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