Tag Archive | "Watchful Eyes"

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ECB Holds Rate, Euro falls

While Washington continues to embarrass the world’s largest economy, the ECB released a dismal projection for the euro zone economy in 2013. The forecast has the ECB considering an interest rate cut to help countries trim their borrowing costs. Bad economic news in Europe spells big trouble for American business, which ships more products to the region than any other area.

In meetings with the ECB’s Governing Council, President Mario Draghi entertained a discussion about not only paring interest rates but also about cutting the deposit rate. In the end, the ECB took no action but Draghi is holding the door open on both possibilities. The historically low lending rate of 0.75 percent remains in effect. This rate has prevailed for the past five months but has not done much to fuel economic growth.

The ECB reported their projections for the euro zone showing that Gross Domestic Product (GDP) would fall between -0.9 and +0.3 percent in 2013. In a region that definitely needs growth, hopes are dim.

Berenberg Bank spokesperson Holger Schmieding told reporters, “The somewhat downbeat ECB forecasts, the somber tone of the ECB statement and Draghi’s admission that the ECB had a ‘wide discussion’ over many issues including a potential rate cut also keep the door open for a cut in early 2013.”

The euro zone and European Union have watchful eyes on the Fiscal Cliff negotiations, or lack thereof. As an importer and exporter, the US negotiations are making analysts work overtime to figure the repercussions of the US debt negotiations. The euro zone is clearly counting on the world’s largest economy to be running at optimum speed in 2013. A failure to do so would not only put the US in recession but would have the same effect on the euro zone and other economies.

One positive outcome of the ECB meeting was that Draghi indicated that the bank would continue to supply euro zone banks with necessary liquidity through the middle of 2013.

Now that the European Union and the IMF have taken action to help Greece, the ECB will be challenged to navigate through a regional recession. Inflation is expected to rise between 1.1 and 2.1 percent in 2013.

Euro zone interest rates vary greatly in the 17 nations. The ECB hopes that its continued reduced rates will stabilize nationals lending rates and reduce them as much as possible. But, like the US where corporations are sitting on more than $2 trillion in capital reserves, euro zone businesses are hoarding their cash. They remain unconvinced that the region’s debt crisis will settle and are prepared for worst case scenarios.

The euro zone’s most puzzling dilemma is Spain. The country is suffering 25 percent unemployment and is in the midst of national outrage and even threats of secession. The ECB has a new debt relief program called the Outright Monetary Transactions (OMT). Under this mechanism, Spain could receive funding assistance.

However, Prime Minister Mariano Rajoy must apply to the euro zone for assistance. Rajoy has asked Draghi to guarantee that borrowing costs would not increase, a commitment Draghi cannot make. Spain would be the first nation to use the OMT.

In the euro zone, the political dialogue has lessened. In the US, Republicans have walked out of Congress and Washington. Talks appear to be stalled and the fiscal cliff is becoming a little too real for Americans.

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Poverty Level Hits 14.3%

The economic difficulties of 2009 did not escape the watchful eyes of the annul Census Bureau on income, poverty and health insurance. The country’s poverty rate increased to 14.3%, the highest level since 1994.

The 43.6 million Americans who qualify as poverty-stricken is the most since records began being tallied 51 years ago and higher than the 13.2% in 2008. One in every seven Americans lived in poverty in 2009.

While the poverty levels were high, they fell short of analyst’s projections. At the core of the poverty increase is unemployment which rose from 7.7 % at the beginning of 2009 to 10.1 percent in October. The extension of unemployment benefits and subsequent increases managed to keep many more Americans from falling into poverty.

President Obama commented on the report. “Even before the recession hit, middle class incomes had been stagnant and the number of people living in poverty in America was unacceptably high, and today’s numbers make it clear that our work is just beginning.”

The Office of Management and Budget defines the poverty level as annual income of less than $10,956 for an individual and less than $21,954 for a family of four. Income includes earnings from workman’s compensation, unemployment insurance, payments from social security, veteran’s payments, income from pensions, interest and dividends.

Income from capital gains is not included. Non-cash benefits like food stamps and subsidized rents are also not included.

David Johnson, the head of Housing and Household Economic Statistics Division said the poverty rate would have been higher had the rate for senior citizens not declined from 9.7% to 8.9%. However, the poverty rate for children under the age of 18 grew 1.7% to 20.7% as the recession hit low income families especially hard.

Regional Differences

The South had the highest rate of poverty at 15.7%. Mississippi has the highest poverty rate of any state. 20.6% of state residents earned less than the poverty level over the past two years.

Arizona (19.6%) and New Mexico (19.3%) ran second and third in the West where the poverty level hit 14.8%. In the Midwest, the poverty level was 13.3 % and was 12.2% in the Northeast.

At 7.3%, New Hampshire had the lowest poverty level in the country. Connecticut followed at 8.3%.

The report does not take into account regional or state standards of living. A move is underway to develop a supplemental poverty level that will include standards of living and non-cash supplements.

Uninsured Health Number Increases

Tracking the number of Americans with health insurance began in 1987. The Census Bureau reported that the number of persons with health insurance decreased by 1.5 million Americans to 253.6 million in 2009.

Deborah Chollet, a health economist with Mathematica Policy Research explained, “This is a pretty dramatic development. It’s not just a percentage drop, but a drop in the actual number of people who had health insurance.”

Chollet suggested that people finding new jobs are taking positions without health benefits. The number of Americans without health insurance rose to 50.7 million in 2009, up from 46.3 million in 2008. From 2008 to 2009 the following health insurance changes took place.

* Number of people covered by private health insurance fell from 201 million to 194.5 million.

* The number of people with employment-based health insurance fell from 176.3 million to 169.7 million.

* The number of people receiving government health insurance rose to 93.2 million from 87.4 million.

The poverty report and health insurance crises comes at a time when Congress shows little willingness to respond to the needs of the public. With mid-term elections just two months away, Representatives and Senators are more concerned with saving their jobs than engaging in meaningful debate to increase jobs and fine-tune the recently passed health plan, often called Obama-Care.

Without action, many of the stimulus programs that have kept low income families above the poverty level will soon expire. The federal unemployment extensions have a November 30th deadline before which a new agreement must be executed or the payments will cease.

According to the Center on Budget and Policy Priorities, The Recovery Act has kept another 33 million people from living beneath the poverty level. The Recovery Act reserved $87 billion for states to be used with soaring Medicare costs. Congress added $16.1 billion last month.

The need for action is certainly there. Who is listening appears the more relevant question.

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