Saturday, August 14, 2010

Mercedes-Benz take-off in China And Germany exits recession--Coincidence? Sales figures enclosed.

  Mercedes-Benz is doing rather well in China.  The percentage gain is somewhat misleading, because they are starting off from a lower base number so the gains will be magnified looking at it like this. But it is important to look at numbers like this to gauge overall consumption patterns.  This is obviously good for Germany, who is emerging from the recession mainly from strong exports. (HT: Carpe Diem)

Mercedes-Benz sales by markets

                                   July 2010    %Chg from Last July     Jan-July     %Chg Jan-July
Western Europe            47,100                 -2.5                          321,900              -0.1

of which Germany      23,600                -1.8                           146,000              -5.7

NAFTA                           19,900               +7.4                           140,200            +19.0

of which USA             17,400                +7.0                           121,000            +19.5

Asia/Pacific                    23,300             +108.6                           141,000         +68.3

of which Japan             1,700                  -5.9                              16,900          +12.2

of which China      14,600              +204.7                             75,100           +132.4

"Sales at Mercedes-Benz continue to improve, rising by 17 percent in July. This marked the ninth month in a row that sales have increased at a double-digit rate. Global deliveries to customers amounted to 97,700 units last month (July 2009: 83,500). As a result, sales now total 654,400 units since the beginning of the year (January-July 2009: 566,600), representing an increase of 16 percent.

Mercedes-Benz made great gains in many automotive markets in July. The brand had its best month ever in China (incl. Hong Kong), where it sold 14,600 passenger vehicles (July 2009: 4,800), an increase of 205 percent compared to the same month last year. As a result, Mercedes-Benz remains the fastest-growing premium brand in China.

Mercedes-Benz achieved its biggest gains last month in the dynamically growing market of South Korea, where 1,300 customers bought a vehicle bearing the Mercedes star. This was five times the number sold in July of last year (plus 446 percent). Within the Asia/Pacific region, sales also rose substantially in Australia (plus 48 percent). Mercedes-Benz in July also achieved its best month ever in Russia (plus 116 percent). Record sales were posted as well in India (plus 142 percent) and Turkey (plus 155 percent)."

Friday, August 13, 2010

Is your Pet a Need or a Want? Don't ask an economist this question...

     The first day of Economics class I like to distinguish between Needs and Wants. It is one of the more fun in-class activities.  The economic definition of a need is: If there is NO substitute, then it is a need...Economists are unyielding in there adherence to this definition.  If there is a substituteno matter how remote, then it is not a need.  It really limits what true needs are.  This article is not written by someone with an economic background---they HAVE a heart!!!  What do you think??  Pets--- a Need or Want???

Pet survey: Is having one a need or luxury? Weigh in
Do you need or just want your pet? What about Internet connection and an annual family vacation? For many baby boomers, those are all basic needs, not luxuries, according to a new survey.
Eighty-four % of those surveyed said having an Internet connection is a basic need, and 66 % said shopping for birthdays and special occasions is. Fifty-one % said pet care is a basic need, and 50 % said taking a family vacation once a year is a need, not a luxury, according to a recent survey by MainStay Investments of 1,049 consumers aged 45 to 65. The report also said people would put off retirement and spend less now so they could afford the same lifestyle when they do retire. And as children leave home to start their own lives, pets can take on added importance for empty nesters.
Pet meds and care can be expensive. Veterinarian Patty Khuly says it's not unusual to spend $1,700 a year for quality pet care. There are 10 pet insurance companies selling brands for petowners who are devoted to having the same treatment options -- especially when it comes to cancer -- for their pets as they have for themselves.
All the people who sent in photos for our shelter pets loving life photo album would agree their pets are a basic need.
Do you agree that having a pet is a basic need?  Vote HERE

Getting Product to Market---By all means necessary...

A long time ago when I was stationed at the US Embassy in Bamako, Mali I witnessed extraordinary examples of resourcefulness on the part of people going about their daily lives meeting needs and wants...I never saw this though....
Chris Blattman

BOO!! Here are some Friday the 13th facts and figures...

Friday the 13th Phobia Rooted in Ancient History (HT: Marginal Revolution)
1.  This Friday some people will be so paralyzed with fear they simply won't get out of bed. Others will steadfastly refuse to fly on an airplane, buy a house, or act on a hot stock tip. It's Friday the 13th, and they're freaked out.  "It's been estimated that [U.S] $800 or $900 million is lost in business on this day because people will not fly or do business they would normally do," said Donald Dossey, founder of the Stress Management Center and Phobia Institute in Asheville, North Carolina.

2. So how did Friday the 13th become such an unlucky day?
Dossey, also a folklore historian and author of Holiday Folklore, Phobias and Fun, said fear of Friday the 13th is rooted in ancient, separate bad-luck associations with the number 13 and the day Friday. The two unlucky entities ultimately combined to make one super unlucky day.
Dossey traces the fear of 13 to a Norse myth about 12 gods having a dinner party at Valhalla, their heaven. In walked the uninvited 13th guest, the mischievous Loki. Once there, Loki arranged for Hoder, the blind god of darkness, to shoot Balder the Beautiful, the god of joy and gladness, with a mistletoe-tipped arrow.
"Balder died and the whole Earth got dark. The whole Earth mourned. It was a bad, unlucky day," said Dossey. From that moment on, the number 13 has been considered ominous and foreboding.

3. There is also a biblical reference to the unlucky number 13. Judas, the apostle who betrayed Jesus, was the 13th guest to the Last Supper. Meanwhile, in ancient Rome, witches reportedly gathered in groups of 12. The 13th was believed to be the devil.

4.  This fear of 13 is strong in today's world. According to Dossey, more than 80 percent of high-rises lack a 13th floor. Many airports skip the 13th gate. Hospitals and hotels regularly have no room number 13.
5.  On streets in Florence, Italy, the house between number 12 and 14 is addressed as 12 and a half. In France socialites known as the quatorziens (fourteeners) once made themselves available as 14th guests to keep a dinner party from an unlucky fate. Many triskaidekaphobes, as those who fear the unlucky integer are known, point to the ill-fated mission to the moon, Apollo 13.

Please interpret this graph---Why did Healthcare Costs START to rise dramatically in 1985? Anyone know WHY?

This graph (the gold line specifically) shows the Consumer Price Index for ALL items in the market basket the govt. uses to measure changes in prices/price level in the US.  The darker line shows the change in the price of medical care only.  There is a direct relationship between the two up to 1985 then there is a rapid separation.  Why was this year a watershed moment in the cost of healthcare.  I was "only" 25 at time.  I know an aging population is a part of it, but it cannot explain all the price change.  Any ideas??

Source: Economix

Ever wonder how your favorite company got its name? Find out here...

How 16 Great Companies Picked Their Unique Names
1. Google
The name started as a joke about the amount of information the search engine could search, or a "Googol" of information. (A googol is the number 1 followed by 100 zeros.) When founders Larry Page and Sergey Brin gave a presentation to an angel investor, they received a check made out to "Google."

2. Hotmail
Sabeer Bhatia and Jack Smith had the idea of checking their email via a web interface, and tried to find a name that ended in "mail." They finally settled on hotmail because it had the letters "html," referencing the HTML programming language used to help create the product.

3. Volkswagen
Volkswagen literally means "people's car." Adolf Hitler initially came up with the idea for "cars for the masses," which would be a state-sponsored "Volkswagen" program. Hitler wanted to create a more affordable car that was able to transport two adults and three children at speeds of 62 mph. He choose the car manufacturer Porsche to carry out the project, and the rest, as they say, is history.

4. Yahoo
The word "yahoo" was coined by Jonathan Swift in the the book Gulliver's Travels. The term represented a repulsive, filthy creatures that resembled humans (think: Neanderthal). Yahoo! founders Jerry Yang and David Filo considered themselves yahoos, and thought the term would be appropriate for their joint venture.

5. Asus
The consumer electronic company is named after Pegasus, the winged horse of Greek mythology. The founders dropped the first three letters for the high position in alphabetical listings. In 1998 Asus created a spinoff company named Pegatron, using the other unused letters of Pegasus.

6. Cisco
Contrary to popular belief and theories, Cisco is simply short for San Francisco. Their logo resembles the suspension cables found on the Golden Gate bridge.

7. Canon
When Canon was founded in 1933 under the name Precision Optical Instruments Laboratory. Two years later they adopted "Canon" after the company's first camera, the Kwanon. Kwanon is the Japanese name of the Buddhist bodhisattva of mercy.

8. Coca-Cola
Coca-Cola's name comes from the the coca leaves and kola nuts used as flavoring in the soft drink. Eventually Coca-Cola creator John S. Pemberton changed the 'K' of kola to 'C' to create a more fluid name.

9. FranklinCovey
The planning product line was named after Benjamin Franklin and Stephen Covey. The company was formed in 1997 from the combining of the two companies FranklinQuest and the Covey Leadership Center.

10. IKEA
IKEA is simply a random collection of letters, based from the first letters of founder Ingvar Kamprad's name in addition to the first letters of the names of the Swedish property and the village in which he grew up: Ingvar Kamprad Elmtaryd Agunnaryd.

11. Lego
Lego is a combination of the Danish phrase "leg godt," which translates to "play well." Initially the company built wooden toys, and later switched to making plastic bricks. Lego also means "I put together" in Latin, but the Lego Group claims this merely coincidence and the origin of the word is strictly Danish.

12. Reebok
Reebok is simply an alternate spelling of "rhebok," an African antelope. The company founders found the word in a South African edition of a dictionary won by the Joe Foster, son of the Reebok founder J.W. Foster.

13. Sharp
The Japanese consumer electronics company is named after its first product, an ever-sharp pencil that was created in 1915.

14. Six Apart
Six Apart's name has one of the most interesting origins. The web company's co-founders Ben and Mena Trott were born six days apart.

15. Skype
The original prototype of the company's flagship product had the name "Sky-Peer-to-Peer," which was shrunk down to Skyper, then finally Skype.

16. Verizon
Verizon is a combination of the words veritas, which is Latin for "truth," and horizon.

Thursday, August 12, 2010

"SHOW ME THE MONEY!" The Fiscal Stimulus money, that is...Nice chart showing the dollar amounts

Washington Post via ChartPorn

Piecing together the stimulus

""With the passage of a $26 billion state aid package Tuesday, Congress has approved over $1 trillion in spending and tax measures to stimulate the economy, according to a recent summary of the legislation by two independent economists. This fiscal stimulus has been just a part of the government's response to the recession, which also includes policies such as TARP, homeowner assistance and initiatives by the Federal Reserve.""

My, how prices have changed since 1942---Or have they?? See for yourself...

I saw this particular photo HERE.  It (and several other photos) is colorized supposedly to show that scenes from The Depression are not much different from today.  I am not sure about that, BUT this particular one of a store with fruit and vegetables in front of it caught my eye.  Specifically, the prices of things.  Got me to thinkin'...Factoring in inflation over time, what has happened to the prices of common commodities that we all purchase from time to time...

Item                          1942 Price              2010 Price    Inflation Adjusted Price
Oranges                       1 cent (ea)              75 cents (ea)                  13 cents
Grapefruit                    5 cents (ea)             25 cents (ea)                   67 cents
Apples                        25 cents for 4 lbs    $4.72 for 4 lbs                   $3.35
Potatoes                     19 cents for 5lbs     $2.31 for 5 lbs                   $2.54

(Note: I adjusted potatoes weight to match 5 lbs and used current russet potato price---not sure of the potato type in 1942)

How to read this:
(1) An orange cost 1 cent in 1942. If the price of oranges only increased as much as inflation increased from then to now, the price of an orange SHOULD be 13 cents  BUT it is 75 cents. Orange prices increase significantly more than inflation.
(2) A grapefruit cost 5 cents in 1942. With inflation it should cost 67 cents, BUT it only cost 25 cents! What a deal on Grapefruit!
Using the same methodology, you can see Apples have increased faster than inflation but potatoes a little less than inflation. 

This is not a perfect analysis of the changes in prices overtime. There are many variables that could affect prices of particular goods.  BUT it is interesting! (C'mon, you gotta admit it...)

I used current pricing data from HERE and use the BLS inflation calculator HERE

Cigarettes and Elasticity---this time "Reservation Price" has a different meaning...

   A product that is always ripe to increase taxes on, with little resistance from interest groups, is cigarettes.  It is assumed that the demand for cigarettes is relatively inelastic, which means consumers of cigarettes will NOT DECREASE their quantity demanded (in percentage terms) by MORE than the percentage INCREASE in the price of cigarettes.  The formula is % change in Quantity Demanded divided by the % change in Price multiplied by 100.  If the result is LESS than 1, then the good is considered to be PRICE INELASTIC.  It is generally accepted that cigarettes have an elasticity of less than 1.  However, in this article, the numbers do not bear this out. Can you figure out why?  Key info here:
""New York state boosted the cigarette tax to $4.35 a pack from $2.75 on July 1 as one of a series of measures designed to help close a $9.2 billion deficit for fiscal 2011, giving it the highest cigarette tax rate in the country....(Hayward's note: Tax increased $1.60)
With the per-pack price rising to a range of $9 to $12, "aghast" smokers flocked to tribal stores, which are tax-free, the black market, and border states with lower cigarette taxes, said the New York Association of Convenience Stores. (Hayward's note: I will use $10.50 as the price)
Convenience stores that are located close to reservation competitors sold 45 percent fewer cigarettes; more distant stores experienced drops of 25 percent to 35 percent, the lobbying group said...."
     Assume the new per pack price of cigarettes is $10.50 (halfway between the $9 to $12 cited in the article).  Before the tax the price of a pack was $8.90 ($10.50 minus $1.60 increase in the tax). The percentage change in price is +18% ($10.50 minus $8.90=$1.60 divided by $8.90 times 100= 17.97%).  For the good to be price inelastic, the percentage change in quantity demanded would have to be LESS than 18%.  The article cites two statistics for change in quantity demanded. One for stores close to reservations/tribal stores (NOT subjected to State Taxes) and one for stores further away from reservations/tribal stores.  If you use the numbers quoted for change in quantity demanded and plug them into the formula to determine elasticity you yield a number LARGER than one, indicating the good is PRICE ELASTIC.  Remember 18% is in the denominator.  What is going on here? What caused the good to magically change from an inelastic good to an elastic one?  Was this a bad policy?

It is amazing how many fires are occuring all over the world right now---See for yourself here!

Quite amazing to me...I did not know SO many fires were happening at the same time all over the world...Source: HERE

Wednesday, August 11, 2010

If the Capital Stock decreases (and it is), then your future prospects and standard of living do too...How do I know? Why the Production Possibilities Frontier, of course.

     In order to have healthy economic growth in the short run and long run, it is vital that a nation builds upon its Capital Stock.  Capital Stock is, well, the Stock of Capital a nation has available to make goods (stuff).  It is includes everything from basic tools to heavy machinery; from the quality of its public infrastructure (roads, water, power, schools, etc) to the quality of its private infrastructure, such as commercial buildings, factories, skills of the workforce, etc.  This article has a nice graph showing the US is not increasing its capital stock, but is only maintaining and/or replacing its current stock of capital.  If fact, we have experienced an overall DECREASE in national capital stock (you can see it on the FAR right side--the line dips below 0). 

""Companies in the U.S. are stepping up purchases of equipment and software at the fastest pace since the late 1990s. But much of the spending is aimed at replacing older equipment after recession-related postponements or to improve efficiency—not to raise production or boost hiring...""
"...Companies may keep increasing spending on equipment, computers and software even if they don't add capacity. Nomura Securities economist David Resler calculates that businesses didn't spend enough in 2009 on new equipment to offset the wear and tear on their existing equipment. As a result, the capital stock—the inflation-adjusted value of all business equipment and software in place in the U.S.—dropped 0.9% from 2008—its first decline since World War II...."
    A basic concept in economics, usually the first model encountered in an introductory class, is the Production Possibilities Frontier (PPF).  The PPF gives a graphical representation of how a society is doing in terms of utilizing its productive resources.  Societies produce goods that can be put into two specific categories, but the goods with-in those categories are very broad. The two categories are Capital Goods and Consumer Goods.  Capital Goods are goods produced that don't give immediate satisfaction (can't eat it, play with it, or be entertained by it--These would be categorized as Consumer Goods.) Among them are the items mentioned in the discussion on Capital Stock in a previous paragraph.  Producing and investing in Capital Goods is vital, because it allows a society to ensure future production capacity to satisfy future needs and wants.  This is what the PPF looks like in graphical form:
     Point "B" ON the PPF represents the economy at Full-Employment of resources (including people). This point on the PPF is highly desirable and expected to be a point (not necessarily THE point) the economy should be at more often than not. However, currently we have LOTS of unemployed resources, most importantly people, so we are performing at a point inside our PPF---we simply are not doing as well as what we COULD be doing with our available resources.  In other words, our POTENTIAL production should be Point "B" but our ACTUAL production is at Point "A". 
   Ok, fine, all we have to do is get things moving again and we can put those unemployed resources to work and get BACK to Point "B", right??? Not so fast, considering the state that Capital Stock is in now.
   The article says we are in a period of DECREASING (slight, yet decreasing none the less) Capital Stock.  Graphically, this is what is happening:
     We are moving from KG* to KG1 (Point "C") in terms of Capital Goods production and employment, hence available Capital Stock is decreasing. What are the ramifications of this?
    Fewer Capital Goods means less production of other capital goods AND less production of many Consumer Goods (how are they going to be made with a lack of Capital Goods?). A highly undesirable thing may happen---the PPF, or our potential to produce goods now and in the future, is going to diminish. Graphically, it looks like this:
     The WHOLE PPF shifts to the LEFT. Relative to the PPF before, we have permanently reduced our current productive capacity and greatly reduced our future ability to produce Capital and Consumer goods ("Stuff").  This will not bode well for the next generation, who may see fewer opportunities and a reduced standard of living.
  As I say in class ALL THE TIME: If our politicians, business leaders, and other policy makers DO NOT make the correct investment decisions today, then students will have fewer opportunities down the road.  Let's get to investin' and-a-shiftin' the PPF to the RIGHT!

Opportunity Costs...Teachers instead of Food Stamps...kinda makes me squirm in my chair...

Democrats, Advocacy Groups Blast Cuts to Food Stamps to Fund $26B Aid Bill
"...House members convened Tuesday to pass the multibillion-dollar bailout bill for cash-strapped states that provides $10 billion to school districts to rehire laid-off teachers or ensure that more teachers won't be let go before the new school year begins, keeping more than 160,000 teachers on the job, the Obama administration says.But the bill also requires that $12 billion be stripped from the Supplemental Nutrition Assistance Program, commonly known as food stamps, to help fund the new bill, prompting some Democrats to cringe at the notion of cutting back on one necessity to pay for another...."

Tuesday, August 10, 2010

Does it pay to finish college? Students---play the percentages---FINISH!---see chart as to why!

Source: Yglesias

Is this Irans version of Keynesian Economics???

Iran warns 'we have dug mass graves for your soldiers' in response to U.S. attack threat
""Iran has dug mass graves in which to bury U.S. troops in case of any American attack on the country, a commander of the elite Revolutionary Guard said today.He added that a military strike would spark an 'extensive war' in the region...""
This is either a cruel joke, OR it is Irans version of extreme Keynesian Economics---if you have to, pay people to dig holes and fill them back up...Quite the economic stimulus plan...

How much does your employer pay you? How much does it cost to actually employ you? Two VERY different numbers!!

Why I'm Not Hiring : When you add it all up, it costs $74,000 to put $44,000 in Sally's pocket and to give her $12,000 in benefits
     This opinion piece appeared in the WSJ yesterday. While we can parse the obvious politics in the writing, I think it is instructive to look at the numbers he uses to calculate the cost of hiring an employee. These "costs" , I believe, are objective and the percentages (especially the taxes) cited are correct from what I know about them.
     He uses the salary of Sally, an employee of his firm.  Her stated yearly salary, or gross pay,  is $59,000.  He first deducts from her salary the following items BEFORE getting to her net pay, which is what is left over after ALL the deductions are made:
(1) Her portion of Healthcare/Dental  Insurance-  $2,376
(2) The State for Unemployment Insurance---$126
(3) Disability Insurance---$149
(5) State Income Tax (Texas does not have this)---$1,893
(6) Social Security- $3,661
(7) Federal Income Tax Withholding (to pay Fed Income tax at the end of the year)---$6,250

Total Deductions---$15,300 (some of that $6,250 in withholding may be refunded to her depending on her eventual Federal tax liability).
These are the costs to the employee, BUT the employer also incurs significant costs OVER AND ABOVE what they actually pay the employee in gross pay. Here are the costs he pays in addition to the salary of $59,000:
(1) The employers portion of Healtcare/Dental---$9,561 (Sally paid  $2,376 too)
(2) Other personal insurance, i.e. employer paid life insurance policy---$153
(3) Federal Unemployment Insurance---$56
(4) Federal Disability Insurance ---$149 (Sally paid this too)
(5) Workers Compensation Fund---$300
(6) State Unemployment Insurance---$505
(7) The Employers portion of Medicare---$856 (Sally paid this too)
(8) The Employers portion of Social Security---$3,661 (Sally paid this too)

Total Cost to Employer to for this salary, over and above $59,000, is ---$15,241.  It costs approx $74,000 to employ Sally for $59,000 per year!
(You will notice some of the amounts that the employer pay and the employee pay are identical, most significantly Social Security and Medicare.  The employer "matches" these amount on your behalf. )

     I believe this is information is important because most people are not aware of the total costs of hiring an employee. We tend to only acknowledge the wage we are paid.  There are many other direct and indirect costs of employing someone that are not even mentioned in the above calculation. As usual, there is more to the story...So, next time you clock into work, thank your owner or manager for your pay!!! Ok, maybe not..

Monday, August 9, 2010

"Quantitative Easing"---Incentives to banks to start lending...My explanation with graphs!

     This is a follow up to my last post regarding the Federal Reserves possible use of "quantitative easing" as a way of stimulating the economy by increasing the money supply.  In a nutshell, The Fed is going to create an account and deposit money into it.  Well, not money as we know it,  but electronic credits.  However,  it amounts to printing money out of thin air (although The Fed does not actually print money...that is another lesson).  They are going to use that "money" to buy various financial assets.  The term financial asset is rather broad, but in the short term The Fed is going to purchase (1) non-performing assets on banks balance sheets, which a fancy way of saying their bad loans and (2) buying short term US Treasury's, which is a fancy way of saying US government debt.  Specifically, I will focus on US Treasuries for the purposes of this lesson.    
     Lets use an easy example.  Assume Congress needs $9,000 to finance some spending they want to do.  To get this $9,000 they are going to sell 100 US Treasury Securities with a face value of $100 for $90 each. They sell them for $90 with the promise to pay $100 at some pre-determined time in the future, so the owner of the security will make $10.  The supply and demand graph below illustrates this arbitrary equilibrium price I set. Notice the supply curve "S*B/T" is vertical at 100 bonds/treasuries. We will assume this is all there is in the market and no matter what the price, there are no more to be had (keeping it simple). 

     We know we make $10 from this security, but to get a more accurate measure of our investment we want to convert this into a percent.  Calculating this percent, also known as Rate of Return OR Interest Rate, is important because you can use it to compare across investments (compare Treasury returns to stocks, other bonds, commodities, real estate, etc). To calculate our interest rate we take our investment ($90) and divide it INTO our expected gain ($10) then multiple by 100 to put it in percentage terms.  We find in this example our interest rate is 11.11%.  What a terrific interest rate, yes??    
      What The Federal Reserve is finding out is that the banks like this too! Banks are borrowing money from the Fed at almost a 0% interest rate (aka "Federal Funds Rate), and instead of lending it out to consumers and businesses, like The Fed desires them to, the banks are putting the money in US Treasuries, or government debt. They are doing this because (1) banks are hesitant to make loans in an uncertain economic climate, (2) in this economic climate earning 2% on an investment GUARANTEED by the US government (borrowing at 0% and putting in Treasuries earning 2% is better than a sharp stick in the eye) is a very safe strategy. 
     Since being foiled by the dastardly bankers, The Fed is pondering "quantitative easing", which means they are going to intervene in the Treasury market themselves! This is SIGNIFICANT, because it is somewhat a "last straw" measure to get banks lending. 
    Review the first paragraph of this entry because I want to pick up from there.  The Federal Reserve wants to make Treasuries unattractive to banks and to provide them an incentive to loan out money instead of socking it away in Treasuries.  The way to do that is for The Fed to BUY Treasury's themselves which will serve to DECREASE the interest rates those Treasuries earn!  Say what?
   The Fed enters the market as a DEMANDER for US Treasury's.  As a new entrant with big bucks, they are going to INCREASE the demand for Treasuries.  See the graph below that illustrates this INCREASE in demand.

As happens when the demand for anything goes up relative to the supply, the price will INCREASE. The price of a $100 Treasury increased from $90 to $95.  What happens to our  rate of return or interest rate? We earn  $5 on the Treasury we bought for $95.  Using our formula, the new interest rate is 5.26%, considerably less than before!  KEY POINT: There is an INVERSE relationship between the price of a Tresury Security (or Bond) and the interest rate it earns.  As the price increases the interest rate decreases. The reverse is true also: as the price of Treasury (Bond) decreases, the interest rate increases. 
    With this lower interest rate, the banks MAY consider other investment strategies, like, oh, I dont know, LENDING money to people to buy houses, cars, big screen TV's or to businesses to replace capital goods, buy new capital goods, expand factory production, or build new facilities?
   The bottomline with employing quantitative easing is that lowering the Federal Funds Rate to virtually 0% has not loosened up the credit markets enough to spur sufficient economic activity (buying stuff).  If The Fed can make alternative, albeit safe investments, LESS attractive to banks, AND if they can relieve banks of non-performing loans so banks can loan out that money as well, then perhaps we can move forward.  It is risky and smacks of a last ditch effort...We will see how it works out!!!

The Federal Reserve meets tomorrow---You may hear a new term "Quantitative Easing"--Learn about it first HERE!!

This video explains in VERY simple terms (even I can understand it!) the concept of "Quantitative Easing".  From what I am reading, it is very possible the Federal Reserve tomorrow will report that they are going to use this method for "stimulating" the economy.  The video starts out a little slow.  He gives an overview of the important Federal Funds Rate before getting into quantitative easing, which you are NOT going to want to miss!!! :)

This definition of Quantitative Easing from Wikipedia
""The term quantitative easing (QE) describes a form of monetary policy used by central banks to increase the supply of money in an economy when the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.[citation needed] A central bank does this by first crediting its own account with money it has created ex nihilo ("out of nothing").[1] It then purchases financial assets, including government bonds and corporate bonds, from banks and other financial institutions in a process referred to as open market operations. The purchases, by way of account deposits, give banks the excess reserves required for them to create new money by the process of deposit multiplication from increased lending in the fractional reserve banking system. The increase in the money supply thus stimulates the economy. Risks include the policy being more effective than intended, spurring hyperinflation, or the risk of not being effective enough, if banks opt simply to pocket the additional cash in order to increase their capital reserves in a climate of increasing defaults in their present loan portfolio.  "Quantitative" refers to the fact that a specific quantity of money is being created; "easing" refers to reducing the pressure on banks.[2] However, another explanation is that the name comes from the Japanese-language expression for "stimulatory monetary policy", which uses the term "easing".[3] Quantitative easing is sometimes colloquially described as "printing money" although in reality the money is simply created by electronically adding a number to an account. Examples of economies where this policy has been used include Japan during the early 2000s, and the United States and United Kingdom during the global financial crisis of 2008–2009....""

Where Americans have and have not spent money since the beginning of the recession---Fido and Fluffy have done pretty well...

Where Americans Are Spending More..

...and where we are spending LESS...

I have been under a rock---Is college expensive today?

Carpe Diem
Since 1978, the price of housing (red line) increased approximately 320% (3.2 times)  before "crashing" in 2007 wreaking havov on the financial system. The price of college tuition (brown line) in the same time period increased approx 920% (9.2 times)...Is it due for a crash also? If not, why not?  Can tuition increase forever? That was the thinking in the housing industry, and we know how that ended up. 

"What Can I Do To End World Poverty?"--That is NOT the right question to ask...

     As High School Economics teacher, sponsor of an extra-curricular activity linked to the D/FW World Affairs Council, and coach of the Model UN team, the opportunity for students to ask the question "What can I do to help solve world poverty?" presents itself quite often.  When I was in the Marine Corps I served as a US Embassy security guard for a total of 2.5 years, 1 year in Kingston, Jamaica and 18 months in Bamako, Mali (Northwest Africa).  I traveled overland  to Burkina Faso and Senegal too.  While only on the periphery as an observer on a daily basis, I was able to experience what life is like in poor/poorer societies (I am under NO illusions and make NO claim that I can identify with the folks I met/observed/lived amongst.  I certainly did not live "poor" while on duty in those places).  Not a day passes by I don't think about some aspect of daily life in either of those places, but Mali is on my mind more often than not.  I am not professionally qualified to give an adequate answer to the question posed above, but I do try to give students a layman's answer to the question based on my experiences.  However,  I always find my response lacking in substance and specificity.
     William Easterly, at AID WATCHERS, is an international aid expert and he struggles with the question as well:
  ""Inevitably, after every single lecture I have ever given, the first question is … What Can I Do to End World Poverty?  How to respond? On one hand, I want to (and usually do) salute the questioner for their willingness to give of themselves for those less fortunate. I admire their idealism and commitment.
   On the other hand, I find this question to be unproductive and frustrating. It sounds mean, but the honest response (which I have never given) is, ”look, the biggest problem to solve in economic development today is NOT what you can personally do to end poverty.” Poor people do not perceive THEIR biggest problem to be that rich people are agonizing how to help them.  More constructively, I want to say: Don’t be in such a hurry. Learn a little bit more about a specific country or culture, a specific sector, the complexities of global poverty and long run economic development. At the very least, make sure you are sound on just plain economics before deciding how you personally can contribute. Be willing to accept that your role will be specialized and small relative to the scope of the problem. Aside from all this, you probably already know better what you can do than I do.
   But I do salute you again, and I do believe when there are enough people like you, you will cumulatively make a difference.""
(What is in bold and highlighted is my emphasis.)
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