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Entries in Economy (101)

Sunday
May052013

Warren Buffett: ‘Tough to Watch’ Washington Gridlock

Scott Eells/Bloomberg via Getty Images(WASHINGTON) -- During an interview on ABC’s This Week Sunday morning, Berkshire Hathaway chairman and CEO Warren Buffett bemoaned the political gridlock in Washington, telling chief business and economics correspondent Rebecca Jarvis that it is “tough to watch.”

“It’s tough to watch what happens in Washington. It’s gotten more and more partisan, but now so many elections are determined by the primaries and not the November elections, that it does tend to push both sides to the extremes and to cause them to dig in and feel that they can’t bend from positions ’cause they’ll get primaried.”

Buffett, an iconic investor, also weighed in on the economy, saying it has improved since the recession of 2008, but made no predictions about where the stock market is headed.

“I think to some extent it takes time. We’ve had a lot of fiscal stimulus. We’ve had an extraordinary amount of monetary stimulus. And I think those were the right things to be doing, considering the incredible situation that existed in 2008. I generally approve of what the latter stages of it hit, what the Bush administration did. I approve of what the Obama administration has done. Nothing is perfect, but we had some huge problems in 2008, and our country is doing reasonably well coming out of that. It’s a lot slower than people would like, but it was a lot bigger problem than any of us had ever seen,” he said.

 “I don’t know the answer to what the market will do next week or next month or next year. But the economy generally has gotten better over the last four years. The stock market got very depressed. I wrote about it in late 2008, and said the stocks are very cheap. They’re not as cheap now. They don’t look overpriced. They certainly look more attractive than fixed income investments to me. But I have no idea what the stock market will do next week or next month or next year,” Buffett said.

During the interview, the “Oracle of Omaha” also highlighted the importance of fully utilizing women when it comes to the economy.

“I think we have made a terrible mistake in this country and a lot of other countries too in not using all of our talent. I mean, if we said we were only gonna let people — men five foot ten or below engage in three or four occupations, it would be regarded as totally nutty. And for decades, centuries, we relegated women to just a few occupations. We did not fully use the talent that’s available. And we’re making progress, but we’ve got a ways to go,” he Buffett said.

“I think there should be more pushing forward in terms of both the outer structure, but then I was also encouraging women to not hold themselves back.”

Buffett, who said he joined Twitter to help draw attention to an article he had written in Fortune about women in business, joined the social network amid much fanfare. Still, he called himself a technophobe.

“You’re still looking at a technophobe who’s kind of pathetic in all things new, but I felt it would give additional distribution, particularly to an article I wanted to have wide distribution about women. So I joined Twitter and it seems to be working,” Buffett said.

Copyright 2013 ABC News Radio

Saturday
Apr132013

Student Debt Impacting US Economy

JupiterImages/Comstock Images(NEW YORK) -- According to a recent study, students should consider the statistics before taking out a loan to help pay for college.

Two-thirds of students take out loans to pay for college, and their combined debt could have a broad impact on the housing market and overall economy, according to new analysis from the Center for American Progress.

This is because people are taking out more loans than they used to, but their ability to pay them off hasn't kept pace. CAP notes that banks have written off billions of dollars and approximately 850,000 former students have defaulted on loans just in the first few months of 2013.

People used to take out loans, go to school, get jobs and pay off their debt in a reasonable amount of time. However, rising college costs paired with a struggling economy and high unemployment among young people has made that difficult.

In particular, Latinos and African-Americans are more likely to take out private student loans than in the past. That can be problematic because private loans often carry higher interest rates and repayment plans are less flexible than federal loans.

Many people now graduate and return home to live with their parents -- sometimes without a job -- which means they aren't buying their own homes. Home ownership rates among young people are at some of the lowest points in decades. Minorities, who are more likely to be burdened with student debt, are expected to represent more than 70 percent of net household growth between 2010 and 2020, CAP notes, but student debt could undermine that figure.

"By 2020, California real estate brokerage Movato.com predicts that half of all new homebuyers nationwide will be Latino—assuming Latino families are able to get mortgages," the think tank wrote in a letter to the Consumer Financial Protection Bureau this week.

The housing market isn't the only thing impacted by rising student debt.

As CAP notes, according to the Center for Retirement Research at Boston College, 62 percent of workers in their 30s likely will not have enough resources when they retire. That figure is particularly scary because it's gone up nine points in just three years, 2007 to 2010. It's hard to save for retirement when you're still trying to pay off loans, and nearly one in five people in their 30s has more than $50,000 in student-loan debt.

Complicating the issue is the fact that interest rates on some federal student loans are set to double on July 1. While the general consensus in Washington is that that's not a good thing, opinion on what should be done is anything but unanimous.

President Barack Obama on Wednesday proposed tying interest rates for federal student loans, which are currently fixed, to the government's cost of borrowing.

Three Republican senators recently introduced a bill that would set fixed interest rates on newly issued federal student loans, which would be pegged to the Treasury's 10-year borrowing rate, plus an additional three percentage points.

CAP suggests developing a refinancing program for student-loan borrowers and increasing income-based repayment programs, which would allow people to make payments based on their income instead of a predetermined rate. The organization also wants schools to certify private student loans.

Whatever is done, CAP warns that without action, "the growing student loan burden could make it more difficult for families to achieve future financial security and, if unchecked, could negatively affect the housing market and the broader economy."

Copyright 2013 ABC News Radio

Thursday
Jan172013

Economy May Be Fueling ‘Sugar Daddy’ Business, Site Suggests

SeekingArrangement.com(NEW YORK) -- As college costs continue their stubborn rise, and with work harder to come by during an anemic economic recovery, some students are resorting to a rather unusual measure in order to pay their college bills.

“Sugar Daddies,” wealthy older men who provide financial support to younger women in exchange for sex and companionship, have seen a rise in popularity among college students struggling to find a way to pay tuition.

College student membership on SeekingArrangement.com, a website that matches sugar daddies and sugar babies, has increased by 58 percent from December 2011 to December 2012.

“Currently, we have over 2 million members, 44 percent of which are college students,” Leroy Velasquez, public relations manager at SeekingArrangement.com, told ABC News.  "It’s very difficult to retain a part time or full-time job, especially when you have an academic life. With SeekingArrangement, we offer these types of relationships.”

Asked if he thought the anemic economy was contributing the rise in sugar daddy arrangements, Velasquez said, "I think it’s directly correlated. … We are in a very recessive economy, tuition costs and costs of living have increased and people are finding alternative ways of funding a college education, in this case becoming a sugar baby.”

Deeply indebted, facing a lackluster economy, and with jobs scarce, college students and recent graduates are entering into what could be called borderline prostitution to foot their bills.

“In 2011, we saw an explosion in the number of college students seeking sugar daddies to help pay their college tuition," said SeekingArrangement.com founder Brandon Wade in a news release. "One in every two sugar babies who joins our website today are college students.”

SeekingArrangement.com released a list of the top 20 fastest-growing “Sugar Baby” schools: Georgia State, NYU and Temple University topped the list.

According to SeekingArrangement.com, the average co-ed “sugar baby" receives approximately $3,000 a month in allowances and gifts from her sugar daddy, enough to cover tuition and living expenses at most schools.

Sugar daddy dating advocates push back forcefully against suggestions their activities amount to little more than an elaborate escort service.

“If the sugar daddy is, in fact, meeting a girl simply for sex in exchange for money, then they are using the website in violation of our terms of agreement,” SeekingArrangement.com founder and CEO Brandon Wade told ABC News’ Nightline.

“It’s really about a romantic relationship between two people,” he said. “The only difference is that the sugar daddy is very wealthy.”

So how does it work?

“Basically, a sugar daddy will message a sugar baby he is interested in and he will mention what he is looking for,” Velasquez told ABC News.  "In her profile, she will ask for what she wants in terms of a monthly allowance. After a certain point, they exchange emails and phone numbers and have a dinner date.”

The two will then enter into a contract, the terms of which are decided by the parties involved, Velasquez said.

Velasquez rejected the idea that SeekingArrangement.com is, at its core, an escort service. The key difference between prostitution and a mutually beneficial relationship is the word “relationship,” he added.

“A prostitute is just conducting a black-and-white transaction that is in no way a relationship,” said Velasquez. “What we have at Seeking Arrangement is a lifestyle.”

“I do see it as a very common trend,” Velasquez said. “Since the beginning of time, it has existed. Back then you had geishas and courtesans. Today, we have sugar babies. They are exchanging their beauty for a man’s generosity.”

Copyright 2013 ABC News Radio

Thursday
Dec132012

Stocks Slide Despite Some Positive Economic Data

Hemera/Thinkstock(NEW YORK) -- Stocks slipped Thursday as investors watch and worry, with Congress and President Obama no closer to a deal to avoid the fiscal cliff of tax increases and deep government spending cuts.
 
The Dow closed down 75 points Thursday, falling to 13,171. The Nasdaq gave up 22 points and closed at 2,992. The S&P lost nine points, closing at 1,419.
 
Fiscal cliff or not, three new reports on retail sales, gas prices and jobs show the economy may show some signs of life.
 
A strong start to the holiday shopping season pushed retail sales up three-tenths of a percent in November erasing a drop of about the same amount the month before.
 
Gas prices are also dropping and that helped drive wholesale prices down last month.
 
Meanwhile, first time unemployment claims were down sharply for the fourth week in a row, a sign that the job market may be improving -- or, more likely, many experts contend -- stores are adding temporary workers to deal with the holiday rush.

Copyright 2012 ABC News Radio

Monday
Dec102012

US Intelligence: China Economy to Surpass US by 2030

iStockphoto/Thinkstock(WASHINGTON) -- A report on global trends prepared by the U.S. intelligence community notes that by 2030 China is likely to have surpassed the United States as the world’s largest economy. The report suggests the United States would likely serve as, “the first among equals” in a multi-polar world.

“China alone will probably have the largest economy, surpassing that of the United States a few years before 2030,” The report “Alternative Worlds” prepared by the National Intelligence Council notes in their findings released Monday at the National Press Club.

“In terms of the indices of overall power in gross domestic product, population size, military spending and technological investment, Asia will surpass North America and Europe combined,” said Christopher Kojm, Chairman of the National Intelligence Council at the press conference.

But a lot could happen in the next seventeen years. And there is uncertainty about how China will evolve.

“China is…the wild card. I mean, its actions itself can be its worst enemy, particularly if it becomes, as we’ve seen in a couple -- starting a couple of years back, a lot more aggressive in the neighborhood, then actually is sowing a lot more support for continued U.S. -- a continued U.S. role in the region,” said Dr. Matthew Burrows, counselor to the National Intelligence Council at a press conference Monday morning.

Despite the findings about China’s economy, the report notes that the United States will remain a dominant power militarily with a strong economy as the boom in domestic natural gas production possibly helps lower costs for manufacturing and reduces unemployment.

“When you broaden your definition of power beyond just the basic ones of GDP [Gross Domestic Product], military spending, R&D [Research and Development] and GDP, and you look broader at what a lot of the other -- what a lot of people would call more softer powers, the U.S. still in 2030 stands head and shoulders above China, India and actually all other powers in the world,” Burrows said.

“The U.S. most likely will remain ‘first among equals’ among the other great powers in 2030 because of its preeminence across a range of power dimensions and legacies of its leadership role. More important than just its economic weight, the United States’ dominant role in international politics has derived from its preponderance across the board in both hard and soft power. Nevertheless, with the rapid rise of other countries, the ‘unipolar moment’ is over and Pax Americana -- the era of American ascendancy in international politics that began in 1945 -- is fast winding down,” The assessment noted.

Noting the abundant shale gas reserves in the United States the NIC report notes, “With shale gas, the US will have sufficient natural gas to meet domestic needs and generate potential global exports for decades to come. Increased oil production from difficult-to-access oil deposits would result in a substantial reduction in the US net trade balance and faster economic expansion.”

Among the reports other major trends and concerns noted are the growing demand for food and water with climate change exacerbating the need for these resources as the world’s population is expected to approach 8.3 billion people in 2030. The report also notes that the Middle East and South Asia could face increased instability as 2030 approaches.

“The Middle East’s trajectory will depend on its political landscape. On the one hand, if the Islamic Republic maintains power in Iran and is able to develop nuclear weapons, the Middle East will face a highly unstable future. On the other hand, the emergence of moderate, democratic governments or a breakthrough agreement to resolve the Israeli-Palestinian conflict could have enormously positive consequences,” the report noted.

While terrorism has been the main national security concern for the United States for over a decade the NIC report notes that Islamist terrorism is likely to decline but not completely disappear.

“The current Islamist phase of terrorism might end by 2030, but terrorism is unlikely to die completely. Many states might continue to use terrorist group out of a strong sense of insecurity, although the costs to a regime of directly supporting terrorists looks set to become even greater as international cooperation increases. With more widespread access to lethal and disruptive technologies, individuals who are experts in such niche areas as cyber systems might sell their services to the highest bidder, including terrorists who would focus less on causing mass casualties and more on creating widespread economic and financial disruptions.”

The report also notes that technology will help shape global-security, social and economic developments with increased productivity, automated technologies, precision agriculture and advancements in health care.

Noting the potential for major crisis the report notes the possibility of a severe pandemic as well as weapons of mass destruction and cyber attacks being carried out by non-state actors.

“Our work is invaluable to the administrations past and present. It helps to inform the Pentagon’s Quadrennial Defense Review. It has helped to inform the State Department’s Quadrennial Diplomacy and Development Review. And the policy planning staffs across the national security agencies are keenly interested in our work, and we know that senior policymakers are as well,” NIC Chairman Kojm said at the press conference.

Copyright 2012 ABC News Radio

Monday
Nov052012

How Did the US Economy Look on Election Day 2008?

Comstock Images/Thinkstock(NEW YORK) -- The last presidential election may seem as if it was just yesterday to many Americans, but it is a world away economically from the 2012 presidential election.

In 2008, the economy was in a tailspin.  Today, most economists say it is making a slow recovery -- too slow, the Obama and Romney campaigns agree.

The unemployment rate in October 2008 was 6.8 percent, with about 10 million unemployed people.  Today, the U.S. unemployment rate is 7.9 percent.  While the labor market has improved better than expectations recently, 12.3 million people remain unemployed.

"At the time of that election, if you were knowledgeable about the economy, you didn't know what the bottom was going to look like," said Gary Burtless, an economist with the Brookings Institution.

On the day of the last presidential election -- Nov. 4, 2008 -- Americans did not know that the worst downturn since the Great Depression had actually started as early as December 2007.  It was only later confirmed that real GDP had declined in the first, third and fourth quarters of 2008 and in the first quarter of 2009.

A couple months before, on Sept. 15, 2008, Lehman Brothers had declared bankruptcy.  It was the largest in U.S. history.

A couple of months later, in December 2008, the National Bureau of Economics Research's (NBER) Business Cycle Dating Committee announced that the recession began one year earlier.  The committee announced in September 2010 that the recession had ended, more than a year after the fact.

The housing market is where many Americans feel the ongoing pain most acutely.  Housing prices are still down about 7.8 percent since October 2008.  And while the foreclosure crisis has somewhat subsided, the market is still far from healthy.

In September 2008, one in every 475 housing units had foreclosure filings, RealtyTrac reported.  In September of this year, it was one in every 730 housing units.

"People whose primary asset was their house have lost wealth, especially if they live in areas where there was the biggest housing bubble prior to the recession," said Stephen Bronars, chief economist of Welch Consulting.  Hardest-hit markets include Las Vegas, South Florida, and California.

The U.S. car manufacturing industry has survived while the federal minimum wage has increased to $7.25 from the $5.85 it was in 2008.

The price of gas has fluctuated with crises in the Middle East.  The national average is now about $3.57 a gallon for regular compared to $2.66 at the end of October 2008, according to the Energy Department.

While some economic indicators seem to have improved, the fear of a "fiscal cliff" has sharpened as Election Day approaches as well.

"Inflation is still not a top concern in 2012, but because we have added $6 trillion in debt over the past four years, we are vulnerable if inflation and interest rates increase," Bronars said.

"Today we are in the midst of a slow recovery," he said.  "The static numbers look worse, in many dimensions, than they did four years ago.  The biggest difference between 2012 and 2008 is the direction of the economy.  The debate about today's economy is: Why aren't we recovering faster?"

Copyright 2012 ABC News Radio

Friday
Sep282012

It’s a Slow Economic Recovery, More Data Show

Zoonar/Thinkstock(WASHINGTON) -- Two new pieces of info about the U.S. economy out Friday add to the pile of data indicating a frustratingly slow economic recovery.

Americans spent more in August even though their income barely grew, the Commerce Department said.  The spending increase was driven in part by higher gas prices.  The report also showed that weak job and wage growth are keeping American incomes low.

Another widely observed report on U.S. economic activity showed the first slide in three years.  Slowing growth in China and the persistent problems in Europe are likely contributors to this drop.

The upcoming election will settle some things, according to the report.  “Uncertainty about taxes, regulations, and public policy going into 2013 is causing spending decisions to be deferred or constrained until the picture is clearer,” it said.

While this is obviously not good news, it’s important to keep in mind that this is just one month’s worth of data.  It is not clear whether this is a blip or a larger trend.

There was also news on Europe’s debt crisis: Spanish banks are short about $69.2 billion, according to stress test results, which is in line with expectations.  This is one step on the way to Spain tapping into EU funds to help its economy and banking sector.

U.S. markets are trading about a third of a percent lower Friday afternoon.

Copyright 2012 ABC News Radio

Thursday
Sep272012

US Economy Created More Jobs Than Previously Estimated

iStockphoto/Thinkstock(WASHINGTON) -- The Bureau of Labor Statistics (BLS) released an early look at its annual “benchmark revision” on how many jobs were added in the U.S. economy.  

It turns out that 386,000 more Americans had jobs in March 2012 than previously believed. The private sector added 453,000 more jobs than previously estimated.

These revisions come out every year as BLS gathers more comprehensive data, and covers twelve months ending in March of the current year.

Thursday’s revisions are not dramatic and do not show the economy to be in vastly better shape than previously believed.  

In the past, though, things have turned out to be much worse than previously believed.  In 2009 and 2010 the data showed that 1.3 million more jobs were lost than previously estimated.

Copyright 2012 ABC News Radio

Saturday
Sep152012

US Economy Still at Grave Risk on 4-Year Anniversary of Lehman Brothers Collapse

Chris Hondros/Getty Images(NEW YORK) -- Just in the time for the four-year anniversary of the collapse of Lehman Brothers, a report concludes that the U.S. financial crisis has cost the country $12.8 trillion.

Better Markets, a nonprofit organization whose self-described mission is to "promote the public interest in financial reform," estimated the cost of the "Wall-Street caused financial collapse and ongoing economic crisis" using figures from the Congressional Budget Office and Gross Domestic Product estimates from the U.S. Bureau of Economic Analysis.

Lehman Brothers, the financial services firm, filed for bankruptcy Sept. 15, 2008, with about $691 billion in assets, the largest bankruptcy in U.S. history.

Dennis Kelleher, CEO of Better Markets and co-author of the report, said his organization timed its release with the anniversary to influence lawmakers to focus on tighter regulations.

"The message isn't to banks. It's to policy makers," Kelleher said. "If you look at the economic wreckage and suffering of the American people through the worst economy since the Great Depression, and see that it caused trillions of dollars. The priority has to be preventing this from ever happening again."

Kelleher admitted that the $12.8 trillion figure is an estimate and not a comprehensive figure.

He makes clear that the report does not insist "there's only one way to do this."

Kelleher believes, "The most important part of financial reform is regulating ‘too big to fail’ banks, so that if they fail, they fail without causing a collapse of the financial system or an economic crisis."

Copyright 2012 ABC News Radio

Thursday
Sep132012

Fed 2012 GDP Growth Forecast Worsens; Unemployment Forecast Unchanged

Chip Somodevilla/Getty Images(WASHINGTON) -- Among its announcements Thursday was the Fed’s prediction for unemployment, GDP growth and inflation rates.
 
The Federal Reserve still thinks unemployment won't fall below eight percent this year.  The unemployment rate is currently 8.1 percent.  But the central also says that next year the unemployment rate could fall to 7.6 percent and down to 6.7 percent in 2014.
 
Inflation, the Fed says, will likely remain at or below two percent for the next three years.
 
As for GDP, the Fed has changed its previous forecast to expect slower growth this year, but expects a somewhat better situation in coming years.
 
The Fed now expects growth to be no stronger than two percent this year. That's down from its forecast of 2.4 percent in June.  The Fed says growth will accelerate next year to as much as three percent, up from June's forecast of as much as 2.8 percent. For 2014, the Fed projected growth between three percent and 3.8 percent.
 
The Fed may be taking into account the effects of its newly announced QE3 on future growth in its new forecasts.  All this being said, predictions are generally risky business, let alone those looking as far out as 2014.
 
For those looking for further explanation on how QE3 might work:
 
The Fed wants to get money moving in the economy, which is stuck in many ways.
 
Until now, the Federal Reserve was buying up Treasury bonds.  This depresses the interest rate available on these bonds and prices of assets like stocks go up.  The hope then is that people find they are worth more (401(k)s go up) and businesses can borrow at lower rates.  People and businesses then spend more, boosting output and hiring.  This has worked to some extent in the past in the other two rounds of easing since the financial crisis began in late 2007.
 
The Fed has been criticized for buying Treasury bonds to finance the U.S. debt.  So perhaps to avoid that criticism the Fed is now buying mortgage-backed securities.
 
The intended effect is similar to buying Treasury bonds -- as the Fed says, to “put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”
 
Buying mortgage-backed securities could take these off banks’ books, possibly boosting lending and spending. Consumers may find it easier to refinance and buy new homes.  All of these things have a ripple effect on the economy.  As the economy grows, hiring grows.
 
By saying they may keep doing what they are doing until the ripple effect gets to the job market, the Fed is hoping to provide some certainty to employers and investors.
 
The gridlock in Washington makes the Fed one of the few entities able to do anything right now to help the economy. Thursday’s action is not expected to do much, but it’s one of the few moves available to policymakers.
 
Copyright 2012 ABC News Radio







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