Even as questions are being asked about the manner in which western economies are bouncing back from the global economic meltdown, Moody’s said that major sovereign bond issuers, among which are the United States of America, the UK, France and Germany, are in a position of strength and can retain their much-coveted AAA credit ratings. But with this note of positivity came a caveat; as western nations averted the worst of the economic meltdown by diverting funds towards it, it has left itself open to the threats posed by an impending increase in costs it will have to incur

The financial meltdown may have been insulated and perhaps its advances even checked, but it has come at a price. There are long-term challenges to be faced up to irrespective of the funds that have been diverted for this firefighting cause and issues such as solving pension woes and living up to healthcare reform promises will take a massive chunk of money out of budgetary planning, especially given how median ages in these countries are rising all the time. What that means is that soon an older population will have to be looked after even in the face of a depleting workforce.

According to Moody’s, governments previously had a period spread over almost two decades where they could prepare for the effects of this and prepare a plan to combat it. That buffer has now been eroded completely and the stark reality of the situation means that the time to make adjustments is now. As deflation came a-knocking, investors lapped up government bonds like they were going out of fashion so that they could ensure an income stream for themselves. Concomitantly, borrowing costs of governments have reduced dramatically but that does not meant that fiscal challenges, such as the ones sizeable economies are facing, can be swept under the carpet. The onus is on decision-makers to demonstrate to the bond market that they are serious about tackling issues, and a failure to do so could lead to a loss of confidence among investors, an effect that would be disastrously destabilizing.

It’s not just about unsustainable debt levels, the issue is paying off debts yet to be incurred at all and the sheer magnitude of this is not encapsulated by current debt levels. That is just a reflection of current deficits as opposed to the dangers of future deficits, all of this magnified by an aging population. This, in essence, needs a rewiring of the social circuitry to ensure who pays higher taxes and who gets more (or less) benefits.

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Travis Berge, Fed scholar and professor at University of California, used data from Leading Economic index produced by the Conference Board, and prepared a paper that predicts another recession for the US in next couple of years.

Most economists and researchers, by looking at the report, agree on the point that chances of another recession are rising, and if the administration neglects these indicators, impending economic downturn is inevitable.

These researchers tried three experiments, making use of leading indicators like index components and other elements, mentioned in the data. However, this test didn’t include bullish current indicator. The spread of Treasury bond interest rate and fed fund rate is quite steep, which is a strong indicator of economic expansion. They believe the Fed has interest rate near-zero, which inversely makes the steep yield curve an unavoidable conclusion.

Based on this steep curve, it becomes easy to say a recession would arrive any time in next two years. However, many believe two years is very long time to predict any thing concrete like a recession, and major steps taken today would actually work towards improving the economic condition.

However, the Federal Reserve is still unclear about how they would respond to weakening economic indicators. It seems like the only option they are left with is inducing central bank to buy more assets to keep deflation under control.

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Dow Jones Industrial Average increased by 44 points or 0.4%. S&P 500 index also gained 0.6 % by climbing 7 points. And NASDAQ added 0.9% or 20 points.

The major reason of rise was surprising improvement in private sector payroll statistics. People are now awaiting a major report to be released by Labor Department on Friday. Besides, the industry report says there has been growth in the service sector for the seventh month in a row now.

The pace of employment and recovery is modest. However, we are sure of one thing: at least the pace is being maintained.

Corporate companies have been showing a decent profit for two months, and it is helping the economy to relocate its position to a better place. However, weak job market is still a concern. If not improvement is seen in employment rate, the consumer confidence level would fall and recovery would be severely hurt.

Chief Market Strategist of Miller Taback & Co, Peter Boockvar says the economy is not collapsing, but it’s not growing with acceptable pace either.

Investors will have a better view of the picture when government will release another job data report before market opening hours on Thursday. The report will also talk about employment trend in retail sector, which will certainly affect retail stocks in days to come.

There was an increase of 42,000 jobs in private sector companies in the month of June. However, the market is far from being stable as many companies still continue to lay off people in order to recover from the loss. Besides, there have been planned job cuts in public and non-profit sectors as well.

Overall, there has been a sharp cut in payroll this year, and the unemployment rate has ticked up a bit, which is certainly not a good sign for the country.

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The same group of economists testified at the Senate Budget Committee. They say the economic growth in 2011 would be gloomy, and the annual GDP would range anywhere between 3% and 4%.

Most economists believe it’s a very slow economic recovery. ‘It’s probably one of the slowest recoveries we have had since World War II’ said Simon Johnson, lecturer at Technology’s Sloan School of Management.

However, Joel Naroff, founder and president of Naroff Economic Advisors, is not very sure about the mediocre growth. He believes, if Washington doesn’t act quickly and fail to make major changes in monetary policy and fiscal policy, the economic growth would be lower than 2.5%.

Most believe Congress needs to take immediate steps to maintain decent growth statistics. The government especially needs to reshape the tax system.

The fear that Congress wouldn’t take any decisions pertaining to extending Bush-era tax system until elections in November can infuse instability in the economy. Tim Geithner, Treasury Secretary, said on Tuesday that not many people are expecting any actions from Congress for tackling economic instability until elections.

In the past few months, sluggish tax policy was one of the main reasons why consumer confidence fell in the country. Besides, uncertainty in other policies like Wall Street and Health Care reform also plays a parting the falling consumer confidence level. However, tax policy is one of the main ingredients.

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1. Economists expected rise in US orders of durable goods by 1%. However, it fell by 1% in June. Apart from volatile transportation goods’ figures, overall shipments fell by over 1.3%. The quantity of inventories lying in warehouses is increasing, which indicates goods are being manufactured but not purchased by consumers.
   
2. Chinese industrial output fell by more than 2.8% last month, major reason being weakening global economic conditions.
3. According to the data revealed by Economic Cycle Research Institute (ECRI), the weekly indicator index fell significantly, reaching as low as -10.5. This has never happened in the past, not even during 2008 recession.
4. Growth Index, as reported by The Consumer Metrics Institute, has not everbeen in positive figures since January 2010, and it has now reached -3.0. In August 2008, this index had reached -6.0, lowest since the great depression.
5. In May 2010, the US trade deficit increased becoming the largest one in past 18 months, in spite of decrease in oil imports by over 9%. This trade deficit is subtracted from GDP. Usually, increase in oil imports is one of the most dreadful concerns. In this case, even reduction in imports seems to be a futile attempt.
6. US Consumer Index too continues to fall in July, after a sharp drop in June. A robust economy must have consumer index more than 90. However, as of today, it’s just 50.4. Before the 2008 recession took place, consumer spending amounted to 72% of GDP.
7. Weekly unemployment claims in the US is steady at 400,000, which is the divider between recession and non-recession. These claims did not rise even during the recovery period. Contradictory to recent increase in companies’ profits, more and more workers continue to lose their jobs.
8. Ben Bernanke, Fed Chief, finally agreed the US economy is in bad shape. However, we can expect it to be much worse as he didn’t predict or even notice the arrival of recent sub-prime crisis, nor did he realize it till spring of 2008. So, if he now believes the economy is falling apart, it would be much worse.

Many economists are still optimistic, and believe these figures are simply due to the after-effects. Instead of improving, however, these numbers are worsening, and we can only hope someone notices them.

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The US government has decided to charge $300 per barrel spilled into the water. The fine is a bit on the higher side simply because the Justice Department feels BP was negligent in causing the disaster.

However, no one has an accurate idea of how much oil has spilled into the water. Initially, when the oil started leaking, The Coast Guard said it was 1,000 barrels per day. Now the count is somewhere between 35,000 and 60,000 barrels per day.

Let us, for a while, say it was 60,000 barrels per day. Consequently, BP would have to pay over $18 billion as fine to the US government. This is after deducting the 800,000 barrels of oil captured by BP.

The fine amount has been decided keeping in mind the size and condition of the oil giant. It had earned over $17 billion last year alone. So, paying $18 billion wouldn’t be difficult. Besides, considering the mess they have caused, it’s impossible for BP to deny paying the fine amount, making them an easy target.

When asked whether $18 billion is right amount of fine, the spokesperson for Rep. Ed Markey, D-Mass., said, the amount is right, and BP should be held accountable for the violation of the law.

However, BP has accepted per barrel fine amount, but declined to comment on the total amount. Given the amount of oils pilled into the Gulf, reaching to a consensus would be quite difficult for both sides.

Markey, last week, had asked officials to measure the amount of oil spilling from the well, when the temporary cap is to be removed. Until last week, the oil giant didn’t have enough vessels to carry oil spilling from the funneling system. However, they have placed an oil cap now that supplies oil to the vessel on the surface. There wouldn’t be any changes until the system is working properly. But if it fails, Markey would want to remove the cap completely and measure the spill.

Whatever conclusion Markey or the US government comes up with, most believe BP wouldn’t agree on paying $18 billion.

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Most said we are on the path of recovery. However, falling unemployment rates, decreased consumer spending, dropping house rates, and unstable global cues are, unfortunately, not signs of recovery. Some economists, who have realized the graveness of this situation, have termed it as ‘Lost Decade’, which means a prolonged period of weak growth.

An economist and professor at Cal State University Channel Islands, Sung Won Sohn, predict the probability of having a lost decade is much higher than a double dip recession. According to him, major engines that push growth of an economy like consumer spending, housing, and exports, are all down. For the next few years, our country might not even grow at 3%.

However, if something like Lost Decade hits America, it would be like a never ending recession for most citizens. More people might lose their jobs, and major investments like stocks and bonds will keep losing value. They are losing value on their major investment, houses, as well.

A similar lost decade took place in Japan, which started from 1992 and lasted till 1999. During this period, the economy grew by less than 1% each year. Although such recession ended in 1999, it is still recovering from the loss and economic weakness it suffered.

This impending lost decade in the US is very similar to the one that occurred in Japan. They too had a housing bubble burst, which paralyzed major banks and financial institutions resulting in poor lending ability.

The Japanese economy did everything to haul the country out of such prolonged recession, which also included dropping the prime lending rate to near 0%, and stuffing money into the market by purchasing assets. However, most of these steps were ineffective.

Subsequently, the country went through brief period of deflation. Most business, to deal with falling prices, had to cut back on employment and production, a scenario that’s now common to all US workers.

The US has not been through major deflationary period after the Great Depression. The inflation rate has, however, dropped till 0%, which is a potential threat.

A double-dip recession would be comparatively less harmful than a Lost Decade, as it would not affect the country politically, financially, and socially as it may in the latter case. This may occur because the US relied on weak growth pattern. Even if the country is able to avoid a double dip recession, expecting only slow growth would be optimism.

However, many economists also believe there is drastic difference between Japan’s lost decade and this situation. Japan, in that period, was growing through a phase of shrinking population and over-dependency on exports. So, they suggest, lost decade is unlikely. We, however, have no option but to be optimistic.

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But the daunting trend seems to continue. Wells Fargo is about to cut 3,800 jobs and close down 638 stores in the financial division; the company announced on Wednesday. In fact, if this happens, the company may close down its consumer finance division, which offered non-prime loans to homebuyers.

They will downsize around 2,800 employees in next couple of months, and the other 1,000 jobs would be cut within next 12 months.

The need for separate financial division was eliminated when the company merged with Wachovia in 2008. However, they aren’t doing too well since they have had their own division.

The President of Well Fargo Financial, David Kvamme, says ‘the economics of Wells Fargo Financial channel is no longer reliable’.

Restructuring will cost the company around $185 million. Around $137 million of the total cost will appear in the second quarter of 2010, for severance. Other charges will show up in the subsequent quarter.

Although 3,800 job cut wouldn’t increase the unemployment rate substantially. But we are not sure whether it’s only this company or it’s a beginning of another meltdown.

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How much, I wonder, we would react when we realize that we have to import more oil that the actual spill. Why? To maintain our economic budget and repay our deficits, we have borrowed enough capital from other economies. Besides, we aren’t producing half the amount of oil needed by our country. So, watching our money gushing to oil importers faster than oil gushing into the Gulf would be certainly over reactive.

If you are not aware about updates on world’s environmental conditions, let me tell you, every year, oil more than the BP spill, gushes into the water of Nigeria. If that’s a part of our earth, why aren’t we bothered about it? And why are we over reacting on this issue?

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Honestly, I didn’t have much idea about the bill nor did I bother to think about it until this morning. It, however, needed president’s signature. Hence, I thought it’s something I should know about. At least the particulars of the bill.

According to Medicaid, this bill will revolutionize health care system in US as it promises to cover the uninsured population of the country, majority of them denied to be covered by insurance companies due to their health problems and diseases. And the number of such uninsured people extends up to 32 million.

It sound great until you read a companion bill that includes dozens of loopholes. I didn’t really feel the urge to read it. The cost to execute this bill for next ten years is estimated to be $940 billion. As expected, this money will be extracted by taxing rich people and cutting a part of insurance provider’s margin. So, ultimately, it’s the same insurance company that denied coverage few years ago, which will cover you now, though in a roundabout way.

So, how is it supposed to impact the movement of stock market?

Irrespective of how people welcome the bill, the immediate effect will be seen in the market today. And it’s very likely that people might involve in a bit of selling, which will bring about a much need fall, or correction, as traders might term it later today.

Critics have already started opposing the bill saying the funds can be utilized to boost other sectors, an immediate need of the hour. In such weak economic conditions, they see this as a completely unethical step. Hence, the market, at least for a couple of days, will see its bit of correction.

Do you think it will affect other sectors? Do you think it will give a boost to the economy? Do you even care? I don’t.

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