Economy Live

In the wake of OPEC ministers coming to a decision related to increased gasoline production, the gas prices have gone up again. Consumer inflation went up steeply back in November and managed to hit a record high.

The rising gas prices hit the market during an unfortunate time - just when economic growth is on the decline. According to the Labor Department report published last Friday, the Consumer Index price went up by 0.8 percent. I think that’s a lot of increase. At the same time inflation sent the stock prices lower.

In his final State of the Union address, President George W Bush has finally acknowledged that the US economy is in rather poor shape. President Bush’s address was significant in more than one way, besides being his last such Presidential address before he leaves office in January next year, this address took place amidst his popularity touching its nadir according to a recent Gallup poll.

Despite all the niceties in his speech, it is not clear how serious was the US President in pinpointing the exact causes for the recent downturn in the US economy – a tumbling dollar, risk of large number of Americans losing their homes, mortgage market crisis, and financial market crisis. Though the President believes that the Congressional plan of pumping $150 billion, equivalent to about 1% of US GDP, will provide the much needed multiplier effect from fiscal spending the economy needs but a possibility nonetheless remains of a part of the economic gain being wiped away by US ‘surge’ strategy in Iraq.

While the Bush administration is concerned about the wellbeing of the citizens in foreign lands and is quick to send troops to Iraq and Afghanistan to salvage the citizens of those countries from tyrants, when it comes to its own people President Bush and his team seemed to have turned a cold shoulder. Americans were first lured into investing in homes with cheap interest rates only to become bankrupt and now they are losing their possessions as well.

After losing their homes to foreclosures in the sub-prime mortgage crisis, thousands of Americans had put their belongings in self-storage facilities tempted once again by low rates. With failure, once again in clearing their monthly rents, the storage owners according to their agreements with their customers are auctioning off their possessions at throwaway prices. The number of auctions is rising every day. According to Blair Auction & Appraisal, a company that conducts auctions at self-storage facilities in the Mid-West, it recently sold the contents of 45 units at one site in Detroit alone.

The severe credit crunch that several of the world’s economies are facing has already led to some hard decisions. Already hundreds of thousands of people have lost jobs as companies try to make up for lost profitability by cutting costs and downsizing operations. Britain has not been untouched by this alarming situation, and as many as 11,000 jobs are threatened in its financial services sector according to CBI.

A quarterly study of financial industry by PricewaterhouseCoopers points out to a fall in employment and profitability rates to their lowest levels in more than five years. The survey also points out a steady decline in any optimism of a recovery. Of 79 firms surveyed, 97 per cent said that credit conditions were likely to worsen over next six months. Nearly 90 per cent said that the trend would continue longer than that. This is a sharp contrast to December’s findings wherein 70 per cent firms were optimistic of the situation easing in six months. The number of firms who are likely to go for reduction of staff outnumbered the firms who are likely to hire by 33 percentage points. Business volumes are also reported to be decreasing alarmingly.

We, Indians, are indeed obsessed with the idea of delegation. Earlier this week our Tourism minister, Ambika Soni took this obsession to new heights. India will soon have a tourism task force comprising of ex-servicemen to ensure safety and well-being of tourists. She proposes to deploy these tourist officials in all prominent tourist spots.

Apparently, unflattering statistics prompted this rather ridiculous proposal. India welcomed only five million guests in 2007 while Singapore saw about ten million in the same year. And perturbed Soni saw the formation of a tourist-protection army as the best possible solution. Also, considering the recent spate of accidents involving tourist and questions raised in the media, does this task force not aptly convey the concerns of the government and construct a foolproof escape route for it? Indeed, a bold attempt by the Minister to kill two birds with an arrow!

The current economic situation of the world seems to be iterating the fact that the new world is now recognizing the capabilities and potentials of the third world countries and economies which are replete with the essentials like manpower and creativity in almost all the spheres of life especially in holding the ensign of successful economies.

The untouched place and status of the United States in the pyramid of world economies has now being touched by countries such as India and China and company’s like Goldman Sachs, Merrill Lynch and JPMorgan who have showed and delivered to the world that they are at par with the United States and no longer need its support to exist in the current competition of the market.

The very explicit inflation, the United States housing bubble and domestic credit crisis of the United Stated has shown that it is as vulnerable to ambiguities of the market as any other country. The stipulated “decoupling” in universal terms has failed miserably in the United States, as the dependency between the environment and the growing economy has led to certain serious imbalances in the country. The situation concerning the credit backlash on the colored population and other consumer crisis in the US suggests the downfall of the market in very clear terms

Also, with the shrinking of the domestic market, the companies in the US, like McDonald and IBM are earning a majority of their revenues from foreign markets. When foreign markets are delivering and making profits for the domestic US companies, the follow on strategies of the companies seems to be the enhancements of their dealings and affairs in the foreign investors and markets.

Not long ago many people sought a house in the tree-lined neat and tidy suburbs away from the hustle and bustle of the big cities. However, owning a big mansion in the suburbia has become a distant dream for the Americans caught in the stranglehold of housing mortgage crisis and rising inflation. The neat streets of the suburbs now wear a rather deserted look with rise in foreclosures, vacating a number of houses that have been put up for sale.

According to statistics available from RealtyTrac, in October 2007 224,451 foreclosure filings that included default notices, auction sale notices and bank repossessions, were reported that was 94% higher than the figure in October 2006 and a 149% increase from 2005. Nevada, California and Florida were the states with the highest rate of foreclosures.

While the world debates whether China will be the world’s next super-power, Chinese sweatshops keep on churning out cheap goods for the world to consume. According to the International Herald Tribune, Wal Mart is one of the biggest offenders in selling imported sweatshop goods in the West.

The megalithic chain has sold everything from hammers to Christmas trees imported from China. The main stream media is endlessly reporting the names of factories and their victims without investigating the dynamics of the Chinese economy or the Western demand curve, providing selling points for such goods.

Federal Reserve has been under constant fire for its handling of the sub-prime monster. Tuesday saw the bank accept its poor handling of the circumstances that led to the crisis. The bank acknowledged that lenders aggressively sold loans to buyers with poor credit capacities.

To rein in aggressive lenders and prevent such crisis in future, Fed proposed a strict set of rules on exotic mortgages and loans for people with weak credit. These rules are a part of two-pronged strategy. On the one hand they are designed to manage the existing crisis, and on the other these will also curb in liberal credit practices that seem to be so rampant.

The new rules, in effect, would force mortgage companies to show that customers can realistically afford their mortgages. The lenders would have to verify the borrowers’ income and assets to assess their repayment capacities. Fed wants to prohibit prepayment penalties levied on the buyers who make early payment of their mortgages. Mortgage brokers would also have to disclose in writing whether they received bonuses for selling loans at interest rates that were higher than a borrower qualified for.

Are you pissed off with low speed of your broadband Internet connection? It’s quite probable that your Internet service provider does not provide you with the bandwidth that you were made to believe you would get. But thanks to their ‘up to’ 256kbps [or any other bandwidth speed] clause, they are not at fault even if you actually get a far slower connectivity. But now we can look forward to some relief from this trickery.

The telecom regulator TRAI has taken a tough stand on this mode of circumventing the law using clauses like ‘up to’. TRAI has said that the service providers should not advertise in a way that does not commit any minimum speed. It has asked the service providers to guarantee a minimum download speed while providing Internet connections and also provide correct information about it.