Austerity Stimulated Growth?

There is this idea that through austerity economies will clear out debt and then businesses will have the confidence to invest in the economy. The problem is that it is not working. As we hear talk about getting government "out of the way", so businesses can invest, we need to look at what exactly means.First of all, it is important recognize that government spending represents a significant part of GDP in virtually all nations. When we talk about cutting government spending, we are cutting government jobs as well. That is not to say that there aren't places where the government that need to be adjusted from time to time. However, as we make these adjustments, doing so "willy nilly" can bring great peril. Already, government...

Finding Democracy

I don't know of any President in which I loved everything they did, but when I find someone who disagrees with everything a President represents, I can see clearly they don't understand Democracy in which we vote together and live together. When someone disagrees with everything, it truly is more representative of what would be seen in a dictatorship or communist regime. This is a dangerous game.When people are taught to speak in a rhetoric that incites partisanship, and in a way that doesn't ask the important questions that lead us to better understand the issues together (even if we disagree), those same people have become pawns of the very system they believe they are protecting. I fear many of both parties have fallen prey...

How to Tax the Job Creators

So often you hear business leaders complain that businesses would be more likely to invest in America if only our taxes weren't so high. Many are calling for lowing the taxes on corporations to 0% and then that will somehow incentivize the corporations to invest more in jobs in America. Let me present a plan where that could possibly be true...We should only tax corporations whose net imports are greater than their net exports. The greater their contribution to the trade imbalance, the greater would be their taxes. For example, a company like Wal-mart uses cheap labor overseas, as well as overseas materials. They import 90+% of their products and then resell them to Americans. They may create some jobs but their employees do not...

Computerized Trading and the Private Investor

This past week there was a huge amount of volatility in the markets, and computerized trading represented a huge part of that volume. There are literally computers that buy and sell the same stock several hundred times per day, thousands of shared at a time. What they are doing is taking advantage of very small differences in the bid and ask prices, often trading at speeds that are faster than the time a trader submits a request to the time the actual trade is completed. In just a few tenths of a second they can trade 100,000 shares, and make a couple of cents per share. Repeating this hundreds of times per day.SF Gate had an article this week getting responses to individual investors. Many...

Credit Default Swaps, Goldman Sachs and Europe

Remember those Credit Default Swaps (or CDS) that you kept hearing about in the news during the housing crisis? Well, they still exist, and are a large part of European Sovereign Debt Crisis in 2011. Let’s first define Credit Default Swap and put some perspective on this.A CDS is a form of insurance on an investment. Let’s take a real example. A bank sells a bundle of home mortgages to Goldman Sachs. Then for a fraction of the cost of buying the mortgages, Goldman Sachs buys insurance against default of these mortgage bundles. Goldman is able to get a great rate on the CDS because the mortgage bundles are rated AAA. Goldman pays the rating agency millions to rate these bonds, and if they don’t...

Economic Vigilantes - Part 2 of the Tragedy

So another “sinister plan” is unfolding before our eyes though I am not sure everyone sees it quite yet. Before we get to part 2 of this tragedy, let’s visit part 1.From approximately 2004 to late 2007 there was a tremendous buying frenzy in the housing market. People who should not have been getting loans were getting them easily. Banks were taking those loans and selling them in “tranches”, or many loans bundled together, and collectively they were known as Credit Default Swaps (CDS).These CDS were traded between investors, from banks to hedge funds to teacher’s retirement funds. Many investors are required to invest only in safe investments. For example, the teacher’s union would not want to invest in anything volatile. They just want slow...

Signs that America is heading into Another Recession

If you have been watching the news then you have probably heard about how uneasy the stock market has been.  Some stocks plummet and then bounce back and then plummet again.  This has been caused by more global issues than local issues.  However, the last time the stock market was uneasy America ended up in a recession.   Many people think that another recession is on its way.  With unemployment rates and the stock market in turmoil it is easy to see why people would think that we are heading right back into the same predicament if not worse off.  There are many banks that are offering credit lines with interest rates as low as 2% to certain people.  Credit was part of the problem that...

Buy Low

  When things look the most gloomy in the markets, it can be a great time to buy stocks (or better, trade in ETFs). If you go back to nearly any major stock market crash, the period that followed was a great time for investors that purchased low. For example, in the drop following the Lehmnan brothers debacle in 2008, the market was the Dow Jones Industrial Average was down around 8000. It steadily grew over the next  2-3 years, that number increased well above 14000. Those who invested would have nearly doubled their money in just a couple of years. We are in another window of opportunity that probably won't last long. The market may drop a little more this week, but increasingly as you...

Fair Tax Scam

If you think the Fair Tax proposal is a good idea, you may want to think again. In case you’re like many other Americans who try to block out what’s going on in the world around them, the Fair Tax proposal was first introduced in 2005, as a suggested means to overhaul the nation’s current income tax laws. Instead of paying income taxes to the federal government once a year, the Fair Tax proposes implementing a nation-wide sales tax, which would add 20-30% to the cost of products. Supposedly, this is a way of ensuring that those who don’t currently pay taxes would have to pay their fair share- but there is a flaw in this plan’s design. The Fair Tax proposal eliminates taxes on...

End of Growth?

In the next few decades many believe we will approach peak population. We will reach a point where people are dying at a rate faster than people are born. So what this represents is the end of growth, at least in terms of population.For a capitalist system it will mean new approaches. Markets are very much based on growth, whether that be growth in homes built, goods produced and purchased, or credit extended. But there is likely to be a point where we reach maximums for homes built, goods produced, and credit extended. And over the next few decades we will slowly approach these maximums.{inline_widget-5}Quality of life and efficiency may replace growth as the most important goals of capitalism. In many cases, quality of...