Archive for the “US Economy” Category

Many people are wondering why the Greek economy is having  such a major effect on the global markets.   Why is such a small country making the world’s major markets rise and fall with every headline that comes out regarding their possible economic collapse?  Fear of the unknown is driving the seemingly schizophrenic markets up and down like a yo-yo.  When Greek Prime Minister George Papandreou presented the idea of a referendum on the bail out uncertainty and fear grew to a fevered pitch.   The masses in Greece did not want to submit to the changes that would be required by the European Central Bank (ECB) for the new bail out loan, but the government believed that without it the economy will totally collapse.  There are two major components to this issue.  First is the chance of Greece defaulting on the bailout loans that they have already been given.  The second has to do with the chance that they could pull out of the Euro as a currency.

When we consider the problems that would occur if Greece defaults, we have to look at how this would affect the lender countries.  Large banks in Germany, France and England have propped up Greece with loans. Greece is not an insignificant economy and it’s failure would send ripple effects throughout the world, think “too big to fail”.  They are also intricately linked to Greece through the European Union (EU).  Many think that if Greece defaults, other members might default as well. The Wall Street Journal stated, “The decision by Greek Prime Minister George Papandreou to shelve the poll capped a tumultuous few days that thrust Athens to the brink of political chaos and forced Europe’s leaders to contemplate Greece’s exit from the single currency.” Source  That brings us to the other major issue. Greece might pull out of the Euro as it’s national currency.  As the seventeen member nations of the EU consider the possibility of Greece rejecting the euro the fear is that other member nations may also follow suit.  This would cause a major destabilization of the remaining EU member’s currency and ultimately their economies.

Some think this is just a problem for the EU, saying, “sure it will impact us but it isn’t really a problem for the United States.”  Unfortunately that is not true.  Many of the large American banks issued default insurance to the banks that were lending to Greece and other struggling nations. If Greece (et al) default, then these major US banks will have to pay out billions to cover the losses.  These are many of the same big banks that were bailed out by the American taxpayer just a short time ago.  Their “toxic” debt was graciously passed on because the government deemed them “to big to fail”.  Sound  familiar?   So there is a very good reason for us to keep our eyes on the developments in Greece  and other EU countries that are at risk of default.  Now, it would seem that we’re tied to their future.

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The current spiral of the United States economy can be attributed to several factors.  Of these, high gas prices, the Federal Reserve lowering interest rates, and sub prime mortgages are key contributors.

With gas prices at an all time high, it is no surprise that consumers are buying less.  They are spending more money just to get to work every week, and the thought of using excess gas to go on vacation or a shopping spree is enough to make you shudder.

The Federal Reserve also plays its part in the weakening of the US dollar.  Trying to avoid another bank scare (everyone withdrawing their money out of the bank at the same time) the Fed is lowering interest rates making the dollar worth less.  Not worthless, but worth less.

Finally, sub prime mortgages were a big influence on the current downturn of the dollar.  Basically, sub prime mortgages are to help people with less than great credit buy a house.  They were also developed to help those who didn’t make quite enough money to substantiate a prime loan for the amount the house they wanted was worth, so they are offered a sub prime loan, at a higher interest rate, for more than they would have qualified for a prime loan.

While this sounds like a great idea, the problem happens when the interest rates go up, and they did.  There were many people whose salaries could not cover the cost of the higher interest rates and so they foreclosed or simply walked away.

It does seem like the economy could be headed into recession, but it is not for certain yet. As with most issues dealing with money, it is a game of wait and see.

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The Federal Reserve is playing the waiting game with the stock market.  With oil prices rising to over $120 per barrel, inflation is growing threat.  High gas prices and groceries are causing American consumers to cut back on other products.  This is stifling the US economy to the point that the government is talking recession.

Sub prime mortgages have also played their role in the downward spiral of the stock market.  Banks have given out mortgages to people with less than perfect credit at higher interest rates.  When the Federal Reserve raised interest rates, however, a lot of homeowners found themselves unable to pay the higher rates.  Many people had to foreclose or simply walked away from their homes.

As a combative measure, the Federal Reserve has been lowering interest rates.  They have stated that the recent rate cuts should be over for now, though.

The US government recently started an economic stimulus package to help with the economic downturn, as well.  The package gives each taxpayer $600, couples get $1200 and $300 for each dependent child.  These incentive checks were sent out to counter the high prices at the gas pumps.  There is also the hope that the American consumers will take these checks and use them to buy products, helping to stimulate the economy.

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With crude oil prices over $120 per barrel, it is no wonder that gas prices are so high.  Oil prices affect not only gasoline, but everything that revolves around gasoline as well.  Groceries are more expensive, anything that is delivered by a semi truck is higher, and even something as simple as ordering a pizza is costing a little more these days.

Oil companies are having a hard time keeping up with the rapid growth of India and China.  If these trends continue, it is likely that oil prices could reach $200 per gallon or more.

Oil prices are also affecting the rest of the economy.  With people spending so much more money on gas and groceries, they are spending much less on other products.  As this continues inflations is becoming an ever growing threat.

The government has constructed an economic stimulus packet to help compensate for high gas prices and also to help stimulate the economy.  By sending out free money, they are hoping that people will run out and start spending, however, recent polls show that most people will be using the free money to pay bills or to invest.

With prices continually rising and no end in sight, the world may be forced to look for an alternative fuel source to combat recession.

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With gas prices reaching $3.50 per gallon in places, it might be time to look into an alternative to your 1969 Chevy pickup with the 350 big block engine.  Here are just a few tips that might save you a little money.

Try carpooling.  I know that riding in a car with that guy who is just way too perky that early in the morning for his own good may seem daunting, but it could cut your gas prices in half just by riding to work with someone.

Public transportation is a cheap and effective way of getting around.  An all day bus pass usually runs around $5.  If the old lady across from you beats you with her cane again, you can always move seats.

If you are planning on buying a car, look into a hybrid.  Not all hybrids are alike, though, so research your options before you buy.

Riding a bike is a cheap and healthy way to get around as long as you don’t live too far away from where you are going.

There is also one other mode of transportation I would like to suggest.  It was invented at the beginning of time, so you know it is tried and true.  Walking! It is the cheapest and healthiest way to get around.

So whether you want to save money or you are just looking to ‘stick it to the man,’ here are some ideas to help you reach your goal.

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With gas prices and unemployment rising, the real estate market and the US dollar declining, knowing how to protect yourself during tough times is indispensable.  Here are just a few suggestions that might help.

One of the first things that many people cut from a budget in hard times is insurance.  This is one of the most important financial protectors you can have in a rough spot.  Keep your medical, life, mortgage and auto insurance.

Try to cut back on expenses that aren’t necessary.  That seems like an obvious solution, but really go through what you are spending each month and prioritize what is necessary and what you can live without.

Work with your creditors.  If things get really bad and you can’t make a payment, don’t shut off your phone and throw your mail away.  Try talking to them to work out some kind of payment plan.  If your credit score goes down because of a collection, it can increase payments on all of your other bills.

Make yourself stand out at work to prevent being a casualty of a layoff.  Show your employer they cannot run their company without you.

Most of these tips are obvious, but a lot of people wait to implement them until it is too late.  If used as a preventative measure, it is possible that you can survive and even thrive in a tough economy.

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With such a huge demand for gold coming from around the world, it is no wonder that the price is projected to reach an almost unbelievable $1000 per ounce.  One of the biggest importers of gold is China, constituting a large chunk of the price hike.  Most of the gold usage is jewelry related.

Supply is also a factor.  With such a high demand, gold is becoming scarcer.  Miners are searching for new sources to combat the possible shortage.

Another reason for the increase is the decline of the US dollar. Gold and the US dollar move inversely in value: when the dollar goes down, the price of gold goes up.

The Federal Reserve has a lot of control over the value of the dollar.  When it raises interest rates, usually the value of the dollar goes up.  Now, with the Fed lowering interest rates in hopes of promoting trade between banks, the value of the dollar is going down and so, the value of gold is going up.

If the US economy keeps heading in the direction it is going, at least for awhile, then we will almost surely see gold hit an all time high.

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The foreign exchange market is the largest financial market in the world, with an average of $3 trillion traded daily.  Most financial trading is done in American dollars, so the current depreciation of the American currency is somewhat unsettling for some full time investors.

With the US dollar currently weakening, the exchange rate is going up.  This means that it costs you (an American trader) more US dollars to buy foreign money.
Rising gas prices, expensive groceries and a failing real estate market are all contributors of the dollar’s demise.

Gas prices are causing American consumers to spend less money on products than normal.  The US government has recently created an economic stimulus package to combat some of this.  Giving out $600 to each taxpayer, $1200 to couples and $300 to each dependent child hopefully will send taxpayers on a spending spree, thereby jumpstarting the economy.

The Federal Reserve has been reducing interest rates to help stabilize the real estate market and slow down the mass foreclosures of homes.  Although this does help homeowners, it also deters foreign investors from putting their money into the US.  Also, citizens who would invest domestically could place their money in foreign investments because of their higher interest rates.

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The US dollar is used in most international transactions, so it stands to reason that anything that happens with the US economy will affect international finances in a substantial way.

As the United States Federal Reserve raises interest rates, the foreign exchange value of the dollar usually goes up as well.

One of the biggest ways the US affects the world’s economy, though, is its buying power.  With gas prices going up and the dollar not worth as much as it used to be, Americans are buying less.

Many countries that export goods to the US will have a reduction in demand for their products.

Nations with less than stable economies could suffer dramatically from this downturn in spending, which would cause them to be less capable of buying American exports, furthering the downward spiral.

The US government has tried to combat this vicious cycle by promoting free trade with foreign countries and a new economic stimulus package.  The stimulus package gives free money to American citizens in hopes that they will spend the money on products instead of bills or investments, thereby stimulating the economy.

Some countries stand to lose a lot if the United States were to fall into recession; there are many people watching to see if the recent proposals of the US government will turn the financial situation around.

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The US dollar is weakening, the real estate market is in trouble, unemployment is slowly climbing, and gas prices are higher than they have ever been.

Many economists believe the US is headed into a recession or may already be there.  President Bush, however, disagrees.

His stance seems to be one of preventative measure.  The Economic Stimulus Package was put into effect recently, giving millions of taxpayers ‘free money’ to help jumpstart the economy.  This program is giving $600 to each taxpayer, $1200 to couples, and $300 for each dependent child.  The hope is that this money will offset spiking fuel prices and send consumers on a shopping spree giving the economy a boost.

President Bush is also attempting to convince Congress to make his tax cuts permanent, disallowing tax hikes in the future.  This will hopefully “create certainty in the tax code.”

Will the program be enough to strengthen the spiraling economy?  That is a question that quite a few economists are debating.

While President Bush, during his State of the Union Address, expressed that the long term stability of the economy would be fine, he made it clear that the short term problems need to be dealt with before the situation gets any worse.

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