From WhiteHouse.Gov:
Increase the Minimum Wage: President Obama will raise the minimum wage to $9.50 an hour by 2011 and index it to inflation so full-time workers can earn a living wage that allows them to raise their families and pay for basic needs such as food, transportation, and housing -- things so many people take for granted.
Saturday, February 28, 2009
Thursday, February 26, 2009
The Building of a Treasury Bubble
As Washington spends as if there are no negative implications to deficits, treasuries continue to be supported by a public weary of putting money on Wall Street. Our public debt, increasing as never before, is easily supported today by a strong dollar and treasuries that yield near zero. Currently, Fed chairman Bernanke claims that he is not concerned about inflation because the dollar is strong and inflation is flat.What regulators are forgetting, however, is that once they manage to get Wall Street and Main Street to click again, money will not chase low treasury yields. As such, the recovery of the stock market will quickly pull money out of treasury bonds and necessitate the rapid increase in interest rates. As increased rates chase the market in a vane attempt to pull dollars back in support our enormous debt, inflation will certainly follow. Bottom line, tips and gold are an essential component to any portfolio going forward.
Photo credit: http://farm2.static.flickr.com/
Wednesday, February 25, 2009
History of Economic Mismanagement - Part IV
The United States is currently amidst a great economic challenge. While inflation rates remain flat and unemployment rates remain relatively modest, there is no denying that America is faced with great challenges today. At its core, a credit crunch, many argue that this crisis developed in the housing market following a run-up in housing prices through 2007. With that said, it might more likely appear that easy credit, backed by securitized debt obligations, was illegally hiding behind prohibitively ambitious credit ratings. In other words, risk was not being accurately portrayed by the credit rating agencies. This systemic credit bubble has subsequently led to a series of government actions and inactions that have met with wide-spread cynicism and uncertainty. The ambiguity of the situation was further developed by the lack of confidence exhibited by the Treasury Secretary and the President following the change of command. Drawing on the lessons of the past, both Democrats and Republicans have largely put aside any plans to increase taxes that they might otherwise have recommended. Similarly, and in stark contrast to actions during the Great Depression, government regulators have made attempts to maintain low interest rates and have refrained from implementing protectionist tariffs. As of this writing, the largest government bailout stimulus spending plan in history has been passed into law and will soon meet with a skeptic public. While it may appear that regulators are beginning to learn some of the lessons of history, it remains to be seen how these steps will affect our future economic conditions.
One must consider that to prescribe the appropriate medicine, one must first precisely identify the problem or cause. In the case of a financial crisis, there have been many attempts to identify the precise cause of each collapse, generally, without any clear consensus in virtually any regard. How is it possible to prevent a problem from reoccurring if one cannot identify, or agree upon, what the exact problem is to begin with? Consider for example, the Great Depression. While many agree that an asset bubble was met with irresponsible policies, others still argue that the Keynesian solution won the day. Many agree that the Fed should have printed more money at the exact time that they began to hoard it. Others maintain that the problem was, at its root, a fiat problem. According to Say (1803), “money, or specie, as some people call it, is a commodity, whose value is determined by the same general laws, as that of all other commodities; that is to say, rises and falls in proportion to the relative demand and supply” (I.XXI.32). Indeed it would appear that the lessons of history failed to produce a consensus opinion. A more recent paper published by the Federal Reserve in 2003 asserts that “the incomplete and erratic recovery from the Great Depression can be traced to a failure to pursue consistently expansionary policy resulting from an incorrect understanding of monetary policy in an environment of very low short-term nominal interest rates” (Orphanides, p. 1). It follows, therefore, that from that writing the Fed would ensure that interest rates remain low; which, of course, brought us to our more recent credit bubble!
From the macro-political perspective, the conundrum remains a daunting philosophical challenge as much as it is an economical one. From the perspective of an international business manager, the problem does not require prevention but rather identification. International business managers must remain cognizant of interest rates, inflation, credit conditions, and the geo-political climate. In order to properly discount future cash-flows effectively, managers must attempt to recognize the potential for risk that goes beyond their direct operations. They must be aware of political and economical conditions that might affect supply networks and distribution chains. While these challenges remain great, they pale in comparison to those of federal regulators.
References
Das, D. (1999). Asian Economic and Financial Crisis: Causes, Ramifications, Lessons. Retrieved on February 19, 2009 from http://igcc.ucsd.edu/pdf/afc/afc_das.pdf
Gibbon, E. (1776). The Decline and Fall of the Roman Empire. In H. Mueller (Ed.), The Modern Library. New York: Random House Publishing Group.
Madura, J. (2008). International Financial Management (9th ed.). Ohio: Cengage Learning
Orphanides, A. (2003). Monetary Policy in Deflation: The Liquidity Trap in History and Practice [Electronic Version]. Retrieved on February 20, 2009 from http://www.federalreserve.gov/Pubs/feds/2004/200401/200401pap.p
Rome.Info (2009). Fall of the Roman Empire. Retrieved on February 12, 2009 from http://www.rome.info/history/empire/fall/
Say, J. (1803). A Treatise on Political Economy [Electronic Version]. Retrieved on January 25, 2009 from http://www.econlib.org/library/Say/sayT.html
Train, J. (1985). Famous Financial Fiascos. New York: Clarkson N. Potter, Inc., Publishers
U.S. Department of State (2009). Smoot-Hawley Tariff. Retrieved on February 15, 2009 from http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html
One must consider that to prescribe the appropriate medicine, one must first precisely identify the problem or cause. In the case of a financial crisis, there have been many attempts to identify the precise cause of each collapse, generally, without any clear consensus in virtually any regard. How is it possible to prevent a problem from reoccurring if one cannot identify, or agree upon, what the exact problem is to begin with? Consider for example, the Great Depression. While many agree that an asset bubble was met with irresponsible policies, others still argue that the Keynesian solution won the day. Many agree that the Fed should have printed more money at the exact time that they began to hoard it. Others maintain that the problem was, at its root, a fiat problem. According to Say (1803), “money, or specie, as some people call it, is a commodity, whose value is determined by the same general laws, as that of all other commodities; that is to say, rises and falls in proportion to the relative demand and supply” (I.XXI.32). Indeed it would appear that the lessons of history failed to produce a consensus opinion. A more recent paper published by the Federal Reserve in 2003 asserts that “the incomplete and erratic recovery from the Great Depression can be traced to a failure to pursue consistently expansionary policy resulting from an incorrect understanding of monetary policy in an environment of very low short-term nominal interest rates” (Orphanides, p. 1). It follows, therefore, that from that writing the Fed would ensure that interest rates remain low; which, of course, brought us to our more recent credit bubble!
From the macro-political perspective, the conundrum remains a daunting philosophical challenge as much as it is an economical one. From the perspective of an international business manager, the problem does not require prevention but rather identification. International business managers must remain cognizant of interest rates, inflation, credit conditions, and the geo-political climate. In order to properly discount future cash-flows effectively, managers must attempt to recognize the potential for risk that goes beyond their direct operations. They must be aware of political and economical conditions that might affect supply networks and distribution chains. While these challenges remain great, they pale in comparison to those of federal regulators.
References
Das, D. (1999). Asian Economic and Financial Crisis: Causes, Ramifications, Lessons. Retrieved on February 19, 2009 from http://igcc.ucsd.edu/pdf/afc/afc_das.pdf
Gibbon, E. (1776). The Decline and Fall of the Roman Empire. In H. Mueller (Ed.), The Modern Library. New York: Random House Publishing Group.
Madura, J. (2008). International Financial Management (9th ed.). Ohio: Cengage Learning
Orphanides, A. (2003). Monetary Policy in Deflation: The Liquidity Trap in History and Practice [Electronic Version]. Retrieved on February 20, 2009 from http://www.federalreserve.gov/Pubs/feds/2004/200401/200401pap.p
Rome.Info (2009). Fall of the Roman Empire. Retrieved on February 12, 2009 from http://www.rome.info/history/empire/fall/
Say, J. (1803). A Treatise on Political Economy [Electronic Version]. Retrieved on January 25, 2009 from http://www.econlib.org/library/Say/sayT.html
Train, J. (1985). Famous Financial Fiascos. New York: Clarkson N. Potter, Inc., Publishers
U.S. Department of State (2009). Smoot-Hawley Tariff. Retrieved on February 15, 2009 from http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html
Tuesday, February 24, 2009
History of Economic Mismanagement - Part III
The 1920s were widely regarded as “good times” by most citizens in the United States of America. The country had risen to defeat the Germans in World War One and was enjoying the fruits of victory. The stock market grew rapidly and the marginal tax rate began to support the growth of bureaucracy throughout the country. Economic ideas had transitioned from the idealistic purveyors of free market capitalism, such as Adam Smith and Jean Baptiste Say, to the romantic communist ideology set forth by Karl Marx and his followers. The good times eventually ended in a recession as share prices fell between 15-20% on October 24, 1929. In an attempt to stabilize the U.S. economy, Congress quickly moved to adopt the Hawley-Smoot Act which was signed by President Hoover in June of 1930. This levy, the highest in U.S. history, subsequently sparked a series of international tariffs by other nations that reduced trade by 66% between 1930 and 1934. The federal funds rate, which began to increase in the spring of 1928, made borrowing difficult or impossible for banks and businesses alike. Additionally, the central bank decreased the money supply in an attempt to stabilize the dollar. This combination of actions resulted in the worst economic conditions in American history. Economic conditions remained dismal as the government experimented with various remedies throughout the 1930s. Following the Bretton Woods Agreement, the Second World War, and the GATT, the United States finally emerged from its greatest economic challenge in its history. (U.S. Department of State, 2009)
The Asian financial crisis is generally believed to have begun in Thailand in 1997. The Thai baht had been pegged to the dollar and supported by direct intervention on the part of the Thai central bank prior to July 2nd of 1997. Despite a crisis that became readily apparent in the currency markets, to be sure, this financial collapse had been long in the making and was systemic in nature. The world-wide economic boom readily embraced many emerging Asian markets. Countries such as Indonesia, Thailand, Malaysia, Philippines, Singapore, and Korea had experienced growth rates in GDP as high as 10% from 1992-1996 while maintaining low rates of inflation. With high growth rates and currencies backed by the dollar, many of these countries saw enormous cash inflows and massive foreign direct investment. Following the economic crisis in Mexico, many more foreign investors dumped money into what appeared to be a more stable and growing market. “These capital inflows fueled a lending boom, which led to excessive risk-taking on the part of banks” (Das, 1999, p. 6). As markets cooled, the asset bubble became apparent, and governments took action. According to Das (1999), the “policy response to these developments was timid and inadequate” (p. 4).
The Asian financial crisis is generally believed to have begun in Thailand in 1997. The Thai baht had been pegged to the dollar and supported by direct intervention on the part of the Thai central bank prior to July 2nd of 1997. Despite a crisis that became readily apparent in the currency markets, to be sure, this financial collapse had been long in the making and was systemic in nature. The world-wide economic boom readily embraced many emerging Asian markets. Countries such as Indonesia, Thailand, Malaysia, Philippines, Singapore, and Korea had experienced growth rates in GDP as high as 10% from 1992-1996 while maintaining low rates of inflation. With high growth rates and currencies backed by the dollar, many of these countries saw enormous cash inflows and massive foreign direct investment. Following the economic crisis in Mexico, many more foreign investors dumped money into what appeared to be a more stable and growing market. “These capital inflows fueled a lending boom, which led to excessive risk-taking on the part of banks” (Das, 1999, p. 6). As markets cooled, the asset bubble became apparent, and governments took action. According to Das (1999), the “policy response to these developments was timid and inadequate” (p. 4).
Monday, February 23, 2009
History of Economic Mismanagement - Part II
It is often a deceiving process to evaluate the relative stability and condition of an economy. According to Madura (2008), “The amount of consumption in any country is influenced by the income earned by consumers in that country” (p. 14). Jean Baptiste Say would have countered Madura with the proposition that the amount of relative income earned is influenced by the amount of production. In either event, international business managers’ who are intent on evaluating geopolitical risk in areas of potential foreign direct investment must understand that money is an elusive target. Prevailing interest rates, the potential for inflation, and exchange rate volatility must be considered carefully in order to establish prospective cash flows from a foreign investment.
According to Rome.info (2009), “The Roman economy suffered from inflation (an increase in prices) beginning after the reign of Marcus Aurelius.” Prior to this time, the denarius had remained a very stable currency backed by 60 grains of silver during the time of Julius Caesar. The infamous reign of Commodus (180-192) brought forth a time of superfluous spending and excess. Commodus fashioned himself a warrior and his execution of animals and prisoners in the great coliseums were amongst his favorite pursuits. According to Gibbon (1776), Commodus, “received from the common fund of gladiators a stipend so exorbitant that it became a new and most ignominious tax upon the Roman people” (p. 75). The gold and silver in the treasury soon became depleted and thus the currency began to be comprised of smaller and smaller amounts of actual value. By the time of Commodus’s murder, the denarius contained 26 grains of silver. The reduced value of this new currency caused hyperinflation and economic destabilization. Because of this devaluation, many regions would no longer accept this currency as a valid medium of trade.
In considering the effects of inflation on MNC’s, Madura (2008) asserts that, “If a country’s inflation rate increases relative to the countries with which it trades, its current account will be expected to decrease, other things being equal” (p. 34). Interest rates are similar to the money supply in their effect on prices and inflation and rates of exchange. According to Train (1985), during the hyperinflation that occurred in France around the time of the French Revolution, “As the torrent of paper poured out of the presses, specie vanished, goods were hoarded, and prices flew upward” (p. 58). As a result of the flooding of paper money into this system, its value relative to tradable goods decreased. In order to prevent this at the onset, the Assemblée of France had established an interest rate of 3 percent to attract specie from those who might otherwise question the value of paper money. The result was that a relative equilibrium was temporarily achieved as supply met demand. Greedy by the inflow of coinage, however, the Assemblée began to print money without regard to the equilibrium of supply and demand. Additionally, they reduced the rate of interest payable to zero. The result of these actions was hyperinflation and the overthrow of the French government.
According to Rome.info (2009), “The Roman economy suffered from inflation (an increase in prices) beginning after the reign of Marcus Aurelius.” Prior to this time, the denarius had remained a very stable currency backed by 60 grains of silver during the time of Julius Caesar. The infamous reign of Commodus (180-192) brought forth a time of superfluous spending and excess. Commodus fashioned himself a warrior and his execution of animals and prisoners in the great coliseums were amongst his favorite pursuits. According to Gibbon (1776), Commodus, “received from the common fund of gladiators a stipend so exorbitant that it became a new and most ignominious tax upon the Roman people” (p. 75). The gold and silver in the treasury soon became depleted and thus the currency began to be comprised of smaller and smaller amounts of actual value. By the time of Commodus’s murder, the denarius contained 26 grains of silver. The reduced value of this new currency caused hyperinflation and economic destabilization. Because of this devaluation, many regions would no longer accept this currency as a valid medium of trade.
In considering the effects of inflation on MNC’s, Madura (2008) asserts that, “If a country’s inflation rate increases relative to the countries with which it trades, its current account will be expected to decrease, other things being equal” (p. 34). Interest rates are similar to the money supply in their effect on prices and inflation and rates of exchange. According to Train (1985), during the hyperinflation that occurred in France around the time of the French Revolution, “As the torrent of paper poured out of the presses, specie vanished, goods were hoarded, and prices flew upward” (p. 58). As a result of the flooding of paper money into this system, its value relative to tradable goods decreased. In order to prevent this at the onset, the Assemblée of France had established an interest rate of 3 percent to attract specie from those who might otherwise question the value of paper money. The result was that a relative equilibrium was temporarily achieved as supply met demand. Greedy by the inflow of coinage, however, the Assemblée began to print money without regard to the equilibrium of supply and demand. Additionally, they reduced the rate of interest payable to zero. The result of these actions was hyperinflation and the overthrow of the French government.
Saturday, February 21, 2009
Friday, February 20, 2009
History of Economic Mismanagement - Part I
For as long as governments have realized such control, they have exhibited a profound interest in manipulating the supply of money, interest rates, and exchange rates. As perhaps the least understood of all sciences, the mistakes in macro-economical policy have burdened societies and devastated nations. While reckless spending and spiraling inflation under the reign of Commodus spelled ruin for the Roman Empire, monetary policy remained a conundrum as history repeated itself during the time of Louis XVI in France. The coals under the financial crisis that became the Great Depression were stoked by a government that failed to comprehend the function of interest rates, taxes, and monetary policy. In Asia, it was an asset bubble followed by mismanagement of interest rates that led to the financial meltdown in 1997. Even today, there is no clear consensus as top economists debate the correct path for legislatures to take during the current recession. Clearly, thousands of years of recorded history should have provided us with testimony of successes and failures that could lead us to make intelligible connections and rationale decisions. With all of the existence of case studies available for review, why does the correct medicine for economic stability remain so difficult to ascertain today?
Thursday, February 19, 2009
Congress – Not sure about Free Trade
Perhaps a prerequisite to entering Congress should be a test on basic economics. It would appear that far too many in Congress (our body of trade regulators) have not begun to understand the very basics of trade. For those aspiring Congressmen, please pick up your copy of Adam Smith and follow along:
“By such maxims as these, however, nations have been taught that their interest consisted in beggaring all their neighbors. Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades, and to consider their gain as its own loss. Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.”
“By such maxims as these, however, nations have been taught that their interest consisted in beggaring all their neighbors. Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades, and to consider their gain as its own loss. Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.”
From a web site promoting the virtues of Congressman Kucinich:
11/07 Kucinich Votes To Keep Jobs In The United States
Stands Up For Millions Of Hardworking Americans
Washington, Nov 8 -Congressman Dennis Kucinich (D-OH) stood up for American workers today and voted against the United States-Peru Free Trade Agreement in an attempt to keep good-paying jobs in the United States. “The U.S.-Peru Free Trade Agreement continues the destructive trade policies that spur the exodus of good-paying jobs and undermine the ability of working people to protect their living standards,” Kucinich said.“Our workers in our communities have been hurt by the devastating impact of our flawed trade policies. Since 2001, more than 3 million valuable manufacturing jobs have been lost by U.S. workers due to the unsound NAFTA model for trade, analogous to the U.S.-Peru Free Trade Agreement.“The Bush Administration insists on continuing to implement the same policies that have off-shored jobs and left hard-working Americans in precarious circumstances.“As corporations cut U.S. jobs and relocate in search of lower labor costs, the U.S.-Peru FTA threatens to expand sweatshop labor in Peru and cast doubt on the adequate enforcement of worker protections. In a company already fraught by high poverty levels and a growing gap between the wealthy and the poor, the U.S.-Peru FTA will further exasperate Peru’s difficulties with provisions that ultimately promote privatization and deregulation of basic necessities such as water and electricity.“I cannot and will not support a harmful trade agreement that threatens the livelihood of millions of hard-working Americans.”
Retrieved on February 19, 2009 from http://nafta.kucinich.us/index.php?option=com_content&task=view&id=6&Itemid=2
Wednesday, February 18, 2009
What would Reagan Do?
Ronald Reagan came to power at a difficult time in our history. The United States was not only facing a severe economic crisis at the time he took office, but was struggling to meet the demoralizing challenges presented by the Soviet Union. It was Reagan who gave us confidence and had the moral standing to overcome this adversary. He had the moral clarity to define the communist state as what it was: An evil empire. The economy, spurred by a long-term commitment to lower taxes by a pro-growth government, brought us all comfortably into the next decade. When you contrast this with how uncomfortable President Obama and Sec. Geithner have made us feel about our situation lately, you can only ‘hope’ for a ‘change’ to someone with more Reagan-like qualities in the near future.
Tuesday, February 17, 2009
Protect the Second Amendment
As Bobby Rush tramples on the Constitution, and inner-city citizens misallocate their anger at the legal right of gun ownership. I am happy to direct readers to the following site:
http://www.secondamendmentmarch.com/
This group is dedicated to ensuring the protection of gun ownership rights that are set forth in the Constitution. According to their mission statement:
This group is dedicated to ensuring the protection of gun ownership rights that are set forth in the Constitution. According to their mission statement:
“We will accomplish our mission by a centralized, peaceful march on the United States Capitol, supported by satellite marches to State Capitols and smaller cities all across America.”
Looking forward to the DC visit in the Spring of 2010!
Photo credit: Zimbio.com
Monday, February 16, 2009
Change Geithner 2009
"We will have to adapt it as conditions change. We will have to try things we've never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted."
Timothy Geithner
Feb 10, 2009
Timothy Geithner
Feb 10, 2009
Friday, February 13, 2009
The Value of a Business Plan
In the Art of War, Sun-tzu (6th BC) wrote that, “One who, fully prepared, awaits the unprepared will be victorious” (p. 179). Sun-tzu theorized on military applications of his concepts, however, his ideas remain powerful tools of business today. As a former business owner, I can attest to the need to precisely plan any business prior to engaging in it. In my case, the business plan was a reactionary process that I undertook at the request and insistence of lenders. Today, with lending standards being challenged resultant of years of abuse and poor practices, it is increasingly important for entrepreneurs to put together a complete business plan early in order to acquire financing. Starting to write a business plan while attempting to conduct business and solicit money from lenders is not a viable option.
Statistically, most businesses fail within their first two-years. According to Sharif Khan (2005), “78% of businesses fail due to lack of a well-developed business plan.” Today, many entrepreneurs are setting forth on a business venture without any plan whatsoever. This is a sure way for business failure. It is the equivalent to driving with a blindfold on. My advice to aspiring entrepreneurs is to conduct as much research and planning as early in the project as possible.
There are many organizations that can aide prospective business owners in the challenging process of organizing a business venture. According to its website, SCORE “is a nonprofit association dedicated to educating entrepreneurs and the formation, growth, and success of small business nationwide.” When I was self-employed, I turned to SCORE for counseling and advice. The only investment required to speak with a SCORE member is your time. As a partner of the Small Business Administration, I would highly recommend that any aspiring entrepreneur utilize this valuable community resource.
References
Khan, S. (2005, March 24). The Chief Cause of Business Failure and Success. Retrieved
on February 12, 2009 from http://www.enterprisetoronto.com/index.cfm?linktype=mainlink&linkId=99&cont
ent_id=805&fromurl=center
SCORE (2009). About SCORE. Retrieved on February 12, 2009 from
http://www.score.org/explore_score.html
Tzu. S (6th BC). In D. Sawyer (Ed.), Sun-tzu: The Art of War (1994). New York: Fall River Press.
Statistically, most businesses fail within their first two-years. According to Sharif Khan (2005), “78% of businesses fail due to lack of a well-developed business plan.” Today, many entrepreneurs are setting forth on a business venture without any plan whatsoever. This is a sure way for business failure. It is the equivalent to driving with a blindfold on. My advice to aspiring entrepreneurs is to conduct as much research and planning as early in the project as possible.
There are many organizations that can aide prospective business owners in the challenging process of organizing a business venture. According to its website, SCORE “is a nonprofit association dedicated to educating entrepreneurs and the formation, growth, and success of small business nationwide.” When I was self-employed, I turned to SCORE for counseling and advice. The only investment required to speak with a SCORE member is your time. As a partner of the Small Business Administration, I would highly recommend that any aspiring entrepreneur utilize this valuable community resource.
References
Khan, S. (2005, March 24). The Chief Cause of Business Failure and Success. Retrieved
on February 12, 2009 from http://www.enterprisetoronto.com/index.cfm?linktype=mainlink&linkId=99&cont
ent_id=805&fromurl=center
SCORE (2009). About SCORE. Retrieved on February 12, 2009 from
http://www.score.org/explore_score.html
Tzu. S (6th BC). In D. Sawyer (Ed.), Sun-tzu: The Art of War (1994). New York: Fall River Press.
Thursday, February 12, 2009
Treasury Baffled – Help Wanted
Several months after the election mandate and amidst a widening recession, the Obama administration is frantically seeking solutions to the U.S. economic slow-down. Markets have reacted to the apparent lack of a plan and assets have been driven to the relative safety of treasuries and gold. Following a prime time assurance of “change” by President Barack Obama, Secretary Geithner sat for the much anticipated economic stimulus plan roll-out. Unfortunately, it quickly became apparent that no plan had been finalized. As Mr. Geithner plugged the new plans web site, scores logged on and were disappointed to find that the site was still under construction. Clicking on one of the few links that did exist on the new site, we were directed to the Treasury’s Tarp Help Wanted section. Since his election, President Obama has reminded Americans that recovery is going to take a while. In light of the fact that the Treasury Department is currently scratching its head and looking for help, I would tend to agree.
From the Department of the Treasury:
The Treasury Department is hiring for positions related to the authorities granted by the Emergency Economic Stabilization Act to implement the Troubled Asset Relief Program (TARP). Resumes previously sent to Treasury have been logged and all resumes are being reviewed on a rolling basis. We are currently seeking applicants who have specific experience in the specializations listed below. Applicants should review the needed skills and determine which position or positions best match their experience. Applicants should submit their resume to the email link(s) for those opportunities. Those who previously submitted a resume to the general email address may re-submit it to a specific category below.
From the Department of the Treasury:
The Treasury Department is hiring for positions related to the authorities granted by the Emergency Economic Stabilization Act to implement the Troubled Asset Relief Program (TARP). Resumes previously sent to Treasury have been logged and all resumes are being reviewed on a rolling basis. We are currently seeking applicants who have specific experience in the specializations listed below. Applicants should review the needed skills and determine which position or positions best match their experience. Applicants should submit their resume to the email link(s) for those opportunities. Those who previously submitted a resume to the general email address may re-submit it to a specific category below.
Wednesday, February 11, 2009
Aristotle on Usury
Of the two sorts of money-making one, as I have just said, is a part of household management, the other is retail trade: the former necessary and honourable, the latter a kind of exchange which is justly censured; for it is unnatural, and a mode by which men gain from one another. The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural use of it. For money was intended to be used in exchange, but not to increase at interest. And this term usury, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of making money this is the most unnatural.
~Aristotle
Photo credit: mlahanas.de
Tuesday, February 10, 2009
We Have a Plan
The Senate approved funding for $838 billion dollars of stimulus spending today. The plan was subsequently introduced by its architect, Treasury Secretary Tim Geithner. Mr. Geithner has provided us with the details of the new plan that are available at http://www.financialstability.gov/. To save you the trouble of reading the intricate details of this plan, I have attached them below:
This site is coming soon.
This site is coming soon.
Photo credit: www.blog.prospect.org
Monday, February 9, 2009
EuroDisney – Foreign Direct Investment Decision
Walt Disney Co., riding high on its resounding success in creating resorts in Tokyo and Orlando, had long planned to enter the European market. Plans to build a Disney park in Europe were first discussed in the 1970's, yet construction did not begin until the 1980's at the location just outside of Paris and it was first opened in 1992. In considering where to locate a European theme park, Disney had much to consider. While some have argued that a theme park in Spain would have more easily transitioned from the red ink to profitability, Disney stood by its decision.
Overall project costs were significantly higher in France. The initial investment for a theme park in Spain was estimated at $1.4 billion, opening a theme park near Paris was expected to cost $2.4 billion. Additionally, while the government in Spain was motivated to offer financial assistance by an unemployment rate of 16%, France was unwilling to provide any aide for the project. The team assigned to evaluate the expansion looked at both qualitative and quantitative factors to make their final decision recommendation. Major contributing factors that were considered largely included culture, weather, cash flow/ net present value, and potential risks. In the end, Disney went with France based on a higher net present value (NPV) calculation. The results of this decision were initially mixed due to the fact that the organization had hoped for a near 100% occupancy rate which failed to materialize. Sensitivity analysis had accounted for this possibility, however the actual occupancy rate fell on the lower end of estimates.
It is very challenging and critical for organizations to accurately estimate cash flows for proposed business ventures. If an MNC is unsure of the estimated cash flows of a proposed project, it needs to incorporate an adjustment for this risk. The accuracy of this calculation may determine whether or not a project succeeds or fails. In order to account for variation MNCs have utilized a number of techniques.
International managers have several tools available to estimate cash flows including the risk-adjusted discount rate, sensitivity analyses, and simulation. The challenge is to understand how the many variables might impact cash flows. Variables that must be considered for variation include: exchange rates, inflation, financing, blocked funds, salvage value, prevailing cash flows, government incentives, and real options. While the risk-adjusted discount rate may be useful for smaller and less risky endeavors, it often fails to account for the diversity and variety of fluctuations of variables. Similarly, sensitivity analyses can be useful, but largely fails to truly prepare MNCs for potential eventualities.
By utilizing simulation methodology, MNCs can calculate a wide-range of potential variables to evaluate. Computer models can utilize the inputted range of each variable and randomly select value’s to determine the net present value (NPV). The computer randomly generates results that give management a perspective on the maximum and minimum possible rate of return based on estimations and chance. The major advantage of simulation is that the MNC can examine the range of possible NPVs that may occur.
Overall project costs were significantly higher in France. The initial investment for a theme park in Spain was estimated at $1.4 billion, opening a theme park near Paris was expected to cost $2.4 billion. Additionally, while the government in Spain was motivated to offer financial assistance by an unemployment rate of 16%, France was unwilling to provide any aide for the project. The team assigned to evaluate the expansion looked at both qualitative and quantitative factors to make their final decision recommendation. Major contributing factors that were considered largely included culture, weather, cash flow/ net present value, and potential risks. In the end, Disney went with France based on a higher net present value (NPV) calculation. The results of this decision were initially mixed due to the fact that the organization had hoped for a near 100% occupancy rate which failed to materialize. Sensitivity analysis had accounted for this possibility, however the actual occupancy rate fell on the lower end of estimates.
It is very challenging and critical for organizations to accurately estimate cash flows for proposed business ventures. If an MNC is unsure of the estimated cash flows of a proposed project, it needs to incorporate an adjustment for this risk. The accuracy of this calculation may determine whether or not a project succeeds or fails. In order to account for variation MNCs have utilized a number of techniques.
International managers have several tools available to estimate cash flows including the risk-adjusted discount rate, sensitivity analyses, and simulation. The challenge is to understand how the many variables might impact cash flows. Variables that must be considered for variation include: exchange rates, inflation, financing, blocked funds, salvage value, prevailing cash flows, government incentives, and real options. While the risk-adjusted discount rate may be useful for smaller and less risky endeavors, it often fails to account for the diversity and variety of fluctuations of variables. Similarly, sensitivity analyses can be useful, but largely fails to truly prepare MNCs for potential eventualities.
By utilizing simulation methodology, MNCs can calculate a wide-range of potential variables to evaluate. Computer models can utilize the inputted range of each variable and randomly select value’s to determine the net present value (NPV). The computer randomly generates results that give management a perspective on the maximum and minimum possible rate of return based on estimations and chance. The major advantage of simulation is that the MNC can examine the range of possible NPVs that may occur.
Photo Credit: E-Global.es
Friday, February 6, 2009
Cause and/or Effect
During the current economic stimulus debates, much has been made of the cause versus effects of monetary and fiscal policy. When assessing the results of tax increases during the 1990s, for example, some have reasoned that the economy grew despite or even because of them. The argument continues by claiming that recent tax cuts have resulted in unemployment rates surging to levels unseen in the past quarter century. These claims, oversimplify a complicated and dynamic set of variables, none of which we are capable of isolating.
You must keep in mind that tax cuts do not happen in a box. We do not have the ability to singularly isolate all variables in the real world. We cannot accurately say whether it was monetary policy that caused a particular gain or fiscal policy or even foreign policy. Perhaps one of the infinite other variables caused a gain or loss. Or consider that a certain period of time might have been made worse from action as opposed to having introduced nothing at all. For example, it has been cited that recent tax cuts have resulted in surging unemployment rates. One must consider, relative to what? Had we increased taxes at that time, what would have been the result? The answer is that we do not know precisely. We are forced to use some amount of logic and common sense. We cannot rely on historic measurement if we cannot isolate the variables.
You must keep in mind that tax cuts do not happen in a box. We do not have the ability to singularly isolate all variables in the real world. We cannot accurately say whether it was monetary policy that caused a particular gain or fiscal policy or even foreign policy. Perhaps one of the infinite other variables caused a gain or loss. Or consider that a certain period of time might have been made worse from action as opposed to having introduced nothing at all. For example, it has been cited that recent tax cuts have resulted in surging unemployment rates. One must consider, relative to what? Had we increased taxes at that time, what would have been the result? The answer is that we do not know precisely. We are forced to use some amount of logic and common sense. We cannot rely on historic measurement if we cannot isolate the variables.
Photo Credit: Whyfiles.org
Thursday, February 5, 2009
Wednesday, February 4, 2009
Direct Foreign Investment
The objective of any organization is to maximize shareholder wealth. According to Madura (2008), “MNCs commonly consider direct foreign investment because it can improve their profitability and enhance shareholder wealth” (p. 370). There are many opportunities to profit from the marketplace and these doors often open in foreign nations. These profit opportunities can be broadly grouped into either revenue or cost-related incentives. Aside from the immediate potential for gain, organizations, like individuals, may consider themselves more effectively diversified if they are invested abroad. Diversification, in the form of both suppliers and consumers, will enhance the organizations most important objective. There are many incentives to direct foreign investment and international diversification. Organizations should work to become more international, however, they must be well aware of the potential pitfalls in the markets in which they invest.
Economic conditions in the United States have led to the devaluation of the dollar in recent years. The cheap dollar, coupled with stock prices driven lower by psychological factors, left many otherwise profitable American companies vulnerable to foreign competitors looking to buy cheap assets. In one such notable transaction, InBev, a Belgian brewer, took control of the American behemoth Anheuser-Busch, a proud American brand. According to Anheuser-Busch.com, “The transaction creates significant profitability potential both in terms of revenue enhancement and cost savings” (p. 4). Clearly, the stakeholders in this transaction see potential gains in the form of both cost and revenue effects. While Anheuser-Busch will retain much of its American image, the ownership has shifted to foreign shareholders. This particular case exemplifies the need for organizations to consider the affect of their brand name in their market. As McDonalds moves into markets throughout the world, they have retained their unique American image. Organizations may attempt to leverage their distinctive identity or they may determine to conform to a national standard where they conduct business. Many factors will determine the method each organization utilizes in order to enter foreign markets.
References
Anheuser-Busch InBev (2008, July 13). InBev and Anheuser-Busch Agree to Combine.
Retrieved on February 4, 2009 from http://www.anheuser-
busch.com/Press/PressImages/FINAL%20PRESS%20RELEASE.pdf
Madura, J. (2008). International Financial Management (9th ed.). Ohio: Cengage
Learning
Economic conditions in the United States have led to the devaluation of the dollar in recent years. The cheap dollar, coupled with stock prices driven lower by psychological factors, left many otherwise profitable American companies vulnerable to foreign competitors looking to buy cheap assets. In one such notable transaction, InBev, a Belgian brewer, took control of the American behemoth Anheuser-Busch, a proud American brand. According to Anheuser-Busch.com, “The transaction creates significant profitability potential both in terms of revenue enhancement and cost savings” (p. 4). Clearly, the stakeholders in this transaction see potential gains in the form of both cost and revenue effects. While Anheuser-Busch will retain much of its American image, the ownership has shifted to foreign shareholders. This particular case exemplifies the need for organizations to consider the affect of their brand name in their market. As McDonalds moves into markets throughout the world, they have retained their unique American image. Organizations may attempt to leverage their distinctive identity or they may determine to conform to a national standard where they conduct business. Many factors will determine the method each organization utilizes in order to enter foreign markets.
References
Anheuser-Busch InBev (2008, July 13). InBev and Anheuser-Busch Agree to Combine.
Retrieved on February 4, 2009 from http://www.anheuser-
busch.com/Press/PressImages/FINAL%20PRESS%20RELEASE.pdf
Madura, J. (2008). International Financial Management (9th ed.). Ohio: Cengage
Learning
Tuesday, February 3, 2009
A Call for Power
It has been well-established that the creation of money, in and of itself, does not stimulate economic growth. In order to stimulate the growth and quality of life of a population, output or production must increase. There are two ways to accomplish increased output. The first, which is widely accepted today, is lowering taxes. A lower tax creates more incentive to invest and work because you get to keep more of what you make. An incentive to work and invest will increase output. The actual increase in the money in consumer’s hands is irrelevant in this eventuality. More money held by all is called inflation. Inflation simply increases prices and does nothing to output. It is the motivation to increase output based on larger expectations of return that is fulfilled by lowering taxes.
The second, and more controversial method of stimulating output, is an investment in the “business.” For example, a few years ago, McDonalds reported losses for the first time in its celebrated history. In an attempt to rectify this, they decided to reinvest in existing stores. Previously, they had been throwing money at developing new stores and neglecting existing infrastructure. By cleaning up the image, products, and business model, McDonalds quickly returned to profitability.
How can the U.S. invest in their ‘existing stores?’ The answer, as has been danced around in Congress, is infrastructure improvements. The determination of what investment will obtain a satisfactory return is the catching point. Democrats want to invest in museums and Republicans don’t seem to know what to invest in. Some have the idea of the great public works projects of the depression era. Personally, I would like to see the day the un-employed, former Lehman associate joins the road department, but I do not think this is necessary today. What we need today is a very large investment in nuclear power. If the intent is to wean ourselves from foreign oil (which is going to happen whether we want it or not), we need to begin to increase our ability to produce energy. As sunny as it is in Arizona, and as windy as it is in the mid-west, we need a real solution to energy, and nuclear is the one we have. This will take a herculean effort, however it is a solution that addresses both infrastructure improvement and national security.
The second, and more controversial method of stimulating output, is an investment in the “business.” For example, a few years ago, McDonalds reported losses for the first time in its celebrated history. In an attempt to rectify this, they decided to reinvest in existing stores. Previously, they had been throwing money at developing new stores and neglecting existing infrastructure. By cleaning up the image, products, and business model, McDonalds quickly returned to profitability.
How can the U.S. invest in their ‘existing stores?’ The answer, as has been danced around in Congress, is infrastructure improvements. The determination of what investment will obtain a satisfactory return is the catching point. Democrats want to invest in museums and Republicans don’t seem to know what to invest in. Some have the idea of the great public works projects of the depression era. Personally, I would like to see the day the un-employed, former Lehman associate joins the road department, but I do not think this is necessary today. What we need today is a very large investment in nuclear power. If the intent is to wean ourselves from foreign oil (which is going to happen whether we want it or not), we need to begin to increase our ability to produce energy. As sunny as it is in Arizona, and as windy as it is in the mid-west, we need a real solution to energy, and nuclear is the one we have. This will take a herculean effort, however it is a solution that addresses both infrastructure improvement and national security.
Monday, February 2, 2009
Henry Ford on the Value of the Dollar
Henry Ford understood the implications of the falling dollar during the “Roaring Twenties.”
“But money should always be money. A foot is always twelve inches, but when is a dollar a dollar? If ton weights changed in the coal yard, and peck measures changed in the grocery, and yard sticks were to-day 42 inches and to-morrow 33 inches (by some occult process called ‘exchange’) the people would mighty soon remedy that. When a dollar is not always a dollar, when the 100-cent dollar becomes the 65-cent dollar, and then the 50-cent dollar, and then the 47-cent dollar, as the good old American gold and silver dollars did, what is the use of yelling about ‘cheap money,’ ‘depreciated money’? A dollar that stays 100 cents is as necessary as a pound that stays 16 ounces and a yard that stays 36 inches.”
Henry Ford, My Life and Work, 1922
“But money should always be money. A foot is always twelve inches, but when is a dollar a dollar? If ton weights changed in the coal yard, and peck measures changed in the grocery, and yard sticks were to-day 42 inches and to-morrow 33 inches (by some occult process called ‘exchange’) the people would mighty soon remedy that. When a dollar is not always a dollar, when the 100-cent dollar becomes the 65-cent dollar, and then the 50-cent dollar, and then the 47-cent dollar, as the good old American gold and silver dollars did, what is the use of yelling about ‘cheap money,’ ‘depreciated money’? A dollar that stays 100 cents is as necessary as a pound that stays 16 ounces and a yard that stays 36 inches.”
Henry Ford, My Life and Work, 1922
Photo Credit: Mises.org
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