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How to Know When to Spend and When to Save

It’s a confusing time to be a consumer. The government, the media and every reliable financial indicator tell us that we are up to our necks in an unprecedented global economic crisis. And to make matters worse, they say it’s our fault.

The root cause of our current financial mess is a decade or more of runaway spending by governments, corporations and — yes — people like you. We bought homes we couldn’t afford. We maxed out credit cards we didn’t need. We buried ourselves under a mountain of personal debt without saving a penny for a rainy day, let alone the torrential downpour we currently face.

The result is that we’ve been seriously humbled. We no longer view the stock market as a risk-free investment. We no longer assume that home prices will continue to rise indefinitely. And we no longer treat saving money as a boring chore, like eating our vegetables.

Saving is, in fact, all the rage. Magazines and TV shows bombard us with money saving tips like sewing our own clothes, growing our own food and making our own toothpaste. According to a recent survey by the Pew Research Center for the People & the Press, 86 percent of Americans have cut their spending or changed their saving and investment plans [source: Hopkins].

Just as Americans are shunning their consumerist ways and going into deep survival mode, the government is selling a competing message: “Spend! Spend! Spend!” It makes sense: Consumer spending in the U.S. accounts for around 70 percent of the country’s total economic activity [source: Crutsinger]. So when consumer spending drops, the economy grinds to a halt. Lower demand means lower production, which leads to mass layoffs, which equals a bad situation for just about everyone.

What, exactly, is a patriotic but poor citizen to do? If we spend money to bolster the economy, then we add to our pile of personal debt. If we bury jars of coins in the backyard, then we kick the chair out from under the economy.

Thankfully, this dilemma has a name: the paradox of thrift. Finding solutions, however, might be a little trickier. We’ll learn more about the paradox of thrift on the next page, then we’ll tackle some different “save or spend” scenarios.

The Paradox of Thrift

John Maynard Keynes was a revolutionary 20th-century economist who popularized the paradox of thrift. In his 1930 book, “Treatise on Money,” he warned against the economic paralysis that results from excessive personal saving.

His rallying cry was directed toward a British populace suffering through the Great Depression. Spending money was the only way out of the economic quagmire, Keynes argued. For every five shillings saved out of “misguided” thrift, another man would lose his job for a day [source: Blankenhorn].

The message of the paradox of thrift is simple but troubling: What’s best for the individual isn’t always good for the economy [source: Brockman]. More paradoxically, what’s good for the individual is ultimately bad for the individual. It comes down to this: If the whole economy falters, then no job is secure — not even yours.

This is why U.S. leaders urged Americans to go out and shop after the Sept. 11 terrorist attacks. The implication was that if the economy faltered, the terrorists would win. This is the same logic that drove Presidents Bush and Obama to extend generous tax rebates in 2008 and 2009. If you put cash in people’s pockets, they will spend it, which will stimulate the economy.

Americans usually don’t need to be prodded to spend. Over the last 30 years, Americans have maintained a spending rate far above other industrialized nations. In 2007, consumer spending peaked at slightly above 70 percent of the U.S. Gross Domestic Product (GDP), while it only amounted to 55 percent of the GDP in Germany and Japan [source: Brockman].

Similarly, saving money has lost favor in the U.S. since the mid-1970s. In 1976, the average personal savings rate in the U.S. hovered around 12 percent. In 2005, that number actually dipped below zero for the first time since the Great Depression [source: Associated Press]. On average, Americans were not only saving nothing, but they were actually draining their savings to finance more purchases.

That’s all changed with the current financial crisis, however. As of July 2009, the U.S. savings rate has skyrocketed to 5.7 percent, the highest level in more than a decade [source: Blankenhorn]. Unfortunately, the timing for the U.S. economy couldn’t be worse. Just when businesses need consumers — and their money — the most, most wallets are shut tight.

Is Keynes right? Are we penny-pinching our way to total economic collapse? How can we know when it’s prudent to be frugal and when it’s safe to spend?

Spending to Save

Many people have been hit hard by the recession, and it seems as if everyone has caught “saving fever” as a result. Of the 86 percent of Americans who have cut their spending or changed their savings and investment strategies during this recession, more than half of them have yet to feel the financial pinch personally [source: Hopkins]. They’re saving money as a buffer against an uncertain economic future.

In addition, despite statistics asserting that Americans carry more than $2.5 trillion in personal debt, millions of American families have money in the bank, mortgages they can actually afford — and no credit card debt [source: Federal Reserve]. These lucky folks are the people who are in the best position to spend money during a recession. However, that doesn’t mean that it’s their patriotic duty to go on wild shopping sprees to make up for the meager consumerism of their neighbors.

Instead, financial experts say, people without debt should look at the “save or spend” riddle from a different perspective. Instead of using their money to consume, they should use it to invest [source: Leonhardt]. When economists talk about investing in this sense, they’re not talking about stocks and bonds. Instead, they’re talking about products and services purchased today that will save you money down the line.

The mantra is “spend to save,” and here are some examples:

  • Increase the energy efficiency of your home to save on energy bills over the long term by adding insulation, weatherizing windows and doors and buying a programmable thermostat.
  • Do preventive maintenance on your vehicles, especially before the summer and winter months when cars are most susceptible to breakdowns.
  • Buy a nice water filter for your faucet instead of purchasing bottled water.

[sources: Leonhardt, Caplinger]

The “spend to save” philosophy is a convenient solution to the paradox of thrift, because the individual is helping himself over the long term while stimulating the economy in the short term.

Of course, in order to save, you have to have money to spend. On the next page, we’ll look at an interesting twist to the paradox of thrift.

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Why Another Financial Crisis Is Inevitable – Part Two

The world’s scariest story: trading in derivatives

Bad as these scandals are and vast as the money involved in them is by any normal standard, they are mere blips on the screen, compared to the risk that is still staring us in the face: the lack of transparency in derivative trading that now totals in notional amount more than $700 trillion. That is more than ten times the size of the entire world economy. Yet incredibly, we have little information about it or its implications for the financial strength of any of the big banks.

Moreover the derivatives market is steadily growing. “The total notional value, or face value, of the global derivatives market when the housing bubble popped in 2007 stood at around $500 trillion… The Over-The-Counter derivatives market alone had grown to a notional value of at least $648 trillion as of the end of 2011… the market is likely worth closer to $707 trillion and perhaps more,” writes analyst Jenny Walsh in The Paper Boat.

“The market has grown so unfathomably vast, the global economy is at risk of massive damage should even a small percentage of contracts go sour. Its size and potential influence are difficult just to comprehend, let alone assess.”

The bulk of this derivative trading is conducted by the big banks. Bankers generally assume that the likely risk of gain or loss on derivatives is much smaller than their “notional amount.” Wells Fargo for instance says the concept “is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments” and “many of its derivatives offset each other”.

However as we learned in 2008, it is possible to lose a large portion of the “notional amount” of a derivatives trade if the bet goes terribly wrong, particularly if the bet is linked to other bets, resulting in losses by other organizations occurring at the same time. The ripple effects can be massive and unpredictable.

Banks don’t tell investors how much of the “notional amount” that they could lose in a worst-case scenario, nor are they required to. Even a savvy investor who reads the footnotes can only guess at what a bank’s potential risk exposure from the complicated interactions of derivatives might be. And when experts can’t assess risk, and large bets go wrong simultaneously, the whole financial system can freeze and lead to a global financial meltdown.

In 2008, governments had enough resources to avert total calamity. Today’s cash-strapped governments are in no position to cope with another massive bailout.

Wells Fargo: is this good bank “extremely safe”?

The article in The Atlantic clarifies what’s going on by exploring what’s going on inside what is arguably the safest and most conservative bank: Wells Fargo [WFC].

Last year, I had written an article about the case for considering Wells Fargo as a “a good bank”.

Wells does what banks are supposed to do: take deposits and then lend the money back out. Interest margin drives half its revenues. Fees from mortgages, investment accounts and credit cards generate the other half. ‘I couldn’t care less about league tables,’ says Wells CEO Stumpf. ‘I’m more interested in kitchen tables and conference room tables.’ By operating a bank like a bank, the article says, Stumpf has at once made Wells exceedingly profitable—for 2011 the bank’s net income jumped 28% to $15.9 billion, on $81 billion in revenue—and extremely safe. The value of Wells Fargo’s shares is now the highest of any U.S. bank: $173 billion as of early December 2012.
Wells Fargo: large scale trading in derivatives

But among the startling disclosures in the article in The Atlantic from examining the footnotes in its most recent annual report are:

The sheer volume of proprietary trading at Wells Fargo suggests that this bank is not what it seems.
A large part of that trading is not in safe conservative things like equities or bonds but in derivatives—the things that almost blew up the economy in 2008.
These derivatives are hidden under seemingly the benign headings.
The scale of this trading is breath-taking.
The benignly labeled activity “customer accommodations” has derivatives on its books with notional risk of $2 trillion. That number, assuming it is accurate, can make any particular trading loss appear minuscule.

A lower circle of financial hell: “special purpose entities” redux

Ever heard of “variable interest entities” aka VIEs? If not, you are not alone. They are phenomena that reside in what The Atlantic calls “an even lower circle of financial hell” than proprietary trading. They are basically a new label for “special-purpose entities” i.e. the infamous accounting devices that Enron employed to hide its debts. These deals were called ‘off-balance-sheet’ transactions, because they did not appear on Enron’s balance sheet.

The article likens variable interest entities to “a horror film, which the special-purpose entity has been reanimated… The problem is especially worrisome at banks: every major bank has substantial positions in VIEs.”

As of the end of 2011, Wells Fargo, the “extremely safe bank”, reported “significant continuing involvement” with variable-interest entities that had total assets of about $1.5 trillion. The ‘maximum exposure to loss’ that it reports is much smaller, but still substantial: just over $60 billion, more than 40 percent of its capital reserves. The bank says the likelihood of such a loss is ‘extremely remote.’ As The Atlantic comments: “We can hope.”

Worse: “Wells Fargo… excludes some VIEs from consideration, for many of the same reasons Enron excluded its special-purpose entities: the bank says that its continuing involvement is not significant, that its investment is temporary or small, or that it did not design or operate these deals. (Wells Fargo isn’t alone; other major banks also follow this Enron-like approach to disclosure.)… The presence of VIEs on Wells Fargo’s balance sheet ‘is a signal that there is $1.5 trillion of exposure to complete unknowns.’”

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Why Another Financial Crisis Is Inevitable

Remember Jaws? In 1975, the small town of Amity was on the eve of the Fourth of July weekend, a time of celebration of the founding of this marvelous country. But just before the celebration was about to begin, a vicious shark attack occurs. Concerned about losing the money from the holiday tourist trade, the mayor and townsfolk ignore the warnings to keep people out of the water. But then after another shark attack, and yet another, the town’s leadership finally grasps the peril, but not before more disasters occurred.

Jaws, writes John Whitehead, wasn’t just a simple story about sharks. Instead, it was a social commentary about how a love of money can blind us to averting preventable disasters.

Fast forward to the financial meltdown of 2008 and what do we see? America again was celebrating. The economy was booming. Everyone seemed to be getting wealthier, even though the warning signs were everywhere: too much borrowing, foolish investments, greedy banks, regulators asleep at the wheel, politicians eager to promote home-ownership for those who couldn’t afford it, and distinguished analysts openly predicting this could only end badly. And then, when Lehman Bros fell, the financial system froze and world economy almost collapsed. Why?

The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.

Since then, massive efforts have been made to clean up the banks, and put in place regulations aimed at restoring trust and confidence in the financial system. But the result in terms of dealing with the basic problem, according to a terrific article by Frank Partnoy and Jesse Eisinger in The Atlantic entitled “What’s Inside America’s Banks?” is failure.
Another global financial crisis is on the way

Financial reform didn’t work. Banks today are bigger and more opaque than ever, and they continue to trade in derivatives in many of the same ways they did before the crash, but on a larger scale and with precisely the same unknown risks.

Ignoring warning signs has inevitable consequences. We ignored them before and we saw what happened. We can say this with virtual certainty: if we continue as now and ignore them again, the great white shark of a global financial meltdown will gobble up the meager economic recovery and make 2008 look like a hiccup.

We can’t say when this will happen. We can’t say which bank or which particular instrument will trigger the debacle. What we can say with virtual certainty is that if we continue as now is that it will happen. Because the scale of the trading is larger, and because the depleted government treasures are not well placed for another huge bailout, the impact will be worse than 2008.
Today’s financial scandals are mere sideshows

Thus the biggest risk we face is not the stories of repeated wrongdoing by the banks that are still making headlines, such as:

  • Trading gone awry: JPMorgan’s [JPM] loss of $6 billion from trading activities of which CEO Jamie Dimon was blissfully unaware.
  • Price fixing at LIBOR. “Many of the biggest banks now stand accused of manipulating the world’s most popular benchmark interest rate, the London Interbank Offered Rate (LIBOR).
  • Foreclosure abuses. Just this week, big banks agreed two settlements totaling $20.15 billion for foreclosure abuses.
  • Money laundering: Accusations of illegal, clandestine bank activities are also proliferating. Large global banks have been accused by U.S. government officials of helping Mexican drug dealers launder money (HSBC), and of funneling cash to Iran (Standard Chartered).
  • Tax evasion: Two Swiss banks were involved in Switzerland-based. In 2009, UBS [UBS] helped 20,000 U.S. taxpayers with assets of about $20 billion hide their identities from the IRS. Now, the oldest Swiss bank, Wegelin & Co. has been indicted on criminal charges for helping U.S. taxpayers avoid taxes on at least $1.2 billion for a nearly ten years.
  • Misleading clients with worthless securities: Only after the financial crisis of 2008 did people learn that banks routinely misled clients, sold them securities known to be garbage, and even, in some cases, secretly bet against them to profit from their ignorance.
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How a Financial Crisis Can Help Your Retirement

It’s been five years since the global financial crisis, and the stock market has made a remarkable recovery. The S&P 500 rose 125 percent and is now at an all-time high. The bull market has been great for many of us who kept investing through the difficult years. Financial downturns can actually be good learning experiences. If we encounter a crisis early in our investing journey, we have plenty of time to recover and learn from our mistakes.

A recent study from Fidelity found that American households have made huge strides in their personal finance habits. Many investors have taken the following steps to secure their finances further:

Save more. Investors increased their retirement contributions over the last 5 years, which means they are likely to be more prepared for retirement.

Better prepare for the unexpected. Many households have reduced their personal debt over the last few years. They also started or increased their emergency fund. Unexpected events will have less of an impact on your life if you have adequate savings to cushion the blow.

Rethink risk. Many investors sold stocks during the downturn and shifted to bonds. Of course, it’s difficult to know when to get back in and a lot of people missed part of that 125 percent S&P 500 gain. Investors need to examine their risk tolerance to figure out a plan they can stick with over the long term.

Many investors lost a lot of money during the financial crisis, but the long-term lessons we learned are invaluable. There will be another financial crisis in the future, and we need to apply these lessons to avoid losing even more money next time. It’s much better to go through these financial crises when you are young rather than when you are getting ready to retire.

Investing opportunities during the financial crisis. For younger investors, the financial crisis was a boon. It provided an opportunity to buy stocks at bargain basement prices. Even if your portfolio lost 50 percent of its value, it is still a small amount in the grand scheme of things when you’re young. Young people didn’t have a huge amount of money to lose. When you’re starting out, it’s more important to increase your saving rate and to learn how to invest for the long term.

It’s also good to go through a big correction so you can see how the stock market recovers. You can learn from this experience and be more prepared for the next downturn. The downturn was an opportunity to figure out your risk tolerance and your target asset allocation. Many investors thought they could handle a stock market drop. However, when the S&P 500 dropped 50 percent, they really couldn’t handle it. If you set your risk tolerance correctly, then you should be able to stick to your asset allocation plan and ride out the down years.

Once you have a long-term plan and a good asset allocation target, you just need to stick with it and rebalance occasionally. Of course, we all change as we get older and you will need to reassess your risk tolerance every 5 years or so. Most of us will become more conservative and our portfolio needs to reflect that.

Personal finance lessons. Even if you don’t follow the stock market, a personal financial crisis can be a good learning experience. If you lose a job, you will learn to cut costs and keep some emergency funds for the future. If you lose a house to foreclosure, then you will know not to buy too much house next time. Losing a well-paying job can be difficult, but you will learn how to live a moderate lifestyle and avoid overspending. These financial setbacks can be tough, but if you have an open mind you will learn from your experience.

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What Does the U.S. Credit Rating Downgrade Really Mean?

The negative economic impacts of the U.S. credit rating downgrade

Some economists and financial experts believe S&P’s downgrade will have significant negative impacts to the U.S. and world financial markets that ripple through the U.S. and global economy in both the short term and long-term. They argue the downgrade will have the following effects.

  • Increases the possibility of a double-dip recession and a larger fiscal deficit.
  • Degrades the confidence of investors, making the fragile financial market even worse. Provokes panic selling in global stock markets.
  • Intensifies emerging trend of investors avoiding U.S. treasury securities and increases market turbulence.
  • Increases the global risk premium level by making the global market more sensitive to the European debt crisis and making the bad-credit economies of the European Union more fragile.

  • Diminishes global economic recovery by dampening people’s optimism for U.S. economic growth, increasing U.S. costs to issue treasury securities, and negating economic development through large scale debt funding and printing more U.S. currency. In this scenario, the U.S. falls into a vicious cycle where borrowing money becomes harder, economic development is encumbered and credit worsens.
  • Exposes U.S. citizens to higher borrowing costs and lower purchasing power thus reducing U.S. consumer demand and exposing countries relying on U.S. import orders to significant losses and economic slow down.
  • Damages the interests of U.S. debt holders such as China, Japan and Russia as U.S. treasury bonds loose their superior international status and the U.S. dollar depreciates.

Why the downgrade in the U.S. credit rating doesn’t matter

Other economic experts note that the downgrade of the U.S. credit rating may have little effect and point to the following reasons.

  • The U.S. still has AAA ratings from two rating agencies, Moody’s and Fitch.
  • The debt limit agreement reached by Congress in August 2011 showed U.S. politicians can reach political solutions to address the nation’s debt problems.
  • The U.S. credit rating is underpinned by the flexible, diversified and wealthy economy that provides the country’s revenue base.
  • U.S. monetary and exchange rate flexibility enhance the capacity of the economy to absorb and adjust to shocks.
  • Most U.S. debt is held by big institutions like pension funds and central banks that do their own research on sovereign debt and aren’t heavily influenced by rating agencies, and Treasury yields may experience little impact as a result.
  • Nearly all financial-industry regulations and internal policies at financial institutions treat the AA+ rating the same as an AAA rating, so forced selling is unlikely.
  • The effect on other countries that were downgraded was minimal in most cases. For example, Canada’s interest rates went up briefly in 1994 when it was downgraded, but rebounded within two months and Canada later regained the AAA rating it holds today.
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What Does the U.S. Credit Rating Downgrade Really Mean?

In August 2011, the United States’ credit rating was downgraded by the credit rating agency Standard & Poor’s (S&P) from AAA to AA+, or down one level. Because this is the first time in American history that the U.S. credit rating has been downgraded, the long-term economic impact remains uncertain. Here is a brief explanation of the S&P downgrade decision, some background on credit ratings, and possible implications of the downgrade.
Reasons for the downgrade in the U.S. credit rating

Standard & Poor’s believed that the rising level of government debt and lack of effective policymaking weakened U.S. creditworthiness to a level no longer commensurate with an AAA sovereign credit rating. S&P pointed to a debt trajectory where U.S. net general government debt of $11.4 trillion (74% of GDP) this year (2011) is projected to increase to $14.5 trillion (79% of GDP) by 2015.

In addition, S&P was troubled by the U.S. political climate, observing that the stability, predictability, and effectiveness of the nation’s policymaking has weakened, as demonstrated in the recent debate around the debt ceiling. S&P criticized the nation’s lawmakers for failing to cut spending and raise revenue to reduce record budget deficits.
How governments like the U.S. get a credit rating

A sovereign credit rating is the credit rating of a sovereign entity, namely a national government. The credit rating is an evaluation of the likelihood of default and credit-worthiness of an issuer of debt, like the U.S. government. Credit ratings are determined by credit ratings agencies, the most influential being Standard & Poor’s (S&P), Moody’s, and Fitch Ratings. These agencies determine credit ratings for both sovereign entities, like national governments, and private corporations.

Credit ratings are based on qualitative and quantitative information for a government, the judgment and experience of the rating agency’s analysts, and their evaluation of public and private information, including a nation’s history and long-term economic prospects. S&P also publishes a more detailed explanation of credit ratings. The following chart shows the various sovereign credit ratings given by each of the major credit rating agencies.

Credit ratings should not be confused with credit scores. Credit scores are based on mathematical formulas that assign numerical values to information in a person’s credit report regarding financial history, current assets and outstanding liabilities. Banks and other financial services companies use the credit score to estimate the probability that the individual will pay back a loan or credit card.

A credit score does not take into account future prospects or changed circumstances. In short, a sovereign credit rating is a forward-looking estimate of a national government’s probability of default while a credit score is an estimate of an individual’s potential for default based on past performance.

S&P gives 18 sovereign entities its top ranking, including Australia, Hong Kong, and the United Kingdom. New Zealand is the only country other than the U.S. that has an AA+ rating from S&P and an Aaa grade from Moody’s. Belgium has an equivalent AA+ grade from S&P, Moody’s and Fitch.

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The world will learn to love the dollar again in 2014

The government is prone to occasional shut downs. The trade and budget deficits have been out of control for a decade. It botched the last couple of wars it fought and the central bank has spent the last five years printing more money than anyone even knew existed. There has been no shortage of reasons for the rest of the world to get out of the dollar over the past decade.

But in 2014 that is about to change, and decisively so. This will be the year the dollar DXY +0.06% comes roaring back.

Why? There are three reasons.

First, U.S. growth is going to be the fastest in the developed world, and faster even than in many emerging nations. Second, the Federal Reserve is going to at least slow the pace of quantitative easing, even if it does not get rid of it completely. Thirdly, there is a heightened risk of a geopolitical crisis somewhere in the world — and in a crisis investors always flee to the dollar.

The net result will be a big comeback for the American currency.

There is no shortage of evidence that the world has been steadily falling out of love with the dollar. In the first few years after it was launched in 1999, the euro EURUSD -0.05% gained significant traction as an alternative, taking a rising share of central-bank reserves.

But the crisis in the single currency meant it was no longer a serious alternative to anything.

Next, gold soared in value as investors looked for alternative stores of value, although gold has lost much of its appeal in the past year. In the last few months even bitcoin has flourished as an alternative — and yet as fascinating as the digital currency is, it is still too flaky to seriously rival traditional money.

It is not hard to understand why investors wanted to diversify out of dollars.

It cemented its position as the global reserve currency immediately after World War Two when the U.S. alone accounted for close on 80% of global gross national product. No matter how well the U.S. did, that share was always going to decline as the rest of the world recovered.

The U.S. added in quite a few problems of its own, however. A financial crisis, a central bank that cared little for the value of the currency, and a political system that to outsiders looks completely dysfunctional, all contributed to the currency’s decline. In the past year, even the euro has been strong against the dollar — even though it is hard to think of any compelling reason for buying Europe’s single currency.

This year, that is about to change. Here’s why.

First, the U.S. economy looks set to be the strongest in the developed world over the next 12 months. The surprises are all likely to be on the upside. The latest quarterly figures showed the U.S. growing at a healthy 4.1%.

Sure, you can dismiss that as good quarter that may not be sustained. Yet momentum is the most important force in economics and right now the momentum is with the U.S.

House prices are recovering sharply, but still have a long way to go. Employment is expanding, and if enough jobs can be created employers may even be forced to start raising wages — because they will have to compete for workers again. Personal debts are coming under control, creating scope for more consumer spending. It all points to that last quarterly number being a signal of a higher growth ahead, and not a mere blip.

Second, the Federal Reserve has started to taper. It remains to be seen whether it can sustain that. In Japan’s two-decade experiment with QE it has turned off the taps plenty of times only to quickly turn them back on again.

But over the next six months, with stronger growth figures coming through, the Fed is likely to keep scaling back the stimulus.

While the Fed is winding up QE, other central banks will be turning it up. The Bank of England may hold fire. But the Bank of Japan is likely to intensify its asset purchases, both to sustain the tepid recovery, and to mitigate the impact of a hike in sales tax. The European Central Bank could easily be forced finally to unleash QE to rescue a sinking French economy and a struggling periphery.

In that kind of company, incoming Fed chair Janet Yellen is going to look like Friedrich Hayek in her commitment to monetary discipline. Currency markets hate QE — so that too bodes well for the dollar.

Finally, there is a heightened risk of a geopolitical crisis. Several flashpoints look very hot.

There is tension between China and Japan, traditional adversaries for control of East Asia. North Korea could well be on the brink of a messy implosion. The Syrian civil war rages on, and could spill over its borders at any moment. Turkey has been rocked by a second political crisis in the space of less than a year — a third one could be fatal to the existing government.

No one knows when any of those simmering conflicts might erupt into a full-scale war. But we do know for certain that it only takes the threat of a major geopolitical crisis to send investors fleeing back to the safety of the dollar.

None of that necessarily makes much difference to U.S. investors. The American markets already look more than fairly valued. But to investors from the rest of the world, U.S. equities, and even bonds, still look attractive, simply because they are likely to gain on the rise on the currency, even if the indexes don’t end the year much higher. The U.S. market was driven by domestic buying in 2013 — in 2014 it will be foreign buying that drives it higher.

True, the American currency is still in long-term decline as the world’s reserve currency. A few good months won’t change that: the U.S. share of global output gets relentless smaller every year.

But that does not mean it cannot stage bear-market rallies. This year is set to be one of them.

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Efficiency and equity in the use of natural resources

The supply of raw materials is the great challenge of the next decades. Nevertheless, how responsible we really go to our livelihoods and the World of Tomorrow? One thing is certain, they will have with the world we know, do not have much. Detlefs Aufderheide and Martin Dabrowski’s anthology is an urgent wake-up call in time. We finally need a systematic, equitable and sustainable use of our natural resources.

Without oil, there is nothing to be achieved. There would be no plastics, no fertilizer, no drugs, no detergent, no lubricants, no cosmetics, no asphalt, and no planes. Do you think that fuel cells or batteries will ever power an airplane? Crude oil is considered the single most important commodity in the world.

It determines nearly 45 percent of global production volume of all commodities. How scary is dependent industrial economy and our technological civilization on oil, one cannot say often enough and loud. The current problem is the rising commodity prices – but it will be much more dramatic.

Especially if in the not too distant future, there is no alternative to oil. Who wants to be prepared, should read the anthology of Detlef Aufderheide and Martin Dabrowski.There should be efficiency and equity in the use of natural resource. However, the expertise of 17 authors from various disciplines (including economics and economists, theologians, lawyers, priests and business consultant) is impressive.

The reading of the essay collection focuses attention on the inevitable and ruthless reality that will change the world.Besides oil natural gas, water and other commodities are currently among the most important scarce goods. It is already certain that distributional conflicts will shape the world wars of tomorrow. Because unlike many other goods seems to fail to regulate such conflicts on the market. With raw materials is planned very long. States have their strategic interests, which make a fair sale impossible.The authors asked a few questions.

What role does the lack of natural resources? What are the innovative alternatives? What about proper procedures for dealing with the many regions of the world particularly scarce resource water? Is there a conflict between the human rights and economic interests?

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The Forbes list of the super-rich and the role of neoliberalism for the financial crisis

The annual publication of the Forbes list of the super-rich carries with it traits of Hollywood Tesken. The super-rich fascinate people like movie stars. It comes to their influence, their power and their seemingly unlimited possibilities. Scientists Ueli Mäder, Ganga Jey Aratnam Schilliger and Sarah have in their detailed research.

This is a study on the income situation of millionaires and billionaires. It is about their motivations and responsibility and of course, what they do with their money. Thanks to the study results, you can be easily drawn to the world of the rich mentality. From hundreds of interviews, the authors have gathered a lot and very personal statements that make reading the book a pleasure. Nevertheless, it is all about results: Many empires have indeed a confidence that suggests a well-equipped basic safety. However, appearances are deceptive.

The special position involves many difficulties. You have to deal with money, and the risk of being exploited is large. Over all for the rich is the primacy of the economy. Even if there is, a financial crisis puts the trust in market forces, empires rely on the economic self-organization and new elites. Social Political empires tend towards conservative values, attitudes, even if they are based globally and invest in new technologies. One more thing, the rich want free to determine who and what they support.

For neoliberalism and financial crisis

For large parts of the German population is clear: neoliberalism has contributed significantly to the biggest economic and financial crisis since 1929. This anti-neoliberal wave has been supported by numerous market-critical publications. There was ones a lot of greed, unbridled profit maximization, as and such, which are connected with market failures. However, which is actually a cause of the crisis? Do you think this is because the actors are guided by the principles of neoliberalism?

“On the contrary”, says Dr. Karen Horn, director of the Berlin office of the Institute of the German Economy in Cologne, in the video blog of Marc Beise. – “It was the disregard of neoliberal principles that made this crisis possible.”

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Stability of the Bundesbank

The possible departure of Bundesbank chief Axel Weber is a turning point. It is therefore a turning point because it is a choice of direction for the future development. Weber was the only reminders of the Governing Council. He is the only one there made against the entry into the socialization of debt in the euro countries by the central bank. Even the introduction to qualitative easing of open market policy of the ECB was a mistake because this is the “zombie banks”.

The basic problem it is the over-indebtedness and it was not solved. The purchase of “junk bonds“ was “the crossing of the Rubicon,” as former Bundesbank President Helmut Schlesinger called. He has not made himself popular neither in France nor in the Chancellery. He embodied it in the best sense of the culture of stability of the Deutsche Bundesbank.

This strengthened the confidence in the past few decades. Now the competition is for the Trichet successor. For the stability of the euro, this decision is of fundamental importance. The ECB President is the voice and the face of the euro. Its public statements for the course determine this.

Even today, the Governing Council is dominated by the politics of the “doves“. Of course, one do not need go so far as Lord Dahrendorf, who said for monetary union: “The monetary union is a great mistake, an adventurous, daring and misguided goal that unites Europe, but also and splits it. “The guidelines are the independence and stability orientation of the central bank, limiting the debt policy of the participating States by the convergence criteria and the non-occurrence of the debt of another country.

ECB President Weber could correct this process. Now the “doves” take final power. Is all right so far but where is the conclusion and the solution? An economic government for the export controls sets wages and pensions. This may as FDP member unlikely to be their solution.

Let our people vote on an EU and euro-exit and the problem is solved. We need no Euro for export, no EU tutelage for freedom and prosperity. These are just some of the views, which people share.