26 February 2009
The budget deficit for 2009 is expected to reach $1.75 trillion or 12.3% of GDP. That is a record in dollar terms and the highest percentage against GDP since World War II.
President Obama has called on Americans to sacrifice for the good of the country. He is confident we will get through this, but we will have to re-prioritize our spending.
The White House expects to spend $3.6 trillion dollars and GDP to fall to 1.2% this year. Growth in GDP is expected to grow 3.2%, 4% and 4.6% over the next three years.
Unemployment will rise to 8.1% this year, but then is expected to drop to 7.9% next year and around 5% by 2014.
The budget outline also sets aside $250 billion for stabilizing the financial system, which is net of the $750 billion that will be spent. In other words, the government is no longer expecting to recover all of their investment as the previous administration promised.
The budget proposal includes $634 billion for a health care reform reserve fund. This will be paid for in two ways. First, top tax payers would only be able to deduct 28% instead of their top income tax rate. This is expected to raise $318 billion over 10 years.
Secondly, by reducing payments to private insurance companies offering Medicare and reducing prescription drug prices the administration believes it will save $316 billion.
By letting Bush's tax cuts for the rich expire, Obama expects to raise $640 billion over 10 years. The other side of the coin, however, is that the tax cuts for the middle class and poor total $900 billion.
The President wants to make permanent the Making Work Pay tax credit, the child care credit and the newly enlarge college credits.
Every year Congress attempts to protect the middle class from having to pay the Alternative Minimum Tax by passing a "patch". Every year the "patch" is not included in the budget, this year it is.
Obama wants to tax the portion of profits paid to managers of hedge funds and private equity firms as ordinary income rather than as an investment gain, thereby subjecting it to much higher tax rates than the 15% capital gains rate. This could be worth $24 billion over 10 years.
Reducing limits on direct payments to farms that have over $500,000 in sales is expected to raise $10 billion over 10 years.
Obama's budget will call on Congress to create a cap-and-trade program in which companies would have to pay for permission to emit greenhouse gases. Revenue from the program is intended to pay for a $150 billion renewable energy fund among other things.
The new cap-and-trade program would pay for making the Making Work Pay credit permanent, which the White House estimates will cost $537 billion over 10 years.
Economists expected a drop for this week, but a sharp spike is what they got instead. And first time claims are expected to rise to 750,000 for the coming weeks.
President Obama's stimulus plan includes some relief for displaced workers. There will be a weekly increase in the benefits of $25.
Also, the first $2,400 received in 2009 are tax free. And when your benefits run out, you'll get an additional 20 weeks. If you live in a high unemployment state you could get another 13 weeks on top of that.
23 February 2009
The S&P is also headed for closing below its November low today. The day is not over yet and a rally could ensue, but over the short term it does not look good for the S&P. Some analysts are predicting 650 in the short term for the S&P.
I've been saying for some time that 6,000 on the Dow and 600 on the S&P are my minimum low predictions. Longer term I think the Dow could get to 4,000 and there is an outside chance the ultimate low could be around 3,000. That could mean the S&P could get to around 400.
When that happens there will be some great bargains out there, but stick to quality companies. That could be a challenge to find, what I may have considered a quality company a year ago, may not be today. Good hunting.
Currently the auto companies are worth only a fraction of what they borrowed the first time around and now they are asking for even more money.
As I've said before it is only a matter of time before the automakers go into bankruptcy and after that time all the taxpayer money could disappear forever.
Should the government continue to throw good money after bad? Probably not, but will they? Probably.
I got to give the government credit really. They are trying to do everything they can to fix the economy. Maybe it's the wrong thing to do, maybe some companies should be allowed to go bankrupt. But maybe things could be devastating if they did nothing. Maybe they still will be.
I think I can say that no one really knows how this is going to turn out...only time will tell.
20 February 2009
This may not be more noticeable anywhere than in China. The U.S. imports thousands of products from China. China was becoming a dominate economic power because of it. The U.S. also gets most of its loans from China in the form of Treasury bond purchases.
Now China has closed 70,000 factories and laid of 20 million workers. These young workers are faced with few choices and are forced to resort to the old ways of making a living...farming. Non have the skills or know how to farm, but must learn in order to feed their families.
Factory workers could make $10,000 a year, a good wage that provided all their needs, now they make nothing. Farming doesn't pay well, but has the advantage of feeding the family.
Many will return to the cities to look for work, but the world is watching and hoping for a speedy U.S. recovery.
18 February 2009
In a sharp reversal of the Republican plan, which calls for servicers to voluntarily restructure loans, the Democratic plan will provide incentives for servicers to help homeowners stay in their homes by modifying loans, reducing payments, subsidizing interest payments, and protecting servicers from falling home prices.
Servicers will receive $1,000 for each loan modification and an additional $1,000 a year for three years if the borrower remains current on payments. The plan would also give $500 to servicers and $1,500 for mortgage holders if they modify loans before a borrower falls behind in payments.
Obama will also work with the bankruptcy laws to allow judges to modify mortgages.
The mortgage relief would be available to borrowers who are at risk of falling behind in payments and those that have already fallen behind. The goal is to reduce monthly payments to less than 31% of a borrowers monthly income .
13 February 2009
So who is responsible? Read about 25 people identified to have played a major role in setting the country up for disaster.
Do you think this stimulus will work?
There was a former Senator on the Daily Show last night talking about how tax cuts are needed. Jon Stewert brought up how when Bush took office the Federal Government has a surplus so Bush gave tax cuts.
Now we have huge deficits and the government is giving tax cuts. Tax cuts seems to be the answer for everything.
12 February 2009
The key resistance areas, that are above today's market price by 40 points on the S&P, have resisted the bulls' attempt to drive prices higher and the market experienced a large one day sell off unlike any seen for a couple of months.
There are some key resistance points to keep an eye out for. On the S&P it is the 800 level. If the market closes below that level and does not quickly reverse back above, then the odds of visiting the previous lows of 739 increase. If that level is broken then watch out below.
On the Dow the key support area is the previous lows around 7,400. If that level is broken and not quickly reversed then the bottom could retreat to 6,000. Some more conservative analysts have indicated the bottom would be around 6,500.
At any rate, being prepared for a potential fall of this magnitude would offer some great bargains and profits to be made from a snap back rally. Keep your eyes open.
The Credit CARD Act will help protect American consumers by bringing an end to wrongful credit card practices. Among other provisions, the legislation will:
- Protect consumers from any-time, any reason interest rate increases and account changes;
- Prohibit unfair application of card payments;
- Protect cardholders who pay on time;
- Limit fees and penalties;
- Ensure that cardholders are informed of the terms of their account; and
- Protect young consumers from credit card solicitations.
It's amazing that it took a national catastrophe in the the financial markets for Congress and the Senate to realize that credit card companies have been gouging Americans for decades on interests rates, late fees and more when it comes to credit card accounts.
Read more of the Senators bill.
10 February 2009
For the first time since records began being kept, immigration from Mexico and other countries has declined. Workers cannot find work and have been out of work for over 6 months in some cases.
Some illegal immigrants are saying that if they have to suffer, they may as well suffer in their own country with their families.
While most Americans will not do the work that illegal immigrants do, even with the unemployment rate at 7.6%, the businesses that would normally employ the illegal's are going out of business anyway or have less work available.
There is an abundance of unskilled American workers and with the immigrants leaving, it gives Americans the opportunity to work in that field, whether they take it or not is another question.
Former President Bush always said he was working on a plan to reduce illegal immigration. Little did we know that it had something to do with destroying the economy.
At any rate it worked, immigration has declined and many are heading back home. That's the first thing I can think of that Bush accomplished.
09 February 2009
When discussing the stimulus package, Congressman educated everyone on how much a trillion dollars is, how high the bills would stack above the earth, how many times the money would circle the globe, but I never did hear how he liked the stimulus plan.
Currently the government has issued bailout money or loans totaling 9.7 trillion dollars, so far. That is enough money to give $1,400 to every human being in the world, it's 13 times the cost of the Iraq and Afghanistan wars and it would pay off 90% of all the mortgages in the U.S.
Now it seems that since it was the housing bubble that started this mess, using the money to pay off mortgages would have been one heck of a stimulus package. I know I would be more willing to spend if my mortgage was paid off.
Ten trillion dollars is almost as much as the U.S.'s GDP. What happens if the businesses the government is loaning money to still go bankrupt? That money never gets repaid, what effect does that have on the country?
Now the government is thinking about forcing GM and Chrysler into bankruptcy so they can be guaranteed to get paid back. Just a couple of months ago they were debating loaning them money to keep them out of bankruptcy. Of course, they did loan them money and now they are doing what everyone said they should do in the first place, let them go into bankruptcy. This is the same Congress that is trying to save the country.
03 February 2009
Naturally, the Republicans tend to believe only their ideas will stimulate the economy, but there may be a few items on the list that should be reconsidered.
As reported by CNN, here is the list, you be the judge.
• $2 billion earmark to re-start FutureGen, a near-zero emissions coal power plant in Illinois that the Department of Energy defunded last year because it said the project was inefficient.
• A $246 million tax break for Hollywood movie producers to buy motion picture film.
• $650 million for the digital television converter box coupon program.
• $88 million for the Coast Guard to design a new polar icebreaker (arctic ship).
• $448 million for constructing the Department of Homeland Security headquarters.
• $248 million for furniture at the new Homeland Security headquarters.
• $600 million to buy hybrid vehicles for federal employees.
• $400 million for the Centers for Disease Control to screen and prevent STD's.
• $1.4 billion for rural waste disposal programs.
• $125 million for the Washington sewer system.
• $150 million for Smithsonian museum facilities.
• $1 billion for the 2010 Census, which has a projected cost overrun of $3 billion.
• $75 million for "smoking cessation activities."
• $200 million for public computer centers at community colleges.
• $75 million for salaries of employees at the FBI.
• $25 million for tribal alcohol and substance abuse reduction.
• $500 million for flood reduction projects on the Mississippi River.
• $10 million to inspect canals in urban areas.
• $6 billion to turn federal buildings into "green" buildings.
• $500 million for state and local fire stations.
• $650 million for wildland fire management on forest service lands.
• $1.2 billion for "youth activities," including youth summer job programs.
• $88 million for renovating the headquarters of the Public Health Service.
• $412 million for CDC buildings and property.
• $500 million for building and repairing National Institutes of Health facilities in Bethesda, Maryland.
• $160 million for "paid volunteers" at the Corporation for National and Community Service.
• $5.5 million for "energy efficiency initiatives" at the Department of Veterans Affairs National Cemetery Administration.
• $850 million for Amtrak.
• $100 million for reducing the hazard of lead-based paint.
• $75 million to construct a "security training" facility for State Department Security officers when they can be trained at existing facilities of other agencies.
• $110 million to the Farm Service Agency to upgrade computer systems.
• $200 million in funding for the lease of alternative energy vehicles for use on military installations.
02 February 2009
Last year the commercials were hyped up beyond belief and then viewers were let down when they didn't live up to the hype. This year there was no hype and it's a good thing, because they weren't anything to write home about.
The game itself this year was very exciting, unless you're a Cardinals fan. The Cardinals didn't really show up to the game until the 4th quarter. They finally started going to their franchise man Fitzgerald and suddenly they were back in the game.
It's too bad the Cardinals defense didn't come to the game. Not that they are rated highly or anything, but they couldn't stop the Steelers offense the whole game. I was hoping they would dig down deep into their bag of tricks and find some motivation to stop the Steelers final drive, but it didn't happen.
Of course when you are the Steelers you have extra players on your side. They wear different uniforms but they are very effective.
You remember when they played the Seahawks and Rothlisberger was given a touchdown he didn't make (even he admitted it on Jay Leno). This year they took it away and instead were given a bigger gift at the end of the game when the Steelers stripped players ruled Warner's forward pass a fumble and gave the ball the the Steelers to end the game.
I used to be a fan of the Steelers, but ever since they began enjoying calls that aren't available to every team it turned me against them.
Admittedly, they have a very good team this year, way better then the one that played the Seahawks. The Cardinal defense couldn't stop the mighty Steeler offense. Too bad, it was exciting to see the Cardinals come back and take the lead at the end of the game, if only the defense could have played hard for a couple of minutes the outcome would have been different.
The way I see there were two key issues that cost the Cardinals the game. First, the poor play call at the end of the first half that led to a Steeler touchdown with no time remaining. I agree it should have been a pass play, but to the corner, not in the middle of the Steeler defense.
Second, the Cardinal defense. I think that says it all.