Wednesday, April 14, 2010

Economy News: Small but steady recovery at United States

Federal Reserve points to a low-paced but steady recovery of the United States economy. All of the Fed's 12 regions, but St. Louis, has faced an increase of the economic activity, an improvement of the last Fed survey at March, where nine regions reported modest economic advances. Snowstorms at East Coast had crimped their activity.

Yahoo News

On the other side, Ben Bernanke, chairman of the US Federal Reserve, has said that the country is still facing "difficult choices", cutting the country's deficit ( as we informed you here this morning )

Bernanke stated that weakness in the construction is still a burden on the US economy. His cautious comments about the recovery come despite data showing a 1'6% increase in March retail sales

US Federal Reserve chairman Ben Bernanke
Mr Bernanke said the recovery still faced "significant restraints

Nonetheless, he added that that there were some encouraging signs for the economy, as the unemployement rates are decreasing while consumer spending increases.

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Economy News: Trader blows whistle on gold & silver price manipulation

There is no silver lining to the activities of JPMorgan Chase and HSBC in the precious-metals market here and in London, says a 40-year veteran of the metal pits.

The banks, which do the Federal Reserve's bidding in the metals markets, have long been the government's lead actors in keeping down the prices of gold and silver, according to a former Goldman Sachs trader working at the London Bullion Market Association.

Maguire was scheduled to testify last week before the Commodities Futures Trade Commission, which is looking into the activities of large banks in the metals market, but was knocked off the list at the last moment. So, he went public.

APBrokers and traders transact gold futures on the Comex  floor of The New York Mercantile Exchange, Thursday, April 6, 2006. Gold  prices topped $600 an ounce in Comex trading Thursday. (AP Photo/John  Marshall Mantel)

Brokers and traders transact gold futures on the Comex floor of The New York Mercantile Exchange, Thursday, April 6, 2006. Gold prices topped $600 an ounce in Comex trading Thursday. (AP Photo/John Marshall Mantel)

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Economy News: Investors snap up Greek T-bills

Greece has sold a total of 1.2 billion euros worth of Treasury bills indicating that investors have a renewed appetite for all things Greek following the announcement of a euro zone/IMF aid package to help the debt hit country.

The sale may lead the Greeks to continue trying to refund the debt alone without dipping into the 45 billion euros set aside by the euro zone and IMF.

However, PIMCO a key investment fund says it will not be buying more Greek debt as it believes the rescue package fails to recognise the country’s long term solvency challenges.

The package, agreed by euro zone ministers and the IMF, will offer loans at 5 per cent interest that is lower than world market rates, but not as low as Greece wanted.

Meanwhile, Greek fruit sellers have set out their stalls outside the finance ministry in Athens and distributed free produce as part of a two day protest over the governments austerity measures. (Video inside)

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Economy Lesson: Public Works Mean Taxes, by Henry Hazlitt

There is no more persistent and influential faith in the world today than the faith in government spending. Everywhere government spending is presented as a panacea for all our economic ills. Is private industry partially stagnant? We can fix it all by government spending. Is there unemployment? That is obviously due to “insufficient private purchasing power.” The remedy is just as obvious. All that is necessary is for the government to spend enough to make up the “deficiency”.

An enormous literature is based on this fallacy, and, as so often happens with doctrines of this sort, it has become part of an intricate network of fallacies that mutually support each other. We cannot explore that whole network at this point; we shall return to other branches of it later. But we can examine here the mother fallacy that has given birth to this progeny, the main stem of the network.

Everything we get, outside of the free gifts of nature, must in some way be paid for. The world is full of so-called economists who in turn are full of schemes for getting something for nothing. They tell us that the government can spend and spend without taxing at all; that is can continue to pile up debt without ever paying it off because “we owe it to ourselves.” We shall return to such extraordinary doctrines at a later point. Here I am afraid that we shall have to be dogmatic, and point out that such pleasant dreams in the past have always been shattered by national insolvency or a runaway inflation. Here we shall have to say simply that all government expenditures must eventually be paid out of the proceeds of taxation; that inflation itself is merely a form, and a particularly vicious form, of taxation.

Having put aside for later consideration the network of fallacies which rest on chronic government borrowing and inflation, we shall take it for granted throughout the present chapter that either immediately or ultimately every dollar of government spending must be raised through a dollar of taxation. Once we look at the matter in this way, the supposed miracles of government spending will appear in another light.

A certain amount of public spending is necessary to perform essential government functions. A certain amount of public works — of streets and roads and bridges and tunnels, of armories and navy yards, of buildings to house legislatures, police and fire departments—is necessary to supply essential public services. With such public works, necessary for their own sake, and defended on that ground alone, I am not here concerned. I am here concerned with public works considered as a means of “providing employment” or of adding wealth to the community that it would not otherwise have had.

A bridge is built. If it is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary to the taxpayers collectively than the things for which they would have individually spent their money had it had not been taxed away from them, there can be no objection. But a bridge built primarily “to provide employment” is a different kind of bridge. When providing employment becomes the end, need becomes a subordinate consideration. “Projects” have to be invented. Instead of thinking only of where bridges must be built the government spenders begin to ask themselves where bridges can be built. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? It soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries.

Two arguments are put forward for the bridge, one of which is mainly heard before it is built, the other of which is mainly heard after it has been completed. The first argument is that it will provide employment. It will provide, say, 500 jobs for a year. The implication is that these are jobs that would not otherwise have come into existence.

This is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.

But then we come to the second argument. The bridge exists. It is, let us suppose, a beautiful and not an ugly bridge. It has come into being through the magic of government spending. Where would it have been if the obstructionists and the reactionaries had had their way? There would have been no bridge. The country would have been just that much poorer. Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes. They can see the bridge. But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. To see these uncreated things requires a kind of imagination that not many people have. We can think of these nonexistent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others.

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Economy News: Obama team points to smaller deficit numbers

The federal deficit is running significantly lower than it did last year, with the budget gap for the first half of fiscal 2010 down 8 percent over the same period a year ago, senior Obama administration officials said Monday.

The officials attributed the results to higher tax revenue and to lower spending than projected on bailing out the financial system. If the trend continues for the rest of the year, it would mean the annual deficit would be $1.3 trillion -- about $300 billion less than the administration's projection two months ago for 2010.

But by suggesting the deficit may have peaked, administration officials are taking a political gamble. If the favorable number does not hold up in coming months and the budget shortfall surpasses the $1.4 trillion recorded last year, voters in the November midterm elections could punish the Democrats for offering false hope.

No official statement on the deficit is scheduled until the release of a late-summer review. The officials spoke on the condition of anonymity because the findings are preliminary and the results for the full year might not turn out so well.

The officials expressed cautious optimism about the figures but noted that the outlook remains uncertain. Although the economy has stabilized, growth has been lackluster. If the administration and Congress pursue a new round of measures to stimulate the economy, these could boost government spending. Officials also want to see whether the favorable trend in tax collections recorded in February and March holds up through the April tax season.

The improved budget figure comes at an opportune time for Democrats as they head into a difficult political campaign, with Republicans blaming the administration for running up record deficits.

The federal deficit was large when Obama took office, but it ballooned as the administration launched an ambitious stimulus program to soften the economic downturn, which was eating tax revenue and prompting increased spending on safety net programs. In recent days, Federal Reserve Chairman Ben S. Bernanke has added his voice to those of other prominent economic figures warning about the long-term dangers posed by large deficits.

Full article, here:

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