Economics | Funny Stuff is all around

Archive for the ‘economics’ Category

Global Issue Effects Of Today And Yesterday

Friday, May 23rd, 2008

The centuries-long process of globalization and carefully constructed trade strategy has helped some of the current superpowers establish their sphere of influence in the world. One can observe some of the historical impact of financial globalization on developing nations. For instance, without cotton exports to the Northern US and Britain during the Civil War period, the opulent palaces in Egypt, Jaffa, Palestine and other outposts of the Ottoman Empire would have never existed. Similarly, China has emerged as a super power as a result of textile and technological exports. Yet global issues have arisen because certain countries have gone to great lengths to protect their investments.

The last twenty years have shown a large increase in globalization trade, which was expedited by the decline of communism and closed door trade strategy. Countries like China and Russia have welcomed foreign developers in an effort to bolster and rebuild their nations. The Soviet Union was in a state of disrepair at one time and China was overwhelmed with poverty, but thanks to financial globalization, their countries are now valuable players in the world market.

Today’s global issues vary, depending on who’s questioned. Some activists say that US trade strategy puts the nation in a compromising position. While on one hand, the US is the world’s 2nd biggest exporter (after Germany), they are also the #1 importer as well. It’s difficult to imagine what would happen to the US economy if suddenly clothing, oil and technology prices skyrocketed through the roof and were put into a chokehold by Eastern markets. Others argue that another negative effect of globalization is that it can decrease competition in local markets and actually hurt some developing countries. For instance, the Free Trade Agreement with Latin American poses some problems as US countries exploit workers without accountability, yet Latin America is powerless to create and enforce regulations because American businesses will simply pack up and go to another Free Trade nation. Anti globalization activists point out that violence naturally increases in the economic poles of places like Colombia; and also, while multi-national corporations and politicians profit, the local farmers and common man languishes in poverty.

While there are abuses of globalization, resulting in global issues, there are some benefits of globalization as well. For example, World Bank points out that world poverty rates are diminishing, feminism and literacy rates are improving, life expectancy has increased and more countries are holding elections than ever before. It appears that commodities aren’t the only thing spreading across the borders, but ideas of elected officials, entrepreneurial advantage and freedom are too.

One thing is certain though, globalization has brought countries closer together which means facing up to other global issues such as global warming causes is now possible.

If you like this post, buy me a coffee.

Sphere: Related Content

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Posted in economics | No Comments » | Read more..

Which Is Better For The Public: Trickle Down Or Trickle Up?

Thursday, May 1st, 2008

For quite some time now the world’s financial system has been fragile. The Federal Reserve Chairperson, Ben S. Bernanke is inundated with a dilemma in the wide ranged credit freeze surrounding today’s financial institutions. This problem goes far outside what interest rate cuts can mend in the economy.

The very low interest rates we experienced in the early to mid 2000’s as well as the trend of throwing caution to the wind has left the financial world at risk. This care free attitude was spread by Alan Greenspan; a major Wall Street player who was bailed out of trouble with borrowed funds, has led us down a dangerous path.

Now there’s a problem. Those speculative derivatives do not have the value that the Wall Street salesmen claimed they had. There’s a desperate race to de-leverage at almost any price. Of course, buyers have grown scarce. No institutional investor wants to add more highly overvalued speculative package to his portfolio now that the true value of these packages is exposed in the light of day. We are in a liquidity crisis the magnitude of which we haven’t seen since before World War II.

Commercial and investment banks sitting on overvalued and illiquid assets such as mortgages and private equity loans can’t sell them because they are packaged with derivatives of highly questionable value (a polite way of saying that Wall Street lied about their true value and overpriced them by billions and billions of dollars). The net result is that they don’t have the cash with which to make new loans. This lack of liquidity is killing our credit based economy. Moreover, for banks and brokers to strengthen their balance sheets by de-leveraging, it would require banks to reduce the number of loans on their books. This would devastate the economy and make what might be only a bad recession into one far, far worse and longer-lasting.

This is why the Federal Reserve is bailing out banks with long term financing at low prices. What other option is there? Either let the entire financial infrastructure of the world freeze up or they lend money to financial institutions and accept the subprime mortgages and related securities of debatable value as collateral. This is how the Federal Reserve has become the buyer of last resort which is incredibly inflationary. These financial middlemen are projected to take the cash borrowed from the Federal Reserve and lend it out again to higher quality borrowers; unfortunately this is not what is happening. Theoretically, this would be considered the trickle-down effect.

So why don’t we try a trickle-up effect? The bailout will cost at least $1,000,000,000,000. Not sure of that number? That would be one trillion dollars! Instead of giving one trillion dollars of newly created money to the Wall Street players to continue the financial problems we already are facing, why not give that money to the people of America? It will then trickle-up to the Wall Street by stimulating the economy. By giving around $3,200 to every individual in America we may be able to get the money flow back in the right direction. This would mean a family of five would receive $16,000.

This would help all of America individually as well as the economy. First time home buyers would actually have enough for a down payment, thereby helping the real estate crisis. In doing this everyone is helped instead of a few Wall Street fat cats. Why is it they should receive a trillion dollars of new money to throw around and devalue like they have in the past? After all, Wall Street’s abuse of derivatives and outright greed is what got us into this financial crisis in the first place.

If you like this post, buy me a coffee.

Sphere: Related Content

Posted in economics | No Comments » | Read more..

Is There A Food Shortage Looming In Our Future?

Wednesday, April 30th, 2008

Is it possible for a rich nation such as America to face a possible food shortage in the future?

The answer to this is yes.

The NY Sun recently ran a story about the surfacing of some food shortages in some areas of the US. It appears that this may be a precursor of what is to come. How can this happen? The answer is in the fact that there are several things that contribute to shortages in whole.

For the most part there has always been enough food for everyone on the planet. This is beginning to change. The world is finding itself nearing maximum capacity in not only space but also in many commodities. Oil is a largely the primary commodity running short. The world; however, is not running out of oil anytime soon. It is true that the world has tapped most of the easily accessible oil fields. There is a lot more oil available, but it is becoming more and more expensive to extract shoving up the already inflated oil prices beyond reach. Gas prices will likely top $6.00 per gallon next year.

We are experiencing the same situation with the world’s mines. There is not a shortage of ore but we just can’t affordably get at it. Essentially this means that there is only a limited supply available at affordable prices. The higher the cost of supplies the fewer people that can afford it; this will of course increase the supplies at unaffordable prices.

Food is included in this variable. Despite the land available around the world there is only so much food available. Previously the US had a very strong currency; however, this is changing today. The value of the US dollar has been spiraling downward over the last few years. Other countries are now able to out bid the United States for the commodities we need. China is leading the world in outbidding for precious commodities.

The decline of the US dollar will continue as the US continues to print money which results in the value plummeting. With the value of currency declining, the US may find itself with a lessened ability to be the top bidder and may be unable to obtain its resources.

The above scenario regarding area food shortage is the predecessor of a number of very shocking changes America is heading for. As a country we have overspent and under managed our budget for decades and we are going to be faced with a grim reality.

Get Ready; Bush’s depression is going to be difficult.

If you like this post, buy me a coffee.

Sphere: Related Content