Category Archives: Economy

Feds Dudley Promoting Tools to Boost US Economy

Economy, , , , ,
William Dudley

William Dudley, president of the Federal Reserve Bank of New York, expressed his view that there should be more aid for US homeowners, emphasizing that the central bank has not yet “run out of ammunition.”

“We cannot be satisfied with the current state of the economy or the outlook for the next few years,”

said Dudley, in a speech at the U.S. Military Academy in West Point, N.Y.

Low Interest Rates

The Federal Reserve Bank has been using many of its traditional methods to help boost the sluggish economy, including maintaining record low interest rates since December 2008 so that both businesses and consumers would feel more confident about borrowing money.

Unfortunately the low interest rates have not yet had the desired effect, and the economy is still lagging in a slump. Since the interest rates cannot go below zero, this tool is no longer an option for the Feds.

Operation Twist

This is the reason the Feds began a process called “quantitative easing” in a recently launched program called “Operation Twist.” Quantitative easing is major asset purchasing, whose goal is to bring down long-term interest rates to even lower levels, including mortgages.

Dudley said last Thursday that he believes the economy still has a long journey ahead before it arrives at full recovery, and is convinced that another boost from the Feds may be in order.

Unemployment Too High

Dudley’s forecast was for the US gross domestic product to grow only 2.75% in the coming year, which will not be enough to bring down the unemployment rate and get people back to work.

“I am deeply unhappy with the current forecast of prolonged high unemployment,” he said.

Boeing’s Biggest Contract Surpassed

Economy, , ,

Bigger, Better Deal

Only days after closing its biggest deal in its history, Boeing Aircraft Company announced that an even bigger deal has been signed with a different air carrier.

Lion Air Sets Record for Boeing

Last Thursday Boeing announced that it had received an order from Lion Air, a private carrier based in Indonesia, for 230 aircraft. Included in this order are 201 redesigned Boeing 737 “MAX” planes and an additional 29 long-range 737s.

White House Announced Deal

The deal was announced by the White House during President Obama’s executive visit to Bali in Indonesia last week.

Discounted Prices Likely

The list price for the planes is about $21.7 billion, and Lion Air requested options for an additional 150 aircraft at a value of $14 billion. Together the deal is worth over $35 billion.
Boeing’s previous record-breaking deal, only a few days older than this new deal, was with Dubai’s Emirates Air, which ordered 50 Boeing 777s worth a total of $18 billion. It is expected that lower than list prices will be paid for the aircraft by both carriers due to the fact that large airlines, because they buy in bulk, can negotiate highly discounted prices.

Manufacturing Sees Shift from Asia Back to USA

Economy, , , , ,

Ironic Economics

In what some analysts see as a bit of economic irony, there is a slow but steady in the manufacture certain products away from Asia and back to North America.

“What you’re starting to see is the economics shifting more into the United States’ favor regarding sourcing from the United States versus sourcing from a low-cost country,”

said Daniel Meckstroth, chief economist at the Manufacturers Alliance/MAPI, a Washington trade group.

The irony is that it is precisely because the US is going through a slow economic period and China and India are experiencing brisk growth as their emerging economies surge that help US manufacturers to minimize the cost gap between them and their Asian rivals.

Wage Gap Closing

According to one consulting group it is even possible that by the year 2015 labor costs in China and the US could achieve parity. If the present Chinese inflation rate of 5.5% continues while the US maintains the lower 3.6% rate of inflation, and if Chinese wages continue rise at the present 15- 20 percent, then wages in the US and China could very well be indistinguishable.

Efficiency Helping US

In Milwaukee, at the Master Lock factory, the shift back to “made in the USA” is already happening in full force. Just two years ago the lock-making machinery there was only running a few hours a day because it was cheaper to order padlocks from China rather than making them at home.

Today the lock-making machine is running at a whirlwind pace seven days a week and three shifts per day. How can this be when wages are six times higher in the US than in China? The answer is because of superior efficiency. In Milwaukee locks are produced thirty times faster than in the factories in China, which more than makes up for the wage gap.

“I can manufacture combination locks in Milwaukee for less of a cost than I can in China,”

said Bob Rice, a senior vice president at the largest U.S. padlock manufacturer.

In the past two years Bob Rice has added about 80 workers to his workforce, which totals 440 at the moment, and could very well continue to rise. A good sign for the future of US manufacturing.

Time to Invest in Chinese Companies

Economy, Emerging Markets, , , ,

US and EU Hit Hard

The global economic crisis – as we all know – hit hard.  Especially tough impacts were encountered by the European Union and the United States of America.  These regions are today, still being impacted by the crisis, vis-à-vis an uncertain economic future and increasingly high levels of public debt.

China’s 2008 Plans

In reaction to the crisis in 2008, China sensibly set out plans to help make world financial markets more stable.  The country – as companies that seek to make investments there have known for years – is usually on top of its economic situation and what it needs to do to stabilize matters where required.  This is what makes it an ideal environment for companies such as ARC Investment Partners to put their capital.

China Thinking Ahead

This clear thinking during a tough time for Chinese companies, really made a lot of sense for the country’s economic future.  Today, China is a hotspot of stable economic growth, along with a substantial foreign exchange reserve.  The question thus being asked, is can it also now play a role in finding a solution to the world’s current financial issues?  Maybe.  But first, the rest of the world needs to get on board and formulate an accurate perspective of the advantage of making investments in China today.  Some critics firmly believe that if America and Europe really look into investing serious capital into China, a lot of their financial woes would be dissipated.

In other words, America and Europe need to get over their paranoia that investing in China is troublesome due to the country’s national security concerns or other inaccurate perceptions

Hurricane Irene, An Economic Hardship

Economy, , , ,

As if the sub-prime housing crisis and the 14 trillion dollars of US debt were not enough, a new plaque is descending upon the nation. Hurricane Irene is hitting and destroying property and lives along the East Coast from North Carolina to New York. It is hitting major population and business centers including Washington, Baltimore, Philadelphia and New York City.  According to economist Ryan Sweet, who works for Moody’s, these Metropolitan areas account for 16 % of U.S. economic output and 14 % of U.S. employment. Many work days will also be lost do to damage to businesses and transportation. However, Irene will ironically provide jobs in order to repair the damages.

Likely damage estimates vary between a conservative 4.7 billion dollars to a worst case scenario of 35 billion dollars of damages just  to New York City.

According to a computer model by Roger Pielke, a member of the Cooperative Institute for Research in Environmental Sciences and a professor at the University of Colorado, and in conjunction with the ICAT Insurance company, the damage is likely to be about 4.7 billion dollars.

Alternatively, according to statistician Nathan Silver, assuming that Irene passes within 50 miles of downtown New York and is a category 2 storm, it will cause 10 billion dollars of damage just to New York City. Silver also examined the very unlikely scenario that Hurricane Irene hits New York directly with 100 mile per hour winds: the estimated damage to New York alone would be 35 billion dollars.