LyrArc Article Gist
Fed chief Bernanke's childhood home in Dillon County, South Carolina, a home in which his grandparents lived after building it on purchased land in 1945. The home was transferred to his parents and remained in the family till 1996. The town with its tobacco and textile industries is suffering decline and unemployment is 14%. The dropout rate at Dillon High School where Bernanke studied, graduating in 1971, is 40% for the ninth grade. Bernanke's grandfather Jonas, a pharmacist, opened Jay Bee Drug Company on Main Street in 1941. Ben's father and uncle ran the drug store. Now the home has ended up in foreclosure and was bought recently from foreclosure for $83,000, by a 25 year old working in a bank who grew up in the neighborhood. Mohawk Industries closed a plant making yarn for carpeting, Wix Manufacturing cut hours and jobs at its automotive filter factory, and Smurift Stone Container making corrugated cardboard filed for bankruptcy in Dillon county. The house has an interesting mortgage history. The owner who could not make the payments had a 10.1% 30 year fixed mortgage, well above the rate for a prime loan, with their payments on the $123,000 home at $1088. When Mrs Rogers lost her job at a shoe store the couple could not make the payments. The couple broke up under the financial strain. Landmark Mortgage which made the original loan transferred the loan to Option One Mortgage Corporation, which packaged it with other mortgages into a $818 million security. ...

LyrArc Article Gist
China plans $29 billion of local bond sales (200 billion yuan) through the central government, to meet the needs of cash strapped local governments. Its proceeds would go to projects approved by Beijing, for airports, power plants and railroads. In earlier year local governments depended on land sales as abig source of money. China's tax system sends most revenue to the central government, while provincial and municpal governments are left to handle most of the spending on education and healtcare, which is why these needs may not be getting the funding they need. Land sales are now drying up as asource of money as the property market declines. This does not mean that the local governments are not indirectly taking on debt. Chinese law prohibits cities and provinces from taking on debt without Beijing's approval, but companies owned by local governments have borrowed heavily to fund public works projects. Shanghai Chengtou Corporation, a municipal government company that builds infrastructure has taken on 200 billion yuan in debt in 15 years. Economists say this kind of debt may be 20% of annual GDP, which added to the central government debt of 20% of GDP, would bring the combined debt to 40% of GDP. What this new effort does is make the taking on of new debt official and more transparent. The principle behind the earlier tight control of debt issued by local governments was to prevent local governments going overboard and the central government having to take responsibility, as happened in the 1990's in India, Mexico, Russia and in the USA....

LyrArc Article Gist
Is Summers too confident that things will return to the way things were, so that eventually jobs losses will dissipate, and the business cycle will return, so that preventing the economy from becoming bubble dependent for growth is the serious concern. How long will these job losses like the one in March of 663,000 last, WSJ reporter Wessel asks Summers. His response is essentially no one can forecast this. But he thinks these losses will dissipate, because production is running well below capacity, and eventually inventories will fall to the point at which they will need to be replenished. But what is cause for concern is the example he gives. He says next, that in the auto industry sales have normally run at 14 million, now they are down to 9 million. As they return back up to that level or a similiar level he says, and similiarly for other industries with underutilized capacity, the economic cycle will kick in. This depends on what is happening in the market . It is worth asking are there deeper and lasting changes ocurring in the American automobile market that Summers may be missing? See the links for Japan car market, and German car market for information on the changes that ocurred in these highly developed markets. Is a fundamental change ocurring in the American car market which this crisis brings to the forefront, that leads to a long term change to a smaller market closer to what sales are now? Is Summers too sanguine and complacent or is he simply hoping for the best. ...

LyrArc Article Gist
Useful and necessary tips on driving not taught at driving school but which should be part of that driving school training requirement. It should also be part of the program at high schools. Getting young people to have good driving habits early that save energy. Here Gil Portalatin, a 25 year veteran engineer at Ford, the Hybrid Propulsion System Applications Manager, talks about Ford's work in hybrids, the best way to conserve energy in driving regular cars, and how to drive hybrid cars. Tip 1: Don't accelerate too hard from a stop, Remember easy on the throttle and then glide. By Glide is meant releasing most of the pressure on the accelerator to use the bare minimum to maintain your speed. Tip 2: Anticipate Traffic. Watch the flow of traffic and distance to the light, then ease off the accelerator pedal to coast up to the next light. Tip 3: You won't believe how much energy it takes to go from 65mph to 75 mph. Gil knows from working in an aerodynamic lab. Its huge and to save energy just ease up on the accelerator pedal. For hybrid drivers he says many accelerate too slowly from a stop, and he advises accelerating a bit more and then lifting off the throttle to engage EV-motoring. About the Fusion hybrid. The 2010 Fusion hybrid gets 41 mpg city and 36 mpg highway. It beats Toyota Camry hybrid by 8mpg and 2 mpg respectively. Ford has its own unique hybrid technology, and is engineered differently with its own unique software....

LyrArc Article Gist
The moves by the Obama administration and the national feeling and mood, its views as taken in poll of 998 adults by CBS News/New York Times. On taxing those above $250,000 income levels at higher rates- 74% of respondents support it. On populist sentiment - 71% say Obama cares more about ordinary Americans than for large corporations. On the vast expansion of spending and programs 48% prefer smaller government and fewer services and 41% favor bigger government and more services. On spending to stimulate the economy at the risk of higher deficits- 45% support this. On the budget proposal- 56% support it, but 79% of Democrats like the priorities, only 27% of Republicans like them On helping banks recover- 29% supported this in Feb, 47% support this now. In the freedom to use his own judgement at a time when Republicans have rejected almost everything he does- by three to one people say they trust Obama to make better decisions about the economy than Congressional Republicans. This includes one quarter of Republicans, which is significant in giving President Obama the room to use his judgement of what is best and take aggressive action where necessary. This aggressive action may be necessary if taking over some failed or insolvent banks is considered to be the best option, and President Obama's advisors like Mr Axelrod must be taking notes from this poll by CBS News/New York Times. On security, on safety- by tqo to one people say they trust Obama to keep the nation safe. ...

LyrArc Article Gist
The Economist cautions that recovery is nowhere in sight, the hope points to only amoderating of the steep downturn. The 20% rise in the stock market for two thirds of the 42 stock markets that the Economist tracks in the past 6 weeks, can easily fizzle out as has happened before. Between 1929 and 1932 the Dow Jones Industrial Average went up more than 20% four times only to fall back to previous lows, and this crisis has seen 5 separate rallies of more than 10% only to fall back. But toxix assets have not been cleared up at Us and European banks, And consumption in the US, Germany, Japan and China shows no signs of coming back for years especially in the US where saving is increasing. And European banks have about $1 trillion in losses in central and Eastern Europe that have not been recognized, and the slide in the British and Spanish economies proceeds. And developing cpuntries have $1.8 trillion worth of borrowing to roll over this year, with less access to foreign investment. At one point the emerging countries imported capital worth 5% of their GDP, now cautious investors will keep that money at home. In America rising foreclosures and rising unemployment, combined with lower consumption, will keep economic growth down for years. Rising debt will limit future fiscal stimulus in countries like Japan and the US. Chinese growth will be constrained by its overdependence on infrastructure spending and lack of serious changes to its healthcare system which makes consumers save more for medical crises....

LyrArc Article Gist
To keep prices from taking a nosedive if there is a slowdown, as for example in the Chinese economy, a concentration of resources within 3 or 4 mining companies enable them to slow down development of new deposits to adjust supply with demand. In this case even if China slows, India, Russia and Brazil may still pick up, as they may be less sensitve to the U.S. consumer than China. China is a manufacturing export based economy compared to India and Russia, which are more dependent on internal demand. Iron ore prices have increased by three times since 2003, and China's imports of iron ore have gone up from 29% to half of the world's imports. Prices of all commodities copper, alumina, uranium have shot up. BHP and Rio both based in Melbourne, Australia have absorbed all the medium size companies in the Melbourne mining scene. Australia has traditionally been a leader in this field because of its huge mining resources. Other reasons for consolidation are the more complex technologies needed to develop the remaining deposit finds, which are fewer and fewer and of lesser quality. Another factor is that the resource nationalism in India, Bolivia, Indonesia, Mongolia and other places requires more sophisticated investors. Combining Rio and BHP also means BHP can use the better infrastructure of Rio and invest more productively in future infrastructure rail lines and port development to speed exports to other countries. See the Barta article in the WSJ Link on this on Dec 18, 2007. ...

LyrArc Article Gist
How ACA a company that provided bond insurance for Collaterized Debt Obligation or CDO's basically did not provide good insurance to the CDO issuers becase it did not have the financial resources necessary to do this but instead let banks and investment houses to benefit from the accounting rules in the insurance industry which allow another set of accounting rules different from GAAP (Geerally Accepted Accounting Principles). Under these rules banks and investment houses did not have to follow the mark to market rules of GAAP and could book the difference between interest payments and the insurance premium across the life of the bond (5-10 years), in the quarter they bough the insurance, what were essentially illusory profits. Merill Lynch issued a lot of these CDO's. In November 2007 ACA was forced to take $1 billion in losses for the third quarter. Standard and Poors downgraded ACA from A to CCC a month later. The downgrade forced ACA to come up with more collateral to show that it had the funds to back up its insurance. When it came short of funds Merrill Lynch, UBS, CIBC had to take big losses on these policies. This began the first big shocks on the Street at te end of 2007. Note that $43 billion in securities backed by risky corporate loans and bonds like the ones used for a lot of the buyouts have insurance from ACA. These could be the next to sour and lead to more writedowns as the economy weakens. ...

LyrArc Article Gist
Alan Blinder talks about the benefits of alarge cash for clunkers program and how it could be designed around what parameters and upon which it could be broadened or narrowed. One thing he points out is that it would help the economically challenged, though how these low income people would go out and buy new cars in the midst of deep recession and credit card bills, and other debt, is a question. The German customers were not in the debt situation many lower income Americans are. The alternative approach would be to broaden the program to give the middle class the benefits, and design it around giving a boost to the depressed auto industry and the midwest region. Such a program would need adequate financing like the $20 billion, Blinder says, and would include the possibility of turning in an old clunker for a Malibu or Impala or a Focus. Only focussing on small cars would not give much of a boost to Detroit car makers, which are focussed more on the middle and larger ends of the product line. From the cleaner environment perspective and carbon emissions perspective, the cars that are 13 years or older account for 25% of the miles driven, but 75% of the pollution from cars. This and reducing dependence on foreign oil suggest that the benefits of a well designed program or a combination of programs targeting different goals such as environment, boosting the Detroit car makers, and so on , could be well worth an investment of more than the $20 billion, Blinder suggests. ...

LyrArc Article Gist
Under the Energy Independence and Security Act of 2007 the government is authorized to give upto $25 billion in low interest loans to auto companiesto retool plants to make smaller fuel efficient cars. Lobbyists for the auto industry are trying to increase that to $50 billion. The package of loans is presented not as a bailout but as a way to offset some of the $100 billion it is estimated it would cost the industry to meet the new fuel economy standards enacted in that bill. GM's 7.2% bonds due 2011 were trading at 64.25 cents on August 27, 2008, translating nto a yield of 29% for that debt. In the credit default market it costs $4.5 million upfront and 0.5 million anually to insure $10 million of GM bonds for 5 years. The govenment loans at 4-5% would cost significantly less as borrowing costs are very high for automakers at present. Both Senators McCain and Obama see Michigan and Ohio as crucial to a win and support the loan package. It would cost $3.75 billion in insurance costs for the $25 billion loan package. Because of the automakers precarious financial condition and no improvement in consumer demand or in financial markets in sight in the next 2-3 years as a plausible scenario, and more losses looming for automakers, this package may turn out to be a crucial element in the recovery of the American auto industry and in turning over almost America's entire fleet of cars on the road into more fuel efficient cars....

LyrArc Article Gist
Bridgewater Associates estimate of the cost of the TARP (Troubled Assets Rescue Program) that Treasury is initiating and should have the legislation in place this week, "could reach $2 trillion". Other problems on the horizon. Psychologically a collapse of additional investment banks like Goldman or Morgan Stanley or of smaller midsize banks could rattle nerves over the next few months. Manhattan College finance professor Charles Geisst says "I don't think Goldman and Morgan Stanley could survive too many rounds of this." And BW says it sees a world without Goldman and Stanley as quite conceivable. Where are problems shifting to in the horizon for 2009? The socalled Alt A loans pose a real problem as default rates there approach 15% and it involves larger loan numbers than subprime, and the default rate is rising on prime mortgages with higher unemployment and weaker economic conditions. So the next area of serious danger to the economy will be the difficult economic conditions from tight credit, declines in consumption spending, declining production and higher unemployment, and defaults on corporate loans. These declines affect Chinese exports and would affect China's ability to take in higher US exports of capital goods and advanced machinery as China's growth rate slows even down to as low as 5% in a global slowdown of consumption and international trade. This is where the attention will turn to as we get into 2009. And riding out the storm will mean riding out these economic conditions after and alongside TARP....

LyrArc Article Gist
Crime by violent street gangs with whole sections of cities controlled by different groups, some a remnant of the guerilla wars, has fueled the migration crisis. Many people have left central American countries of San Salvador, Costa RIca, Guatemala, because of the crime and extortion experienced and the lack of law and order in these countries. Criminal violence by these gangs hurts business which leads to even fewer economic opportunities for young people. This leads to a steady flow of migrants to the borders of Mexico trying to enter the U.S. Experts say 95% of homicides in these central American countries are not tackled, with severe distrust of police.  There are fewer emigrants from Mexico as the economy has improved and population growth has slowed. Most of the faces of migrants are now from the Central American countries. A program is underway to create jobs skills in Honduras. But this a small effort in tackling a much bigger problem of violence, lack of economic opportunity, and the legacy of the civil wars in central America in an earlier period that have left whole sections of urban areas under control of former guerillas and militia turned into gangs.  ...

LyrArc Article Gist
Viviane Reding, vice president of the European Commission, provides a five point proposal to strengthen the European Union and take the steps to a closer political union. She says the Maastricht Treaty does not provide the strong foundation the European Union needs and the steps are already underway to change this. The fiscal compact for financial discipline in the eurozone that all members of the eurozone agreed to is one such step. Other steps remain for a closer union and she suggests the time is now for an open debate inside the EU countries about what people want to see the EU become by 2020. As a timetable a treaty on political union could be ratified between 2016 and 2019, with it going into effect once two thirds of the countries have approved it with referendums. Countries would have the opton of political union or staying in a close form of association but not union.

LyrArc Article Gist
In comments made to the editors of the New York Times, Mario Monti, the prime minister of Italy, says the European Union will endure because it was in the vital interests of Germany. Competitive devaluatations if a number of countries exited the eurozone would have an enormous harmful effect on Germany. Germany is an export dependent economy and sends two thirds of its exports to EU countries. In the unlikely event Greece leaves the eurozone, Monti says effective political policy responses can be expected to prevent this from affecting the rest of the eurozone. Monti is on a visit to the U.S. for talks with President Obama. He praised the effort by Greece's prime minister Papademos to meet the demands of international lenders in difficult conditions.

LyrArc Article Gist
About 400 million or one in 4 people people smoke in China. State ownership of the tobacco industry only makes this worse. Enforcement of bans on smoking is lax. Experts warn that this would become a major healthcare problem in China.

LyrArc Article Gist
Kaushik Basu, economist at Cornell University, and Chief Economist at the World Bank, says the U.S. Federal Reserve should consider the current low labor participation rate and low inflation in its rate policy setting decisions in 2015. Basu points out that in the recent past unemployment has gone below the current 5.5% without increasing the risks of inflation. He cites the period from July 1997 to August 2001 when inflation was below 5%, and at some points below 4%, yet inflation in 2002 was close to 2%. The large number of discouraged workers in this economic cycle has placed the unemployment rate below what it really is, says Basu.

LyrArc Article Gist
Voter sentiment changes in Italy for the Democratic party led by prime minister Letta, only a few months after the national elections. Under Letta who belongs to a younger generation of Italian leaders, the Democratic party which supports being in the EU and pro-growth policies, has staged a comeback in Italian mayoral elections for 67 cities. The party of Mr. Berlusconi lost ground, and the party of newcomer Beppe Grillo also lost ground. Voter turnout was 48.5%, after years of failed politics of the national parties in Italy. This is new reason for optimism for the future of Italy.

LyrArc Article Gist
Seib points out that Deficit Commisssion chairmen, Bowles and Simpson, have jolted the Republicans and Democrats with their carefully prepared recommendations. The other members of the 14 member commission cannot now dodge easily the responsibility of taking up the unpopular steps. And Republicans and Democrats have to wake up to the need for taking bold steps. No longer is it easy to postpone deficit issues by making glib talk and not taking action.

LyrArc Article Gist
The Legislative Analyst's office, California's budget watchdog, estimates a budget shortfall of $25 billion through fiscal 2012, with a $6 billion shortfall for the current year. California is issuing bonds to make up the shortfall. A $10 billion offer of short term bonds generated decent demand according to fund managers. California will also issue $2 billion of Build America bonds. This is happening as the demand for municipal bonds is slowing and yields are rising.

LyrArc Article Gist
Fuel Subsidies in China and India that keep the price of fuel for transportation moderate tends to reduce the conservation otherwise possible. And biofuels are not encouraged for fear of raising farm prices for the poor. And conservation and efficiency of fuel use in factories and other places also is not as vigorous as it could be. With growth exceeding 10% China will continue to put pressure on demand for some years to come.

LyrArc Article Gist
Stockmarkets worldwide are in decline so the impact in June has signalled a slowdown worldwide as the American stockmarket is down 20% from its peak and there was a 10% decline in emerging markets stock markets. The fears of inflation, higher interest rates, lower economic growth and lower profits growth are shared around the world. And exports are a bright spot but this for individual companies and the slowdown worldwide will lower exports as well.