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In the past, public sector wages were lower than private sector wages, so the public sector offered generous benefits to attract and retain workers. But recent data from the U.S. Bureau of Labor Statistics (BLS) indicates that the situation has changed dramatically.
Continue reading "Who Get Paid More, Public or Private Sector?" »
Although the recession has not officially ended, it is likely to be the longest since 1945. It is also associated with the largest drop in payroll employment of any U.S. recession, with the largest jump in the unemployment rate. From the beginning of the recession in December 2007 to the end of February 2010, total nonfarm payroll employment declined about 8.4 million, or 6.1% (Source: Federal Reserve Bank of Cleveland, March 22, 2010). In the same period, the unemployment rate jumped from 5% to 10.1%.
With unemployment rates higher than they've been in decades, many are trying to determine how quickly unemployment numbers will come down once the recession is over. While the overall unemployment rate is the most commonly cited statistic, researchers focus on two components of that rate -- the inflow rate, or the rate that workers are moving into unemployment, and the outflow rate, or the rate that workers are moving out of unemployment. The movement of these two rates has varied over time.
A federal deficit occurs when the government's expenditures for the year exceed its income. The government then pays for those excess expenditures by borrowing money, adding to the national debt. With so much stimulus money being spent to prod the economy out of recession, the federal deficit will reach record levels this year. According to the Congressional Budget Office, the federal deficit will quadruple in 2009, from $459 billion last year to $1.845 trillion this year (Source: The Economist, June 10, 2009). While the president vows to slash the deficit in half within four years, the Congressional Budget Office estimates the deficit will still total more than $1 trillion per year by 2019. Are these huge deficits cause for concern? It's tough to decide, since opinions range from "deficits don't matter at all" to "deficits will ultimately result in federal bankruptcy." It might help to put the federal deficits in perspective.
Continue reading "When Should We Worry About the Federal Deficit" »
As detailed in the 1978 amendment to the Federal Reserve Act, the Fed's goals when setting monetary policy are "to promote maximum sustainable output and employment and to promote stable prices." Monetary policy has historically been implemented through three main methods:
Continue reading "How the Federal Government is Dealing with the Recession" »
It's been a long time since the words "deflation" and "the U.S. economy" have been used in the same sentence. But with the sharp decline in the prices of stocks, real estate, and commodities over the last year, we're hearing those words in the same sentence increasingly often.
Continue reading "Understanding Inflation, Disinflation, and Deflation" »
Stock markets around the world were down sharply after incoming Treasury Secretary Tim Geithner announced his plan to revive the ailing credit markets on Tuesday. The negative reaction by the markets is widely blamed on the lack of specifics in Geithners plan. Geithner himself called the plan a framework and stressed the need to continue working out the details in order to make sure everything is done right.
Continue reading "Market Slides after Geithner's Plan is Announced" »
As the Senate dickers over the economic stimulus package, another nearly 600,000 Americans lost their jobs in January. A total of 11.6 million are unemployed in total, a rate of 7.6 percent. January's job losses were spread out among manufacturing, service, and construction sectors indicating continued broad based weakness in the US economy. Only health care and education showed employment gains for the month.
Continue reading "A Government Bailout for the Average American" »
During the Great Depression in the United States, we saw a period of deflation. Now some economists are expressing fears that we may be in for a deflationary period again. Does this mean another Depression? What exactly is deflation and what causes it? Here is a brief beginner's tutorial on the subject.
"Brace for impact." These were the words of Captain "Sully" Sullenberger, the heroic pilot of the plane that splashed down safely in the Hudson River, but these same words might also be echoing a few blocks away on Wall Street this week. The downed US Airways plane is believed to have experienced a double bird strike that killed both of its engines leaving it without the power needed to stay aloft. The stock market may be facing its own double bird strike this week with bad news expected on several fronts likely to send stocks into another tailspin.
With the stock looking to fall below its current $10 per share level, after reaching above $44 as recently as May of 2008,aluminum giant Alcoa (NYSE:AA) has certainly seen better days. CEO Klaus Kleinfeld said "The aluminum industry is caught in a perfect storm," when describing the company's current misfortunes to analysts after releasing the earnings results for the most recent quarter. Judging from the number of "perfect storms" that we've seen sweeping through the American economy, it's difficult to recommend any safe haven investors in the stock market at this point. Alcoa lost $1.19 billion dollars in the last three months according to their quarterly report.
Continue reading "Recession Hits Alcoa and Raw Material Demand" »
We are familiar with OPEC and the effects they have had on the price of oil over the years. The OPEC nations meet on a regular basis to decide how much oil they will allow the rest of the world to have from their stores. They set quotas and limits on production in an attempt, they say, to keep the price steady at a level that is good for both consumers and the producers. We've seen how that works. Fortunately, many of the producers balk at reducing output and have a tendency to cheat, producing more than their allocation. Now, we are witnessing the formation of a new cartel, this time of producers of natural gas.
Continue reading "New Cartel Announces the End of Cheap Gas" »
(Continued from The Great American Ponzi Scheme: Part I)
The government didn't step in to regulate these credit default swaps because a boom in all these industries makes people happy. Happy enough to re-elect those in office, happy enough to pay more taxes. By the way, because the economy was doing so well in the early stages of this Ponzi scheme, the tax base grew and taxes could be cut on things like capital gains without the effects really being felt even while the government itself was spending just as recklessly as many consumers.
Continue reading "The Great American Ponzi Scheme: Part II" »
Mortgage banking for the last ten years or so has been the biggest Ponzi scheme ever conceived and it has all been legal. Builders, developers, and bankers have been perpetrating what amounts to outright fraud on the American consumer. Don't get me wrong, it is the greed of those consumers that got them into trouble in the first place. If people hadn't looked at buying property as a get rich scheme, and bank-rolled that "investment" with money they didn't have and credit they couldn't afford, none of this would have happened either.
Continue reading "The Great American Ponzi Scheme: Part I" »
Inflation has been tame for so long that it's easy to ignore when planning for retirement. However, even inflation of 2% or 3% per year, over a period of many years, can seriously erode the purchasing power of your funds. At 2.5% inflation, $1 today will be worth 78 cents in 10 years, 61 cents in 20 years, and 48 cents in 30 years. That can have a major impact on those entering retirement for several reasons:
Continue reading "Consider Inflation When Planning for Retirement" »
With unemployment in the US already at 6.7% in the United States, Dow Chemical (NYSE: DOW) has released a statement saying they are going to cut 5,000 full-time jobs and send 6,000 contractors packing. Merry Christmas.
An international investment's return is based on two factors -- the investment's return in its local currency plus currency fluctuations. For example, suppose you purchase a British stock whose price increases 10% in one year in terms of British pounds. If, during that same year, the British pound increased in value by 5% compared to the U.S. dollar, your total return would be 15% -- 10% from the investment's return and 5% from currency fluctuations. However, if the British pound decreased by 5%, your total return would be 5%.
Continue reading "Currency Fluctuations and Foreign Investments" »
In a major recession, production slows. That means that factories are making fewer cars, fewer computers, fewer factory machines, and fewer of just about everything else as well. With less production, the need for raw materials drops as well. This is the reason why we see things like falling oil prices, falling steel prices, and so on. Unfortunately, this means a second wave of recessionary pressures as the producers of those raw materials feel the pinch and begin scaling back their operations to keep pace with the shrinking demand.
Continue reading "The Recession, Commodities and the Automakers" »
The National Association of Homebuilders released their survey asking homebuilders for their level of confidence in a near term recovery of the housing market. As you might imagine, the results were not good. In fact, the survey which has been conducted regularly since 1985 reflected the lowest level of confidence that it has ever recorded. During the most recent quarter, the Associated Press reports, fully 40% of all homes sold were bank sales of foreclosed properties. This contributed to a 9% decline in the median price of all homes sold during the period.
Roughly two thirds of the American economy is based on consumer spending on items like new cars, home improvement items, electronics, and other common goods and services. When consumers start slowing down in their buying, the companies that produce and sell these items make less money and slow down their production. Slowing production means that these companies don't need as many workers and that means that unemployment rises. With more people out of work, fewer people are making purchases of items that are considered luxuries or that can be postponed until better days. This is the self-reinforcing cycle in which the American economy now finds itself.
Chrysler is once again standing on the curb in Washington, D.C. begging for another handout. Taxpayers bailed the company out once back in the 1970's to the tune of 1.5 billion dollars of 1970's money. Now, Chrysler, in a joint effort with General Motors (NYSE: GM), is asking for another $10 billion in government assistance. Is it time to pull the plug on Chrysler and see if they can breathe on their own?
The current housing and banking crises are both unique and severe. Billions of dollars of wealth have disappeared over the last year, in some cases in just a matter of days. Companies that have been household names have gone bankrupt with others on the verge of failing as this article is being written. Make no mistake; these are scary times with both professionals and the public wondering if their money is safe. Is this the end of the U.S. financial system?
Continue reading "Some Perspective on the Current Financial Crisis" »
If you're a taxpayer, chances are you've heard about the economic income tax return stimulus checks that the IRS will send to qualified individuals and couples, beginning in May of this year. The purpose of these checks, which will range from three hundred dollars to possibly more than triple that amount, is to boost the state of the current lagging economy. Taxpayers who are eligible to receive a check will gladly accept the added money and either spend it or save it, but the question is: Is it enough to help? That's what many taxpayers are currently debating about, because many of them are worried about where the money is coming from, as well as if the money will even cause the economy's state to improve.
Typically, when the Federal Open Market Committee (FOMC) raises the federal funds rate, long-term interest rates react by increasing also. However, between June 2004 and July 2006, the FOMC raised rates 17 times in .25 percent increments, from 1% to 5.25%, and long-term rates barely moved.
Since the mid-1980s, inflation has been much lower and more stable than it was in the past. The high inflation rates of the 1970s detracted from the country's standard of living, hindered capital formation and economic growth, and took the country many years to overcome the adverse effects. It is now generally believed that maintaining a low and stable inflation rate provides lasting benefits to the economy, which is why it is one of the Federal Reserve's primary monetary policy goals. As detailed in the 1977 amendment to the Federal Reserve Act of 1913, the Federal Reserve's goals when setting monetary policy are "to promote maximum sustainable output and employment and to promote stable prices."
According to a Gallup poll taken 8/13-8/16/07, Americans are suffering from a lack of confidence in the economy. "The new poll finds current economic ratings down to 33% excellent or good and the percentage saying the economy is improving sinking to 20%." A majority of Americans are feeling the economic slump.
For the past two decades, the economy has experienced moderate inflation and fewer, less severe recessions. Technological advancements have helped raise productivity. Yet, these advances have mostly helped upper income workers. Why?
Continue reading "Technological Advancements and Economic Inequality" »
For years, we have heard that aging baby boomers will place a tremendous strain on our economy after retiring. However, the problem is not limited to the United States, since the populations of Japan and Western Europe are also aging rapidly. With much of the world’s wealth held by people in the United States, Western Europe, and Japan, there will be a tremendous strain on savings worldwide due to the fact that retired people typically save less than younger people.
Continue reading "Aging Population and the Affect on the Economy" »
Employment statistics are some of the most timely statistics generated by the government. Employment figures are typically released within three weeks of month-end. This timeliness, coupled with the fact that employment figures signal broad-based changes in the economy, make it a closely watched statistic.
Almost daily, it seems like there is another news item indicating that service jobs in the United States are being outsourced to other parts of the world. When manufacturing jobs were lost to overseas markets, it was painful for those who lost their jobs, but seen as positive overall for the economy. The end result was lower prices for consumers, a more efficient economy, and a higher overall standard of living.
The most commonly cited measure of inflation is the Consumer Price Index (CPI). However, the government releases not one, but three, versions of the CPI: CPI-U, CPI-W, and C-CPI-U.
For years, we’ve heard that our personal savings rate is dismally low. However, that knowledge has not led to an increase in savings. Instead, personal savings as a percentage of disposable income has continued to hover at historically low levels, 0.9% in 2004 (Source: The Regional Economist, July 2005). How concerned should we be by this trend?
A federal deficit occurs when the government’s expenditures for the year exceed its income. The government then pays for those excess expenditures by borrowing money, adding to the national debt. After a brief period of budget surpluses, the federal government is again running up substantial budget deficits. Are these deficits a cause for concern? It’s tough to decide, since opinions range from they don’t matter at all to they will ultimately result in federal bankruptcy. It might help to put the federal deficits in perspective.
Continue reading "Are Federal Deficits a Cause for Concern?" »
Watching key economic indicators over time should help you understand the signals the economy is sending. While you may not make financial decisions with certainty, understanding the economy should help you make decisions, such as which investments to purchase and sell, when to lock in mortgage rates, and when to purchase major durable goods, with more confidence. Some of the more important statistics to track include:
An international investment's total return is based on two factors -- the investment's return in local currency plus currency fluctuations. For example, suppose you purchase a British stock whose price increases 10% in one year in terms of British pounds. If, during that same year, the British pound increases in value by 5% compared to the U.S. dollar, your total return would be 15% -- 10% from the investment's return plus 5% from currency fluctuations. However, if the British pound decreased in value by 5%, your total return would be 5%.
Continue reading "The Basics of Currency Fluctuations and Currency Exchange" »
A yield curve is a graph plotting interest rates for the same type of bond for a series of maturities, typically
ranging from three months to over 25 years. Although yield curves can be plotted for any type of bond, they are most commonly seen for Treasury securities.
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