Monday, July 13, 2009

European Leaders Pay The Price

Europeans have grown more critical of their governments’ handling of the financial crisis in spite of recent signs pointing to economic recovery.


The findings of a recent poll show the price that European politicians are paying for the deep recessions in many countries. Europeans believe their leaders are responding more poorly to the crisis than do poll respondents in the US, where support for the government’s action has risen under president Barack Obama.


About half of respondents believe interest rate cuts and government spending will stoke inflation in the near future. Concerned by the crisis as the holiday season starts, almost half of respondents in some countries said they would cancel or cut short their holidays or spend less.


However, support for central banks’ actions has risen. About one in five people thinks central banks – the Bank of England, the Federal Reserve and the European Central bank – have responded appropriately to the economic downturn. This is a larger proportion than last August, before the collapse of Lehman Brothers aggravated the financial crisis and prompted aggressive rate-cutting by central banks.


Carried out in five European countries and the US between June 24 and 29, the poll shows no expectation of a quick end to the economic downturn. Most respondents expect the crisis to last at least another year – similar to the situation at the end of 2008.


The revelation of growing discontent at government performance is particularly stark in France, where respondents had previously been the most generous about their government. Only 8% of French respondents think President Nicolas Sarkozy’s government has handled the crisis well, compared with 23% in November.


Some 16% of US respondents rate the Obama government’s performance as good, compared with last November when just 4% thought George W. Bush’s administration was handling the crisis well and two-thirds thought it was poor.


Germans remain the least critical of their government but support for its performance has been eroded ahead of the general election in September.


Only in Italy have impressions of the government’s response to the crisis remained stable.


Poll respondents in Britain have remained more supportive of their central bank than respondents in other countries. Some 28% of those in the UK think the Bank of England – which last week held its main interest rate at a record low of 0.5% – has responded appropriately, compared with 23% last August.


Economic gloom is hitting holiday plans in the US and Europe alike, with almost two in five Americans and almost half of French and Spanish respondents curtailing, cancelling or spending less on holidays.


Only Germans remain relatively determined to enjoy their break, with almost half saying the crisis would have no impact on their plans.


Friday, June 19, 2009

Why Do We Need Economic Growth?

With recession looming and unemployment rising, politicians and economists are trying to find ways of stimulating economic growth. But is growth a good thing? Does it have harmful consequences? Could we live without it?


First of all, what do we mean by economic growth?


It is the annual rate of increase in gross domestic product. This is the country’s production of goods and services, valued at market prices (or at cost when the goods are not sold). The figures are then corrected for inflation by using the prices that existed in some chosen base year.


So, Do We Need Economic Growth?


Yes, if we are to meet people’s aspirations. It also makes it easier to relieve poverty, but growth has a downside too. From one year to the next, the crucial factor affecting growth is spending. If people spend more, firms will sell more and this will encourage them to produce more. Whether the spending is by individuals, business, the government or people abroad on our exports, higher demand will lead to higher output.


The big danger at the moment is lack of spending. With bank loans down, and people becoming cautious about spending, we have the recipe for recession. But the answer to getting long-term growth is not simply one of increasing spending. If we spend beyond the capacity of the economy to produce, we’ll simply end up with inflation and boom will be followed by bust.


If growth is to be sustained over the years the key is a growth in investment and productivity. This is partly down to scientists and engineers in developing new efficient techniques and new products, but partly down to getting incentives right to encourage investment.


Politicians see growth as very important. Elections are won or lost on the state of the economy. But do governments need to do more than just keep production going and avoid recession? Do we really need output to go on growing year after year after year?


Well, in one sense we do. If living standards are to be maintained and population is growing, then output at least needs to grow as fast as population.


Then there is the question of poverty. If poverty is to be relieved and the rich are not to be made poorer, then growth is necessary. Of course, making the poor richer is not easy and there are many political obstacles in the way. But at least growth makes it easier.


Imagine trying to alleviate poverty without growth. Income would have to be redistributed from rich to poor. But this doesn’t go down well with the rich.

Then there is the question of human wants. People want more. Ask anyone if they would like to be richer and very few people would say no. Why do people do the lottery? And what politician doesn’t want to give the people what they want.


There is the question of debt. Some people are so keen to consume that they just borrow more and more – and this has been fuelled by banks offering easy credit.

Economic growth may lead to the depletion of resources – a problem that’s likely to get worse as world population and world consumption grows.


Then there are things included in GDP, which are really ‘bads’ rather than ‘goods’. For example, if you live near your work and walk or cycle, then this will probably benefit your health. Now assume that you take a job a long way from where you live and have to buy a car, or a second one. The commuting costs – the car, the petrol, the insurance – will all be counted in GDP. But the commuting is likely to decrease your well-being, not increase it.


Growth may be necessary, but it certainly isn’t sufficient.


Certainly for poor people, to be able to consume more food, have better clothing and shelter, and access to education and healthcare would be an improvement in their living standards. Economic growth that allows these things to occur would be good.


But whilst economic growth may be a necessary condition for the relief of poverty and can be desirable for middle- and high-income people too, it is not enough on its own. Governments and society need to be judged on so much more than simply whether their economies are growing.


Monday, June 1, 2009

Skepticism Remains As Stock Markets Rebound

The majority of the world’s leading investors do not believe the recent strong performance of stocks and other risky assets is sustainable.

The FTSE All World equities index has surged more than 60% since hitting a low for the year in March, and Barclays Capital has revealed that just 17.5% of the 605 investors interviewed for its quarterly FX investor sentiment survey – including central banks, asset managers, hedge funds and international corporate customers – think risky assets have further to rise.

This is one aspect of a generally gloomy outlook for the global economy, which undermines optimism that recovery is starting to emerge.

A mere 4.5% of respondents believe the trajectory of the global economy over the next year will be weakness followed by a sharp recovery, while the majority 69% believe the path of the global economy will remain weak for some time before a gradual recovery begins, or that a recovery will prove temporary and renewed weakness will set in.

Investors do not expect to see the sustainable rise in consumption, particularly in the US, that is necessary to deliver prolonged economic growth.

Some suggest that the recent rise in equities is a bear market rally, indicating that global investors still have a large share of their funds parked in cash.

Investors are most optimistic on Asia’s prospects believing the region will outperform Latin America and eastern Europe in the next three months citing China’s massive stimulus program to boost the economy and the region.

Thursday, May 14, 2009

The End of The World ?

The end of the world has been cancelled for now, if we are to believe recent market movements. Confidence is slowly returning to investors, who have discovered they are still alive after last autumn’s near-death experience. Government policies – from unorthodox central banking to stress testing – have soothed the worst fears.

The signs of rekindled optimism are everywhere. A long rally has brought equity markets back from the abyss reached earlier in the year. The oil price, though still far below recent records, is pointing up. So are sovereign bond yields – indicating investors’ wariness of where public finances are headed but also a renewed willingness to tolerate volatility in stocks. The mood has changed so much that people are even willing to buy bank shares.

Governments deserve some credit for this. Comparisons with the 1930s notwithstanding, policymakers have not addressed this crisis by doing nothing. Their behaviour has not always been productive – or even seemly, as with the protectionist rhetoric of some. But they have at least understood quickly that something needed to be done.

The US government’s stress test of the country’s largest 19 banks is the latest instalment in a long series of policy initiatives to combat the economic crisis. The explicit goal is to remove uncertainty from markets about the extent of losses banks face; and to force the recapitalisation necessary to absorb them.

Many of the results leaked out in advance and markets mostly reacted with indifference. US authorities have not tried to make banks’ balance sheets look prettier than they are: their estimates of banks’ losses and earnings over the next two years in the test’s “adverse scenario” are consistent with predictions by the International Monetary Fund.

Tim Geithner, US treasury secretary, has staked his financial rescue policies on the premise that markets are malfunctioning because of radical uncertainty as much as (if not more than) real losses caused by silly investments during the boom. If he is right, there are mutually beneficial trades waiting to be made – if only market participants are given more and better information that will lift their panic.

Hence the focus on bringing transparency to the market, in the hope that this will restart financial flows and gradually reduce the need for government-provided lifelines. The market’s recent positive developments and its largely accepting reaction to the stress test give Mr Geithner reason to be satisfied: although the economy is still suffering, markets are becoming less paralysed by radical uncertainty.

Appearances may deceive: from 1929 to 1933 the stock market fell by 89 per cent in nominal terms in spite of a sequence of temporary rallies. But for now, at least, we are seeing a return to confidence. We must hope it is not a trick.

Tuesday, May 5, 2009

Why The Banks Aren't Lending

The British government has unveiled a plan to guarantee up to £20 billion of bank loans to small businesses. In return for a fee, the state will, in effect, insure banks against firms defaulting on loan repayments. It is the latest initiative to get banks lending again and help small business survive the economic downturn.


So Why Isn't This Working ?


One reason that even healthy banks are not making new loans is that they can buy sound corporate credits at substantial discounts to par. While they earn a high return doing that why would a bank go to all the trouble and expense of making a new loan at a lower rate?


Banks are still writing off bad debts and other assets that have fallen sharply in value during the credit crunch. Existing small-business loans are defaulting at an alarming rate. More than 4.4% of small-business loans were in 30-day default, up from 3.48% a year ago. And 1.29% were delinquent 90 days, up from 1.04% a year earlier, while 0.63% were 180 days delinquent, double the rate a year ago, according to PayNet, a small-business payment network.


In a recession there is a greater chance that people will default on their mortgages / loans. Businesses are more likely to go under. Therefore banks want to be much more cautious about lending in case they lose their loan.


In the boom years, banks became highly leveraged. Basically this meant they lent a high % of their deposits. These business strategies are now seen to be too risky so banks are trying to encourage a greater % of deposits.


Banks are reluctant to lend to each other. There is a shortage of credit. Therefore, although credit is cheaper, it just isn’t there.


There Is A Solution


In these trying economic times The Web Lender acknowledges that being approved for a business loan from a commercial bank is difficult.


Traditionally, conventional banks make business loans commercial loans, and loans on their terms.


The Web Lender offers this contrarian business acumen.


You name the terms for your business loan. 





Tuesday, April 21, 2009

Regaining Capitalism

Regaining capitalism will require re-education and deep reform. 

Capitalist systems are a mechanism by which economies may generate growth in knowledge – with much uncertainty in the process, owing to the incompleteness of knowledge. Growth in knowledge leads to income growth and job satisfaction; uncertainty makes the economy prone to sudden swings. 

Capitalist systems function less well without state protection of investors, lenders and companies against monopoly, deception and fraud. These systems may lack the requisite political support and cause social stresses without subsidies to stimulate inclusion of the less advantaged in society’s formal business economy. And a huge social insurance system, with resulting high taxes, low take-home pay and low wealth, may not hurt capitalism.

Historically, well-functioning capitalist economies, with their high propensity to innovate, could arise only when serviceable institutions were in place. There had to be financial institutions where there would be disinterested financiers, each trying to make the best investment, and a plurality of views among them, so financiers funded a diversity of projects. There also had to be limited liability for companies and a market enabling their takeover. Such institutions had to wait for demand by wide numbers of business people wanting to build a new product or new market or new business model.

From the outset, the biggest downside was that creative ventures caused uncertainty not only for the entrepreneurs themselves but also for everyone else in the global economy. Swings in venture activity created a fluctuating economic environment.

No coherent moral justification was ever suggested for throwing out a system providing invaluable and irreplaceable novelty, problem-solving and exploration, thus personal growth. On the contrary, humanist philosophy has continued since ancient times to hold up such experience as the “good life”. 

Socialists and corporatists never offered an alternative good life. They simply claimed that the system they advocated could out-do capitalism: wider prosperity, or more jobs, or greater job satisfaction. Unfortunately, there is still no wide understanding among the public of the benefits that can fairly be credited to capitalism and why these benefits have costs. This intellectual failure has left capitalism vulnerable to opponents and to ignorance within the system.

Now capitalism is in the midst of its second crisis. An explanation offered is that the bankers, whatever they knew about capitalism, knew that to keep their jobs and their bonuses they would have to borrow more and more to lend more and more, in order to meet profit targets and hold up share prices. The implication was that the crisis flowed from a failure of corporate governance to curb bonuses and of regulation to rein in leveraging of bank capital to levels that made the banks vulnerable to a break in housing prices.

If we still have our humanist values we will try to restructure these sectors to make capitalism work well again – to guard better against reckless disregard of uncertainty in the financial sector while reviving innovativeness in business.

We cannot and must not close the door on systems that gave growing numbers rewarding lives.




Friday, April 3, 2009

Is This A Turnaround ?

Stock markets have rallied after world leaders reached a $1.1 trillion deal to tackle the global economic crisis at the G20 summit.

London’s FTSE 100 index closed up 4.3%, Germany’s Dax index gained 6.1% while France’s Cac 40 rose 5.4%.

US markets also took heart as the global efforts unveiled added to optimism that the worst might be over for the world economy.
 In New York, the Dow Jones rose 2.8%, or 216.5 points, to 7,978 points.

Stocks were also boosted as the US announced changes to accounting standards that would give companies more freedom in valuing assets and reporting losses.

The Financial Accounting Standards Board (FASB) approved the proposals, which could help boost bank balance sheets.

Earlier, shares in Asia closed higher. Japan’s Nikkei 225 index rose 4.4% while Hong Kong’s Hang Seng gained 7%.

Recent upbeat economic data on the US housing market and on the manufacturing sector has cheered investors.

“Everyone is in a buying mood,” said Eric Ross, director of research at brokerage Canaccord Adams.

Hopes that the global downturn might be easing also pushed oil prices up almost 10% to above $50 a barrel. US light, sweet crude was up $4.25 to $52.64 a barrel, while London Brent crude rose $4.31 to $52.75 a barrel.

“There seems to be a G20 factor,” said Tony Machacek, an oil broker at Bache Commodities in London.

“The stock markets are strong and the dollar is weaker. That is also helping the market.”




Monday, March 30, 2009

The Almighty Dollar

The dollar is, and will remain, the U.S.’s currency and its own and everyone else’s problem. 

The idea of creating a global currency, as espoused by China earlier this week, is interesting, has a certain amount of merit and is simply not going to happen any time soon. 

U.S. desire for free access to the cookie jar that being the world’s reserve currency represents will be too strong, especially given its need to finance huge amounts of debt reasonably cheaply. As well practicalities are fearsome, even if consensus was more or less there. 

Chinese central bank head Zhou Xiaochuan on Monday called for the creation of a new “super-sovereign” global reserve currency, advocating building on an International Monetary Fund instrument called Special Drawing Rights. 

Zhou echoed a call by Russia last week, when it indicated it would raise the issue at the upcoming Group of 20 meeting in London on April 2, saying the idea had support from emerging market economies including Brazil, India, South Korea and South Africa. 

There is no doubt that the current system breeds instability, but it enjoys the great advantage of entrenchment and sticking with it allows the U.S., and others, to avoid making hard choices and paying true market prices for their economic decisions. 

No surprise then that President Obama knocked the idea down in blunt terms. “I don’t believe that there’s a need for a global currency,” Obama said, terming the dollar “extraordinarily strong right now.” 

Exactly. Too strong by some margin, especially when one considers the coming effects of both quantitative easing and a massive long-term need to fund the costs of the debt binge that exploded and the ever increasing bailout to clean up the aftermath. 

In fact you could say the dollar’s “extraordinary” strength can only be fully explained when you take into account the fact that foreign central banks keep piling up huge reserves of the thing and that it is the international medium of exchange for commodities and energy, well really for global trade and financial intermediation. 

Treasury Secretary Timothy Geithner said on Wednesday the U.S. dollar is still the world’s reserve currency and will remain so for a long time, but expressed openness to greater use of IMF SDRs. 

The dollar’s central role has two main implications, both rather ugly but also very seductive for those involved. 

For the U.S. it’s a bit of a free ride as far as debt financing goes. People buy and hold treasuries more and the U.S. gets cheaper financing that would otherwise be the case. Of course that’s a bit like an alcoholic bartender getting a discount at work; a real benefit, but not a true one. 

It also means that even if the U.S. has the will to take away the proverbial punchbowl or drive the dollar down, it doesn’t always have control, as what it does at the short end of the interest rate curve can be confounded by foreign purchases that keep the long end and financing costs down and the dollar up.

Tuesday, March 24, 2009

100% International Business Financing

Here's the reality about getting 100% financing for business projects in 2009.

1. You could get a joint venture partner, but you must have a very attractive project. Transactions that get funded are projects that have a high degree of predictability. Examples: a power plant with a contract to purchase its product for 25 years or a casino in the Bahamas that has a 180% internal rate of return. These are projects that are predictably profitable and will give the investors (joint venture partners or venture capitalists) a return on their investments. Other projects are projects where there is proprietary or patented information or technology. While a 20% IRR (internal rate of return) is respectable, it just isn't attractive to venture capitalists who can make 7 times that amount on another project in a shorter amount of time. In short, if you are speaking with venture capitalists, they are concerned about one thing: how much money they can make by investing in your project. Keep that in mind and you'll be able to speak to them in their own vernacular.

2. You can nearly guarantee your success by going through a structured finance program. The probability of success is very high if your project is accepted. The firm we work with is both an international law firm and a licensed financial institution. They require a $100,000 retainer and the process takes 12 months to fund. Their competitors charge an excess of $500,000 and don't even provide the collateral to complete the transaction.

3. Another option involves working with our asset managers that will fund your project at 100% LTC, but they will require that you deposit a substantial amount of collateral with them. The benefit to this program is your collateral will generate handsome returns while you get your project financed at 100% LTC.


Monday, March 23, 2009

The U.S. Government and Private Investors

United States administration officials say they plan to commit $75 billion to $100 billion to start wiping out bad assets and evaluate how programs are working before deciding how to commit more money.

The goal is to buy up at least $500 billion of bad assets — loans, such as those for subprime mortgages, that are now in danger of default.
 Investors have been waiting expectantly for details since last month when Treasury Secretary Tim Geithner announced the framework of a plan to address two of the biggest problems in the banking sector: the toxic assets keeping banks from lending and the shortage of capital at major institutions.

Under the new Public Private Investment Program, taxpayer funds will be used to seed partnerships with private firms to buy up assets backed by mortgages and other loans.

A key issue for the program is putting a value on the assets, the market for which has largely dried up. Investors don’t want to overpay for them, and banks don’t want to lose money by selling them too cheaply.

The administration says it doesn’t want government to get involved in setting prices. So it plans to run auctions between the banks selling the assets and private investors buying them. The goal is to allow the market to set the price.

Under one part of the plan, Treasury would partner with private investors to buy a pool of troubled assets, providing up to 50% of the needed money. The FDIC could then leverage the buying power by as much as 6 times. The amount of leveraged help would be decided on a case-by-case basis.

The administration officials said they’ve gotten support from private investors and banks who have been briefed about the program. But some analysts questioned whether the government’s help would be enough to push investors and banks toward figuring out a price.

“My worry is that negotiations could be dragged out as banks might not be willing to sell at a price that investors, even with their inexpensive financing, are willing to pay,” said Jaret Seiberg, policy analyst at Concept Capital’s Washington Research Group.

In addition to setting up the new public-private partnerships, the government plans to expand a Federal Reserve program launched last week that aims to spur lending.

Under the program, called Term Asset-Backed Securities Loan Facility, the Fed effectively serves as a matchmaker, partnering buyers and sellers of newly issued, top-rated securities backed by student, small business, auto and credit card loans.

The administration officials on Sunday said TALF has raised $9 billion in new securitizations, more than in the last four months combined.
Now they’re expanding it to some lower-rated mortgage-backed securities.

“We do know that banks have these so-called toxic assets on their balance sheets,” Christina Romer, chairwoman of the White House Council of Economic Advisers, said Sunday on CNN’s “State of the Union.”

“They are making banks unwilling to lend, they’re making private investors unwilling to come into banks,” Romer said. “We need to get those off the banks’ balance sheets.”

An expanded use of public-private partnerships in the continuing bank bailout could accomplish two critical goals. They could successfully lure private capital into the process of rescuing troubled institutions, and they could enable market forces to set prices for hard-to-value assets.
But some critics say public-private partnerships won’t do the trick — that the administration must take more aggressive action such as seizing control of banks.

Another criticism of public-private partnerships: The government loans would pose too much risk to taxpayers.

The government would be providing low-cost financing to buy the assets. And if the assets go bad, the government would be shouldering much of the loss. Because the money is cheap and downside risk is limited, private investors may be willing to pay too much for the toxic assets, increasing risk to taxpayers.

Financing private investors to buy assets may be a better option than nationalizing banks or simply ignoring banks and allowing the market alone to solve their problems.

In the end, the aim is to unfreeze the credit markets, which have been weighed down by consumer and investor fears about future losses at the nation’s banks.

Thursday, March 19, 2009

Political Instability Related to the Economic Crisis

Beginning February 26, 2009 an Economic Intelligence Briefing was added to the daily intelligence briefings prepared for the President of the United States. This addition reflects the assessment of United States intelligence agencies that the global financial crisis presents a serious threat to international stability.

Business Week in March 2009 stated that global political instability is rising fast due to the global financial crisis and is creating new challenges that need managing.

The Associated Press reported in March 2009 that: United States "Director of National Intelligence Dennis Blair has said the economic weakness could lead to political instability in many developing nations." Even some developed countries are seeing political instability.

NPR reports that David Gordon, a former intelligence officer who now leads research at the Eurasia Group, said: "Many, if not most, of the big countries out there have room to accommodate economic downturns without having large-scale political instability if we're in a recession of normal length. If you're in a much longer-run downturn, then all bets are off."

Forbes expresses concern saying, "The recent wave of popular unrest was not confined to Eastern Europe. Ireland, Iceland, France, the U.K. and Greece also experienced street protests, but many Eastern European governments seem more vulnerable as they have limited policy options to address the crisis and little or no room for fiscal stimulus due to budgetary or financing constrains.

Deeply unpopular austerity measures, including slashed public wages, tax hikes and curbs on social spending will keep fanning public discontent in the Baltic states, Hungary and Romania. Dissatisfaction linked to the economic woes will be amplified in the countries where governments have been weakened by high-profile corruption and fraud scandals (Latvia, Lithuania, Hungary, Romania and Bulgaria)."

In January 2009 the government leaders of Iceland were forced to call elections two years early after the people of Iceland staged mass protests and clashed with the police due to the government's handling of the economy.

Hundreds of thousands protested in France against President Sarkozy's economic policies.

Prompted by the financial crisis in Latvia, the opposition and trade unions there organized a rally against the cabinet of premier Ivars Godmanis. The rally gathered some 10-20 thousand people. In the evening the rally turned into a Riot. The crowd moved to the building of the to force their way into it, but were repelled by the state's police.

In late February many Greeks took part in a massive general strike because of the economic situation and they shut down schools, airports, and many other services in Greece.

Police and protesters clashed in Lithuania where people protesting the economic conditions were shot by rubber bullets.

In addition to various levels of unrest in Europe, Asian countries have also seen various degrees of protest. Protests have also occurred in China as demands from the west for exports have been dramatically reduced and unemployment has increased.

Communists and others rallied in Moscow to protest the Russian government's economic plans.


Friday, February 27, 2009

Deficit Plans May Use Over-Optimistic Growth Forecasts

US President Barack Obama’s promise to slash a record deficit may rely on economic-growth projections for the coming years that are too optimistic.

The $3.55 trillion budget proposal for 2010 the president unveiled yesterday projects 3.2% economic growth next year, thanks to a $787 billion fiscal-stimulus measure he signed into law earlier this month that is aimed at creating jobs and consumer demand.

That is twice the 1.5% growth projected by the Congressional Budget Office before the stimulus bill was enacted and higher than the 2.1% consensus growth estimate by analysts in the Blue Chip Economic Indicators survey. Even those projections may be too optimistic: Federal Reserve Chairman Ben S. Bernanke said this week the U.S. is suffering a “severe” contraction, and a government report today may show the economy shrank more than previously forecast in the fourth quarter.

Obama’s blueprint pledged to trim a $1.75 trillion deficit projected for the current fiscal year ending Sept. 30 to $1.17 trillion next year. The budget assumes economic growth will be sustained even after 2011, when Obama plans to ask Congress to enact tax increases that would cost top-earners, Wall Street executives and multinational corporations almost $1 trillion in higher taxes.

The plan would reverse eight years of policies under President George W. Bush that reduced taxes on the wealthy. It would do so by reinstating top tax rates and other measures that were put in place to reduce deficits during Clinton’s administration, when economic growth averaged 4 % a year.

Figures show orders for durable goods fell 5.2% in January, twice as much as forecast, and the number of Americans filing initial applications for jobless benefits soared to 667,000 last week. Deutsche Bank AG chief U.S. economist Joseph LaVorgna said it’s “conceivable” the economy will shrink as much as 10% in the first quarter.

Still, Obama is counting on the economy roaring back to produce higher tax revenue to help pay for projects such as an additional $750 billion in new aid for the financial industry and an overhaul of the health-care system he estimates will cost $635 billion.

After $338 billion in tax collections this year, White House economists predict an additional $195 billion will come into the Treasury in 2010, and forecast $332 billion more revenue in 2011.

The budget also assumes the government will reap almost $646 billion over 10 years, beginning in 2012, from the cap-and-trade system of government-issued permits to pollute; and $175 billion over 10 years by forcing insurance companies to compete for Medicare insurance business under the Medicare Advantage insurance program.

Friday, February 6, 2009

The Year of the Ox

Once again, it appears China is leading the way toward global economic recovery. The Industrial and Commercial Bank of China the country's top lender, extended 252 billion yuan ($37 billion) of new loans in January 2009.

Following a government appeal for banks to lend more to help stimulate economic growth, ICBC extended 117 billion yuan in direct loans and offered 135 billion yuan in discount business via commercial paper.

The bank's high proportion of lending via the much safer discount business, about 54-percent of the total, reflects banks' increasing attention to risks as they ramp up lending in response to the government's economic revival plan.

A similar lending spree in mid-1990s, when China's economy was in a downward cycle, caused Chinese banks' ratio of non-performing loans to nearly double in a few years. That in turn forced the government to inject funds into major state-owned banks in the late 1990s and bail them out this decade.

State media said this week that overall, Chinese banks were estimated to have extended a monthly record of 1.2 trillion yuan new loans in January.

Analysts have warned that China's large-scale credit surge, aimed at stimulating the world's third-largest economy, may result in another rise in sour loans for banks and in industrial overcapacity -- problems seen in the 1990s and in 2003 when the government also relaxed monetary policies to help boost the economy.

The Web Lender believes that these ‘analysts’ are wrong and the ICBC is 100% correct in their strategy. Of course, time will tell.

Monday, January 19, 2009

Well ... It's One Idea

The United States economy is in a crisis not seen since the Great Depression. Credit is frozen, consumer purchasing power is in decline, in the last four months the country has lost 2 million jobs and is expected to lose another 3 to 5 million in the next year. The economy is shutting down.

The American Recovery and Reinvestment Act of 2009 is the first crucial step in a concerted effort to create and save 3 to 4 million jobs, jumpstart the economy, and begin the process of transforming it for the 21st century with $275 billion in economic recovery tax cuts and $550 billion in thoughtful and carefully targeted priority investments with unprecedented accountability measures built in.

The economy is in such trouble that, even with passage of this bill, unemployment rates are expected to rise to between eight and nine percent this year. Without this bill, we are warned that unemployment could explode to near twelve percent. With passage of this bill, we will face a large deficit for years to come. Without it, those deficits will be devastating and we face the risk of economic chaos. Tough choices have been made in this legislation and fiscal discipline will demand more tough choices in years to come.

Since 2001, as worker productivity went up, 96% of the income growth in this country went to the wealthiest 10% of society. While they were benefiting from record high worker productivity, the remaining 90% of Americans were struggling to sustain their standard of living. They sustained it by borrowing and when they couldn’t borrow anymore, the bottom fell out. This plan is designed strengthen the middle class, not just Wall Street CEOs and special interests in Washington.

The short term task is to try to prevent the loss of millions of jobs and get our economy moving. The long term task is to make the needed investments that restore the ability of average middle income families to increase their income and build a decent future for their children.

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