Save Willie

Craig Maugham asked:




Ever since the Wall Street started tumbling and the American economic crisis came out in the open in September 2008, there have been effects around the world. This disaster and meltdown was not restricted to this country alone; the repercussions are being felt across the globe.

It is aptly termed as a global recession.

The American Economy and the World Economy

Volatility and uncertainty are widespread at this time in the financial markets.

The growth rate of the world’s economy has slowed down.

China has been posting double-digit growth rates for the last four years. However, the growth rate has fallen to 9.0 percent in this quarter, according to the National Bureau of Statistics. This fall is primarily attributed to the unstable international economic climate.

Similar reports are coming from Japan, the second-biggest economy in the world. The Bank of Japan is Japan’s central bank. It’s Governor, Masaaki Shirakawa, has predicted stagnancy in economic growth of the country as the result of fallout of the economic recession in countries across the world.

With the American economy, development across different states of America, its lending to other developing countries and the overall state of affairs in the United States has a direct effect on the economic situation of other major countries of the world.

From current U.S.A. data, new home sales in the United States fell to their lowest level since the recession in 1991.

The Start of the 2008 Crisis

The present financial crisis in the U.S.A. had its beginnings in the highly acclaimed and popular sub-prime US home loans. These high-risk loans were packaged as derivatives or complex investment instruments and sold to banks and investors across the world.

The crunch began when people defaulted on these loans. Repayment delays and defaults in paying back loans started a grim chain of events in motion.

The worst-hit businesses were the lending banks. They became cash-strapped. Inter-banks loans alone could no longer ensure the smooth functioning of the world financial economy. It became clear that not all banks could survive this situation which could have led to bank failures across the world.

This caused world governments to pump in as much as three trillion dollars, in addition to huge cash infusions, into these affected banks.

ING, one of the largest banks in the world, reported a loss of around 675 million dollars in the current quarter. The Netherlands then announced a 13.4-billion-dollar bailout for ING.

Similar scenes occurred when South Korea offered of over hundred billion dollars in guarantees to meet offshore debts of their domestic banks. Britain’s Finance Minister, Alistair Darling, put up plans for boosting public spending to overcome the negative growth rate of the British economy over the last two quarters.

However, the overall sentiment was not all depressing.

The announcement by US President George W. Bush and the European leaders to hold various summits to address this worst world crisis since the Great Depression has brought some cheer into investors and markets alike.

The first summit is to be held soon after US presidential elections on November 4. The summit will primarily address reforms to set the international financial system right.

The most urgent need of the hour is an extensive overhaul of the system while preserving the traditional foundations of democratic capitalism such as free enterprise, free markets, free enterprise and free trade.

Critical Appraisal

The ongoing global financial crisis has many similarities to the Great Depression of the twenties. Major changes like bank failures, the worsening credit crunch, rushed mergers of banks and financial institutions, sinking stock markets and some financial giants tumbling cause similar sentiments to those which were common during that Depression.

However, the major difference is that there is no great change in day-to-day life of the common person. The Great Depression pushed millions of families into extreme poverty.

Today, while a significant number suffer severe hardship, most people are still able to purchase goods, ATMs are working, and the scale of job losses is not as massive at this point.

Some experts say that this indicates the current crisis to be more of a financial correction and subsequent panic, rather than a full economic meltdown.

This has still caused extensive damage to Wall Street institutions. But, so far, the repercussions have not been felt as deeply as during the Great Depression.

History has been a great teacher. Politicians, bankers and others at Federal Reserve, Treasury and elsewhere are well aware of how all this could translate and bring changes in the economic scene. They are trying their best to soften as much of the depressive effects and reduce the number and effects of business closures and stresses.

Although the world economy is witnessing immense uncertainty, there are certain safeguards within the economy as an aftermath of the Great Depression which are helping.

Unemployment rates were as high as 24.9% in 1933. The current rate is 6.1%. It may go up to 7% or 8% which has severe effects on those directly affected but is much less than during the Great Depression.

Most banks presently have Federal deposit insurance. Most investors do not have a risk of losing all their money. Foreclosure problems are restricted to subprime mortgages alone.

Presently about one-third of all homeowners have a clear and free title. The present Federal Reserve is not on the gold standard.

Interest rates can be decreased to increase liquidity.

The current tax structures are not entirely progressive. There are automatic stabilizers within the system.

The impact of a dollar decline in Gross Domestic Product may be offset by tax decreases and automatic government spending increases.

There are some safety nets put into place after the lessons that were learned from the Great Depression.

These include the Securities and Exchange Commission to regulate stock markets and protect investors, unemployment insurance, deposit insurance and various social security measures.

All these help to ensure greater flexibility in financial markets.

This may help the world economy to recover faster and reduce the speed and extent of negative events in the markets across the world.

The appraisal shows that there is definitely a recession but not all are convinced that we have, or may experience, a depression.

Many feel that the world economy will bounce back after two or three quarters and things will slowly start looking up.



Sources:

The Federal Response to Home Mortgage Distress: Lessons from the Great Depression by David C. Wheelock

America’s Greatest Depression 1929-1941, by Lester V. Chandler National Association for Business Economics

For more detailed information on the current situation and how you can protect you and your family order your copy of Surviving the Debt Crisis today.

Michael DeVries asked:


we can sure draw some analogies.

Reflecting on the United States economy and the economic woes reported from the rest of the world’s financial systems these past few weeks, we have noticed a possible correlation to the childhood fairy tale “Chicken Little.”

You probably recall from this old English folk tale that a tiny little chicken called Chicken Little felt a rose leaf fall on her tail one day and immediately ran in great fright crying “the sky is falling!”

First one she told was Henny Penny who joined her in spreading the message. On their way to tell the king, they met Ducky Lucky who joined their chorus. Then Goosey Loosey and Turkey Lurkey also voted for the tale.

Did we say “voted”? Well, they joined the parade of characters till they all met Foxy Loxy who lured them into his den by promising to tell them where the king lives.

The story goes that Foxy Loxy led them into his den and they never came out again.

You can draw your own conclusions about what happened to Chicken Little, Henny Penny, Ducky Lucky, Goosey Loosey, and Turkey Lurkey, but you can be sure that the foxy one came out of that deal okay.

Now there are those who predict that our economy will never emerge from the den it’s in, but that’s not our area of expertise, so we won’t speculate here. Our business is running a business and we plan to keep doing just that.

We believe in persistence and hard work. Those whose wares we represent have their hopes tied into the products we represent. We don’t’ plan to let them down. We plan to be here; to keep on working and hopefully only paying our fair share to the common good in order to remain in business.

We hope to pass along many good deals to you in the coming months. We don’t expect to ever be a Wall Street presence; we are what has come to be called a Main Street business.

We are drowning out those who are trying to spread the message that the rose that fell on Wall Street was actually a thorny stem or the whole bush. We know based on history that some people will come out of this slumping economy smelling like a rose.

We know that some people are simply going to see and seize opportunity out of this turmoil and disruption. Some people are not going to fare so well and are going to need assistance. We support many organizations trying to provide that help.

In some respects poverty and unemployment are big business. Like a friend of mine said after being unemployed for four months a few years ago, “if it weren’t for unemployment, a lot of people would sure be out of work.”

Think about it. The unemployment system here in the United States is huge. We hope our customers don’t have to file to collect, but if you do, you will encounter counselors, clerks, and a cast of helpers that include those who actually keep the records and generate the checks to say nothing of the landlords collecting rent for the space these agencies use. If someone wasn’t unemployed, those people surely would be. Even our culture of helping those with less actually employs lots of people to distribute money, food, shelter, clothing, and other things of need.

We can’t predict where the large-scale economy is going, but we do believe that it will keep going and those who don’t give up on it will be a big part of its recovery.

We plan to be just as “foxy” as we can be to lure you into our den and connect you with some of the finest products from around the world. We can assure you that you’ll come out okay.

Please Reply and Share with us at: http://i-shoptheworld.com/2008/10/29/this-economy-is-no-fairy-tale-but/ all Your thoughts, Comments, etc. on any/all of the following related to the current Economic situation and How we may All work Together to Improve our World Economy for Everyone’s Mutual Benefits! :), namely:

- Do You really think the economy is as bad as the news media has been portraying it?

or …

- Do you think this is all just a fairy story they/the media have concocted, just like Chicken Little, to convince everyone that the “sky is falling”?

and if so …

Why?

- Do You think the media telling everyone the economy is bad, just like Chicken Little, is creating a “self fulfilling prophecy” and making the economy worse than it is really otherwise?

- Is the economy in Your country “better” or “worse” than as reported by the news media in the United States?

- How has any of this affected your personal finances and/or family finances thus far?

- What are You doing Now to prevent the reported economic situation from (further) affecting Your personal finances and/or family finances?

- What do You think can and/or should be done to improve the Global Economy?

- And Who should be doing these things to improve the Global Economy?

- What may we All do to work Together to Improve our World Economy?

for Everyone’s Mutual Benefits!

We look forward to hearing All of Your thoughts, Comments, etc. on any/all of these topics related to the current Economic situation and How we may All work Together to Improve our World Economy for Everyone’s Mutual Benefits!

Vladimir Gonzalez asked:


Hong Kong Economy

Subject to both British and Chinese rule, since the 70’s Hong Kong economy has also been subject to an economic policy dubbed positive, in which the policy of non-interventionism was predominant, as it was hailed by the country’s former financial secretary.

Cited and praised by worldwide economists, due to the benefits of this laissez-faire capitalism, Hong King’s kind of policy eventually placed the country among the world’s freest economies, for 14 consecutive years. The World Report of Economic Freedom also places Hong Kong first, though with some arguments addressed to the particular term laissez-faire, which inadequately characterizes the country’s policy.

To get a better idea, in Hong Kong the government owns the land, and it is the government the one that leases it to private users, the sale of the land being forbidden. The price of the land is thus kept stable- some have even argued that it would be artificially high. This policy gives free way to the government to be able to better support, at a lower rate public spending. Even more, the country’s liberal political-legal environment has been registered as more stable than that of most countries.

Hong Kong Economy enters the high-income group countries, according to the Classification of economies by Income. The country also enjoys a predominant free market economic system, dependent on International Trade and Commerce

Based on the estimated data of 2005, the Gross Domestic Product in Hong Kong was at $254.2 billion, with a growth rate of 7 %. That same year, the GDP per capita was at $36,800. With these figures, the economy of Hong Kong can easily be compared to those of the biggest economies of Western Europe. The increase in the GDP was calculated at a rate of 5% between 1989 and 2005, even though the country has had two recessions, as a result of the Asian financial crisis in 1997-1998 and also the global downturn from 2001-2002.

The country’s unique geographical location and diverse trading opportunities, as well as abundance human resources, have driven Hong Kong to great wealth-generating assets. Hong Kong also prides with one of the best-sheltered harbors, now a highly developed and thriving international port, it also was major port for pirates for centuries, before the British colonized it in 1841.

Having a skilled, adaptable, and also hard-working labor force, even more so once modern British business methods were implemented, together with modern technology, the chances for external trade, investment, and recruitment were soon doubled.

Further reading in EconomyWatch.com:

Overview of the Economy of Hong Kong

Imports and Exports of Hong Kong

Economic Indicators of Hong Kong

Arian Forrest Nevin, J.D. asked:


WASHINGTON - The Economic Recovery Act passed today in the House by a vote of 349 to 62. The ERA makes it illegal for the economy to “do poorly.” Speaker of the House, Nancy Pelosi, said “We wanted to send a clear message to the economy that poor performance will not be tolerated.” If convicted of doing poorly the economy could face up to five years in prison.

Long thought by many to be completely incompetent and corrupt, Congress has today shown its true merit. By passing the ERA, Congress has taken decisive action to solve the economic crisis, halt the recession, and restore prosperity. Once signed into law the ERA guarantees a return of economic prosperity because it will be required by law. The ERA directs the economy to grow at “not less than 5% per year” and requires the economy to create a minimum of “2 million new jobs every year.” With the new prosperity brought about by the ERA, unemployment will soon vanish and wages will increase.

Outgoing president Bush has already stated he plans to sign the bill into law. Bush is reported to have said, “I don’t know why I didn’t think of this before. It’s such a great idea.” Demonstrating that he is no lame duck, Bush is already several steps ahead of Congress. “Top intelligence sources tell me that the economy has already left America and moved overseas. According to the CIA, the economy was last seen in China.” President Bush is concerned that we may be facing more than just a recession and, in fact, may be dealing with a “rogue economy.”

President elect, Barack Obama, when asked to comment on the ERA, stated, “My middle name is change,” and flew away on a rainbow.

The economy was available for comment; however this reporter must first learn to speak Chinese before he can communicate with the economy.

On a related note, the Mexican economy was recently apprehended trying to illegally enter the country.

 

Dwijadas Ghosal asked:


Crisis in World Economy and the proposed New Model for sustainable development.

The ongoing turmoil in world economy raised the doubt that present model of capitalism cannot be sustained for environmental and social reasons. Respected thinkers and scientists have pointed to this reality. Now we should look ahead to a new system that is sustainable and humane. Otherwise whatever wealth is created would be wiped out by environmental disasters and social upheavals. Whole system is complicated by lack of transparency. It is not clear where all the money gets invested. Hedge funds are cloaked in secrecy- even bailout money has disappeared with no effect to the economy. Even now nobody knows which are the real bad toxic assets, so stock market is also not recovering.

In this treatise some key issues in this crisis are discussed and a new  model is proposed that will engineer a balanced global society  globally conscious, active and sustainable.   

Regarding overpaid CEOs

Let us ponder over some news those captured the attention across the globe. Washington Mutual Chief Executive Alan Fishman could walk away with more than 18 million dollar in salary, bonuses and severance after less than three weeks on the job as golden parachute from flight WaMu in danger, according to the terms of his employment agreement. Lehman Brothers was handing out 23 million dollar to three executives just days before it collapsed. It paid 2.5 BILLION dollar bonus fund after failing. CEO of American Express saw his pay go up much more than double although shares price nosedived. Hewlett Packard CEO destroyed half the wealth of her investors and yet still earned almost 100 million dollars in total payments. Exactly same is the case with Informix Software CEO. The list goes on and on. It means what?  This isn’t a diatribe against CEO pay. Point is failure has become a recipe for financial success of CEOs especially in America by virtue of their intelligent manipulation and abuse of power.  Martin Whitman, economist and the great advocate of capitalism opined that apart from corruption another reason as to why a free market situation is probably doomed to failure is very exorbitant levels of executive compensation.

 Regarding free-market economy

I do not think free market is really free. Those who say they favor a free market are speaking in a relative term.  In an absolutely free-market economy, all capital, goods, services, and money flow are unregulated by the government. There is simply no free market yet, given the degree of state intervention in even the most capitalist of countries. For example US government took an 80% stake in AIG in return for an 85 billion dollar investment to save the company. Recent news of Citi bank is being given a bail out package of 326 billion dollars and Jaguar’s requirement of 1 billion pound for sustaining economic meltdown are significant. Under pure capitalist theory, none of these actions should’ve been taken; the government should have stood by idly while the economy tanked. So how can a free market be free if it’s regulated?  The fall out of free market economy such as black Market, underground economy, Drug trade essentially justifies government’s intervention to remedy the situation and establishes the argument against free market as an impractical ideal that engenders vested wealthy interests. Experiments in absolute adherence to free market principles evince signal failures in Military, Road, Health Care, Civic Amenities, Education, R & D etc. Free- market economy is a fantasy - outside of the bounds of reality in a complex system with opposing interests and different distributions of wealth. Time and again world is realizing this fact is a harder way. Hence I align with those critics who are in favour of a planned economy  as advocated by socialism and who associate markets with greed  as the basis of capitalism. I believe it is inherently immoral. More over one practical objection is that free market economy does not take into account the externalities i.e. effects of transactions that affect third parties, such as the negative effects of Global Warming that brought world to Apocalypse in foreseeable future. I guess that in well-run industrial economies like Japan, Singapore and China, there is marriage between government and the private sector, each benefiting from the other. Any temporary prosperity on an extremely austere free market concept can crumble like a pack of cards, like it happened in USA.

Regarding Nationalisation and regulation.

 What does the US federal government taking control of financially crumbling mortgage holders Fannie Mae and Freddie Mac with a bail out package of staggering 800 billion?  Why on the earth Fed and other regulators are coming into the picture particularly for some of those that got overextended with the subprime and other kind of mortgage debt? Nationalization occurs when full or partial control is taken of private financial institutions, usually to avert a crisis. Scandinavian nations successfully averted an economic meltdown through nationalization in the early 1990s, and in recent times. US government is taking similar actions. It looked at the global fallouts and how politically they will be viewed by the world powers. So they bailed out finance industries, but not agreeing so easily to the auto industry. these issues are interlinked with power, military, oil.

 Regarding mortgage financing

It was the proponents of Capitalism who supported advantage of loan facilities and low interest rates for houses to be owned by people at low income group. There was enormous marketing effort to dupe people into it.  Logic was simple. If one buys house, he will also buy complimentary household goods like furniture, Fans, AC, Cars etc. creating a demand pull in the economy. Banks also extended the moratorium on interest and principle up to 5 years to convince the borrowers. When crisis occurs, should we brand common people as “lazy bummers”? Similarly it is unfair to blame the common investors for lost speculative fortune when Stock Market is institutionalized by system as a socially and ethically valid means of income.

Regarding targeting CEOs

In our capitalist system, you’re free to earn what you can, and what the market will bear- this logic does not hold water since big companies are increasingly depending on public money for a bail out. Hence I support newest trend of shareholders in raising questions and putting pressure on boards and compensation committees to make sure compensation is fair but not excessive. The interesting News was that US Law Makers asked blunt questions to CEOs like Wagoner, Nardelli, Mulally of GM, Chrysler and Ford who came to the Capital Hill with a begging bowl for 25 Billion of Tax Payers money, when each one of them preferred to fly in their individual Private Jets, when as many as 24 non stop flights fly daily from Detroit to Washington. Lifestyle and salary should definitely be a valid question when companies are using public money. That is why companies are facing “say on pay” resolutions from shareholders. The board of directors should have taken this role, but instead they normally abdicate it. Most CEOs considers keeping board members happy as their primary duties. For example taking the board members on an all-expenses paid trip to a five-star international resort, allowing his compensation to spiral out of control, which is nothing but intelligent corruption and abuse of power.

Myth regarding the CEOs’ ‘sheer value-add’ in the corporate world.

For a company to become successful entails billions of variables, which are oftentimes beyond the ambit of human ability of one individual. Even with our full regard on Narayanmurthy’s ability, we must accept Infosis’s success was primarily on account of flattening effect of world by Internet revolution in 92.  Jerry Yang, co founder of Yahoo, considered to be a great CEO, had to step down amid mounting pressure from investors after he botched takeover talks with Microsoft Corp. and failed to broker an online advertising agreement with Google Inc. Many CEOs were rated highly for certain techno bubble, which turned out to be utterly divorced from any business purpose whatsoever. Of course there is positive effect too- it attracts lot of investment and accelerates the pace of innovation. The trophy cases of HP CEO with so many industry awards and accolades were crucified for her destructive reign of terror with “Silicon Valley greed.” Hence it is fundamentally wrong to empower one individual so much for the success and failure of an organization. In Japanese and Chinese model, system is ascribed more powerful than an individual.  Once CEOs become all-powerful, their executive staff is reluctant to challenge them. Instead, the natural tendency is for these dominant leaders to become cocooned from reality. They are told only what they want to hear and hear only what they want to be told. Sequestered from the rest of the company, they lose the pulse of the business eventually.

Regarding Capitalism vs. Socialism

By virtue of the extremely clever indoctrination, a spin-off of media advertising especially of US kind, our thought process is getting clouded driving us towards more personal interest, freedom and power than social responsibility. Do we really need large waves of money sloshing daily around the planet for benefit of only a few, waves often generated by speculation capable of dislocating economies? Do we need larger and larger corporations which concentrate economic power into fewer and fewer hands? When seen in this light, capitalism has a shadow side. Economy in its root sense means acquiring the basic material things we need to lead a human life: food, shelter, energy, etc. But this is something quite different than a quest for a so-called higher standard of living. This really is the unending quest for a higher level of consumption. Our material needs are finite. After a certain point we are simply embellishing them. Then we begin to distort them making them the carriers of our own disordered desires.  Recent news of bra and panty for men in Japan is the right example for such disorder. We need shelter but we don’t need 50,000 square feet trophy homes when billions of people can’t even afford a shanty. Now we are living in a time when we don’t even feel shame. We have become so much closeted within ourselves that even with the back up of enormous fortune, we feel unsafe with the slightest possibility of economic meltdown.  Capitalism propels us to become shameless consumers and run our lives according to the design of the contemporary social machine, which foreshadows world destruction, whereas our true nature favours a life closer to nature. If American Capitalism is a kind of religion with its own dogma, then its God is Money and its driving force is Greed.  The fall out of this ruthless system is obscenities of unemployment, homelessness and economic insecurity and hence is not sustainable in its present form. The whole system is designed to make fewer and fewer people richer and richer at the cost of resources of the multitude. It definitely operates below the level of consciousness and no longer works for us.  I understand one very simple thing – goods and services generated in an economy must be shared equitably in a population. Otherwise those who will be deprived will take resort to unethical or socially unacceptable means- theft, dacoity, terrorism, drug, killing, cheating, narrow politics and what not.   Recent examples of everyday terrorism, Piracy, Mao attacks, dark killing are the pointers to this fact.   

Even in USA people are facing dark side of capitalism when blue collar Americans have been losing jobs because of outsourcing and off shoring in the mask of progress for real intention of more profit.  What is the social damage? Skills for manufacturing a certain product developed over the years are getting lost in the society.  Capitalist countries use capitalist ideals as a matter of convenience.  When Government owns hospitals, libraries, transportation systems, utilities, army, Navy, Air Force, forests and national perks- yet, who would call these institutions examples of socialism?  Socialism means a government in which the people collectively own and democratically operate the industries and social services through an economic democracy by ending the waste, duplication and inefficiency of capitalist industries. Under capitalism the industries operate for one purpose – profit maximization. As per Capitalism profit is also a cost, cost of staying in the business. Under Socialism goods are produced for use and to satisfy the needs of all the people. Under this system everyone could live comfortably with no giant gaps between rich and poor. Is it not really humane? Just because a system is not strictly as per lower merits of human nature say greed, it should not be rejected. Socialism talks about higher sense of our human values and existence.  After Industrial resolution act 1956 in India, socialistic pattern of economy in India has produced wonderful developments in sectors till seventies. Hence we can infer that Socialistic system can produce wonderful results under certain conditions and social environment.  However I do agree classical form of Socialism may not take into account of the Individual brilliance and creative pursuit, which is probably its one of its weaknesses.

The New Model

Having said this, we should find out whether there can be a balance between the two systems and what kind of mechanism society should develop so that one can approximate the ideals of good life in his individual life and in the life of community of which he is a member. I feel it is possible to have our modern global economy while being socially, culturally & environmentally responsible at the same time. Society has go through a difficult paradigm shift in personal values, which will instill a degree of awareness in our mind as opposed to the blind, materialistic way we are living.

I have thought of one model that will engineer a balanced global society that is globally conscious, active and sustainable. Way out is to lead humanity by the collective wisdom of most talented people in a society or country- a kind of meritocracy.  Mechanism to harness collective wisdom will be -say for any policy and contentious issue, opinions of most eminent people of the country will be  collected by a network of computers and looking into the wisdom of eminent people who are most knowledgeable on the subject under consideration, decision can be made in real time. Their services can be hired at a cost; they can be selected based on the track record etc. Decisions can be taken in National forum if discussion and debate are warranted. Experiments, research and its implications can be interpreted by eminent people only and that is why collective wisdom as instrumentality for decision support system may be a model worth trying for. One may argue country does not need only dry knowledge culled from books. There must be leaders to make certain things happen. Yes leaders are required. But a leader can be chosen by collective wisdom, which should be supremely empowered. A leader will resort to collective wisdom for at least for major decision. The collective wisdom is likely to veer country to right direction. Humanity has to go though different experiments and whatever evolved as better model will be accepted and perfected in course of time. We should never be blind to state that capitalism or the socialism is the right system with dogmatic finality.

Morris Segall asked:


This past Friday’s  unemployment report was truly shocking. The reported drop of 533,000 lost jobs in the month of November was substantially larger than the 350,000 median estimates by many economists and our own estimate of 300,000-400,000 for the month. This level of monthly job loss is greater than was experienced in the last recession of 2001-02 and rivals any of the worst recessions in the post-war period. In addition, the job losses previously recorded for the months of  September and October were dramatically revised downward to levels averaging over 350,000 for the two months, 100,000 greater than the average previously reported. Thus, the job market, like much of the rest of the U.S. and international economies has declined severely and precipitously since last summer. But the November unemployment report is far worse than the surface numbers indicate. Yes, the job losses are widespread and worsening in the service sectors as well as manufacturing and construction. This continues the pattern of increased job erosion seen since the second half of 2007. However, the level of 500,000 monthly job losses was not expected to be seen until the first half of next year when it was expected the level of unemployment might be peaking. To be at this level in November when the economy is still declining is daunting and obviously raises the possibility of monthly job losses in the 750,000 range. Such additional job losses would easily take the unemployment rate to 7.5% or higher which would confirm the worst expectations of many economists, including ourselves. But there is something else in the government’s employment report that is causing us to look at unemployment in the current recessionary cycle as unlike anything we have experienced since the Great Depression of the 1930’s.  The government report on Friday mentioned that there were 1.9 million people who were available and had looked for work over the past 12 months and not found employment and according to the government’s report “were not counted as unemployed because they had not searched for work in the 4 weeks preceding the employment survey” for November. If we add this 1.9 million to the 10.3 million reported as unemployed in the report, we get an unemployment rate of 7.9% based on a civilian labor force of approximately 155 million per government statistics. We believe this 7.9% level of unemployment is a more accurate measure of job destruction than the reported unemployment rate in the government release. We believe this is validated by the “free fall” of the U.S. economy since the second quarter of this year particularly when measured by consumer spending and retail sales over the past three months. While U.S. GDP contracted at .5% in the third quarter, we believe GDP in the fourth quarter of this year will contract at approximately 5% with another 3%-5% contraction in the first quarter of 2009. We continue to estimate virtually no growth in U.S. GDP in 2008 as economic decline in the second half of this year outweighs the modest growth in the first half. Please see our recent Economic Presentations on our Presentations Page on our website for more detailed analyses, forecasts and conclusions.

Earlier in the week, the National Bureau of Economic Research (NBER), a committee of largely academic economists, that is the official arbiter of economic cycles, declared the U.S. economy has been in recession since December, 2007.  It confirms our analysis of the economy in our article, “We Think We Are Here”, March 10, 2008 in which we stated that we thought the economy was entering recession in the first quarter of this year. It was based on a sequence of weak economic data which included increased unemployment over the second half of 2007 and the first quarter of 2008; weakening industrial activity; increased credit losses in the financial system; worsening financial condition of U.S. consumers; spreading real estate weakness from residential to commercial markets; weakening corporate profits and weakening economies overseas.  Since we wrote that article, all of these important facets of the economy have steadily deteriorated led by intensified weakness in the consumer sector.  We have been concerned about the state of consumer finances for two years and we have consistently written about the housing bubble and overextension of consumer spending versus their income. And we warned about the doomsday scenario of a depleted consumer “knocked out” by a weakening economy leading to unemployment. Likewise we cautioned in our article “Postscripts on the Credit and Private Equity Cycles”, June 24, 2007, that the adverse credit cycle was going to get increasingly worse with dire consequences for the financial sector. In fact our byline on that article was “When a credit cycle turns negative, it does not turn negative a little bit”. Since the summer of 2007, we have witnessed the worst meltdown of the international credit system since the Great Depression of the 1930’s.  The responses of world governments and central banks to the increasing credit crisis were traditional post war economic stimuli, i.e. lower interest rates and taxpayer rebate programs. We wrote in several articles, (“Can the Fed Save Wall St.”, Part 1 and 2), August 12, 2007 and September 21, 2007 and “The Treasury Plan. Is this the Solution?” December 7, 2007 the lack of success inherent in those programs given the depleted financial condition of U.S. consumers and the necessity of expunging bad debts off the books of banks and other credit intermediaries. We also believed corporate profits, the backbone of the economic and stock market growth over the 2006-07 period were weakening sooner and faster than most market analysts had expected. But in two articles, “And Then There Was…” , October 21, 2007 and “GE, The Earnings Cycle and Food”, April 14, 2008 we warned about the rapid deterioration in corporate earnings which had been a bulwark in the corporate and stock market renaissance of the 2003-2006 period. Indeed, S & P 500 Index earnings in the third quarter were down over 20% year over year and would have been at an all time low were it not for earnings from the oil industry. So what began as a mild, containable credit air bubble in subprime mortgages has ballooned into a pervasive credit finance meltdown which has resulted in a zero demand environment in both business and consumer sectors. Now, as mentioned above, chronically worsening unemployment threatens to make the current recession deeper and more extended than previously expected. We now believe GDP for the U.S. next year could also be at zero on a December to December basis. That would make U.S. GDP growth for the 2007-2009 periods less than 1% on average for the three years.

As bad as the recession is in the U.S. it has spread in full force overseas as we recounted in our articles “Is This the End”, September 9, 2007 , “The Other Shoe”, January 7, 2008 and our International Economics article, “The Virus Has Spread”, August 6, 2008 and it is worse overseas as we stated in the August 6th commentary. The U.S. recession has suppressed the exports many foreign economies depend upon for their growth, credit losses from international and domestic asset declines have created an international banking crisis, and the collapse of commodity prices has torpedoed the high flying economies selling oil and other industrial and agricultural commodities that led world economic growth since 2004. The results are economic recessions in Western Europe, Japan, Australia and now Canada in addition to the U.S. While not in recession, India and China, the locomotives of world economic growth over the past four years have slowed dramatically to mid single digit rates and in fact have had to institute multi-billion dollar stimulus programs to keep their economic growth from falling further. In addition there are major economic stimulus programs underway in Europe and Japan. The weakness overseas is expected to be a major depressant to world economic growth in 2009.

With most major industrialized and emerging industrialized economies instituting economic stimulus programs to battle the worldwide recession that has taken hold, it is appropriate to evaluate the theory and success of these programs. We have commented in previous articles on the futility of the U.S. rescue programs (“Can the Fed Save Wall St”, Parts 1 & 2, August 12 and September 21, 2007 and “The Treasury Plan. Is This the Solution?”, December 7, 2007) up to the current time. Finally, last March, the U.S. government caught on to the need to remove bad credits from lenders and pump massive amounts of liquidity into the banking system. That restored credit stability within the banking system and then inexplicably, the U.S. government recently switched gears and decided to back consumer loans to mitigate increasing losses. We and a number of other analysts are puzzled by the unevenness of the U.S. government’s response to the current credit crisis. The capital markets have rallied recently hoping the new economic team of President elect Obama will have a more successful program. However, given the aforementioned severe increase in unemployment and the cutback in consumer spending, we believe nothing less than a targeted second consumer rebate program IN ADDITION to a resumption of purchasing bad credits from lenders and capital infusions to the banking industry is the formula for ultimate recovery from this recession. If consumers are expected to consume, they need to get their balance sheets de-leveraged and have enough liquidity to begin to exercise discretionary spending. Giving money to banks and auto companies will not move “goods off the shelves” in the current demand freeze. In the absence of a resuscitated consumer, this recession will last well into next year.

Likewise, the stimulation of overseas economies by government spending programs will have limited success for two major reasons. First, nobody will get exports “cranked up” as long as the U.S., Western Europe and Japan are in recession. Second, the collapse of commodity prices will severely depress the stimulative spending of commodity based economies like Canada, Australia and now the Middle East. So in the end, worldwide economic recovery will depend on the U.S. as it has since World War II.

To be sure, the U.S. and foreign governments and their central banks are sparing no expense or spending to cure the worldwide financial crisis and recessions. As a result fiscal budget deficits and increases in national debt will increase substantially over this year and next. We have previously written about the large future cost to U.S. and other credit and currency markets to the deteriorating national balance sheets, particularly for the U.S.

Consistent with the worldwide recessions and deteriorating economic outlooks for 2009, worldwide capital markets have virtually collapsed this year. U.S. equity markets are down approximately 40% year to date and overseas equity markets which have outperformed those of the U.S. for the past three years, are down by more than 50%. In addition, international credit markets have been crippled in the non-government sectors by the international banking and mortgage security losses. Now the spread of recession to the corporate sectors have depressed corporate bond prices and increased the spreads over non-government securities. This will continue until economic conditions stabilize. After outstripping all other asset markets over the past four years, the recent collapse in commodity prices has thrown previous profits in commodity assets into big losses since the summer. In addition, one of the biggest capital market casualties this year has been the hedge fund industry. After excessive proliferation over the past four years, a “shakeout” of this industry was inevitable. The demise of leveraged derivatives, the collapse of equity and non-government bond markets, the cutoff of bank credit and finally a stampede of redemptions by investors have caused hedge funds to sell marketable assets further depressing capital markets and have resulted in an increasing number of hedge funds to close.  In addition, the “drying up” of credit and the erosion of corporate profitability has put an end to the leveraged buyout mania of private equity funds. We had warned about the speculative excesses of the merger and acquisition craze in our article “Caution: Asset Bubble Building”, November 19, 2006 and the demise of this cycle is creating quite a bit of pain for the managements and investors in these firms who have “overpaid” with high amounts of leverage for firms that are now “reeling” in this recession. As a result of the credit and capital markets meltdown will be a new era of regulation, transparency and more financial discipline in investing. The attrition and change in hedge fund and private equity strategies is positive for sound investment in these sectors going forward. In fact we believe a shift of private equity firms to infrastructure investment is very attractive for investors.

Going forward, we view worldwide equity markets, particularly U.S. equity markets, as much undervalued looking forward 2-3 years.  Many market analysts are increasingly of the opinion that much of the bad economic news is already known and discounted in the U.S. stock market. However, our more pessimistic outlook on unemployment and the uncertainty of a more successful economic rescue program add to the continued downside risk to U.S. and overseas equity markets. As a result, the risk in equity markets at this juncture is that the U.S. recession lasts longer than calendar 2009 and is more severe in terms of corporate earnings declines and failures. For bond markets, there is more risk in that this is still a credit erosion cycle. Non-government bonds will continue to sell at inflated spreads over U.S. Treasuries until the recession bottoms. Longer term, we believe there will be a dramatic increase in interest rates as economic and financial conditions stabilize and then improve in the 2009-2011 period. The huge financing of the current economic stimulus and recovery programs will necessitate large bond offerings that will cause a large increase in yields from current levels. Commodities and commodity stocks will be depressed for most of 2009, reaffirming our economic forecast in our August 11, 2008 article on the “Dollar, Commodities and Geo-Politics”. We would still maintain a defensive posture in regards to capital asset strategy with well above normal cash positions. We would avoid fixed income instruments, particularly sovereign debt. There are some attractive fixed income opportunities in municipal debt markets but here also selectivity and credit due diligence is required. State and local governments are another big casualty of this recession and their creditworthiness is being increasingly strained. Downgrades in municipal credits are to be expected over the next two years. Once the current economic cycle bottoms, we expect huge stock market rallies led by U.S. equities and followed subsequently by overseas markets. We continue to be attracted to infrastructure investment as the long term need for infrastructure upgrade and expansion is large. Other sectors we view as attractive for investment include electric power generation, energy conservation, agriculture, water conservation and development, healthcare and education overhaul.

We invite questions regarding our current views and forecasts of the economy and capital markets for the remainder of this year and next and the longer term economic and capital market outlooks

Australasian Investment Review asked:


According to the economics teams at three leading investment banks, the Australian economy is slumping right now and will continue to worsen well into 2009 at a rate lower than the forecasts from Treasury and The Reserve Bank.

The economics teams at Goldman Sachs JBWere and Merrill Lynch have slashed their estimates of 2008 and 2009 economic growth for Australia and are now predicting recession.

And ABN Amro reckons the economy is stalling right now and growth is close to zero.

They all agree that as a result the Federal budget will go into deficit, unemployment will rise to 7.5%, and the Reserve Bank will cut interest rates to a low of 3.5%, a point suggested late last week as well by Macquarie Bank interest rate strategist, Rory Robertson.

He and the two teams now say we will get a 1% cut in interest rates from the Reserve Bank at its meeting next Tuesday, which will take the cuts since September to 3%, a measure of how seriously the RBA views what is happening in the economy.

But debt futures market are tipping the RBA to cut the cash rate by a massive 1.25% next Tuesday, which if it happens, would be the largest official rate cut since the 1990 recession.

ABN Amro’s chief economist Kieran Davies said a shrinking Australian economy, falling asset prices and recession-like levels of business confidence will make the RBA more inclined to cut rates aggressively.

“The wealth effect of falling asset prices is snowballing and the Chinese economy is slowing very sharply. Also, we think the economy is contracting now. We are close to zero.”

A 1.25% rate cut in December would take the cash rate to 4%.

The cash rate was at 4.25% in late 2001 and has not been below that level since the RBA began publishing its cash rate target in 1990.

Economists point out that the debt futures market is signalling a cash rate low of around 3%, which would be the lowest level for rates since 1960, when the credit squeeze hit that year and

Federal Treasurer Wayne Swan still claims the budget won’t go into deficit: the forecasts reckon it will, and they were supported by the latest update from the well-connected Access Economics team in Canberra.(Source).

Goldman Sachs JBWere’s downgrade follows one in the US from their economics group there for the US on Friday:

Goldman Sachs said US GDP was shrinking at a 5 % annual rate in the current quarter and will drop 3% and 1% in the next two quarters.

It said in a note US unemployment will reach 9% by this time next year. In contrast the US Fed reckons unemployment will get to 7.6% next year (it’s 6.5% at the moment).

This morning in a note to clients sent out over the weekend, Goldman Sachs JBWere said:

“We have revised down our economic growth forecasts from 2.0% in 2008 and 1.7% in 2009, to 1.8% in 2008 and 1.0% in 2009.

The new forecasts incorporate a deeper recession through 2H08 than we first forecast in early October and a shallower recovery path through 2H09.

“We have also revised our interest rate forecasts, with the RBA now expected to cut the cash rate to 3.5% by March 2009 (75bp lower than our previous forecast).

“The combination of dramatic financial wealth destruction, debilitating tightness in money markets, rapidly slowing credit growth, sharp falls in commodity prices and evidence that Australian house prices are declining led us to formally adopt a recession in Australia as our base line view on 12th October.

“Since that time our conviction that Australia is poised for its first recession in 17 years has strengthened.

“The reduction in commodity prices by our resource strategy team suggests that Australia’s terms of trade will decline ~20% year on year by end- 2009, sufficient to strip around 3.0% from domestic demand growth.

“We now expect business investment to decline 7.0% in 2009 (was -1.7%) and domestic demand growth of just 0.6% in 2009 (was 1.8%). As such, we have also raised our estimate of the unemployment rate from 6.5% by end-2009 to 7.5%.

“We believe economic growth will contract -0.5% in the September quarter, -0.3% in the December quarter and -0.1% in the March quarter.

“This would be sufficient to see GDP decline -0.6%yoy in the March quarter 2009 and -0.3%yoy in the June quarter 2009 before an acceleration to +3.25%yoy by December 2009 as the combined effects of the interest rate cuts, A$ weakness and fiscal stimulus coagulate in 2H09 and drive a rebound in demand.

“We remain convinced that the Australian economy faces a debt-deflation cycle. The risk of deflation was brought home to all policymakers by the sharp fall in US inflation in October.

“In essence, we believe the threat of deflation (no matter how small) will accelerate plans of interest rate cuts and we now expect the RBA to cut interest rates 100bp in December, 50bp at its next meeting in February and a further 25bp in March.

“This will take the RBA cash rate to 3.5% by March 2009, a 375bp cutting cycle since September 2008.

“We believe the government should worry less about protecting an underlying surplus and more about providing the conditions to promote aggregate demand growth.

“We have downgraded our Market Forecasts reflecting a reality check due to the current market turmoil as well as incorporating the recent revisions to our commodity forecasts and domestic economic growth forecasts.

“Reduced our Industrial top-down FY09 EPS forecast from -5.0% to -15.0% (bottom-up forecast is +3.3%). - Reduced our resources FY09 EPS growth forecast from 0.0% to -15.0% (bottom-up +4.4%) and our FY10 from +15% to -5.0% (bottom-up +20%).

“Our revised forecasts for the ASX200 are: Dec’08: 3400 (previously 4525; -25%) - Jun’09: 3780 (4975; -24%) - Dec’09: 4100 (5350; -23%). The ASX closed at 3374 yesterday , so it’s already under the 2008 forecast of GSJBW.”

Merrill Lynch wrote yesterday:

The Australian economy is being overwhelmed by the global financial crisis and external growth shock, impaired credit markets, collapsing asset prices, and imbalances on the household sector balance sheet.

We are downgrading our 2009 GDP forecast to 0.2% (down from 1.7% previously).

We expect the economy to contract on a through the year basis over FY09.

In our view, the very substantial monetary and fiscal policy response and adjustment in the exchange rate will not be sufficient to avoid a recession over 1H2009.

Our business cycle analysis and leading indicator frameworks are pointing to a rapid deceleration in domestic demand growth over the next 3-4 quarters.

Lead indicators of employment (and income growth) have deteriorated significantly over the past quarter.

Our downgrade to GDP growth covers all components of private demand (household spending, housing and business investment) and export volumes.

Business investment in particular will be negatively impacted by the global recession, the fall in the terms of trade and the tightening in the supply of credit.

Global lead indictors have fallen deep into hard landing territory. ML is forecasting global growth of just 1.5% in 2009, down from 3.4% in 2008.

The commodity price and terms of trade decline in 2009 will sharply reduce gross domestic incomes (both directly and indirectly).

The steep decline in asset prices over the past 12 months and need for households to lift savings and de-lever reinforces a very weak outlook for household spending through 2009, despite the cash-flow relief coming from lower interest rates and petrol prices.

We expect the labour market to weaken significantly over the next 12-18 months with employment growth falling to -2.0% by late 2009 and the unemployment rate rising to 7.5%.

The household savings rate is assumed to rise to 3.75% (from 0.9% currently) as de-leveraging intensifies.

We are more optimistic about 2010, with substantial global and domestic policy stimulus expected to support a recovery in growth. We expect GDP growth of 2.2% in 2010, led initially by a cyclical recovery in housing activity and strengthening global growth.

We expect the RBA to lower the cash rate to 3.5% by Q1 2009 in response to the global downturn, the deep slump in domestic demand growth and reduced inflation pressures.

The main focus of policy over the next 6-9 months will be addressing falling corporate and household income growth, which run the risk of exacerbating the de-leveraging underway in the economy.

And on Friday:



Citigroup’s global economic team issued its weekly update with these gloomy forecasts:

Financial conditions in the United States continue to deteriorate, increasing downside risks.

Collapsing US bond yields reveal considerable scope and need for fiscal action. Fed officials seem poised for further aggressive steps.

With a deepening recession in the euro area, and inflation likely to undershoot the ECB’s target, we expect the ECB to lower rates to 1% by mid-2009.

The Japan economy is likely to contract further, and we expect the BoJ to lower rates again.

The UK economy faces a long, deep contraction. But substantial policy action should eventually generate a recovery.

Vladimir Gonzalez asked:


Mexico Economy

Despite the fact that Mexico has a well-developed and stable economy in general, there is still an obvious difference between the rich and the poor, the north and the south, as well as between urban and rural areas. These differences will continue to grow unless they are taken care of. The percentage of population in extreme poverty has decreased between 2000 and 2004, but income inequality remains a problem. This inequality problem needs to be attended in order for Mexico to improve its economy and avoid political and social instability.

Mexico’s GDP passed the trillion-dollar mark in 2004. Therefore, it has become one of the major middle-income countries that have an advanced economy. It is the 12th largest economy in the world and, according to the World Bank, and it has the highest Gross National Income per capita in Latin America. Goldman Sachs’ recent study of emerging economies predicted that by 2050 Mexico will hold one of the largest economies in the world, alongside China, United States, India, Japan and Brazil. As for the Mexican Peso, its exchange rates are high, therefore the country has the highest purchasing power parity of the countries in Latin America.

In 1994, Mexican economy was put to the test, but it has recovered and now it is modern, diversified, with recent administrations improving infrastructure. Moreover, there is intense competition in seaports, railroads, telecommunications, airports, electricity generation, as well as natural gas distribution.

Mexico is part of the North America Free Trade Agreement (NAFTA), so almost 90% of Mexico’s export goes to the United States and Canada, while 65% of the country’s imports come from these two. Mexico is in agreement with the European Union, Japan, Israel and other countries in Central and South America as well, making it an important part of international trade, as it is the 15th largest exporter in the world, 10th if the European Union is considered a single entity. When it comes to Mexico’s largest source of foreign income, oil holds first place.

Mexico’s main concerns are keeping interest rates and levels of inflation low, although, like other countries, Mexico was affected by rising prices in oil, food and commodity in 2008. The infrastructure needs to be improved as well. The industry is a combination of businesses that are advanced technologically speaking and industries that are in need of reform, with the private sector taking up an increasingly important role in agriculture and industry as well.

Further reading on EconomyWatch.com:

Overview of Mexican Economy

Imports and Exports of Mexico

Economic Structure of Mexico

Dylan Sun asked:


China has registered a solid growth track since 2003, and its economy has expanded quickly and in a stable manner, the National Bureau of Statistics (NBS) said yesterday.

Living standards have also improved considerably, as income levels and economy have steadily increased since the 16th National Congress of the Communist Party of China convened in 2002, according to the NBS.

The economy expanded by more than 10 percent in each of the last four years, at an average of 10.4 percent. That is more than double the average growth rate of the world economy during the same period, and is higher than any period in China since reform and opening-up in the late 1970s.

The economy remained stable as it steamed ahead. In the last four years, the growth rate never fluctuated by more than 1.1 percentage points. Meanwhile, consumer prices have also remained stable at about 2.1 percent per year.

China’s overall volume of economy was the world’s fourth largest in 2005. It was the sixth largest economy in 2002. The gap between China and the US, Japan and Germany - the top three world economies - has also narrowed in terms of gross domestic product (GDP).

As its economy has grown, China now contributes more than 5.5 percent of the world’s GDP, up from 4.4 percent in 2002. That is an evidence for the great and rapid development of the Chinese economy.

China’s booming economy also saw its per capita income cross the threshold of US$2,000 for the first time in 2006. According to World Bank standards, China should no longer be considered a low-income nation, as its per capita income now resembles that of a middle-income country.

While enjoying such rapid and stable economic growth, China has restructured its economy to increase the weight of its service sector in poorer western regions, the NBS said.

By 2006, the service industry accounted for 40.1 percent of the economy, as retail sales increased by an average of 12.2 percent each year in the four years.

Rural development

China has found it easier to develop its rural regions due to the growth of fixed-assets investment. These investments often reflect the potential for economy development in a region, and have increased faster in the middle, western and northeast regions. In 2006, for example, fixed-assets investment in the middle provinces accounted for 19.3 percent of the national total, 1.6 percentage points higher than in 2002.

Greg McGuire asked:


Driving Strategies

The cheapest and easiest way to improve your fuel economy is to change how you drive your existing car.



Air conditioning. As a general rule, if you are driving under 40 miles per hour (MPH), it is more fuel efficient to turn off the air conditioner and roll down the windows. Above 40 MPH, however, the drag on your car created by the open windows causes you to use more gas, so turning on the air will actually improve your fuel economy.

Acceleration. When accelerating, do so gradually. Stomping the gas pedal at every traffic light or stop sign causes your engine to **** fuel to meet the heavy load you are putting on it. A more gradual approach can significantly improve fuel economy.

Deceleration. Let off the gas well before a stop sign or traffic light and allow yourself to coast to a stop while gently applying the brake. Accelerating all the way to the stop and then slamming on the brakes not only wastes gas, it uses up your brake pads more quickly.

Speed. For every ten miles per hour you decelerate, you can save up to 5 miles per gallon (MPG). So if the speed limit is 65 MPH and you drive 55, you can increase your MPG by 5 miles.



Car Maintenance

In addition to improving your driving strategies, use the following car maintenance tips to maximize your fuel economy:



Tire inflation. Make sure you keep your tires properly inflated at all times. This not only lengthens the life of the tire, it will help your fuel economy. By and large, the standard inflation for most car tires is 35 pounds per square inch (PSI).  Some mechanics may recommend inflating your tires to 30 PSI to improve riding comfort, which is true, but with gas prices the way they are the best thing to do is maintain proper inflation. Please make sure you check with either your tire dealer or the tire owner’s manual for proper inflation instructions.

Fuel grade. Mountain West states (New Mexico, Colorado, Montana, etc.) offer 85 octane fuel, whereas most other states offer only 87 octane and up. Check your owner’s manual, since some models have a minimum octane requirement. Using a lower octane fuel than what your vehicle has been designed for drastically reduces fuel economy. Also, it does not improve your gas mileage to use a higher octane fuel than the minimum requirement for your car.

Alignment. Most cars need an alignment every three to five years, although your mechanic will recommend you do it more often than that. A simple test of your alignment is to briefly release the steering wheel while cruising at least 55 MPH on a straight stretch of highway. Please make sure there is no oncoming traffic and that it is a calm day! If your car veers immediately to the left or right, have your mechanic check the alignment. Alignment problems affect your fuel economy and wear your tires down more quickly.

Tire rotation and balance. Have your tires rotated every 5,000 miles.  This not only improves their life span but also causes them to wear evenly, meaning improved fuel economy for you since they ride more smoothly. Your tires should be balanced when they are first installed, and in general they should not need another balancing. Regularly check for the wheel weights mounted on the rim of each tire on your vehicle. These will be oblong metal pieces clipped to the rim, one per tire. If you don’t see one on your tire, ask your mechanic to balance the tires when he rotates them. Most tire dealers that sell you your new tires will rotate and balance those tires for free.

Tune ups. Check your owner’s manual for the recommended life span of your vehicle’s spark plugs, plug wires, and coils. In general, spark plugs should be changed every 55,000 - 75,000 miles and plug wires every 100,000 - 120,000 miles. If your engine idles very rough, or cuts out easily, have your mechanic check the coils. Also make sure to change out your vehicle’s air and fuel filters regularly.  All of these parts affect your vehicle’s fuel economy.



Buying A New Car

When considering purchasing a new car, remember that the miles per gallon estimates posted on new cars are always very optimistic. Those estimates are generated by operating the car in perfect driving conditions, as in 55 MPH on a windless day at sea level on flat ground with the windows rolled up and the air conditioner and radio off. Typically your actual miles per gallon will be two to five gallons less than the estimate.

Go smaller! Technology has improved to the point where many smaller vehicles have high safety ratings and perform very well in adverse driving conditions. Remember that if you spend a little more on a smaller car with posi-traction as opposed to a bigger lunk with four-wheel drive, savings will be realized in improved fuel economy down the road. And you don’t have to put the thing in four-wheel drive, it will do so itself!

Go hybrid if you can. Some very important factors to remember: hybrid and electric car technology is skyrocketing right now, so the vehicles that come out in five to ten years will show enormous improvements over the ones available today. If you have a lot of disposable income and buy a new car every three to five years anyway, go buy a hybrid today. If you are not that lucky, follow the tips above to maintain your current vehicle and tough it out until the car companies can bring to market all the technology in development right now.