General Motors Getting Bankrupt: May be it is Good

For quite some time, we have heard a lot of rumors about the problems of General Motors and other US automakers. According to a CNN report: General Motors on the brink. From the heading of the report written by Chris Isidore, you can easily understand what is going to happen. Many Americans considered GM to be an “icon of American manufacturing”. So, this icon is failing and falling very hard. If there is a take over from the US government then before that, GM needs to get some kind of bankruptcy protection from the court so that it can decrease many costs involving the stake holders. So, many workers would get much less money from the fallout and in the end, they are going to suffer a lot.

There is no doubt that many people will lose jobs in the coming months in GM. Also, the company will have to close down some factories to cut cost. Many retired workers will also suffer some kind of reduction in their pension. Many dealers and their workers (in dealer shops) will also suffer. So, it will send some kind of a shockwave to the US economy.

President Barack Obama will give a speech to the nation tomorrow and in it, he is expected to talk a lot about GM bankruptcy. He thinks that it is best for the company and for the US economy. I have similar idea too. I think that General Motors is in dire condition now. If the problem is not addressed at this moment then it can be too late to do something later. Do you agree with me?

AOL and Time Warner: No Longer Together

It was perhaps the merger that created the biggest media buzz of last century or this century (depending on which way you think about the year 2000). The confirmation has come and it will take another few months for the demerger to complete.

I think that it will be good for both the companies to part way. AOL can become an independent company and would perhaps go to stock exchange and raise some capital and focus itself as a Internet based company. On the other hand, Time Warner will continue its business of big TV channels like CNN, film making activities, and printing magazines.

Now, it is perhaps the clear that this match was not made in heaven and it created a lot of problems in the last few years. In fact, they sold a number of small companies to competitors as they could not make profit. I still remember that before merger there was WCW wrestling and in 2001, it was sold to WWF for just $7 million.

So, it will be interesting for us to note what happens next to AOL. I guess that Time Warner will not suffer from this separation. AOL will face itself in to a challenging position because the Internet market is very crowded. However, it may be a blessing in disguise for AOL because then its decision makers will enjoy more freedom and would be able to actively scout for buying up start up companies that can become profitable in future.

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Economic Recession Will End in 2009: Most Economists are Wrong!

In a survey, most economists have predicted that economic recession in USA will end in 2009. National Association for Business Economics carried out the survey and 74% of economists thought that things would become better for the US economy in the next quarter. Well, I was going through most of the reports in major websites like Bloomberg, AP, CNN etc and I did not find anything to be excited about that the recession would end in the US in 2009. The economists perhaps feel that the stimulus package and increasing consumer confidence would help to make things OK again.

First of all, 5 months of the year is almost gone. The trend of job loss has not vanished. Rather job loss figures look as solid as it can be. Even in the survey, many economists felt that people will not get back their jobs right away. In fact, what I feel that many big companies are fighting to remain profitable. Major automakers are on the verge of bankruptcy. The banking sector is not in good shape either. President Obama may have offered a stimulus package but there is no substantial plan for creating new jobs.

As a hobby economist, I feel that creating new jobs will be the biggest challenge. Recession will only finish when this problem can be addressed. On the other hand, US economy is closely related to European and Asian countries. There is no good news for those countries. In the last few days, we have seen one after another Japanese company big annual loss. We have also seen very bad condition of economies of Germany and Britain. The same thing goes for China. In a global world, US economy cannot remain safe in an island.

Well, I am a hobby economist. Still, I understand that most economists failed to predict about the start of the recession. So, I will not be surprised if their prediction is wrong again.

US Consumer Confidence Helps Asian Stock Markets

Right now, among many consumers in America, there is a sense of optimism about the economy. They feel that the worst time is over and we will see better time in the coming months. Well, I cannot understand the logic behind this kind of optimism but the good news is that it is helping share markets around the world, mostly in Asian countries.

It started with new York stock exchange and when it was clear that consumer confidence is high compared to the last eight months, many investors in New York felt confident in spending more money and this resulted in good increase. The same thing happened in Asian markets.

It is good news but I’m not that much optimistic because the economic recession is it still very real and there is no possibility that it will end in 2009.

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Too Cheap is not Good for Consumers in the Long Run

First of all, I want you to read this report of BBC: The far-away food factories. It has talked about the experience of a student from UK who recently visited a fish processing factory not as a tourist but as a worker. That factory supplies fish for some supermarkets in England and the Indonesian workers have to work very hard to meet the strict standards of England and EU in terms of hygiene and cleanliness. Very nice to see that the consumers get clean products and can enjoy their meals. After all, they pay for it and they are entitled to getting quality products.

There is nothing wrong or unethical about it. What is so bad is that the workers in the fish factory gets very low salary. Of course, Indonesia is not a rich country and you cannot expect that the workers will get good salary. However, the salary they get is really pathetic. Some of them even cannot live with their families. Some of them are too poor to make a bus ride to another part of the district to see their children. Still, they cannot or wont leave the jobs because this is the best deal they have got. If they did not have this job then life would have become even worse. The factory owner is a bit helpless too. May be he is getting some healthy amount of profit but in the end of the day, he cannot bargain hard with the British supermarkets because then the supermarkets would go for another trader or producer.

The consumers in England are very happy to get fish in an affordable price. So, in the end of the day, everyone is happy. However, on a second thought, we have to remember that it is inhuman that some people cannot even see their children for many days just because you want to have cheap fish. From ethical point of view, this is bad and even immoral. However, let us take a look from the business of point of view. First of all, as a consumer, you will get habit to cheap products. Secondly, the consumers of the rich countries have to work and earn money. They have to produce some goods and services that people of the poor countries will have to buy. However, if the consumers of rich countries destroy this balance then the workers of poor countries will never have any real purchasing power.

I feel that more than the credit crunches in USA, this kind of bad consumerism caused the global recession. Of course, I am a hobby economist and you do not need to take my view seriously. In China and India, still more than 1.5 billion people do not have a car. On the other hand, in USA, auto makers like General Motors are on the verge of getting bankrupt. They are getting bankrupt because they cannot sell their products. If they could sell a car to just even 10% of that 1.5 billion people of India and China then they would have much better condition right now.

Credit Card Reform: Is it Addressing Just one Side of the Coin?

Sen. Chris Dodd must be a very happy man because he could finally get President Obama to make credit card reform a law. Mr. Dodd has fought bravely for this law and he had to be against lobby groups who are very active to preserve the interests of banks and credit card companies. In the new law, the credit card companies will have to maintain some restrictions and will surely not be able to charge like the past. Thus, it will save a lot of money for the ordinary people. Now, Mr. Dodd wants more and he will try to make life easier for the consumers.

What I feel is that this law is just addressing one side of the coin. Of course, the companies have to lower their rates and make less profit. Many people in USA get bankrupts every year because of spending too much money on credit cards. So, there should have been some kind of reforms over due long ago. Mr. Dodd should get a lot of applause for his heroic role in this regard. However, I think that we all are forgetting the other side of the coin. Millions of Americans take credit card for granted. They think that it is near to free and they do not need to pay it back. This kind of mentality leads to free spending and as a result, many families get broke and the companies in order to make up the loss charge more on the customers who pay regularly.

I wonder what Obama administration would do about the second side of the coin. Will they make some new rules that people who cannot afford to pay back money should not be issues new cards. Or even better, some people should not be given credit cars in the first place? I know that this is radical idea and it is not a popular idea. However, what I believe is that Obama should try to address both sides of the coin. Otherwise, it can lead to a new kind of economic disaster after a few years.

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Unemployment Rate: Is USA becoming a Third World Country?

I admit that the title I gave the title to create some excitement in the mind of my readers but unemployment rate of 11% should not be in a state like California. After all, it is among the richest states in America. Secondly, it has both Silicon Valley and Hollywood and a very flourishing agriculture sector. So, what is going wrong? In any case, 11% unemployment is perhaps too high for any rich country. Condition of some other US states is not good either.

The national unemployment rate for USA in April was around 9% and it is not good either. Of course, in some third world countries this rate can be almost 25% or even 30%. So, USA is not becoming a third world country. However, the reality is that if the US economy has to go out of the economic recession then more jobs have to be created first.