Few Stats to Consider

Earlier this year, Forbes magazine released the list of the Worlds Richest People. It is no surprise that America has the largest number of Billionaires, 396 to be exact. But the surprise was India, which almost doubled the number of Billionaires, to about 47 people.

Now consider a few facts about these 47 richest Indians combined.

1. The combined net worth of these 47 richest Indians accounted for 14.7% of India's GDP. Only Switzerland and Russia beat us in the list of countries with more then 10 billionaires
2. When you consider that India has more then a billion people, we have one Billionaire for every 25 million people living in the country.
3. The GDP per capita in India is $1091. Compare this to the average net worth of these richest Indians, about $4 Billion.
4. Add the fact that 42% of the Indian population falls below the International Poverty Level of $1.25 per day and you get a sense of how one dimensional the growth in the Indian economy is.





Data Source: Forbes List of Billionaires
Population and GDP: Wikipedia

Recession Over?

The National Bureau of Economic Research said that the recession is officially over. Since the economy began expanding at the end of June 2009, the recession officially ended in the 3rd quarter of  2009. But what about unemployment? It is painfully high at 9.6% with still more then 14 mil people unemployed.

The unemployment rates tends to be a lagging indicator as can be seen from the graphs below. With the economic growth rate slowing down from its peak at the end of Dec 2009, will that result in further increase in the unemployment rate?

Data Source: Bureau of Labor Statistics  

Word of the Day - Deja Vu

For people who were closely following US financial markets at about 3pm, it sure felt like Deja Vu. It was like the fall of 2008 all over again.

Dow Jones Index dropped almost close to a 1000 points within a span of 10-15 mins. The chief cause of this drop, the sovereign debt crisis in several European countries and Greece in particular. The crisis seems to be so bad, that even the Euro may not be immune as Paul Krugman points out in his recent Op-ed for the New York Times.

Why do we need Health Care Reform in the US?

When we think of healthcare reform in the US, things that come to mind are the rising cost of healthcare, how the US spends 15% of its GDP on healthcare: the highest in the world, the growing number of uninsured, or how the doctors are burdened with unnecessary paperwork etc.

Everybody from politicians to laymen agree that something needs to be done about it. Everybody has a reason to make changes to the system be it political, economic or medical. And this last year has been spent talking about how to reform a broken system. But lost in all of this din is one essential question. Is there a moral responsibility on the part of any government to provide good and affordable healthcare to its citizens?

TR Reid, in his book, The Healing of America: A Global Quest for Better, Cheaper, and Fairer Health Care, asks that question. He writes

Those Americans who die or go broke because they happened to get sick represent a fundamental moral decision our country has made. Despite all the rights and privileges and entitlements that Americans enjoy today, we have never decided to provide medical care for everybody who need it. In the world's richest nation, we tolerate a healthcare system that leads to a large number of avoidable deaths and bankruptcies among our fellow citizens. Efforts to change the system tend to be derailed by arguments about "big government" or "free enterprise" or "socialism" .... and the essential moral question gets lost in the shouting.

Job Losses

If you are in the job market looking for a job, then pretty much every state is a red state. The graph complied by Slate Magazine and based on Unemployment statistics from the US Department of Labor, reflects how the great economic crisis took such a heavy toll on the job.

Its scary to say the least. And today's numbers released that the US lost another 85000 jobs in Dec 2009, points to what many economists have been calling a Jobless Recovery

You can view the graph moving from blue to red at Job Losses

Why Health Care Reform is Needed Now

According to a recent report released by the Kaiser Family Foundation, insurance costs have increased 131 percent since 1999, when a year of family coverage cost about $5,791. Compare that to 38 percent increase in wages and 28 percent growth of inflation over the same period

This just underscores why health-care reform which can provide affordable healthcare to everybody and at the same time control health care costs is needed urgently.

Yearly Health Care Premiums:

Image source Kaiser Family Foundation 2009 survey of Employer Health Benefits

Yearly Inflation Rate:

Inflation rate data obtained from Inflationdata.com

The True Cost of Healthcare

All over the country, it seems that the one topic on everybody's mind is healthcare. Be it the various town hall meetings from Altantic to the Pacific, or the irrefutable center of the health care debate, Washington DC, everybody seems to be talking about health care and ways to reform it. Few of the ideas for reform being thrown out include providing coverage for every individual in the country, promoting electronic medical records, reducing costs by providing the right incentives for physicians and other providers etc. But nobody seems to be talking about the cost of the current system and the toll that it is having on the economy as a whole.

In a recent article How Healthcare Killed by Father, David Goodhill discusses the true cost of the healthcare hidden or otherwise and the return on investment that we are getting by paying into a system that is broken. The paragraph below highlights, how much we are losing in terms of other growth opportunities by not reforming a bad and broken system:

Yet spending on health care, by families and by the government, is crowding out spending on almost everything else. As a nation, we now spend almost 18 percent of our GDP on health care. In 1966, Medicare and Medicaid made up 1 percent of total government spending; now that figure is 20 percent, and quickly rising. Already, the federal government spends eight times as much on health care as it does on education, 12 times what it spends on food aid to children and families, 30 times what it spends on law enforcement, 78 times what it spends on land management and conservation, 87 times the spending on water supply, and 830 times the spending on energy conservation. Education, public safety, environment, infrastructure—all other public priorities are being slowly devoured by the health-care beast.

Unemployment Funds Running out of Money

In a sign of the times and an indication of how bad the recession is, most states are running out of money to pay for unemployment benefits. The map below shows which states are borrowing money from the Federal government to pay the unemployed, and which states have a solvent unemployment fund.

No surprises here. The worst states affected by the recession like Michigan, Ohio, California are the ones who are borrowing money.



More details on state by state fund balance can be found at Unemployment System in Danger

Link obtained from Marketplace

India - Success Story for a Communication Revolution

Having spent my childhood in India in an era when government controlled almost all aspects of communications, right from what you watched on television to getting a telephone connection, the current state of affairs in the Indian communication industry is heartening to watch.

I clearly remember Oct 31st 1984, the day Indira Gandhi, the then Prime minister of India, was assassinated. The government run television channel Doordarshan carried her funeral live 3 days later on Nov 3rd 1984. Back then having a television was a luxury. Our family was fortunate enough to have a black and white television set and the entire neighbourhood turned up at our place to watch the funeral procession live. Contrast that with today where every household has a television set, and the list of channels that you can get is almost endless.

The other aspect of the communication revolution is happening the telecom sector. 25 years back, very few households had a land line telephone connection. And the wait to get a new connection was anywhere from 6 to 8 years. Contrast that with the current state of affairs. Mobile phones have totally transformed the telecom market in India. They have become so ubiquitous that even the humble milkman or the vegetable vendor now carries a mobile phone.

Shashi Tharoor paints this contrast in his book, The Elephant, The Tiger and The Cellphone. He writes:

Bureaucratic statism committed a long list of sins against the Indian people, but communication was high up on the list: tge woeful state of India's telephone right up to the 1990's, with only 8 million connections and a further 20 million on the waiting list, would have been a joke if it wasn't also a tragedy - and a man-made one at that. We had possibly the worst telephone penetration rates in the world. The government's indifferent attitude to the need to improve India's communication infrastructure was epitomized by Prime Minister Indira Gandhi's communication minister, C.M. Stephen, who declared in parliment, in response to questions decrying the rampant telephone breakdowns in the country, that telephones were a luxury, not a right, and that any Indian who was not satisfied with his telephone service could return his phone - since there was a eight year waiting list of people seeking this supposedly inadequate product.

Recovery, What Recovery?

With stock market recording the best six weeks since 1938, and banks reporting earnings which better numbers then analysts expectations (even if it is a loss as in the case of Citi Group, there is talk that the recession may be turning the corner.

In post for The Big Picture, Jack McHugh wonders if the Recovery is Just Around the Corner

While there was precious little in the way of actual positive news for investors to seize upon, hopes continue to rise because many parts of our economy are worsening at a slower rate. And, if “less bad” becomes widely accepted as the new “good”, then our capital markets may continue to work higher for a spell. The decision facing investors who are agonizing over whether or not to chase the ongoing rally in U.S. equities may come down to just how true are the claims that “recovery is just around the corner”.

Greed Vs Stupidity

In a great op-ed piece for the NY Times, David Brooks tries to explore the reasons for the current financial crisis. He draws pieces from two different articles, one blaming greed in the financial sector and another blaming stupidity on the part of the financial industry because it forgot to do its own due diligence before investing heads over heels in stuff that it had little clue about.

In comparing the two schools of thought, David Brooks writes:

Both schools agree on one thing, however. Both believe that banks are too big. Both narratives suggest we should return to the day when banks were focused institutions — when savings banks, insurance companies, brokerages and investment banks lived separate lives.

We can agree on that reform. Still, one has to choose a guiding theory. To my mind, we didn’t get into this crisis because inbred oligarchs grabbed power. We got into it because arrogant traders around the world were playing a high-stakes game they didn’t understand.

The Paradox of Thrift

The Bureau of Economic Analysis announced that the consumer saving as a percentage of disposable income went up to 5 Percent, the highest it has been in a while.

This might be good news in the long run, but in the short run for an economy that is sinking, this spells more trouble. Consumers saving more means, they are spending less money on other goods reducing their demand and inturn further driving down prices of goods and commodities. New automobiles sales decline of 40 percent for the top three car makers even with deep discounts can be attributed to lower consumer spending.

John Maynard Keynes called this the Paradox of thrift. According to him

Thrift may be a virtue for the individual, but could damage the economy as a whole. The more people saved, the more they reduced effective demand, thus further slowing the economy. Faced with slowing demand, businesses would not necessarily use the extra savings available in the economy to invest. As the slump in demand cascaded through the economy, the resulting slowdown would mean that everyone had less income - ultimately reducing the absolute amount of savings, even if people increase the proportion of their income they put aside. As unemployment grew, investment would fall, whatever the level of savings.

The current economic downturn seems to follow Keynes's script word for word.

Also read BBC Analysis on the Paradox of Thrift and my previous post To Save or Not to Save

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.

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.

___

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.

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.

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