The president’s stimulus package, which in the Senate version may top $900 billion, will require the United States government to go much further into debt to cover the cost of spending these hundreds of billions of dollars. The question is: Who is going to lend all this money to Uncle Sam? The current decade Federal government debt has doubled, from $5.6 trillion in 2000 to more than $10.6 t...

As president of the Federal Reserve Bank of New York, Timothy Geithner, the new secretary of the Treasury was one of a trio of senior financial officials that determined the response to the burgeoning financial crisis during the later phases of the Bush Administration. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke were the other two.  The congressional hearing on...

Some observers expect gold prices to rise in the coming months, despite the recession. As the first chart shows, normally gold prices tend to fall during U.S. recessions, as marked by the shaded areas. (The "monthly" average price for January 2009 is actually for January 7.) The tendency is far from uniform, however. In the back-to-back recessions of 1980 and 1982, the price first plunged, then r...

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...

Nearly 50 years ago, Yale University economist Robert Triffin identified the inevitable future deterioration of the dollar in his book, Gold and the Dollar Crisis: The Future of Convertibility (1960). Essentially, Triffin argued, under the Bretton Woods system in which the U.S. dollar was the world’s principal reserve currency (instead of gold, for example), the United States had to incur large...

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...

Sophisticated financial products such as mortgage-backed securities have taken the blame for the current financial crisis. But these instruments, which are designed to spread risk, play an important function in fostering economic prosperity. In AIER’s December 15 Research Reports, Donald R. Chambers, the Walter E. Hanson/KPMG Professor of Finance at Lafayette College, de-mystifies the complex...

In recent days, the price of gold has backed off to about $750 per troy ounce in the London p.m. fix. This compares to an all-time high just above $1,000 last March and a 52-week low of about $700. But why London? And why per troy ounce? For gold as for oil and other commodities, there are many different prices, which should all cross-convert with one another in some consistent fashion, as shaped...

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...

Gold’s performance as an investment in recent years has been impressive by any standard—and not least when compared with equities. Even allowing for the recent decline from around $900 to around $750 an ounce, gold has doubled or tripled in value since the Millennium, depending on what dates you choose to compare gold prices. Equities, on the other hand, have unfortunately proved the old adage...

With a collapsing housing market, a falling stock market, and a serious economic recession on the immediate horizon, the blame game about who or what has been behind the financial nightmare is in full swing. In recent testimony before a congressional committee former Federal Reserve Board Chairman, Alan Greenspan, pointed his finger at various financial insurance schemes and the inescapable uncert...

Not surprisingly much of the economic news has focused on the financial crisis in the housing market. What has received less attention is the consumer credit market. As the table below shows, consumer credit outstanding has increased from a bit more than $2 trillion  in 2003 to $2.5 trillion by the end of the second quarter of 2008, representing a 25 percent increase over five years. Out of this ...

If you thought that that the word “voluntary” means the ability to say yes or no, you obviously haven’t been in Washington, D.C., lately.  When the senior executives of America’s largest banks were invited to a meeting with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke at 3 p.m. Monday, October 13, they found out that the United States government intended to ...

The U. S. government will be using at least $250 billion out of the $700 billion bailout package to buy equity shares in the some of the largest financial institutions in the country. In other words, as  President George W. Bush, Treasury Secretary Henry Paulson, and Federal Reserve Chairman Ben Bernanke confirmed Tuesday, Washington will use more than one-third of that $700 billion for a pa...

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...

When the World Bank surveyed the regulations governing businesses in 181 economies around the world, it detailed many reductions in regulation worldwide, particularly in many developing countries. But it also uncovered the how much many governments continue to make it difficult and costly to do business. Regulations that make it difficult or impossible to register a business, or to have land tit...

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 Emergency Economic Stabilization Act of 2008 implements a temporary increase in deposit insurance from $100,000 to $250,000 per insured account in banks and credit unions. This increase is scheduled to expire December 31, 2009, but there might be advocates for making it permanent. This temporary increase will not be accompanied by higher premiums for the financial institutions. Nor will it re...

Treasury Secretary Hank Paulson’s guarantee plan for Money Market Mutual Funds is not intended to guarantee that fund shareholders will receive what their shares are worth.  The intention is, rather, to guarantee that shareholders will receive more than their shares are worth, when their shares are worth less than $1 each (evaluated in the usual way by dividing the fund's asset portfolio value...

The World Bank report, Doing Business, 2009, examines government regulation of business in 181 countries. While the study emphasizes recent improvements that free business from stranglehold of government regulation, it also highlights the extent to which political authorities around the globe continue to make business difficult and costly. In earlier webposts, we saw that the Western developed n...