The Economy

[Sand Man]

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Ok kinsa tung mga members diri na Economists or probably nag Masters sa Economy. Duna koy mga pangutana na hopefully matubag ninyo in layman's terms para masabtan jud namo na mga common tao.

Palihug ko tubag sa maong mga pangutana:

• What causes a recession?
• How does the Stock Market influence commodity prices?
• What causes prices of oil or gas to go up?
• How are money values determined?
• What are Stocks?

Salamat... and remember -- layman's terms ha. Cite analogies and examples when necessary.

[Sand Man]

.... wa tay Economists diri or anyone who is knowledgeable about these things?

[redhorse1L]

hehehe.. Ask lang usa Mr. Google bro..

[Sand Man]

Lawm man kaayo ang mga iningles gud.

[lorenzoleo]

gamay lang ako i hatag bro kay broad man kaayo na nga topic kung specific jud na nato ug tubag, hehehe Kani lang na mga questions ako tubagon.

What causes prices of oil or gas to go up?
- Due to inflation, your purchasing power of your money is keep on lossing everyday. If you are just keeping your money inside the bank, actually you are already lossing money, the value of your 100k before has already less value compared today. Guaranteed the prices always go up long term, you must invest. But if you are growing money more than the rate prices of commodities, then you can forget about the prices.

[Theko]

unsai inflation rate last year sir?

[Githyanki]

• What causes a recession?

- A recession occurs when there is a fall in economic growth for two consecutive quarters. Causes vary on a lot of things like: Wage increase/cut, appreciation of foreign currency that we heavily depend on, interest rates, reduced government spending, stock market crash, state of war/calamity, sharp increase in oil or other commodities, or a sharp increase of unemployment rate.

• How does the Stock Market influence commodity prices?

- Commodity trading influences the economy by helping to make public predictions about future prices of goods that are significant within the market. One example is oil. Oil within the commodity trading is the most widely watched commodity. This is because the price of oil changes daily which has a great effect on other goods and services that are produced.

• What causes prices of oil or gas to go up?

- The basic cause driving any increase in gas prices is an imbalance between the supply of oil and the demand for oil products like gasoline. The underlying cause of gas price increases at the start of the 21st Century is the increased demand for oil around the world, particularly in China and India.

• How are money values determined?

- Currency value is determine by the purchasers of the currency. These are primarily travelers, governments and Forex traders. FOREX stands for Foreign Exchange. There are many factors that currency traders, governments and businesses take into consideration in determining the Fair Market Value of a currency.

Fair Market Value is the price at which a willing buyer and a willing seller come together. The buyer must factor in many elements and considerations to try to accurately assess a currency's value at any given time. There are approximately 180 different currencies in the world now. Let's consider some of the factors that are used to determine a currency's value.


Factors Affecting Currency Value:
1. Political Conditions in the Country - This includes the stability of the government, the amount of corruption, bribery and the degree of law and order. Also includes a country's relationships with other countries and especially their relationship to US, UK, China and Russia. The form of government in the country is also a factor used to assess the value of a currency. Consider the widely varying forms of government in Saudi Arabia, China, UK, Venezuela and Thailand, just to name a few.


2. Economic Situation - This includes factors such as jobs, unemployment, work ethic, infrastructure, inflation and direction of the economy. Is it older or newer in orientation; computers and high tech, or more farming and manufacturing.


3. Perception from Outside - The perceptions and attitudes of other countries toward a country are as important as the reality of the country's actual situation. News, media, movies, newspapers, rumors and spin can create perceptions. How much is known about a country? The less that is known, generally, the lower the value of a currency.


4. Demographics - A young population may mean better prospects for the future, people who are more open to change and development and a growing size of the workforce. The overall population of a country is a factor. How much weight does this country have on the world scene.


5. National Leaders - The openness, trustworthiness and likeability of visible leaders is a factor. This includes political leaders, sports figures, business owners and celebrities. Here are some national figures who affect their countries, either for better or for worse. Kim Jung Il, David Beckham, Nicole Kidman, Madonna, Osama bin Laden, Barack Obama and Vladimir Putin. These help form the world's perception of a country.


6. Isolation versus Openness - Continuum China is becoming more open, more transparent. This helps. Cuba is very closed and isolated. Venezuela is becoming more isolated by some of its recent actions. China's markets are becoming more open. Cuba, Kyrgyzstan, Russia and Japan, all have differing levels of openness with the outside world, which affects the value of their currency.


7. Natural Resources - The kind of and amount of exploitation of a country's natural resources certainly helps create a perception of value, or lack thereof, of a country's currency. Mining of minerals, forests, oil, fish and other resources are considered. Also the level of technology to development these resources.


8. Weather Factors such as drought, tsunamis, earthquake and floods are taken into consideration. How frequent are they and how is the country's response to them. These also affect desirability, safety and perception of a country. Is it a tourist destination?


9. War and Conflicts - With which other country is a country at war, and who is it's allies? Their military strength and technology, their willingness to go to war and for what, are important factors in assessing a country's strength, stability and the value of its currency.


10 . Education - This includes languages spoken, level of computer know-how, Internet connectedness, culture and religion. Scientists, entrepreneurs, authors and inventors are all affected by the type and quality of education in a country.

• What are Stocks?

- Stocks are a share of the ownership of a company. Initially, they are sold by the original owners of a company to gain additional funds to help the company grow. The owners basically sell control of the company to the stockholders. After the initial sale, the shares can be sold and resold on the stock market.

[Sand Man]

Interesting article. A little lengthy but I was wonder if you guys who are into economics would agree to it.

Cheers.

Financial Meltdown Was ‘Avoidable,’ Inquiry Concludes

SEWELL CHAN, On Tuesday January 25, 2011, 4:28 pm EST

WASHINGTON — The 2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street, according to the conclusions of a Congressional inquiry.

The government commission that investigated the financial crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors, and risky bets on securities backed by the loans.

“The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done,” the panel wrote in the report’s conclusions. “If we accept this notion, it will happen again.”

While the panel, the Financial Crisis Inquiry Commission, accuses several financial institutions of greed, ineptitude, or both, some of its most grave conclusions concern government failings, with embarrassing implications for both political parties.

Many of the findings have been widely described, but its synthesis of interviews, documents and testimony, along with its government imprimatur, give it a sweep and authority that the commission hopes will shape the public consciousness. The full report is expected to be released as a 576-page book on Thursday. When the bipartisan commission was set up in May of 2009, the intent of Congress and the president was to produce a comprehensive examination of the causes of the crisis.

The report, aimed at a broad audience, was based on 19 days of hearings as well as interviews with more than 700 witnesses; the commission has pledged to release a trove of transcripts and other raw material online. The document is intended to be the definitive account of the crisis’s causes, but its authors may already have failed in achieving that aim.

Of the 10 commission members, only the 6 appointed by Democrats endorsed the final report. Three Republican members have prepared a dissent; a fourth Republican, Peter J. Wallison, a former Treasury official and White House counsel to President Ronald Reagan, has written his own dissent, calling government policies to promote homeownership the primary culprit for the crisis.

The commission’s report finds fault with two Fed chairmen: Alan Greenspan, a skeptic of regulation who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but then played a crucial role in the response to it. It criticizes Mr. Greenspan for advocating financial deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as “the prime example” of government negligence.

It also criticizes the Bush administration’s “inconsistent response” to the crisis — allowing Lehman Brothers to go bankrupt in September 2008 after earlier bailing out another bank, Bear Stearns, with help from the Fed — “added to the uncertainty and panic in the financial markets.”

Like Mr. Bernanke, Mr. Bush’s Treasury secretary, Henry M. Paulson Jr., predicted in 2007 — wrongly it turned out — that the subprime meltdown would be contained, as the report notes.

Democrats also come under fire. The 2000 decision to shield over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s time in office is called “a key turning point in the march toward the financial crisis.”

Timothy F. Geithner, who was president of the Federal Reserve Bank of New York during the crisis and is now President Obama’s Treasury secretary, also comes under criticism; the report finds that the New York Fed “could have clamped down” on excesses by Citigroup in the lead-up to the crisis and, just a month before Lehman’s collapse, was “still seeking information” on the vulnerabilities from Lehman’s exposure to more than 900,000 derivatives contracts.

Former and current officials named in the report, as well as financial institutions, declined on Tuesday to comment on the report before it was released , or did not respond to requests for comment.

The report is likely to reignite debate over the outsize influence of Wall Street; it says that regulators “lacked the political will” to scrutinize and hold accountable the institutions they were supposed to oversee. The financial sector spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with the industry made more than $1 billion in campaign contributions.

The report does knock down — at least partly — several early theories for the crisis.

It says the low interest rates brought about by the Fed after the 2001 recession “created increased risks” but were not chiefly to blame. It says that Fannie Mae and Freddie Mac, the mortgage finance giants, “contributed to the crisis but were not a primary cause.” And in a finding likely to anger conservatives, it says that “aggressive homeownership goals” set by the government as part of a “philosophy of opportunity” were not major culprits.

On the other hand, the report is unsparing in its treatment of regulators. It finds that the Securities and Exchange Commission failed to require big banks to hold more capital to cushion losses and halt risky practices, and that the Fed “neglected its mission” to protect the public.

It says that the Office of the Comptroller of the Currency, which regulates national banks, and the Office of Thrift Supervision, which oversees savings-and-loans, blocked state regulators from reining in lending abuses because they were “caught up in turf wars.”

“The crisis was the result of human action and inaction, not of Mother Nature or computer models gone awry,” the report states. “The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.”

Portions of the dissents are included in the report, which is being published as a paperback book (with a cover price of $14.99) by PublicAffairs, along with an official version by the Government Printing Office.

The commission’s chairman, Phil Angelides, a Democrat and former California state treasurer, has tried to keep the book under wraps, even directing the publisher to prevent bookstores from getting it before the eve of the Thursday release. He declined to comment.

The report’s immediate implications may be felt more in the political realm than in public policy. The Dodd-Frank law overhauling the regulation of Wall Street, signed in July, takes as its premise the same regulatory deficiencies cited by the commission. But the report is sure to factor in the looming debate over the future of Fannie Mae and Freddie Mac, which have been government-run since 2008.

Though the report documents fraudulent practices by mortgage lenders and careless betting by banks, one striking finding is its portrayal of bumbling incompetence, among corporate chieftains.

It quotes Citigroup executives admitting that they paid little attention to the risks associated with mortgage securities. Executives at the American Insurance Group, another bailout recipient, were found to be blind to its $79 billion exposure to credit default swaps, a kind of insurance that was sold to investors seeking protection against a drop in the value of securities backed by risky home loans. At Merrill Lynch, top managers were caught unaware when seemingly secure mortgage investments suddenly resulted in billions of dollars in losses.

By one measure, the nation’s five largest investment banks had only $1 in capital to cover losses for about every $40 in assets, meaning that a 3 percent drop in asset values could wipe out the firm. The banks hid their excessive leverage using derivatives, off-balance-sheet entities and other devices, the report found. The speculative binge was abetted by a giant “shadow banking system” in which the banks relied heavily on short-term debt.

“When the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans and the risky assets all came home to roost,” the report found. “What resulted was panic. We had reaped what we had sown.”

The report is dotted with literary flourishes. It calls credit-rating agencies “cogs in the wheel of financial destruction.” Paraphrasing Shakespeare’s Julius Caesar, it states, “The fault lies not in the stars, but in us.” Of the banks that bought created, packaged and sold trillions of dollars in mortgage-related securities, it says: “Like Icarus, they never feared flying ever closer to the sun.”

yahoo