement with four main bank to freeze the adjustable rates of some adjustable mortgages. This could mean a lot for people who still can pay their interests but wouldn't still be able if the rates got adjusted.

The crisis will get worse for sure. A $350 dollar extra interest is a disaster for someone who already struggles with the current rate. Those people will be forsed to sell their homes. But the gains from this sale won't be enough to pay their loans back. The value of houses already dropped by 25%. There will be social dramas, poverty will increase, employment will drop, it will be harder to maintain social wellfare,... .
The reaction of Arnold Schwarzenegger is a beginning but he won't be able to freeze the rates forever. The main problems like the prices of the houses have to be solved. They will have to do something rapidly about this or social disasters will happen!

Thomas

source: http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3405177

Industrial production nosedives

In October the industrial production plunged by the largets amount in nine months. This drop was led by electricity, gas, auto and housing weakness.

The Fed said that output at the nation's factories, mines and utilities fell by 0.5% last month. Manufacturing output fell by 0.4%. Output at the nation's utilities was down 1.6%. Mining output, wich includes oil, fell 0.6%. Due to the declines the factories, mines and utilities were left operating at 81.7% of capacity, down from an operating rate of 82.2% in September.

The sharp plunge in electricity and natural gas output was due to the warmer-than-normal weather. Also contributing was the third straight drop at auto factories, who are facing slumping demand in the face of soaring gasoline prices. And everything related to the housing dropped aswell.

The Fed chairman Ben Bernanke sought to lower expectations for further rate cuts to boost economic growth. This could happen as soon as their next meeting on Dec 11.

This is once again a setback for the american economy but it could be predicted cause this is the lag of the crash in the housing market and the problems with the oil. But if the Fed can stop this decline by cutting the rates again then the economy will be in good shape again. Because a low dollar has had its advantages for America and Europe. So if they can keep the dollar at this rate and keep the economy steady for a while they could do some good things like lowering the trade deficit, ...

But offcours they do have to keep a close eye on the economy. But there are already predictions of a recession.

Nico Cottry

Source: http://money.cnn.com/2007/11/16/news/economy/bc.economy.ap/index.htm?postversion=2007111610

The Fed’s new strategy amounts to low-cal inflation targeting

The Fed’s new chief, Ben Bernanke, made a speech at the Cato Institute in Washington on November 14th. In this speech he set out his view on America’s monetary policies.
Central to his speech was his strategy for communication with the public. For the Fed communication is paramount. Trough communication, the Fed creates confidence with the public that is the underlying basis for a stable economy and tradings at stock exchanges throughout the world.

He revealed his policy for keeping inflation low and gave his forecast on the economy for the coming months.
Bernanke further explained the changes he has made and will make since he took over from Greenspan. Greater transparency is the buzzword that will bolster the Fed’s legitimacy and help preserve its independence. The two major changes are that he will give his prediction on the economy not two times a year but four times. The second change is that his predictions will be extended up to three years instead of two.

At first I believe the importance of communication for a central bank can’t be overestimated. The major role of a central bank is to create confidence in the economy among bankers, traders and economists in general and among the wider public.
Bernanke’s predecessor Greenspan had the confidence of the public. Bernanke is brand new at the job and still has to win over the trust.

Secondly I have some doubts about the predictions over a three year period. On the one hand such predictions may come in handy for longer term planning. On the other hand questions remain whether such long term predictions really can be made.

Sarah Struyf

http://www.economist.com/research/articlesBySubject/PrinterFriendly.cfm?story_id=10146901

Trade deficit lowest in 28 months

The weak dollar has an advantage: American goods become more competitive in foreign markets. The trade deficit fell to an all time low as a falling dollar spurred US export to an all time high. The Commerce Departement said that the deficit for September decreased to $56.5 billion, that's a decrease of 0.6%. This surprised many economists since they predicted a rise in the deficit.
The improvement came from a jump in US exports wich rose to a record $140.1 billion. Because the dollar is weak against most other major currencies the US goods are cheaper and therefor more competetive in foreign markets. Import also rose in September, climbing by 0.6% to $196.6 billion. Most imports were up except for the oil import, this fell by 0.8%.
In September the trade deficit ran at an annual rate of $703.4 billion, down by 0.7% from last year's $758.5 billion.

This is once again good news for the US. This is a good example of some of the most basic theory's about the economy. A weak currency makes your products cheaper oversea's wich shows an increase in export. And for a country like the US, with a trade deficit of $703.4 billion,
this is always good news. Any oppertunity to decrease this deficit is worth taking. This is also a good example for Bush to use when he promotes more foreign trade policies.
This might once again be a sign that the American economy will recover from there recent setback.

Nico Cottry

Source: http://money.cnn.com/2007/11/09/news/economy/bc.economy.ap/index.htm?postversion=2007110908

The consumer may floor the American economy

Lowered real estate prices, mounting energy costs and the growing employment causes serious challenge for the American consumer. The economical growth is predicted to undergo a fallback in the fourth quarter. Right now the economy seems to be in good shape, there is strong economical growth (3.9%) and rising employment (+166 000 jobs). Yet economists are gloomy about the future. They predict a lowered export and spending by consumers. Those two elements are traditionally very important fundaments of the economy.

The American consumer has become vulnerable because of the credit market and the related crisis in the housing market. This has its effect on consumption. Next to that, there is the booming oil price and insecurity on employment. For example, due to the credit crises market leader Countrywide Financial plans to fire 12 000 employees.
For the moment the American economy is healthy and strong but the future looks bleak.

I believe that in a global economy all regional markets are mutually dependent. If the future looks bleak for America, this sure will have consequences for Europe. Possibly we should prepare for an economical downturn in the near future. I think it might be a good idea to closely monitor the American economy in the coming months to get a better grasp of our economic future.

http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3343158

Sarah Struyf

Fed lowers interest rate.

The Fed announced wednesday, that the interest rate would be lowered to 4.5%. After this announcement, the Dow Jones lost a lot of points. Markets started selling after this decision of the Fed, because they believe that this could be the last disrating of the interest.
This already is the second month in a row, that the interest rate is cut. The Fed is doing so, to give the economy some breathing space. Loans get cheaper, so it's easier to invest. The Fed also hopes that a lower interest rate will decrease the negative effects of the housing market on the economy.
The Fed believes that the economy will slow down on the short term, therefore they will keep an eye on inflation.
Basic inflation has weakened this year, but we'll have carefull. Prices of energy and commodities are rising and can result in a growing inflation.
The cut in the interest rate from last wednesday wasn't an unanimous decision. Thomas Hoenig didn't vote in favour... .

It's very strange that markets react by selling, after an interest cut. Normally the regular investments get less attractive and stocks get relatively more attractive. Wednesday the market already expected an interest cut. It actually was the announcement after the decision, which said that the main item for the Fed from now on will be inflation, who caused the selling attitude. If the Fed says that from now on inflation will be the main issue, the Fed imputes that it won't lower interest rates again.
I think it's true that this decision will bring some new investments along. The question remains if this will be enough to stop the cooling of the economy.
The decision wasn't unanimous... . I wouldn't have vote in favour too, the interest cut still caused a shock on the markets. I think it would have been better to wait a month. And then, when it was necessary, they still could have lowered the interest rate.

Thomas

source:http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3335463

Economy doing unexpectedly good.

The American Economy shows unexpected strenght despite the housing and credit market woes. Altought the inflation is staying tame wich make's it uncertain for the FED what to do. The big question is Should the FED cut rates?
The unexpected strength is a sign that the FED shoudn't cut rates, but the tame inflation is a good sign to cut the rates without any fears. The decicion will be announced when the FED concludes its 2 day meeting.
The gross domestic product rose with 3.9% wich is higher then the 3.1% they expected and the 3.8% from last quarter. This is the strongest pase of economic growth since the first quarter of 2006. Export grew 16%, consumption by 3% and prices only rose by 0.8% wich is a big difference from the 2.6% rise last quarter. The readings on both economic growth and price pressures were being closely watched for clues as to what the Fed might do with interest rates. Most economists are forecasting the central bank will trim rates by a quarter-percentage point.

This is good news. After alot of negative reports it finally seems that the american economy is not as weak as it seemed. Now we have to stay sceptic, this is a report by the governement. So we have to wonder if the economy really is recovering or that maybe these numbers are just a way of trying to silence the doubt in the governement. But since we do not have any other information we have no choice but to believe them.
Now I personally think that the FED should cut the rates. Because this could prevent some future problems and its an ideal time to do it because of the tame inflation.

Nico Cottry

Source: http://money.cnn.com/2007/10/31/news/economy/gdp/index.htm?section=money_topstories

Btw: I wrote a blog this week because I forgot to make one last week.

American companies profit from weak dollar.

The weak dollar is giving exporting companies an advantage. Especially the construction business is doing good. The American export is actually rising like never before, in August there was a record of 138.3 billion exported goods and services. The main reason for this bloming export is the low-rated dollar. But the healthy economies of Asia and Europe are helping too, they are importing more American goods. David Huether, head of the ecomical department of the National Association of Manufacturers, says that every sector is profitting from the growing export. The biggest winners are manufacturers of capital goods, like Boeing, telecommunication sector, nutrition sector,... .
Manufacturers of furniture had to move their plants to the cheaper China and Canada in the last years. Canada had the big advantage of her big wood supplies and the cheap Canadian dollar. Now the American furniture sector is looking to move back to its base. There is now more advantage of producing in Canada, last month the Canadian dollar was even worth as much as the American dollar.
Due to this balance Disney even started advertising in Canada, in order to get the Canadians to come to its theme parks. The low dollar is even helping to compensate the trouble in the housing market. But we should be carefull, if the dollar drops to much or to fast, the import will drop too. This will have its effect on foreign economies and eventually also on the American economy. If the dollar drops to much, there will also be inflation problems.

I think the question remains, how far can you lower the dollar. At which point will the import drop? Because it's true that the foreign economies suffer from the low dollar. Especially the 'new' economies, who depend mostly on import. Autartical economies like Europe can rely on their own industry, devolloping countries can't do such a thing.
At the other hand we can't forget that this again proves the economical cycle. America will benefit for a while, until the import drops. Then Europe will suffer from decreasing export. Then again European import will drop and America will suffer from a weak export. And so on.... .


Thomas

source: http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3321229

Greenspan questions call for dollar decline

As a result of the mortgage crisis and the current US account deficit, some ask for a depreciation of the value of the dollar. Allan Greenspan, the former chairman of the US Federal Reserve, on the contrary states that there is no need for that. Greenspan emphasizes the difficulty of forecasting currency movements.
National Markets are so enormous and often volatile that they are difficult to be grasped or predicted, and they don’t respond according to a single economical law.
According to Greenspan, the current international economic imbalances are perfectly normal and nothing unhealthy. They merely reflect differences in specialization between economic entities.
There might be a need to adjust some financial variables, but a need for a dollar decline may be one step to far.

I agree with Greenspan that economic markets and national economics are difficult to asset or / and predict. Changes in the economy may be caused by so many different variables that we can’t know for sure what will come next. The only thing we can hope for, is the fact that something has to change when everything seems to become negative. But economies are always subjected to fluctuations. After a down period there is always a time of up.

Sarah Struyf

http://www.ft.com/cms/s/0/fc460b7a-8029-11dc-b075-0000779fd2ac.html

Market will survive high oil prices.

First, let's face up to the bad news. Today you pay over $90 dollar for a barrel of crude oil. During the oil crisis of the late 1970s and the early 1980s a barrel only costed $80 in today's dollars. So the high price is indeed a threat for the economy.
The following years, the oil price is likely to stay above $50. The problem is that al the cheap oil is being used up and new production is more expensive.
Above this, you also have China with his thirsty economy. All this could result in replay of the stagflation of the 1970s and the following recession of 1982-1983, but there is some good news...
First, oil plays a much smaller role in modern economies than it used to. For each additional unit of oil we can provide one-quarter more energy then in the 1970s.
Globlization trends like competition, outsourcing and cheaper foreign labor costs will help to keep the inflation in line.
In a sense this situation is even self-correcting. If the U.S. economy stays in a slump for a long time, the growth of China's export-orientated economy will slacken, and therefore its oil-demand will slacken.
The real danger now would be that some sort of a military conflict disrupted the supply of Middle Eastern oil for a certain time.


I agree that a price of $90 a barrel is a real threat. I also think that the oil price will stay around $50 a barrel, or even will rise to $60 dollar a barrel in the following years. With prices of $50 or even $60, a healthy economy can be sustained. To do so production expenses of oil will have to be decreased.
At the other hand there was the good news. Globlization would keep the inflation, which is caused by these high prices, in line. At the other hand, I can't agree with the self-correcting theory. This isn't good news. If the U.S. economy stays in this slump for a long time, we will have had a recession or even depression, before the self-correcting effect kicks in!
The real danger actually is some sort of military conflict. And with Iran willing to produce nuclear weapons, this remains a possibility. But who can guess the odds?


Thomas

source: http://money.cnn.com/2007/10/19/pf/oil_bullmarket.moneymag/index.htm?postversion=2007101908

Drought in West and Southeast spreads to Mid-Atlantic

Tuesday the governement confirmed what many already knew: the drought parching much of the West and Southeast spread into the Mid-Atlantic area. At the end of September about 43% of the US was in moderate to extreme drought. It has been the fourth warmest year worldwide. But drought is probably the greatest concern in many parts of the country and the year to date has been the driest on record for Tennessee and North Carolina. It was unusually dry in September from the eastern seabord to southern Great Lakes. Water levels at Lake Carter, about 90 miles north of Atlanta, Georgia, are at record lows.
Here are some drought-related conditions:
-The Tennessee Valley Authority shut down Browns Ferry Unit II nuclear power plant due to inadequate stream flow.
-As of September 25, Pasadena, California, experienced its driest year since records began in 1878. Many California communities imposed water use restrictions.

Now this is bad news for the economy. This seriously affects farmers and even many other people. They even had to shut down a power plant because they coudn't get enough water. Water levels are at an all time low and many other things are affected by this drought. And the economy is already in a bad way and this is definetly not helping. Will have to wait a little longer to see what the effects on the economy will be, because things like this need some time to show their effects. I hope the aftermath won't be that bad.

Nico Cottry

Source: http://edition.cnn.com/2007/US/weather/10/16/drought.west.southeast.ap/index.html

Euro exceeds for the first time the value of 1.43 dollar

According to the delay of the American economy currency traders in the United States expect a next interest fall.

On Wednesday the US publicised two indicators which confirm the difficulties on the American house market, that causes the decrease of the dollar. The number of houses of which is, on an annual basis ,started with construction has decreased in September with more than 10%. The indicator of the future construction ,decreased with more than 7%

The Fed also admits an increase fall since August, when the mortgage crises caused a lot of damage to the stock markets. Analysts believe that the Fed will intervene again and that they will reduce their interest.

I also believe that the Fed will intervene again and that they will reduce their interest so that the American economy becomes attractive again. It would be a good turning point for the American economy because now they are at a historical low point. That isn’t good for all the investors, the companies,… and last but non the less important ones, all the working people. They all need an extra power so that their economy would revive and according to all that, the dollar would increase again.

Sarah Struyf

http://www.demorgen.be/dm/nl/geld/economie/625046

Three Americans are sharing the Nobel prize in economics.

The Nobel prize for the economy was granted to three Americans: Leonid Hurwicz, Eric Maskin and Roger Myerson. That was mentioned by the Nobel committee today. They are all high-powered theorists, doing incentives, mechanism design, and social choice theory. The theory where they were awarded to, proceed with the design of economic institutions. "she allows to separate the situations in which the market works well and in which the market works badly". Hurwicz worked on the basis for the theory. Maskin and Myerson, have further reinforced the theory. Maskin and Myerson are professors in social sciences.
They received the price which is almost 1.1 million euros worth. The Nobel prize for the economy has been distributed since 1969. More than two thirds of the ex-winners came from the United States.

I am not wondered that those three Americans win the award in this period, because they do something with the problems that there are now in the American economy. Mechanism design is very much in style, it is one of economic's rare success stories ever. I'm not such smart enough to understand it, ( It is very difficult ) but the insights of these guys have been used extensively in a lot applied setting, e.g. auction design.

Benjamin Benoit

http://www.demorgen.be/dm/nl/nieuws/buitenland/618857

Large banks cooperate against credit crisis

Large banks, such as the largest American bank Citigroup, are busy with collecting money for a common fund, which must prevent that the credit crisis damages the world economy further. The fund, with the value of approximately 80 billion dollar (56 billion euros), must help houses in problems and other assets which have been exposed to risky mortgages. The ministry of finances will try to lead this action to a good end.
The fund must prevent that all banks must sell billion risky securities at the same time. That would lead to large depreciation at banks, impact offices and lever funds, which have similar debt papers. Eventually banks would lend less easy money and this could also damage the economy. The idea for cooperation would arise mid- September during a meeting on the American ministry of finances. If the banks agree, the plan will possibly presented Monday.

I think it is a good initiative of the ministry of finances because they can increase the economy in America with this proposal. I have only objections with the smaller banks, how will they react on this? The small banks can’t pay this large amount, I think they will be the victim of this proposal.

Benjamin Benoit

Bush crusades for free trade as support cools

The past week Bush has been out crusading for more free trade. This was due the fact that support for free trade was slipping, even among Rebulicans.
Bush feels that with protectionism the economy will mis out on alot of things, among wich better jobs.
It concerns 4 deals with Panama, Peru, Colombia and South Korea. The deal with Colombia is being questioned due to human rights issues. The Korean deal is also on the edge because of barriers erected by Seoul to keep the US out of auto's and beef. Other reasons why the support is decreasing is that people are scared that the compition will harm them. But Bush says that they are doing alot to make sure that the people will have a fighting chance if the free trade agreements do pass.

"Expanding trade will help our economy grow," Bush said. "So I call on Congress to act quickly and get these agreements to my desk."

Now I think that for once Bush is right. America is build on a free market economy so this also means: free trade. And if Bush delivers on what he says about the scholing and funding then the American economy should have no problems with this free trade and they will indeed benfit from it. And the economy can use some good things right now.
This is a good first step towards the right direction.

Nico Cottry

Source: http://edition.cnn.com/2007/POLITICS/10/13/bush.radio.ap/index.html

Budget deficit US drops!

The budget deficit in the US has dropped from 248 billion dollar in 2006 to 163 billion dollar in 2007. It's already the third year in a row that the deficit drops. The minister of finance, Henry Paulson, says that these figures show the remarkable strenght of the American economy.
He also says that by keeping the taxes low and public expenditure in line, economic growth can be maintained.
The deficit is not as big as the white house expected. A 244 billion deficit was expected. This good news can be allocated to a rise of 6.7 per cent of the revenues. While the expenditure only rose 2.8 per cent. This is the lowest rise of expenditure in over 10 years.

I was surprised by this rapid decrease of the budget deficit. And what a decrease it is! The deficit was almost cut in half.
Henry Paulson says that this shows the remarkable strenght of the American economy... . I agree that the American economy is strong and will fight for its survival. But these figures don't contradict with the fact that the American economy is in a slump.
At the other hand it is true that by keeping taxes low and public expenditure in line, economic growth can be maintained. The problem is that by keeping taxes low and expenditure in line, the revenues won't rise again... .

Thomas

source: http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3273031

Employment report.

Last Friday, the most recent employment report was released. It showed some encouraging figures. The number of jobs in the month of August was reviewed, the jobs outside the agricultural sector increased by 89 000 while a minor decrease was expected. Last month 111 000 new jobs originated. Analysts assumed that 100 000 jobs would have been created.
Those extra jobs and the higher wages will see to it that the consumption in the USA stays at the same level. Consumers' expenditure contains 66% of the gross domestic product in the US. From the previous figures we can derive that we don't yet have to fear a recession of the American economy. The American economy is perhaps weakening but not yet in scaring way.

You can read in all the papers that the Fed will postpone its decision to lower the interest rate due to these 'good' employment figures. This will be very risky because those figures actually don't indicate a strong economy but a normal economy.
Lowering the interest rate was the action the Fed should take to stop the decreasing housing prices. Now the Fed finds this no longer necessary due to the 'strong' employment report.
They shouldn't confuse this report for an indication of a strong economy. They also should be careful about the report because it contains estimated figures. Many economists find it likely that the figures will be adjusted in a negative way. Once this shall be revealed, the Fed will be forced to lower his interest rate by 2% instead off 0.5%... .

Thomas

source:http://www.nrc.nl/anp/economie/article782282.ece/Wall_Street_hoger_na_banenrapport
http://tijdnet.tijd.be/nieuws/economie_financien/artikel.asp?Id=3258400

The American government lost 103.6 million euros to pay plane travelling.

High officials of the American federal government wasted 103.6 million euros tax money in a year time, on tickets in business class or first class. Those tickets are frequently five times more expensive than those from economy class, this is mentioned in the report. Medical reasons, travelling to the foreign country (more than six hours) and a lack to available chairs in economy class are the only reasons why an officials can sit in business or first class. A delegate of the ministry of agriculture, who travelled 25 times in first class during that year, wasted on its own 115,000 euros to tax money.

If I was a high official of America and I had the possibility to travel in first class, I would also do it. who would not do this if he can? On the other hand, America does already have so many difficulties with money, economy, mortgage loans, etc. and than you hear that they use money for such a things. Perhaps, It is just a small amount in compare with the rest, but I am convinced that every small amount can help.

Benjamin Benoit

http://www.demorgen.be/dm/nl/nieuws/buitenland/604281

Tentative agreement between the local union leaders and General Motors

The executive board of General Motors announced that they endorsed a tentative agreement with the local union leaders.
According to a summary of the agreement provide by the UAW, United Auto Workers, the agreement provides for a new independent structure which regulates the social security of all employees. The social security consists of a system to pay out an amount of money for retiree, health and care. It would also offer a number of promises for the future active workers.
GM is happy with the result, all employees have started with work again after several days of strike.
The agreement still is a subject to a vote of GM’s UAW members.

I believe that the agreement is a good solution for the employees in America. They don’t have a system like we all know, they have to pay for everything they want in life, even social security. Now days, everything becomes more expensive, prices of health insurance and retiree funds are increasing. If they have to pay all the insurances which are necessary, the employees never have enough money for living. I believe that when the employees can trust on a social security paid during the number of years service, they will be floated to work even harder.

Sarah Struyf

http://www.demorgen.be/dm/nl/geld/economie/595749

US supplies of raw oil increase

The supplies of raw oil increase unexpected.

Opposed to what all the experts tought the oil supplies are increasing as is showed by the new numbers the Departement of Energy released.

In the week of the 29th of september, the supplies of raw oil increased with 1,138 milion barrels to 321,755 million barrels. Experts presumed an decrease of 550.000 barrels.

The gasoline supplies decreased with 41.000 barrels to 191,325 million barrels. Experts presumed an increase of 550.000 barrels. The supplies of oil fuel and diesel decreased with 1,173 million barrels to 138,887 million barrels. Experts presumed an increase of 1,3 million barrels.

This is the first good news we heard in a while for the American economy.

This is also good news for the rest of the world cause this could be a sign that the oil prices might stop increasing. Wich might mean that the governement will not have to implement their plan, to add bio-oil, just yet. Hopefully they will use this extra time to thoroughly examine their plan so that it could be executed immediatly, without to many costs for the people, when needed.

Let us hope this is an omen for good things to come.

Nico Cottry

Source: http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3252214

The USA accept WTO-plan as negotiation basis

Today the United States accepted the proposals to reach a multilateral agriculture agreement of the world trade organisation (WTO). According to the most important WTO-negotiators
for agriculture, the ambassador Crawford Falconer of New-Zealand, the US have been prepared negotiate on the basis of figures that he announced in July. However, the condition is that all other countries wants to work with the same parameters.
In that design of agreement the USA wants to bring back their agriculture subsidies between 12.8 and 16.2 billion dollar a year. So far Washington refused to go under an envelope of 23 billion dollar. The Intention is to drag an agreement in so-called Doha-round concerning the further liberation of the world trade.

The reason why the agricultural policy strives for agriculture subsidies, is stable food production. Consumers must buy agricultural products for reasonable prices.
I think its good for the world economy ( Europe, America, Asia,…) that everyone pays the same price of subsidies for agriculture. The import and export in agriculture machines will stabilise. It’s also very important to have a good world trade, especially for developing countries.

Sarah Struyf

http://www.hln.be/hlns/cache/det/art_589360.html?wt.bron=hlnBottomArtikels

Price of oil for the first time above 80 dollar.

A barrel North sea-oil in London increases more than 3 per cent and the cape of 80 dollars has for the first time exceeded. Since the begin of this year, oil has already increased by more than 30 per cent. Also in New York the price of oil increases with 3 percents. The cause of the price lies in Cushing. The city in Oklahoma is the most important supply point for oil in the US. The oil stocks have decreased the last week to the lowest level since December 2005. the market feares that the stocks are exhausted. A large part of the oil production capacity in the golf of Mexico wasn’t used last week because of the passage of a tropical storm. The question if oil will remain also the coming trimesters high and the offer remains limited. Another factor why the prices of oil increases is the weak dollar. There is very high link between the dollar rate and the price of oil. That is as a matter of fact also the case for other raw materials such as purchaser, silver and gold. A weak dollar makes oil cheaper and therefore more attractive.

I think that the American Economy is in a dept point. They have problems with the dollar, with oil prices and mortgage loans. The government will have to intervene if they don’t want more terrible. Now it’s good for Europeans, because everything in America is much cheaper, but Europe has to be careful. Because the bad economy can blow over.

http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3238924

Benjamin Benoit

Vice president Fed pro fixed inflation goals.

The vice president of the Fed, changed his point of view concerning fixed inflation goals. Only four years ago, Donald Kohn said he was very skeptical about the Federal Reserve maintaining these goals. But now he says the subject is open for debate. Unlike other central banks the Fed doesn't have such goals which refects in less stable prices. Kohn admits the advantages of the system. When fixed inflation goals are established, it becomes much easier for governments and companies to plan their investments. Even the president of the Fed, standing on the right in the picture next to Donald Kohn, has already plead for fixed inflation goals. He thinks that in this way the transparency of the Federal reserve will improve.

Personally I think that it's dangerous to focus too much on the prices. But it's hard for the Fed not to, because of the housing bubble. There were lots of social dramas due to rapid rise of the asset prices. So the public opinion wants this fixed as soon as possible.
When focussing on prices the Fed risks to lose other items like employment out of sight.
I don't argue the fact that fixed inflation goals have proven their use for other central banks, like the European central bank. But I think you can't condem the American system due to the housing bubble. This would have happened even if there were fixed inflation goals. There would still be low interest rates which resulted in long-term mortgages. I just want to say, you can't condem a whole system, which has already often proven his use, by one event.

Thomas

source: http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3226121

US Dollar vs Euro

Euro at a new high.

This morning the euro rose to a new height namely 1,4134 dollar. This is the highest rating ever for the euro. Lately this has been due to the intrest expectation. But the decline of the dollar this morning is related to the important figures from the American house market, wich will be released tomorrow. Wich are speculated to be the lowest in 5 years. The way Americans feel about their economy will also be released tomorrow, this is also expected to be at its lowest.
The dollar is also losing ground to the British pound and the Canadian dollar.

Well this is good news for us, a vacation in the US is cheaper :-) So I would say, go pack your bags.
Now other then that this doesn't mean anything promising for the Americans since their precious dollar is at an almost all time low. All the figures that are published are low so this is a clear indication of the decline of the American economy. Someone has to wonder what effects this will have on the rest of the world.
Personally I think this might be a good indication for the US governement to start pumping money in their own economy instead of into war. And with the elections coming closer I bet this will have a nice impact on the voters their choice.

Nico Cottry

Source: http://www.tijd.be/nieuws/economie_financien/artikel.asp?Id=3226878