The United States of America may be regarded as the prized land with opportunities galore for the ambitious men and women but recent economic facts have thrown some critical issues out in the open that might change the mindset of the rest of the world about the country’s economic equality, which is gradually dividing a society that could have serious repercussions in the long-term. According to a Congressional report, the increase in incomes of the top 1% of Americans has exceeded the total income of the poorest 20%. This particular data show how a massive proportion of wealth is getting concentrated in the hands of the ultra-rich with very little being distributed among the lower sections of the society.

The income inequality in the United States of America has become a hot Presidential campaign topic with the Democrats blaming the President Bush-led Republican government of compromising local job opportunities by allowing American companies to outsource jobs overseas. According to Trudy Renwick, an economist with the Fiscal Policy Institute in New York, factors such as globalization, decline in manufacturing jobs, immigration, increase in low-wage service jobs and weakening of trade unions in addition to rising housing crisis have hurt the economic stability. Furthermore, dramatic rise in domestic and international stock markets have provided many opportunities for the rich to invest plenty of money in those institutions for a hefty return thus concentrating the wealth into a particular society.

Talking about the political side, the Democrats have promised, if they come to power next year, to make America’s rich pay a large sum in the forms of tax so that the poor could be benefited. But if we look a bit further, we would see that the problem of economic inequality is a bit more related to the country’s foreign policy. America’s frequent post 9/11 war involvements have put intense pressure on the country’s economy. Large funds get invested in America’s wars in Iraq and Afghanistan and at a time when Washington faces stiff economic rivalries from the likes of China and India, the country must make sure that it keeps pace with the those challenges. As a developed nation, the US is expected to set trends but at the moment the land of opportunity is in danger of becoming a land of gross inequalities with the rich getting richer and the poor getting poorer.

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Source: IHT

French President Nicholas Sarkozy has announced a new policy proposing the ban of advertisements from the public television and compensating for the lost revenue by taxing new tele-communicative means, such as the internet and mobile phones.

Experts believe, this move can probably change the media scenario of the country. Popularity of the internet is viewed as a nation’s educational as well as economic growth and productivity.

Taxing a service, which is of benefit to the country seemed to be a wrong decision made by the French President and is condemned by many.

This tax on the internet connection is an unprecedented event and the Mr. Sarkozy acknowledged this in his speech on Tuesday. At a time when traditional means of communication, like the television and radio are losing popularity, giving way to modern means such as Internet, such a move is expected to further modernize communication.

However, in defense, President Sarkozy said,

I want us to profoundly review the requirements of public television and to consider a complete elimination of advertising on public channels.

To compensate for the losses incurred due to vanished advertising revenue he suggested,

Those channels could be financed by a tax on advertising revenues of private broadcasters and an infinitesimal tax on the revenues of new means of communication like Internet access or mobile telephony.

Those in favor of this move believe that the infinitesimally small charges wouldn’t hinder the growing number of Internet users, which is already higher in France than those of other countries. This proposal awaits approval by both the houses of the Parliament, after which, it can be declared as a policy which is expected to be by the 1st of September.

However, how successful this move will be in terms of French economic growth, is what we are eagerly waiting to see.

Image: Telegraph

Via: iht

The bad shape of the US investor is welcome for the emerging economies of the world. To help it bail out of the crisis, Morgan Stanley is looking eastwards. It will sell $5 billion stake to the China Investment Corporation, which is under the direct control of China’s finance ministry.

Riding on the back of a booming housing market, the US financial institutions had resorted to large-scale loans to borrowers with dubious credibility. However, trade in sub-prime securities went wrong causing rise in the number of foreclosures in the USA and the banks recording huge losses. To help clear matters, the banks are looking eastwards to the emerging Asian countries. The joke that is currently popular among the Wall Street players is ‘Shanghai, Dubai, Mumbai or goodbye.’

John Mack, the banks CEO has saved his job for the time being. However, his compensations will plummet to $800,000 down from $40 million last year. Mach admitted taking his company to the current crisis. He emulated the wrong efforts of Goldman Sachs in using it own capital in trade that had earlier saw the CEO of Goldman Sachs loosing his job.

Image Credit:Business week

Source: IHT

President George W Bush presented his last budget to the nation. This is President Bush’s signature budget with the chunk of the spending being earmarked for the military in carrying out the President’s pet campaign against terrorism. The $3.1 trillion budget has not offered the ailing US economy anything special to regain its health.

The budget has emphasized more on saving with increased spending in the military sector and more tax cuts and the obvious outcome of deficit spending – more debt. The severe curtailing in government spending in health care programs will leave less money for the Medicare programs for the elderly and the Medicaid for the poor. With high premium extracted by insurance companies in the private sector, the elderly and the impoverished Americans depend on the government for health coverage.

While President Bush is concerned about the well-being of the people in terrorist afflicted terrains of the world, he seems to be less concerned about the ailing and impoverished citizens of his own country. After all, this is Bush’s last term as the President of USA and so populist policies are not his concern.

In trying to salvage the sinking economy, he has resorted to tax cuts. The President’s critics in the Democratic Party say that his tax cut measures will benefit only the rich Americans. President Bush, who is gifting deficit budgets to the country has projected that his policies will take the economy to the path of a balanced budget by 2012. An ambitious aspiration no doubt, given the $410 billion deficit in the current year and $407 billion deficit projected for 2009. The obvious question that arises is where is the administration’s spending arising out of this budget deficit going?

In his effort of saving government’s money Bush wanted to save those costly papers used to print the budget proposals and has instead posted his entire budget document online. At least the US administration will not be required to borrow from foreign nations in printing paper copies of the budget.

Source: ABC News

The US economic growth is all set to slow down during the first half of 2008, as the possibility of a recession is increasingly becoming likely. This has been the projection made by a large number of economists surveyed by Blue Chip. The US economy is expected to grow at a rate of 0.1 percent in the first quarter and by 0.5 percent in the second quarter.

The economy as a whole is expected to grow by 1.5 percent in 2008 that is more than one percentage point lower than the growth rate predicted last September. Industrial production growth rate will be a mere 1.0 percent this year with the housing industry facing the worst ever slump since 1959. Rise in international crude prices will fuel inflationary forces with projected 1.5 percent rise in annual inflation. The dismal economic performance will culminate to lower consumer spending that would further pull down the economic growth rate. The US citizens are increasingly becoming weary of their job security on the face of rising unemployment. In February 63,000 people lost their jobs as builders and manufacturers are firing more and more workers.

The multibillion-dollar fiscal spending package with tax rebates is not expected to provide any stimuli to the US economic growth. Heavy debt, inflation pressures, rapidly declining home prices and fear of job security will force consumers to use the tax rebates to increase their savings and clear debts. The only silver lining is the positive impact that a weakening US dollar will have on narrowing trade deficit. For the first time in five years, US trade deficit fell to $711.6 billion last year from $758.5 billion in 2006. However, Wall Street economists surveyed by Thomson /IFR predict that higher level of oil imports at higher prices is expected to cause slight increase in the trade deficit.

Source: Yahoo
Image: NY Mag

US economic slowdown seems to have finally hit China. China’s trade surplus unexpectedly experienced a sharp fall in February. This sudden fall was not expected given the 48% record growth in the country’s trade surplus in 2007. The gap between China’s exports and imports had expanded to $262.2 billion last year.

USA, one of the major importers of Chinese goods had accused China of keeping its domestic currency Yuan undervalued to keep Chinese exports cheap. The West has also urged China to open up its domestic economy to foreign investment and allow greater imports. The surge in 2007’s Chinese exports had occurred despite of a number of product safety issues concerning Chinese goods including toys, toothpastes and clothing items. Beijing has introduced measures such as export tax on steel and some other goods to contain excessive export growth, which it fears might overheat the Chinese economy.

The Chinese export control measures had seen smaller trade surplus last December. The decline in February’s trade surplus can be attributed to the Chinese export control measures alongside with the adverse effect of the low US demand. Inflationary pressures are also feared to have contributed to increased production costs. Rise in prices of coal, iron ore, fuel along with upward trend in labour cost is adding to the cost of export goods.

Source: BBC
Image: ChinaDaily

This has been a very evident situation in the United States, where the colored population and also the African-American have been undergoing the backlash in terms of credit and finance, which is being currently referred to as the ‘mortgage crisis’. Their dreams of affording a home, they can call their own has received an antagonist response from the creditors who hold and mould the economy of America.
The so called colored people and the African-Americans in particular with a low credit history are being almost being vertically hit by the ‘subprime loans’, which has led to the financial crisis of the past year. They had been given loans easily, with very less formalities, but heavy interest rates that have led to the present crisis.

Cleveland, Baltimore and Detroit have been the worst hit areas, where the majority of the colored populations have had to face the challenge of leaving their cherished homes because of their inability to provide the stipulated installments for the home loans granted to them. In lieu of the situation being redeemed, the creditors have led almost 70,000 homes to be foreclosed, which has amounted the whole scenario to be referred to as “financial apartheid” for the minority populations.

For the upcoming US elections, this seems to be a very potent issue to be taken in hand by the Democrats or Republics. It about time now that some one redeems the colored population of the United States from this prevalent apartheid.

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For years, Japan has been fighting deflation resulting from excess production of goods. However, the economic scenario has drastically changed this year with rapid rise in consumer prices. In February, the prices of core consumer items including fresh food has recorded 1 percent increase from the price level in the previous year – the fastest rise in nearly 10 years. Most of the inflationary pressure is arising from hike in gasoline and food prices. According to Takehiro Sato, chief economist, Morgan Stanley, both the economies in the US and Japan have already entered a mini-recession that is likely to continue until around April-June quarter.

The trimming of jobs has occurred largely in the small and medium sized companies, as they have been unable to adjust to high oil and raw materials prices. The overall income of households has dropped by 0.1 percent and disposable income fell by 1.1 percent further aggravating the problems of the Japanese economy. The OECD had projected that the GDP growth for the first quarter would be 0.3 percent and predicted a 0.2 percent rise in the second quarter. The organization had said that despite of support from the neighboring buoyant Asian economies, Japan’s growth appears to be softening.

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Source: yahoo

Political opinion is divided on the issue. Senator John McCain, the Republican presidential candidate, has emphasized personal accountability of the Americans. McCain does not want the government to bail out the small borrowers and the banks whose irresponsible behavior triggered the current crisis. On the other hand, the Democrats disagree with McCain. Senator Hillary Rodham Clinton wants the government to do more. According to her, in today’s economy the trouble that starts on Wall Street often ends up on Main Street.

If government intervenes, what remains to be seen is who would have to bear the burden of the crisis - the taxpayers or the banks and the borrowers. With fear of foreclosures, erosion of household wealth and escalating inflation, any federal government spending to bailout the troubled banks and the loan defaulters will shift the burden on taxpayers. However, can government intervention actually help the economy?

The federal government had already introduced tax rebates and spending programs to make consumers spend more freely. Debt aversion is in fact not bad because increased saving stifles growth and history tells us that debt aversion is what prolonged the Great Depression. Debt is bad only when it fuels consumption with no long-term benefit. Even with the housing market continuing with its correction, housing remains an intelligent debt. With the end in the housing market correction, the next growth cycle will begin and smart investment in real estate will pay off.

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Source: yahoonews

This is certainly a bad news for the whole world as employers in the U.S cut the most workers in five years last months. According to the Labor department in U.S, employment fell by 80,000 jobs in March 2008. So it is the lay offs in five years. Some economists have now convinced that the economy is in recession, but some have admitted that U.S is in its early stage of recession period. Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York, says,

There doesn’t appear to be any silver lining. It shows that we’re right in the middle of a recession, our expectation is that it will be a longer recession than the last two, and we’re just in the beginning.

The economy is suffering the effects of a housing collapse, a credit crunch and a financial system in turmoil. Due to this people and businesses are bound to hunker down, crimping spending, capital investment and hiring. Those things in turn further contribute to weaken the economy.

The Workers from construction and manufacturing areas are largely hit due to slowdown. The interest rate by Federal did provide a short-term boost to financial markets. But these gains have been more than wiped out by the fall in markets throughout March. Certainly it is big problem for President Bush who has been criticized by opposition leaders on many external and internal matters of the country. There is need to address longer-term economic needs by developing alternative energy sources and boosting investment in education and worker retraining.

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