RS 10: Cyprus

RS 10: Cyprus

Cyprus bailout deposit grab unprofessional & dangerous

            Cyprus is a little, European country that lies off the coast of Turkey and Lebanon.  Despite its size and low popularity, Cyprus has been in the news a lot lately for all the wrong reasons.  Similarly to Iceland, Cyprus is dealing with its own crisis.  The country is seeking a bailout in order to stabilize the economy before it effects any other countries. 

            The whole problem started as a result of deposit insurance.  Deposit insurance is a form or protecting bank depositors when the bank borrows money and cannot pay it back.  Everyone knows that when you deposit money in a bank, the bank pays you interest so they can lend your money.  Many countries in Europe invested their money in the banks of Cyprus.  When Greece was beginning to go through their own downfall, Cyprus decided that they were going to lend them money to help them out.  Greece was unable to pay the banks of Cyprus back and that is what caused this whole mess. Cyprus promises its depositors deposit insurance on accounts up to 100,000 euros; however, this promise was broken.

            As part of the bailout plan, Cyprus announced that they were going to take 6.7% from all savings accounts and 9.9% from savings accounts that contain over 100,000 euros.  This includes taking money from those who are covered by the deposit insurance. While this idea has not yet been passed by Parliament, this idea has people in outrage.  This would mean that people who invested money in this bank would not get it all back because the bank took it. 

            The biggest problem is that many European countries have invested their money in the banks of Cyprus.  In fact, Russia invested most of their money in the banks of Cyrus after the Soviet Union split up.  If countries pull their money out of the banks then the whole economy of Europe will fall.  The biggest fear comes if Spain and Italy pull their money out of Cyprus.  Because these countries are so big and influential, them pulling their money out could mean the collapse of the entire euro. 

            We have all heard stories of some European country that has fallen into an economic crisis.  Unfortunately for the small country of Cyprus, they are the latest country to be economically suffering.  If the banks of Cyprus did not lend their money to countries that could not pay them back, then Cyprus would not be in the situation that they are in right now.  Hopefully they find a way to bailout these banks so the euro does not go under as well.  

Could tiny Cyprus take down the world?

RS 9: Don’t Believe the Hype

RS 9: Don’t Believe the Hype

Dow Jones At All Time High????

            In the past week the Dow Jones industrial average has reached record highs, according to most medial outlets.  However according to several critics of the Dow this statement is false.  Those who do not believe that Dow has reached its high argue that it is because nobody accounts for inflation in the Dow Jones industrial average.  Also, the mathematics used to evaluate this number is not as accurate as it could be. 

            Charles Dow, Edward Jones, and Charles Bergstresser founded Dow Jones and Company in 1882.  While it started as a little company, it has become one of the most well known business information leaders on Wall Street.  Because it has been around for such a long time, employees do not want to change the methods and strategies of the company, even though they may not be as accurate as they used to be.  When the Dow first started, there was no computer that could calculate the status of the economy.  They found the Dow Jones industrial average by adding the prices of 30 component stocks and then divided that total by the Dow Divisor.  The Dow Divisor is a number that changes regularly and counterbalances the effect of stock splits, bonus issues, dividend payouts, or any change in the component stocks.  This was simple math and could be done without a complex calculator.  Today there is technology that can find an even more accurate number than the Dow Jones.

            Another reason why the Dow Jones is not as accurate as other indices is because it focuses on share price.  The share price is the price of a single share of a number of stocks that a company sells.  For example, Company A has 100 shares with a share price of $1.  Company B has 2 shares with a share price of $50.  Both companies have a market cap of $100.  However with a 10% increase Company A will add $0.10 to each dollar share, Company B will add $5 to each share.  Even though both companies are still worth the same ($110) after the increase, the Dow would care more about the $5 added to Company B than the $0.10 added to Company A. 

            The only advantage that the Dow Jones has over its competitors is its age.  Because the Dow Jones is so old and has been around for over 100 years, everyone has heard about it.  The media, such as news television, is what gives the Dow its popularity.  Because of this popularity, employees of the Dow Jones feel that it would not be worth it to change anything about it.  Even John Prespo, an employee at the Dow Jones, says that it is not as accurate as it could be.  However, in times of recession, such as the most recent in 2007, the Dow is easier for people to understand what is going on.  By seeing a basic number and recognizing it as good or bad, people can determine how the overall economy is doing.  Essentially, the Dow Jones is a way for ignorant people to understand the US economy.   

            Although the Dow Jones gives us a basic understanding of how the economy is doing, it is not as exact as it could be.  The Dow Jones does not incorporate all of America’s corporations and it only focuses on the share price of stocks.  The Dow leaves out essential information, such as GDP, in its calculations leaving us with less accurate information.  So while the media says the Dow has reached its all time high for seven straight days, they are mistaken.  The Dow has not reached its high since 2000, and in fact we are 11% short of what it was in 2000.

RS 8: Keeping The Biggest Secret In The U.S. Economy

RS 8: Keeping The Biggest Secret In The U.S. Economy

            Unemployment is a big problem for a country and occurs when people are out of work and are looking for employment.  Typically recessions create higher unemployment rates.  During the month of February the country had 7,130,000 people unemployed, which is 445,000 less than January. The Bureau of Labor Statistics, or BLS, is the company that releases that number under complete lockdown.  The unemployment number is more than just a number.  It is very significant to the countries economy and is kept secret until the first week in Friday of the next month at 8:30 am.

            The jobs number has a huge impact on the countries economy and is kept secret until a specific time.  This number is so important because they tell people how the economy is doing in regards to jobs.  The reason this number needs to be kept so secret is because if it is leaked, people can make advances in the stock market and gain millions of dollars.  A lot of money resides in the job numbers, which is why it is so important that these numbers are kept secret.

            In November of 1998, a day before the jobs number was supposed to come out, Ray Stone was looking around on the BLS website when he came across the jobs number.  He called the BLS and to their surprise the number was in fact leaked.  Stone told them that he would give them five minutes but that he was going to release the information on his blog.  BLS ended up releasing the number an entire day earlier than planned.  In order to prevent issues like that from reoccurring, BLS takes their jobs very secretly and keeps the office under complete lockdown when the numbers are waiting to be released on Friday.

            BLS has a strict schedule when it comes to allowing people in their building.  Between meetings and configuring the numbers, there is really only one week where people are allowed to visit the offices.  During that week there is still even strict protocol that people must follow.  Meaghan Barker works for BLS and has her office locked.  She empties her own trash and fixes her own electronics because no outsiders are allowed in her office.  Even fellow employees are not allowed in her office due to the highly confidential information on her desk.  Barker knows the number on Tuesday, which is three days before the number is officially released.  For three whole days she needs to keep it secret and not let anyone know she has a clue as to how the economy is doing. 

            Even when the numbers are released on Friday, there is still a strict routine.  Reporters and journalists are allowed into the offices where they lock all personal items and recording devices in a locker.  Then at 8 am they are given the numbers where they have thirty minutes to ask questions.  Then at 8:30, when the numbers are formally released, they are allowed to release the information that they collected.

            The jobs number has a huge impact on the United States economy and it does not just affect the unemployment rate.  Someone who has access to these numbers can earn big in regards to the stock market because they have insider information on how the economy is doing.  Strict guidelines are followed in order to keep this number secret until it is supposed to be released.  Although the unemployment is just a whole bunch of numbers, those numbers have a lot of meaning behind them.

Morning Joe: Job Numbers

RS 7: The Friday Podcast: The Price Of Lettuce In Brooklyn

RS 7: The Friday Podcast: The Price Of Lettuce In Brooklyn

What is CPI?

            CPI or the consumer price index is the measure of the average change over time in the prices paid by consumers for a market basket of goods and services.  The CPI measures the inflation in the country, and it influences everything from Social Security to the price of school lunches and what your raise is going to be next year.  CPI is such a critical number to this country’s economy that people actually go out and price items from year to year to determine this number.  That is what this podcast was all about, figuring out the CPI of items that we consider necessities. 

            The Bureau of Labor Statistics, or the branch of the Federal Government that is responsible for finding facts regarding the economy, measures the CPI.  In this podcast, NPR tells the journey of George Minichiello, who goes to stores in Brooklyn in search of the CPI.  George is described as someone who is very focused on his work, and is not focused on the materialistic things such as a fancy car or publicizing his career with a BLS jacket.  George has been going to this one grocery store every month for the past three years in order to measure the CPI.  They say that the storeowners know who he is and know what he is there for, and is very welcoming to him.  When they get to the store, George announces that they are in search for the price of Romaine Hearts of Lettuce.  He sees that the price is $2.99, which is the same price that it was the month before, but the weight of the bag was different.  This means that there was a price decrease, but to be exact that means there was a 27% price decrease deflation.  This seems pretty large but it is normal depending on the weather and what produce is being grown.

            In order to figure out what the CPI is, you have to divide overall CPI into two groups: headline CPI and Core CPI. Core CPI is when you cut out food, oil, and other products that fluctuate regularly.  During this trip, George examined food and clothes, both of which are core CPI.  The second item that George examined was a young boy’s size-14 collared shirt that was made of 97% cotton.  What he came to discover was that this price remained the same as the previous month at $25.  Although it remained the same, this number is constantly watched in order to see whether the economy is headed toward an inflation or deflation.

            CPI is a critical number for the US economy.  It determines if our country is doing well or if it is doing poorly, or if we are experiencing deflation or inflation.  The BLS has the important job of going out and actually measuring this number.  This podcast explained the importance behind the CPI and the duties of the BLS.   

RS 6: Cliffhanger

RS 6: Cliffhanger

Cliffhanger Video

            Recently in the news there has been much talk of the fiscal cliff.  The fiscal cliff was an attempt to lower the amount of government spending and increase taxes on US citizens.   Because the country has been in debt, Congress has been trying to come up with a way to solve this problem.  Both the House and the Senate have been torn on whether to cut spending, increase taxes only for the wealthy, or increase taxes for all citizens.  The debt ceiling would put a limit on the spending and borrowing of Congress, which is where the debate comes in.  Congress was unsure if they wanted to extend the ceiling because once the ceiling is hit, the government cannot borrow any money, and spending would have to be cut.  Many people in Congress thought that the fiscal cliff could help alleviate the debt crisis, but many Republican Congressmen, such as John Boehner, disagree.

            The fiscal cliff had not only citizens outraged, but Republicans as well.  The Republicans knew that the fiscal cliff would raise all Americans taxes, even if the Democrats claimed that it would only raise taxes on the wealthy.  According to the fiscal cliff policy, as your income increases the amount of taxes you pay has to increase as well.  For example, all of the retirement plans such as a 401K would have higher taxes.  A person who makes $50,000 a year would have $20 a week coming out of their paycheck for social security alone.  While that does not seem like a lot, that adds up to almost $1,100 dollars a year just for social security.  It is said that the average middle-income families will pay an additional $2,000 a year in taxes.  This had the Republicans outraged because they did not want to have citizens pay anymore than they already had too.

Paul Ryan, a Republican Congressmen, created The Path to Prosperity: A Blueprint for American Renewal, which was a proposed budget plan to prevent the country from going into more debt than it already was.  According to this blueprint, Ryan planned to cut spending, lower taxes, repeal Obama’s healthcare plan, and create a partial privatization of healthcare.  This would have allowed for a better budget plan that would not have caused such a dramatic increase in taxes.  President Obama took this as a personal attack and fought back against the Republican proposed budget.  Republicans did not want the taxes to increase for the citizens because it would cause even more problems, possibly bringing us back into another recession. 

Because of all the debate over this topic, President Obama contacted John Boehner, Republican Speaker of the House, in order to come up with a mutual decision on how to deal with the budget crisis.  Both discussed the options for the country, and in the end it was decided that the debt ceiling would be suspended until May 18, and that by April 15 the House and Senate both need to pass a budget resolution.  Although this is a temporary solution, it is still causing chaos because no one knows what is going to happen in the coming months.

The Debt Ceiling