Posts Tagged ‘Economics’

Top US Treasury holders especially China are increasingly vocal about their trepidation as the Federal Reserve cranks the money printing machines to full throttle. Cheng Siwei, head of China’s green energy program and former vice-chairman of the Standing Committee, recently said the following:

“If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies.”

This is nothing new for people who are keeping tabs on the Federal Reserve, and economists in general. The solution to our economic situation was simple, simply create more money out of thin air and give it to those most in need. The very idea goes against the foundations of a free market society but according to the leaders of our country, the treasury department, and their masters when it comes to monetary affairs (the Federal Reserve board) it was something that must be done.

A measure put forward by Ron Paul to “audit the Fed” passed the House but has slowed down and will most likely be killed off by the Senate under threat of veto by the President. Local solutions to uncontrolled spending and increases in the size and scope of the government are reaching a point of futility but perhaps China will be more persuasive as the largest holder of US debt. In fact, every household owes China (taking only into consideration Chinese holdings of US Treasuries) over $6,000. Add on to that the gigantic amount of trade coming in and out of China, and you have the most important “concerned citizen” to be considered in the debate.

Cheng Siwei succinctly stated:

“The US spends tomorrow’s money today,” he said. “We Chinese spend today’s money tomorrow. That’s why we have this financial crisis.”

The funny thing about the situation is that the government is encouraging the return of the habit, as new programs encouraging people to spend their loose or non-existent money on items ranging from new homes to new ‘fuel-efficient’ cars in programs ranging from home buyers assistance and tax breaks to the novel “Cash for Clunkers” program which will be scoffed at by historians as the most ludicrous pilfering of the taxpayer’s wallet in recorded history.

The nigh ten percent unemployment rate is quite a dismal fact, but not something that hasn’t happened before. In fact, we are well below the twenty five percent unemployment that happened in the 1930’s and just around the same unemployment rate as in 1983, longer than most can remember and before many were born including myself.  Thankfully, this recession has not moved into such a dire situation as the Great Depression and is hence not labeled as such.

Perhaps the speed at which information and money can travel these days, and perhaps the loose laws governing the printing and creation on money is what has dampened the recession, or perhaps it is only delaying it. Whatever the reason, it seems to be working. The rate that unemployment is increasing is slowing down, a good sign. Also, less protectionist policies have been enacted, which has also spared us from a trade catastrophe. Perhaps swift misappropriation has saved the day in the end, but at what cost?

Regardless of one’s views on the Federal Reserve, an obvious scare has somewhat been averted and our economy is apparently on the long road to recovery. Recent news reports state the job environment will take until 2012 to reach satisfiable unemployment rates. Ironically 2012 is supposed to be the year the world ends according to the Mayan calander and this report was released right before labor day weekend. Happy labor day, for those who are still employed!

The average Joe will tell you that consumer confidence means “how confident people are about buying stuff”. However, I would like to disabuse the folks reading that still hold this idea.

The Consumer Confidence Index, in summary, is the average score of 5,000 households chosen at random of the following questions (voted positive, neutral, or negative):

1. business conditions
2. business conditions for the next six months
3. employment conditions
4. employment conditions for the next six months
5. family income for the next six months

Reports are gathered by a private organization called the Conference Board [1] and issued.

The Conference Board also releases economic forecasts and their website has information about more indicators including:

• Help-Wanted Online Statistics
• CEO Confidence
• U.S. Leading Index

I would advise anyone interested in knowing about these other indicators to go to the Conference Board’s website placed below.

[1]http://www.conference-board.org/