What is the Misery Index?

The misery index was created by economists in an effort to quantify how bad the economy is based on cold hard numbers. In many ways, it can be argued that suffering is not quantifiable, after all how do you measure the pain associated with starvation, sickness, disease, homelessness, war, lawlessness and all the evils of society?  But in economic terms economist Arthur Okun developed a simple but brilliant method of determining how miserable people were economically.

The Misery Index and Unemployment

US Misery IndexThe first component of the misery index is unemployment. Okun reasoned that if a lot of people were unemployed, that would make the country as a whole feel poorer and so they would be less well off. Also a side effect of just knowing that the unemployment rate is increasing is an increase in fear that people might lose their own job as well and this will cause them to cut back on their spending of discretionary items and to save more “just in case”. As a result, more businesses will be hurting from the lack of spending and the misery will compound.

The Misery Index and Inflation

The second component of the misery index is inflation. Inflation is an increase in prices. The primary cause is an increase in the money supply “Printing Money” at a greater pace than the growth of the “GDP” i.e. Gross Domestic Product. If prices increase  more rapidly than salaries individuals will have to reduce their consumption resulting in [Read more...]

Economists Are (Still) Clueless

Thoughts from the Frontline: Economists Are (Still) Clueless

By John Mauldin

130615_TFTF_smEconomists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.

- John Maynard Keynes, A Tract on Monetary Reform

There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have insight to appreciate the incredible wonders of the present.

- John Kenneth Galbraith

Hitler must have been rather loosely educated, not having learned the lesson of Napoleon’s autumn advance on Moscow.

- Sir Winston Churchill

US GDP has been slowly ramping up, only to fall back and then try once more to bring us back to the ’90s. Stocks markets are volatile but seemingly moving higher in most of the developed world, except for Japan, where the current 20% drop comes hard on the heels of one of their frequent “end of the bear market forever” rallies of almost 90% – how many of those have we seen over the last 24 years? Europe is mostly in recession or Muddling Through with very slow growth. I continue to read from those who know China intimately that there is a real crisis brewing there. And over the last four weeks I have highlighted how desperate the situation is in Japan.

The main obsession in the US seems to be [Read more...]

The Economics of Disasters Like Hurricane Sandy

Many people believe the fallacy that wars and disasters are good for the economy, perhaps because some people like defense contractors and home-builders benefit. But it is important to understand how wealth works. If you build a house from raw materials you are richer. For instance suppose you take $50,000 worth of raw materials and add $50,000 worth of labor and come out with a house worth $150,000. in that case you created $50,000 worth of wealth out of thin air. But if someone comes along and knocks your house down and you rebuild it: 1) Are you better off? 2) Worse off? 3) The Same? ~ Tim McMahon, editor

In this article Kerk Phillips looks at “hurricane economics”.

Even Economically, Disasters like Hurricane Sandy are Bad Things

By Kerk Phillips

Hurricane EconomicsEvery time there is a significant natural disaster, I eventually — and unfortunately — hear from someone that there is at least one upside: the disaster will be good for the economy. And every time I respond, “Wrong!”

Inevitably, this supposed economic stimulus is called a silver lining. To quote one of my favorite demotivational thoughts from Despair.com, “Pessimism: Every dark cloud has a silver lining, but lightning kills hundreds of people each year who are trying to find it.”

Natural disasters are bad. They destroy lives and wealth, and that has no upside. After the disaster is over, people are unambiguously worse off than before, and while their quality of life inevitably recovers, on average they are not better off in the long run for having lived through the disaster.

On an individual basis, it is possible for [Read more...]

The World Is in the Grip of a Bear Market–Have You Noticed?

Global Markets, Economies Mired in Early Stages of Biggest Disaster Ever

By Elliott Wave International

The following is a sample from Elliott Wave International’s new 40-page report, The State of the Global Markets — 2013 Edition: The Most Important Investment Report You’ll Read This Year. This article was originally published in Robert Prechter’s September 2012 Elliott Wave Theorist.

Bear Market by http://www.azrainman.com/Global markets and economies are mired in the early stages of the biggest disaster ever. Most people think both areas are in the early stages of a prolonged recovery, but in fact they are on the cusp of the second downturn, which will be of epic proportion.

The world is in the grip of a bear market. You wouldn’t know it from watching the S&P and the NASDAQ, but just about every other major market average in the world has been falling, including those of China, Japan, Europe, the BRICs, emerging markets, and even the broad U.S. market, shown in the chart below. And these indexes have fallen far further in inflation-adjusted terms. [Read more...]

Selling Your Scrap Gold During The Economic Downturn

Selling Your Scrap Gold

Economic downturns are a fact of life and you never know when you might be caught up in events outside your control. That is why you always have to be prepared for the circumstances life might throw at you. If during good times you have accumulated some gold either as jewelry or coins, then selling your scrap gold is one such step that you can take when times are rough. There are many advantages of having some gold as an insurance policy against tough times.

What is “Scrap Gold”?

Selling Your Scrap GoldIn its simplest terms, scrap gold is any gold that is sent back to the refiner for recycling. Mostly it is broken jewelry that is no longer needed. Gold coins are rarely melted down because they are already in a handy readily recognizable format and are therefore easily exchanged (after all they were money). But for the sake of this article we will include coins in the definition of scrap unless they have a premium (collectable) value due to rarity.

Due to the rise in the value of gold in recent times, selling scrap gold has gained in popularity as a means of raising necessary cash. Gold has appreciated as a store of value, and liquidation is a very relevant option especially in dire economic times. Selling gold is not something most people do everyday and so it requires [Read more...]

In 1929, Deflation Started in Europe Before Overtaking the U.S.

Marcus Aurelius was the last of the “Five Good”  Roman emperors and is also considered one of the most important members of the Stoic philosophers. He ruled Rome from 161 to 180 AD.  He brilliantly said,

“Look back over the past, with its changing empires that rose and fell, and you can foresee the future, too.”

DeflationToday we may be seeing the beginning of the end of the American Empire. As Americans we don’t like to think of ourselves as having an empire but according to Daniel Larison,

The U.S. treats several key regions of the world as privileged space where it is supposed to have military and political supremacy, and regional challengers to that supremacy are treated as potential threats to the U.S. because they infringe on what our government considers its sphere of influence. U.S. military commands divide up the world, because it is taken for granted that the U.S. has some proper military role in every part of the globe, and the U.S. has hundreds of bases scattered around the globe. The President has the ability to wage war largely on his own authority, and when he condescends to consult Congress it is now little more than a formality, so that the phrase “imperial Presidency” is as appropriate now as it has ever been.

Ah, but What about Iraq?” you might ask. We left voluntarily didn’t we? Doesn’t that prove that we are not building an empire? Larison says that doesn’t prove anything.

Just because a state withdraws its forces from a country it has invaded and occupied for years doesn’t mean that it hasn’t acted as an empire does. After toppling a country’s government, installing a new government that it initially believed would be more cooperative and subservient, and occupying its territory against the will of most of the population for almost a decade, the U.S. certainly acted imperially in Iraq… When a government reserves the right to overthrow other governments that oppose its policy goals, it assumes that other states’ sovereignty is so limited that it can and should be violated when it suits the more powerful state. This is how many empires have acted in the past, and so it seems appropriate and accurate to refer to a contemporary American empire.

What Happens in Europe Will Not Stay in Europe

By Elliott Wave International

More than 1,500 years after the fact, scholars still debate the causes of the Roman Empire’s fall.

What historians do agree on is that the crumbling empire’s final days were marked by economic contraction, a struggle to fund Rome’s routine affairs and excessive debt.

Sound familiar?

Mark Twain said, “History doesn’t repeat itself, but it does rhyme.”

That quote seems to apply when [Read more...]

Australia- Iron Ore, Housing and Unemployment

Speculation Mounts Over RBA October Meeting

As the RBA heads towards it October meeting, there are a number of important issues on the agenda. The price of iron ore which was one of the major topics of the September meeting have now seen a 26% resurgence in price and the world’s fourth biggest exporter of iron ore, Fortescu Metals, has announced that its US$4.5-billion debt deal will now enable it to refinance any outstanding deals. The central banks in Europe and the United States have announced their intentions to fight off inflation and stimulate asset prices by printing unlimited money while China will be contributing a $150-billion package to the mix.

Unemployment

Despite international uncertainties Australia’s unemployment rate of only 5.1% continues to impress. One pressing issue on the itinerary will be the country’s exchange rate which has topped itself at 104 US cents, but sceptics question whether there is anything the RBA can do to a currency that has been stubbornly unresponsive to the 125 basis point cuts to date.

Housing

housingThe housing market is being looked to as one realistic benchmark of what’s really happening in the economy and September data has indicated that, despite criticisms, the 75 basis point cut that was extended in May and June is indeed having a positive effect on markets.

Australia’s five capital cities have seen house prices inflate by 1.9% between 01 June and 19 September. And the biggest performers appear to be Sydney and Melbourne where home values have increased by 2.5% and 2.4%. Furthermore, the value of homes has increased by 0.7% in Adelaide, 0.9% in Perth and 1.3% in Brisbane since the beginning of June. This is combined with better performances from auction clearance rates, which are also starting to climb again. As Australia’s unemployment rate remains low and home loan default rates are on the [Read more...]

Are Businesses Quietly Preparing for a Financial Apocalypse?

By Dan Steinhart, Casey Research

US corporations are sitting on more cash than at any point since World War 2.

That’s without including banks. I’m only talking about non-financial corporations – the ones that sell goods and services and make the economy go.

Those businesses hold $1.4 trillion. In absolute terms, that’s the most ever. In relative terms, it’s the most since World War II.

As investors, we can infer quite a bit from corporations’ inability (or unwillingness) to deploy their cash.

For one, it indicates that business have assumed a very defensive stance.

Cash, of course, is a buffer against uncertainty – the uncertainty that business slows for any reason. Management wants a healthy cash reserve with which to pay the bills and remain liquid should anything unexpected happen. I think we can all agree that this is prudent, and a good business practice.

But $1.4 trillion? That tells me that businesses are not just a little jittery about the future. They’re prepared for an apocalypse. [Read more...]

What is the Difference Between Micro and Macro Economics?

Microeconomics vs. Macroeconomics-

Economics can be described as the social science that examines how people use limited resources to produce, distribute, and consume goods and services to satisfy their unlimited needs and desires. Although microeconomics and macroeconomics are not the only disciplines and paths of specialization to exist within the broader context of economics, these two related, tightly bound, but nonetheless disparate fields are likely the most prominent.

Microeconomics and macroeconomics do exactly what their names indicate. Microeconomics focuses on close-up snapshots of people, businesses, and non-profit organizations acting within economies while macroeconomics zoom out to concentrate on the big picture of broader trends within those economies. Both fields use the same concepts. Furthermore, neither microeconomics nor macroeconomics is independent and thus separate from the other. Individual economic actions cannot be understood without the context of their economies while economies cannot be understood without understanding the individual actors that constitute them.

What is Microeconomics?

the difference between Micro & Macro economicsMicroeconomics examines the actions of individual agents such as households and business firms. It is mainly interested in the decisions of individuals concerning using their own limited resources for their Cost of Living  and the impact of those decisions on the demand and supply of specific goods or services. Perhaps the most prominent example of microeconomics is the standard demand-supply model, which states that the price and quantity sold of a product is determined by the interaction of demand for that product and the willingness of producers to supply it. Much of microeconomics revolves around the decisions of the consumers and the producers in that relationship plus their impact on the product. For example, the examination of market conditions that lead to natural monopolies absent government intervention is considered a microeconomic topic, as is the examination of change in demand for a product based on the consumer’s perception of the prestige of that product.

What is Macroeconomics?

In contrast to microeconomics, macroeconomics examines the economies that are made up of those individual economic agents. It is interested in examining economic phenomenon stretching to encompass entire national and international economies, particularly those influencing the output of these economies, their unemployment rates, and changes in the value of money. Common topics in macroeconomics include the business cycle, the impacts of international trade, and theories about the factors that contribute to economic growth in the long-run. [Read more...]

Aussie Costs of Spending, Living and Credit

Aussie Credit Card Reforms

The recent credit card reforms, enforced starting July 1, have stirred up quite the debate on the matter, with analysts and experts rushing to argue whether or not the reforms are actually beneficial for the end-user. However, the habits, debts and expenditure afforded by that very end-user are causing an extended discussion of their own.

Where does the truth lie? Is Australia really sinking under credit card debt? Are the new reforms going to spell a slow, yet certain and agonizing death for plastic? Or is the state of the nation’s money far more positive than we imagine—and simply suffering at the hands of global recession-induced cries of panic? [Read more...]