Balance Sheet Recession

In today's world of CDO's, CDS's and ABS's add another term: "Balance Sheet Recession". Albeit, all the CDO's, CDS's and ABS's brought and sold using debt have led to a balance sheet recession, plunging the economy in a downward spiral. Or in other words, the former is causing the latter pulling the economy down with it.

Alex Leijonhufvud, Professor of Economics at UCLA, explains why the current recession is no ordinary recession, and why if we do not fix the balance sheets of banks soon, this recession can drag on for a long time to come.

It resides in the state of balance sheets. The financial crisis has put much of the banking system on the edge – or beyond -- of insolvency. Large segments of the business sector are saddled with much short-term debt that is difficult or impossible to roll over in the current market. After years of near zero saving, American households are heavily indebted.

The holes that have opened up in the balance sheets of the private sector are very large and still growing.So the private sector as a whole is bent on reducing debt. Businesses will use depreciation charges and sell off inventories to do so. Households are trying once more to save. Less investment and more saving spell declining incomes. The cash flows supporting the servicing of debts are dwindling. This is a destabilising process but one that works relatively slowly.

Martin Wolf also writes about the balance sheet recession for the Financial Times

Creeping Nationalism?

Ben Bernanke must be having a headache after today's Senate testimony.

Link obtained from Planet Money

Uncertain Times Call for Innovative Measures

Whether you are a consumer or a producer, these are uncertain times. Consumers have stopped spending on any new purchases whether be it big or small. Sales of new cars have dropped to a trickle. Just ask the GM, Ford and Chrysler. The government is trying to do its part to boost new car sales by making sales tax on cars tax deductible. But what are the car manufacturers doing on their part to boost sales?

Just watch this Hyundai commercial to find out



Its not just car companies that are targeting consumers in these desperate economic times. Home builder, Toll Brothers, is offering a mortgage protection plan where it will pay 6 months of mortgage upto $2500 for home-buyers who lose their jobs.

Certainly, uncertain times do call for innovative marketing techniques.

Nature Vs Nurture - What Makes a Genius?

Were Albert Einstein, Mozart, Isaac Newton or Tiger Woods born geniuses, or did their upbringing play a role in who they ultimately became? If they had a different upbringing, would they have not acheived the greatness that they achieved, or were they born destined to achieve greatness irrespective of how they were brought up.

A recent article on Time magazine debates this point.

Also read my previous post What it Take to be Great

Whats in the Stimulus Package to Kick Start the US Economy

The American Recovery and Reinvestment
Act of 2009,aka economic stimulus package, was signed into law this week by President Barack Obama. Total size of the package is $787 Billions and includes a mixture of spending and tax cuts. Now the question is, are there enough provisions in the bill which will help jump-start the ailing US economy. Read the summary of the bill to find out.

SPENDING

AID TO POOR AND UNEMPLOYED

_ $40 billion to provide extended unemployment benefits through Dec. 31, and increase them by $25 a week; $20 billion to increase food stamp benefits by 14 percent; $4 billion for job training; $3 billion in temporary welfare payments.

DIRECT CASH PAYMENTS

_ $14.2 billion to give one-time $250 payments to Social Security recipients, poor people on Supplemental Security Income, and veterans receiving disability and pensions.

INFRASTRUCTURE

_ $48 billion for transportation projects, including $27.5 billion for highway and bridge construction and repair; $8.4 billion for mass transit; $8 billion for construction of high-speed railways and $1.3 billion for Amtrak; $4.6 billion for the Army Corps of Engineers; $4 billion for public housing improvements; $6 billion for clean and drinking water projects; $7.2 billion to bring broadband Internet service to underserved areas; $4.2 billion to repair and modernize Defense Department facilities.

HEALTH CARE

_ $24.7 billion to provide a 65 percent subsidy of health care insurance premiums for the unemployed under the COBRA program; $86.6 billion to help states with Medicaid; $19 billion to modernize health information technology systems; $10 billion for health research and construction of National Institutes of Health facilities; $1 billion for prevention and wellness programs.

STATE BLOCK GRANTS

_ $8.8 billion in aid to states to defray budget cuts.

ENERGY

_ About $50 billion for energy programs, focused chiefly on efficiency and renewable energy, including $5 billion to weatherize modest-income homes; $6.4 billion to clean up nuclear weapons production sites; $11 billion toward a so-called "smart electricity grid" to reduce waste; $6 billion to subsidize loans for renewable energy projects; $6.3 billion in state energy efficiency and clean energy grants; and $4.5 billion make federal buildings more energy efficient; $2 billion in grants for advanced batteries for electric vehicles.

EDUCATION

_ $44.5 billion in aid to local school districts to prevent layoffs and cutbacks, with flexibility to use the funds for school modernization and repair; $25.2 billion to school districts to fund special education and the No Child Left Behind law for students in K-12; $15.6 billion to boost the maximum Pell Grant by $500 to $5,350; $2 billion for Head Start.

HOUSING

_$4 billion to repair and make more energy efficient public housing projects; $2 billion for the redevelopment of foreclosed and abandoned homes; $1.5 billion for homeless shelters; $2 billion to pay off a looming shortfall in public housing accounts.

SCIENCE

_ $3 billion for the National Science Foundation for basic science and engineering research; $1 billion for NASA; $1.6 billion for research in areas such as climate science, biofuels, high-energy physics and nuclear physics.

HOMELAND SECURITY

_ $2.8 billion for homeland security programs, including $1 billion for airport screening equipment.

LAW ENFORCEMENT

_ $4 billion in grants to state and local law enforcement to hire officers and purchase equipment.

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TAXES

NEW TAX CREDIT

_ About $116 billion for a $400 per-worker, $800 per-couple tax credits in 2009 and 2010. For the last half of 2009, workers could expect to see about $13 a week less withheld from their paychecks starting around June. Millions of Americans who don't make enough money to pay federal income taxes could file returns next year and receive checks. Individuals making more than $75,000 and couples making more than $150,000 would receive reduced amounts.

ALTERNATIVE MINIMUM TAX

_ About $70 billion to spare about 24 million taxpayers from being hit with the alternative minimum tax in 2009. The change would save a family of four an average of $2,300. The tax was designed to make sure wealthy taxpayers can't use credits and deductions to avoid paying any taxes. But it was never indexed to inflation, so families making as little as $45,000 could get significant increases without the change. Congress addresses it each year, usually in the fall.

EXPANDED COLLEGE CREDIT

_ About $14 billion to provide a $2,500 expanded tax credit for college tuition and related expenses for 2009 and 2010. The credit is phased out for couples making more than $160,000.

CHILD TAX CREDIT

_ About $15 billion to provide the $1,000 child tax credit to more families that don't make enough money to pay income taxes.

EARNED INCOME TAX CREDIT

_ $4.7 billion to expand the Earned Income Tax Credit for low-income families with three or more children.

HOMEBUYER CREDIT

_ $6.6 billion to repeal a requirement that a $8,000 first-time home buyer tax credit be paid back over time for homes purchased from Jan. 1 to Nov. 30, unless the home is sold within three years.

AUTO SALES

_ $1.7 billion to makes sales taxes on paid on new cars, light trucks, recreational vehicles and motorcycles tax deductible through the end of the year.

RENEWABLE ENERGY INCENTIVES

_ About 20 billion in tax incentives for renewable energy and energy efficiency over 10 years, including extending tax credits for energy produced from wind, geothermal, hydropower and landfill gas; grants to build renewable energy facilities; tax credits for purchases of energy-efficient furnaces, windows and doors, or insulation; tax credit for families that purchase plug-in hybrid vehicles.

BONUS DEPRECIATION

_ $5 billion to extend a provision allowing businesses buying equipment such as computers to speed up its depreciation through 2009.

REPEAL BANK CREDIT

_ Repeal a Treasury provision that allowed firms that buy money-losing banks to use more of the losses as tax credits to offset the profits of the merged banks for tax purposes. The change would increase taxes on the merged banks by $7 billion over 10 years

When he signed the bill , the President said that the bill will help save or create 3.5 million jobs going forward. A quick glance at the above summary and you should realize that the bill is top heavy with tax cuts and aid for low income Americans. The only provisions with any seeming potential of creating jobs are spending on Infrastructure, Health Care, Alternative Energy and Home Land Security. Now, whether these provisions will help in creating or saving 3.5 million jobs and kick start the economy is the Trillion Dollar question.

Lets Forget About the Moral Hazard

David Brooks a columnists for the NY Times bats for the economic stimulus package in his most recent op-ed column. This column was in response to Rick Santelli's rant on CNBC against the administrations housing rescue package, about how it will increase moral hazard by rewarding people who made bad decisions. Below is a brief excerpt from his column.

Government isn’t fundamentally in the Last Judgment business, making sure everybody serves penance for their sins. In times like these, government is fundamentally in the business of stabilizing the economic system as a whole. Individual responsibility doesn’t mean much in an economy like this one. We all know people who have been laid off through no fault of their own. The responsible have been punished along with the profligate.
It makes sense for the government to intervene to try to reduce the oscillation. It makes sense for government to try to restore some communal order. And the sad reality is that in these circumstances government has to spend money on precisely those sectors that have been swinging most wildly — housing, finance, etc. It has to help stabilize people who have been idiots.

Also see Robert Gibbs, the current Press Secretary respond to Rick Santelli.

Evolution and Tax Cuts

What do Evolution and Tax Cuts have in common. "The Republicans". They hate one and cannot live without the other.



From R.J. Matson at the St. Louis Post Dispatch.

Link obtained from Crooks and Liars

No Wonder Financial Institutions are Hated So Much

As if the ire of the homeowners was not enough, the financial institutions have added a few million more people who will hate them. They would be the unemployed. The reason:Banks are charging fees on using the debit cards given out for unemployment benefits.

As if milking the taxpayers with billions of dollars in interest free bailout money was not enough, now taxpayers need to pay the banks even more to use the money that is rightfully theirs. After all this, I wonder what kind of reception the executives from these banks will get when they go before the US congress to beg for more bailout money. I can hardly wait to see this.

Where Does Your Old Computer End Up After it is Used?

Where does your old computer, cell phone, iPod, or for that matter any electronic product that you have ever used, end up after you have discarded it. Chances are it may be in one of the e-waste dumps in China, India or Africa.

As this slide show points out, despite its health hazard, dismantling and recycling e-waste is big business in some parts of the world.

Is there is anything we as individuals can do to minimize the e-waste? Sure we can. Making sure that we take all the recyclable e-waste to one of the e-stewards would be a start.

First the Oil Price Shock and Now Peanut Shock

It never seems to get easier for the airlines. First it was the oil price spike which forced almost all airlines to cuts costs. The easiest way to cut costs was to trim the food menu from flights. So that brought the era of the ubiquitous peanuts on almost all domestic flights in the continental United States. But some people are complaining about the peanuts too.

Reacting to the distribution of peanuts on Northwest Airlines some potential passengers voiced their opinion in a local newspaper.

"This is a very disappointing development. My wife's allergy is so severe that if someone is sitting next to her and eating peanuts, the odor is enough to trigger an allergic reaction."

"Northwest is really out of touch with its customers and the reality of allergies to peanuts. What's wrong with pretzels?"

With all due respect to people who have peanut allergies or any allergies for that matter, the airline is a free business and it can choose to serve whatever makes the most business sense. Just because a few people complain about peanuts, the airline is under no obligation to change what it offers.

With deference to all the people who are complaining about the peanut problem, they are as free as the airlines to choose what they eat or which airline to fly or not to fly at all. They are under no obligation to eat the products the airline have to offer and neither is the airline forcing any person to eat what it offers.

This is how businesses are supposed to operate: give choices to the market and let the market decide if it wants it or not. If the market wants it the business survives, if not the business goes under.

When it Comes to Nepotism No Indian Political Party wants to be Left Behind

For all the hue and cry about India being the worlds lagrest democracy, the lack of a truely democratic system within the Indian political parties when it comes to selecting its representatives to contest elections is truly shocking. The latest example is that of the BJP. Party leader M Venkaiah Naidu, when speaking to reports in Karnataka on why a kin of the current Chief Minister B S Yeddyurappa will be contesting the upcoming Lok Sabha election , replied and I quote

"being son of any leader is not a disqualification. It's about acceptability. Even though the party does not approve promotion of kin, if such a person is acceptable to the locals why not give it a try?"

Can we expect any of this to change anytime soon. Not unless the we the voters decide its time to end the nepotism, sychopancy and self promotion that is prevasive in Indian politics.

Read by other posts on nepotsim, sychopancy and self promotion in Indian politics 1, 2, 3

Sherrod Brown on Why He Supports the Buy American Provision

Democratic Senator from Ohio Sherrod Brown gave a lengthy address in the US Senate on why he wants the "Buy American Provision" in the economic stimulus package.



The argument that Brown makes in his address is something similar to the one that the candlestick makers make to the chamber of deputies in Frederic Bastiat's famous candlestick makers petition.
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We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us [1].

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds -- in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.
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Read more Frederic Bastiat's essays on economics, government and of course taxes.

Buy American Provision - Made in USA

The US economy is in dire straits with job been lost by the thousands every day. The economic stimulus bill that is about to pass the US congress, has a provision for buying American made raw materials for all projects which will use the money from the economic stimulus package. For a country which has seen a spectacular drop in manufacturing activity, where trying to find anything Made in USA is an adventure in itself, this Buy American provision seems like a total u-turn.

The "Buy American" provision in the economic stimulus package has ensued a heated debated on both sides of the issue with supporters of free trade calling it a protectionist measure and supporters of provision arguing that when US tax dollars are at stake, it is better off if that money is spent on what is produced in the US. So which side is right? Should a "Buy American" provision be forced on the US taxpayers risking violating free trade agreements with other nations and starting off a trade war? If America enacts the "Buy American" provision on all government funded projects, will other nations follow suite and enact their own version of "Buy Local" provision? Will the "Buy American" provision spell the doom of free trade as we know it?

Some answers to these questions can be found on NY Times room for debate blog. Economists, Policy Makers and Historians argue the pros and cons of the "Buy American" provision and what it means for free trade.

Who's to Blame for the Financial Crisis?

Not a day goes by without the news of more layoffs, dropping stock market, or dropping house values. But who are the people who precipitated this meltdown. Time compiles a list of 25 people who may have contributed to the current mess. The list includes who's who including former US and foreign leaders, high flying bankers, market regulators, and former CEO's of once invincible corporations.

Find out who these 25 people are at 25 People to Blame For

Cow Cola to Rival Pepsi and Coke

Move over Coke and Pepsi. Make way for the new rival, Cow Cola. According to the geniuses from the Cow Protection Department of the RSS, this new ingenious drink will sweep the market.

This coming Valentines Day provides a perfect opportunity to launch the new "Cow Cola". After a hard days work of marrying off dating couples, what can beat a cool refreshing swig of "Cow Cola". Mr Pramod Mutalik and Sri Ram Sena are you listening.

Cow Economics

How can cows explain economics. Read below to find out

SOCIALISM
You have 2 cows.
You give one to your neighbour.

COMMUNISM
You have 2 cows.
The State takes both and gives you some milk.

FASCISM
You have 2 cows.
The State takes both and sells you some milk.

NAZISM
You have 2 cows.
The State takes both and shoots you.

BUREAUCRATISM
You have 2 cows.
The State takes both, shoots one, milks the other, and then throws the milk away…

TRADITIONAL CAPITALISM
You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income.

SURREALISM
You have two giraffes.
The government requires you to take harmonica lessons

AN AMERICAN CORPORATION
You have two cows.
You sell one, and force the other to produce the milk of four cows.
Later, you hire a consultant to analyse why the cow has dropped dead.

VENTURE CAPITALISM - AN ICELANDIC CORPORATION
You have two cows.
You sell three of them to your publicly listed company, using letters of credit opened by
your brother-in-law at the bank, then execute a debt/equity swap with an associated
general offer so that you get all four cows back, with a tax exemption for five cows.
The milk rights of the six cows are transferred via an intermediary to a Cayman Island
Company secretly owned by the majority shareholder who sells the rights to all seven
cows back to your listed company. The annual report says the company owns eight cows,
with an option on one more. You sell one cow to buy a new president of the United States,
leaving you with nine cows. No balance sheet provided with the release. The public then
buys your bull.

A FRENCH CORPORATION
You have two cows.
You go on strike, organise a riot, and block the roads, because you want three cows.

A JAPANESE CORPORATION
You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow and produce twenty
times the milk. You then create a clever cow cartoon image called ‘Cowkimon’ and market it worldwide.

A GERMAN CORPORATION
You have two cows.
You re-engineer them so they live for 100 years, eat once a month, and milk themselves.

AN ITALIAN CORPORATION
You have two cows, but you don’t know where they are.
You decide to have lunch.

A RUSSIAN CORPORATION
You have two cows.
You count them and learn you have five cows.
You count them again and learn you have 42 cows.
You count them again and learn you have 2 cows.
You stop counting cows and open another bottle of vodka.

A SWISS CORPORATION
You have 5000 cows. None of them belong to you.
You charge the owners for storing them.

A CHINESE CORPORATION
You have two cows.
You have 300 people milking them.
You claim that you have full employment, and high bovine productivity.
You arrest the newsman who reported the real situation.

AN INDIAN CORPORATION
You have two cows.
You worship them.

A BRITISH CORPORATION
You have two cows.
Both are mad.

AN IRAQI CORPORATION
Everyone thinks you have lots of cows.
You tell them that you have none.
No-one believes you, so they bomb you and invade your country.
You still have no cows, but at least now you are part of Democracy….

AN AUSTRALIAN CORPORATION
You have two cows.
Business seems pretty good.
You close the office and go for a few beers to celebrate.

A NEW ZEALAND CORPORATION
You have two cows.
The one on the left looks very attractive

Link obtained from Thrandur.net

NCP Wants Sharad Pawar to be Prime Minister

Lok Sabha elections are fast approaching in India. And that means every party in town wants to flex its muscle, by projecting its candidate as the potential Prime Ministerial candidate. So why should the NCP be left behind. According to a recently published report, NCP wants Sharad Pawar to be the next Prime Minister of India.

All this reminds me of a scene from the movie Braveheart. Below is what Mel Gibson aka William Wallace says to the gathered Nobles and Earls:

"You think the people of this country exist to provide you with position. I think your position exists to provide those people with freedom."

If only our politicians and political parties understood this basic truth of a democracy that positions are created to further peoples interests and not further a certain politician or political parties interests, we would be so much better off.

No Wonder the Price of Gold Keeps Going up

Photo of the day comes from Churumuri




Now you know why gold costs so much

Alcohol, Smoking, Junk Food and Now Fairness Cream

If you are India's Health Minister, the challenges that you face are many. Just to name a few, malnourishment in kids, lack of access to basic health care, sorry state of public health system just to name a few.

But our current health minister, the esteemed Anbumani Ramadoss is more worried about the prevalence of pub culture and holding companies that make fairness cream accountable.

Musings about pub culture being against Indian ethos or fairness creams not making you white enough, would not in any way shape or form provide access to basic health care needs facing the millions of Indias.

For a country that prides itself in its rich history of medicine including the Ayurveda, and a country that wants to be the go to destination for health acre, this current lack of access to basic healthcare services to millions of Indians is totally unacceptable. I for one would like to hear Dr Ramadoss say "Lack of basic healthcare to every Indian is unacceptable and against Indian Ethos". That would be a good start

Without Tiger Woods, There is No Fun in Golf

Frank Deford in his latest commentary for NPR wonders out loud how the golf world feels lonely without its superstar Tiger Woods.
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I mean, let's be honest. At some point, the PGA tour became a wholly subsumed subsidiary of Tiger Woods, and without him there simply doesn't appear to be any there there. The PGA: Professional Golfers Anonymous.

It isn't just that Tiger is away recovering from knee surgery. His magical exit, winning the U.S. Open in a playoff last June while manifestly in pain from playing on a rotten leg, was so exquisite that it's as if he then left for the heavens, not for rehabilitation.
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Read the full commentary at Golf without Woods

Also view the best shot in golf

Also read What Makes Tiger Woods Great

To Save or Not to Save?

According to the latest Bureau of Economic Analysis report, consumer saving as a percentage of their disposable income increased to 3.6% percent for the month of Dec 2008. For a country whose consumers have been living way beyond their means, this is a good sign.

But what may be good for a consumer may be bad for the economy. More consumer savings means less money spent on buying stuff like cars, TV and other discretionary items. When consumer spending represents 70% of the economic activity, any slowdown in spending will adversely affect the economy as a whole.

This slide show aptly captures the debate.

Links obtained from Planet Money Blog, your source for all things economics and finance.

Politicians and Their Sudden Mysterious Illinesses

Why is it that politicians develop these sudden and mysterious illness when they are arrested by the law?. Take the two most recent examples.

There is Pramod Muthalik, the chief of the infamous pub culture bashing Ram Sena. He had to be admitted to the hospital after complaining of suddenly not feeling well.

And then there is Y Sampangi the honorable MLA from Kolar, Karnataka. After being arrested for accepting bribe, this gentleman continues to hop hospitals feigning illnesses from chest pain to head ache and muscle ache.

Which brings us back to our original question. Why is it that Indian politicians who were as healthy as a horse before their arrest by the law suddenly become hypochondriacs?