January 14, 2012
2007-2008 Recession, Ben Bernanke, Black Swan, Economy, Faith in the Markets, FED, Federal Bonds, Federal Reserve, Investing, Investors, Market Prediction, Prediction, Rates, Trust, Wall Street
Ben Bernanke Makes Big Decisions About Economy
What is the Fed Doing?
The FED has announced their insider market predictions for the world’s markets would be published on January 25,2012 and periodically afterwards. This landmark act would put the FED’s view on every field, from property sales to stock options, in the hands of the investors. These projections are some of the most reliable in the world. This publicizing of information is designed to prepare firms for future turns of the market and inject faith in the financial sector into the capricious investors. Hopefully, this will kick-start a financial boom.
Why is the FED publishing its reports?
The Federal Reserve is hedging against financial busts. Busts in the stock market rapidly dissolve trillions of dollars in just days. The Federal Reserve System, the central banking for the United States, is designed to prevent such catastrophes. In recent years they have been successful in mitigating busts; however, they have never been able to prevent them. The FED is attempting to build a new, innovative barrier against sell offs with by posting their predictions: trust.
Why does trust matter?
Trust is essential. Investor’s careers revolve around moving money. They buy up capital, which is anything from stocks to beach condos, and sell it once it reaches peak value. Then they repeat the process. This simple cycle is the basis of Wall Street. When inventors do not have faith in the market problems multiply.
Nervous investors sell off in droves at the least opportune times. This can create market failure, instantly obliterating massive quantities of capital. By selling off hastily these investors are wasting value and are actually hurting the value of their capital. Investors that trust the market do not sell off capital until the time is right. This builds up the market and has allowed the financial sector to prosper.
Through publishing its own facts and figures the FED is injecting trust into Wall Street. By predicting the trends across the market the FED is allowing investors can acclimate to bends and dips in their projections before they arrive. Before, capacious investors would be sent into widespread sell-offs at the slightest worry. The FED hopes that their own figures will calm fears in tumultuous times and weaken the gravity of these sell offs. The FED is coaxing the investors into a much more reliable rise-decline market cycle which is greatly preferable to the destructive boom-bust cycle we have at present.
Why has the Fed not published it’s predictions before?
They were afraid they could be wrong.
Predictions are never perfect. Even in the best of times the finest analysts in the world can only make guesses about the state of the market in the near future. The further out projections plan the less reliable they are.
Previous FED officials were concerned that unforeseeable fallacies in their predictions would disrupt the markets. Black swans, events which are both highly unpredictable and highly destructive, could tear asunder all predictions and undermine the credibility of the FED. A loss of trust in the FED, perhaps the single largest force in the world of investing, would result in financial armageddon.
Will this action jumpstart the economy?
The finicky investors need this trust to be prosperous. Before the 2007-2008 Recession the market moved gracefully, positive trends of perhaps a few points per day provided good steady investments for everyone. Today, it is unsurprising for the DOW to jump over a hundred points in any direction. This is bad; it jeopardizes the market because with this capricious behavior no investment is safe. Investors are damaging the market with short sell offs and ragged growth rather than cultivating it.
The FED is pushing the markets back towards the stable growth with their predictions. Investors will have a baseline prediction to affirm their own predictions. In addition, the projections of the FED will become self-fulfilling prophecies. If investors are told the markets will get better they will prepare their own assets for just that eventuality, in doing so they will prepare the market for the FED’s plan of growth. This move will propel the economy in the right direction.
September 28, 2011
Arab Nations, Chicago, Citizens United v. FEC, Citizens United v. Federal Election Commission, collective bargaining rights, Corporate Greed, corporations, crime, Denver, Economics, Egypt, Greek Riots, Investing, Jasmine Revolution, Judical, Libya, Los Angles, maldistribution, Michael Moore, New York, news, Occupy Wall Street, Pepper Spray, Police Brutality, Protests, Reform, Second American Revolution, Tunisia, Wall Street, Wisconsin, Yemen
Occupy Wall Street Protesters Arrested For Campaigning For Basic Human Rights
It should be noted that the Arab Spring flared in America on September 24, 2011 and has since burned brightly, lighting downtown New York City while singeing Chicago, Denver, and Los Angles. This global revolution has taken the form Occupy Wall Street here in America. They campaign for ethical reforms for majority of the population, which are needed to combat the unconstitutional and immoral actions of the richest 1% of the population. In the words of Michael Moore, “Something has Started.” This is the beginning of the Second American Revolution.
What are the Occupy Wall Street Protestors Moving to Accomplish?
They want to enact economic and judicial reforms on a national scale.
They are campaigning against a broad range of failings that have hurt the American public. Several important issues are combating corporate greed, unshackling union’s collective bargaining rights in Wisconsin, and overturning Citizens United v. Federal Election Commission, a Supreme Court Decision that gave corporations the right to invest unlimited funds in political campaigns. Many demonstrators believe the financial sector, embodied by the Wall Street Stock exchange, to be at the heart of these problems. This is why ground zero for Occupy Wall Street is in New York City; they really just want their voices to be heard in the increasingly polarized and glaringly corporate political battleground.
Will They Be Successful?
Their protest is the American manifestation of the Arab Spring, which has uniformly been unstoppable. The trend with this sociopolitical titan has been that nations either meet the demands of the populace or inevitably fall to rebellion. These protests will be historically noted as the beginning of either one or the other in America.
The Arab Spring has already been felt around the world, from the revolting Arab nations successfully completing revolutions, British looting of London, and Greek riots spreading anarchy. Everywhere people are revolting against the same issues, only the names and places are different. It is likely historians will it call the Jasmine Revolution, after its original name with the fiery startup in Tunisia.
These initial protests may not be successful, perhaps doing little more than slowing a few investors commute. What is significant is that Americans are mobilizing not against any specific issue, but instead against the decaying economic order. They are protesting the schism between the astounding wealthy and the numerous poor. This is similar to other “Jasmine Revolutions.”
How Does Occupy Wall Street Resemble the Arab Spring?
Occupy Wall Street, which can be identified as a public organization for economic reform, bears striking similarities to the origins of most Arab Spring revolutions.
The Tunisians, the first pioneer of the Arab Spring, say their revolution was sparked by “unbalanced economic growth” as well. Egyptians revolted due to, “rising food prices, high unemployment, and the corruption that pervades economic life in the region.” Yemen is on the verge of a regime change, because of a widely corrupt government and major “economic grievances.” With the exception of the corruption, all of these concerns are prevalent in every region of the United States. The maldistribuiton of wealth and resources in America parallels those of the revolting Arab States; it was only a matter of time before distraught and jobless citizens took action.
Why Has There Been Police Brutality?
I would like to make note that while there have been a few occasions, including one incident involving dangerous use of pepper spray and others where police aggressively arrested unruly protesters, on the whole Occupy Wall Street has not suffered from unexpected amounts of police brutality. This is a large-scale, well covered protest; incidents of this nature happen during such demonstrations. It could be much worse and much more violent. These cases of controversial police aggression are regrettable results from the patriotic activism of the protesters going beyond conventional terms of engagement. These protesters knew the risks when they decided to stand up for what they believed in. The policemen are simply doing their jobs; I would not judge them too critically lest they desert our popular cause entirely. Everybody knows they did wrong, all we can hope is that incidents do not persist.
June 14, 2011
2008 Recession, 2011 Recession, Ban, China, Economics, Inflation, international, Investing, reserve ratio, Stock Market, United States
China is on the verge of unleashing a cataclysmic recession in mid to late 2011 and they know it. Harsh economic policies have cut back private sector investments in the economy, ordering the largest banks in the country to keep record quantities of capital in reserve rather than lending it out to investors. This will only aggravate the thirty-four month high inflation in China, currently at 5.5%, and will further stagnate the marketplace. Industrial output has slowed, only rising by 13.3%, the smallest rate the Chinese economy has seen in twenty years. The Chinese economy is slowing down and the Chinese government fears this will kick off a recession; by acting on these fears they might do just that.
Why Are Investments Declining in China?
The Chinese government has decreed that the reserve ratio held by all of the large banks, the counterparts to Bank of America and Citigroup, must be above 21.5 percent. In comparison, America’s percentage is less than half of this rate. The reserve ratio is the percentage of all deposits in the bank that is held with absolute liquidity, meaning it can be spent at any time. The rest is generally invested. The more money that is invested the faster an economy grows. A high reserve ratio means lower investments. Lower investments correlates directly to decreasing economic growth; with less money being put into building homes and businesses the overall economy slows down. This will trigger a recession if left unattended.
Are the Chinese Purposefully Causing A Recession?
No, they are shielding their economy from the worst of the projected recession. By raising the reserve ratio to record levels banks means that Chinese banks will be much more stable for this financial cataclysm. It means they will have far fewer loans lent out, so when borrowers inevitably default less money will be lost overall. In addition, the higher reserves will give the banks much more stable financial basis. They will be able to pay off debts as they arise and will not be forced to look for bailout or fall into bankruptcy. The peculiarly high reserve ratio protects the financial sector of China during the recession. In the aftermath, private banks will be architects of financial reconstruction rather than panhandlers weighing down the economy. If the United States had implemented this strategy before the 2008 recession there would have been few if any bank failures, they would have reserves on hand to prevent bankruptcy.
What is the Reserve Ratio?
The reserve ratio the percentage of money that each bank has to keep on hand at all times out of all of the deposits they have been trusted with. The rest can be lent out, earning the banks a tidy profit while expanding the economy. The American reserve ration rests around ten percent; this lower ratio allows much more money to be lent out. While this does allow greater investments there has increased risk of too many people defaulting and driving the bank into bankruptcy. Lehman Brothers and Bear Stearns failed during the 2008 recession because bad investments torpedoed the companies and the low reserve ratios were inadequate to patch the damage and meet payments.
How Will This Higher Reserve Rate Affect America?
In the short-term it will buoy up the Western economy, once the recession hits it will trigger the second dip in what will be known as the worst recession since the Great Depression. International investors will flock to American and European banks as they are denied by Chinese limit their investments, especially risky ones. This influx of mortgages and loans will translate into healthy profits for the banks of America. Higher profits mean hiring more employees and expanding operations. That is if the Chinese markets do not implode, like the Chinese are predicting. Without high reserve ratios and with the risky investments taken from the Chinese markets western banks will be besieged by foreclosures and defaulted loans. More banks will fail in the United States and the Western economy will plummet. Only those who had the foresight to prepare for this disaster, the Chinese, will prosper. In the aftermath of the 2011 recession, with the elimination of competition and rising demands for investments, the East will hold great and unprecedented financial power.