Bernanke Pulls a 180
Do you remember Ben Bernanke? As the current recession started picking up momentum in its early stages Bernanke said there was no recession. When all the experts were saying that America was definitely headed into a recession Bernanke said that he would not allow something so natural as a cycle to be cyclical (not in those exact words of course). But do you remember how Bernanke planned to beat the recession? He said that if he had to he would dump money from helicopters onto the American landscape.
Well I have good news! Bernanke seems to have realized that devaluing the dollar and hence causing inflation is not the solution to fighting an economic downturn. Although he is still playing a cheerleader and saying that the recession will end this year, he has admitted something that is crucial to Americans. Bernanke warned that getting a grip on government debt was vital in order to ensure the long-term health of America. Talk about a 180! Bernanke also expressed confidence during a testimony to Congress that the risk of deflation has passed.
It is still safe to say that the purpose of the testimony was more aimed at soothing turbulent financial markets than at convincing Congress that a budget should be a top priority. He was also reassuring foreign investors that the American government would get a realistic grip on its budget once the economic crisis has eased. Whether this will happen or not is really tough to say when you look at our governments actions versus their PR statements. But the fact that a budget is something that is even being acknowledged by our government is at least mildly comforting.
While talking to the House of Representatives' Budget Committee, Bernanke said that "maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance." After so many long years of neglecting the nations budget entirely the comment seems like something out of the Twilight Zone! Bernanke continued, "unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth."
According to Bernanke, rising debt has been a large contributing factor to the jump in long-term interest rates. He did not give any indication however that the U.S. central bank would continue to buy government and mortgage related debt in order to keep interest rates low; this was something investors had been hoping for.
Unfortunately the financial markets simply shrugged off Bernanke's optimistic message to Congress. That is to say, the financial markets are taking government statements with a grain of salt. Perhaps this is because many investors remember that not long ago Bernanke was saying the complete opposite-spend, spend, spend!
President Barack Obama said that large deficits are an inevitable evil as the economy recovers from a miserable credit and housing markets and that once the crisis has passed, the focus will shift to getting our nation out of debt. This is an important issue not just for responsible Americans but for countries like China who hold hundreds of billions of dollars in U.S. government debt. In addition, such fiscal irresponsibility
can eventually weaken the dollar, drive up inflation which would negatively impact all dollar-dominated assets.
This is such an important issue that U.S. Treasury Secretary Timothy Geithner, on his first visit to China as Treasury chief, attempted to reassure Beijing that the United States was committed to living within its means. Hopefully Beijing doesn't think Geithner was making a bad joke!
The reality is, our government needs to do a whole lot more than shrink the national debt. However, if our government does follow their word and aggressively attack the national debt, it would be a huge step in the right direction. |
 | Jobless Rates Rise in April
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U.S. Cities are the centers of many industries and large housing markets. They have much more potential to produce but as a consequence, they are more exposed to risk. Think of it this way; "what goes up must come down." In reference to a city, there is a whole lot more potential to go up, but when things come down, they really come down! According to the Labor Department data released on Wednesday, 93 metropolitan areas reported an unemployment rate of at least 10 percent in April. Ouch!
That is more than 13 times the number of cities that reported the same high unemployment a year ago. Even scarier is that 10 percent unemployment rate is already sugarcoated. The reality is that, when you take into account everyone that is unemployed, the unemployment rate goes above and beyond 10 percent. But our government conveniently looks over any person who is self employed, doesn't file for unemployment, etc.
According to the Labor Department the current (manipulated) national unemployment rate is 8.9 percent. A better indication however is that cities posting unemployment rates below 7 percent was 117, less than half of the 347 cities reporting the same rates just one year ago. In addition, 9 of the 13 metropolitan areas with jobless rates of at least 15 percent were in California.
El Centro, less than a half hour's drive from the Mexican border, had the highest rate in the country at 26.9 percent. The city has lead the unemployment rate every month in 2009. In general, the nations unemployment rate is on a path to climb to its highest point in nearly 26 years.
Experts expect the unemployment rate to continue
its climb to a rate of 9.2 percent, the highest rate in 25 years! Lets hope it stops there!
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| New Credit Card Laws
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It is doubtful that the credit card companies are smiling about the new credit card laws taking effect in February of 2010. These new laws will restrict the ability of credit card issuers to raise interest rates on the existing balances of card holders, to charge certain fees, and to impose penalties on consumers that the government finds unreasonable.
There is one credit card company that doesn't seem too worried however. American Express Co said that it will not suffer nearly as much as its rivals because their annual revenue does not depend as much on interest payments as their competitors. According to Chief Executive Kenneth Chenault, American Express receives only about 20 percent of its revenue from charging interest rates. However, the bulk of JPMorgan Chase, Citigroup and Bank of Americas revenue relies largely on that single item.
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