Dollar Rising ???

Source: http://www.businessweek.com/magazine/content/08_31/b4094010597032.htm?campaign_id=rss_null

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Business Outlook July 24, 2008

Why the Dollar May Be Ready for a Rebound

As outlooks for the euro zone and Britain dim, central bankers will likely be forced to lower interest rates, creating conditions that could restore some of the U.S. currency’s value

By James C. Cooper

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After two years of stability in 2005 and 2006, the dollar has swooned 13% against a basket of major currencies since early 2007. The reasons: Prospects for U.S. growth relative to those overseas began to fade, and the Federal Reserve started a series of sharp cuts in interest rates, while other central banks were either holding rates steady or raising them, as in the case of the European Central Bank (ECB). As a result, dollar-based assets lost some of their attractiveness compared with those valued in other currencies.

This means the interest-rate outlook is also changing. Unless the U.S. falls into a severe recession, the Federal Reserve appears to be finished cutting rates, and some policymakers are already calling for hikes. At some point, other central banks will likely be forced to reduce rates. Lower oil prices would facilitate that decision, especially at the ECB, where worries about the broader inflation consequences of costlier energy are holding rates up. Even the recent 10% drop in oil prices, if sustained, would significantly reduce global inflation next year.

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Source: http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348918&story_id=10924165

Fannie Mae and Freddie Mac

Source: http://www.economist.com/finance/displaystory.cfm?story_id=11751139

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End of illusions

A series of articles on the crisis gripping the world economy and global markets starts where it all began—with America’s deeply flawed system of housing finance

The absurdity of this situation was highlighted by the way the discount window works. The Fed does not just accept any old assets as collateral; it wants assets that are “safe”. As well as Treasury bonds, it is willing to accept paper issued by “government-sponsored enterprises” (GSEs). But the two most prominent GSEs are Fannie Mae and Freddie Mac. In theory, therefore, the two companies could issue their own debt and exchange it for loans from the government—the equivalent of having access to the printing press.

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They were set up (see article) to provide liquidity for the housing market by buying mortgages from the banks. They repackaged these loans and used them as collateral for bonds called mortgage-backed securities; they guaranteed buyers of those securities against default.

Mortgage Crisis

Source: http://money.cnn.com/2008/07/11/news/economy/fannie_freddie.fortune/index.htm

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The $5 trillion mess

Fannie Mae and Freddie Mac were created by Congress to help more Americans buy homes. Now their shaky condition threatens the entire housing market.

By Katie Benner, writer

Last Updated: July 14, 2008: 1:16 PM EDT

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NEW YORK (Fortune) — They own or guarantee $5 trillion worth of mortgages­ – nearly half of all the country’s outstanding home loan debt – and they’re crashing. But not everybody is convinced they should be.

Fannie Mae and Freddie Mac are struggling with an investor loss of confidence so great that, while they’re unlikely to go under, they could conceivably see their ability to function impaired. That would wreak yet more havoc on an already wrecked housing market – making loans tougher to come by and possibly pushing hundreds of billions of dollars in cost onto U.S. taxpayers…

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Special Report: Mortgage Meltdown

Source: http://money.cnn.com/real_estate/foreclosures/

Effect Model of Development

When I created this three-wheel model of leveraging development of infrastructure for the class IBUS 815 of MBA program in SFSU, I really had some thoughts and believed in it. Also, I’m sure there are many argument out there supporting or criticizing it, and hope that I’m not copying any ideas.

Let’s me explain it in my own understanding.

• -The first wheel of model, economic growth, considered as main force to development and increasing living standard of population involved in this process. When it starts moving and rotating by factors like investment of infrastructure, openness of policy, reduction of trade barriers, integration into global economy, it will create many good effects. Increasing number of jobs is the one. Other is increasing number of products and services, or encouraging a fair competition, which in turn reducing cost of goods. Both of those effects are better off for people who having more income and paying out less, as well as their power of purchasing increases. Moreover, that movement will help to boost up business sector because of expanding markets, increasing consumers, and reducing cost of production due to mass production. Thanks to those benefits, business is gaining more profit out of cost spending, which in turn raising income of workforces, or people. As a result of economic growth, the increase of living standard will be sure happened.

• -The second wheel, business expand, can occur when business operate on an affordable and reasonable infrastructure like telecom, commercial, or transportation. It means that business can gain more efficient and effective; by lowering down input costs; by fastening speed of production; and by raising better management. With that expanding of business, pushing up the growth of economics appears. The more revenues business has, the more taxes to government contributes. The more profits companies gain, the more re-investments spend out. Thus, it will help to develop economies more and more, leverage living standard larger and larger.

So, in my mind, there are two things support increasing of living standard including investment of infrastructure and encouragement of doing business, which governments and the world at large should implement to get into a better planet.

GDP per capita – the world is a better place

Source: http://www.economist.com/finance/displaystory.cfm?story_id=10852462

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Grossly distorted picture

If you look at GDP per head, the world is a different—and, by and large, a better—place

Using growth in GDP per head rather than crude GDP growth reveals a strikingly different picture of other countries’ economic health…

Focusing on GDP per person also affects comparisons of economic health over time. During the past five years, world GDP has grown by an average of 4.5% a year, its fastest for more than three decades, though not as fast as during the golden age of the 1960s when annual growth exceeded 5%. But the world’s population is now growing at half of its pace in the 1960s, and so world income per head has increased by more over the past five years than during any other period on record (see right-hand chart above). Mankind has never had it so good…