The annual car evaluations Consumer Reports publishes in its April issue have just arrived—and the news for Detroit is not good. This year the magazine has devised what it calls a “Report Card” on the world’s 15 largest car companies. We show some of the results in the table below. (The "overall score" here is calculated by combining the average test scores for a given company's models a...

Federal Bailout Commitments (Billion of Dollars) Category Fed Res Funding Treasury Funding Other/Pvt Funding 1 Public-Private Investment Trust   < 500 < 500 2 Capital Assistance Plan 900 100   3 Economic Emergency Stability Act-TARP I   350   4 Economic Emergency Stability Act-TARP II   350   5 Fannie Mae/Freddie Mac debt 600       Fannie Mae/Freddie Mac preferred shares   4...

President Obama is hosting a “fiscal responsibility summit” on February 23 that has the goal of reining in the projected growth in government spending in the years and decades ahead. Any such reform, however, will require a dramatic change in the role of government in American society. In the last six months, as the current recession became worse, the cost of government has exploded on top of...

Now that Fannie Mae and Freddie Mac have been nationalized, attention is turning to the third giant housing-finance network, the Federal Home Loan Bank System. While the acronym reads FHLB, it is pronounced “Flub,” a sobriquet closer to the current perception that it has strayed far from its original mission and made large, risky loans to banks that have then failed. Like Fannie and Freddi...

The rate of consumer price inflation fluctuated greatly in 2008, from a peak year-over-year rate of 5.9 percent in July to a low of just 1.1 percent in November. The post-July moderation reflects a series of outright declines in the Consumer Price Index (CPI) itself. The CPI decreased for four consecutive months (through November) - the longest string of decreases in nearly 60 years. Our 2009 ...

The fear of price deflation is moving the Federal Reserve in the direction of establishing an official “inflation target” that would be the goal of monetary policy. The fundamental problem with inflation-targeting is that it is the Fed would be shooting for an annually planned rise in prices and depreciation of the dollar. The minutes of the December 2008 meeting of the Federal Reserve’s ...

For months, now, the news has been filled with reports of a huge credit crunch crushing the ability to borrow in the United States economy. The impression of a financial sector that has ground to a halt, however, is not born out by the facts. To the contrary, lending and borrowing have continued to grow in America, albeit at a lower rate of growth all through 2008. Banks have used a large portio...

The financial fraud allegedly carried out by New York investment counselor, Bernard L. Madoff is considered the largest financial swindle ever. In all, Madoff’s 30-year-long Ponzi scheme is believed to have caused least $50 billion in losses and one suicide. The founder of the hedge fund Access International Advisors was found dead December 23 after his fund lost as much as $14 billion invested...

The Weekend Edition of the Wall Street Journal for December 6-7 features a front page story headlined "Job Losses Worst since '74: 533,000 Shed in November." As the Journal reported, nonfarm payrolls declined 533,000 for the month, which was the largest one-month drop since 1974. The newspaper went on to say that revisions to earlier figures showed that employers shed almost 1.3 million jo...

The National Bureau of Economic Research, the nonpartisan group charged with making the call, announced Monday that U.S. economy entered a recession in December 2007. AIER’s statistical indicators, in contrast, warned about a recession months before its official start date and more than a year and a half before NBER’s official announcement. We first wrote that the recession was likely, based...

We are not yet in an economic emergency, as we were in the Great Depression. But should the government become unable to refinance its obligations, the Federal Reserve will refer to a Depression-era statue for the authority to finance the Treasury. That authority was established in 1933 by the Thomas Amendment to the Agricultural Adjustment Act, which amended the Federal Reserve Act. The statute p...

This time of the year, whether in good economic times or bad, is when we gather with our family and friends and enjoy a Thanksgiving meal together. It marks a remembrance of those early Pilgrim Fathers who crossed the uncharted ocean from Europe to make a new start in Plymouth, Massachusetts. What is less appreciated is that Thanksgiving also is a celebration of the birth of free enterprise in Am...

Chances are the Detroit Big Three Automakers will receive a huge bailout from the politicians in Washington, D.C.  Taxpayers will be expected to pick up the tab for $50 billion or more. Not only will this be bad for hard working Americans who will bear the cost of another bailout boondoggle, it will be a big mistake for the health and future prosperity of the United States economy. Of course, t...

Once the government passed the $700 billion bailout for the financial sector, it was inevitable that virtually everyone else’s hand would soon be out asking for a piece of the near trillion-dollar giveaway.  Municipal and state bond insurers, for example, now have their hands out, saying that they are as important to the financial health of the economy as any of the banks that the government i...

AIER’s primary leading indicators of business-cycle conditions continue to signal a recession. The percentage of primary leading indicators appraised as expanding held at 40 this month. A score below 50 indicates that a recession is likely. One of the leaders, the M1 money supply, increased by nearly $60 billion, the highest ever one-month increase. This increase is the result of unprecedented...

Rightly or wrongly, voters often hold the president responsible for the state of the national economy. Incumbent fortunes seem to turn with the economic tide. As a consequence, political campaigns often stress those aspects of the economy that appear favorable from the incumbent administration’s perspective or unfavorable from the challenger’s perspective. Recent evidence suggests voters do ...

There are many lacunae in the Emergency Economic Stabilization Act of 2008. We do not know the criteria that will determine which money managers the Treasury will hire to buy distressed assets from financial firms. We do not know how these hired people will perform their duty. Harvard’s Lucian Bebchuk proposes that each manager be given a small sum from the $700 billion (say $5 billion) to pu...

A year ago, on October 9, 2007, the Dow Jones Industrial average reached an all-time high of 14,165.  Yesterday, on October 9, 2008, the index had fallen by 39 percent, to 8,579. As the Wall Street Journal pointed out, the plunge erased $8.4 trillion in the value of U.S. stocks, the equivalent of more than half of the nation’s total output (GDP) for 2007.  A recent government report says retir...

The government’s case for its bailout of failed financial firms rests on misrepresentations of the facts and the misuse of words that do not stand up to scrutiny.   1. There was no liquidity crisis in either sense of the term. The most prominent characteristic of problem liquidity is high interest rates caused by solvent but illiquid debtors rushing for cash. A crisis is by its nature short...

Millions of Americans have wondered about the safety of their savings in the past few weeks, as some giant banks and other financial institutions have failed or gone into a kind of receivership with the federal government. The dramatic collapse on Thursday of Washington Mutual, by far the largest bank failure in U.S. history, pushes the question to the center of the stage.   As the Wa Mu failur...