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Stocks are up Again

For the time being it seems that stocks are responding well to Geithner’s plan to rid banks of toxic assets.  The Dow Jones Industrials are up nearly 500 points, a strong indication that not only is morale about the state of the economy on the rise, but the actual economy may be beginning to legitimately heal itself.  Furthermore, a surprising report was released that home sales are beginning to increase.

Let’s take a look at the numbers more closely to gain a better understanding of where this optimism regarding the financial crisis is coming from.  According to the Washington Post, companies like J.P. Morgan Chase and Bank of America climbed more than 18 percent, while Boeing and General Motors also displayed unexpected growth.   The S&P 500’s 7.1% rise is the fourth largest daily advance since the 1930’s, adding to the glimmer of positivity that has been shining since Geithner’s announcement a few weeks ago.

Things are not only looking up here in America in terms of the stock market’s response to Washington’s plan to get the economy back on track; several Asian stock indexes also rose 3% or more.  Malaysia’s main index rose 2.5%, Philippine shares went up 2.5%, Indonesian shares climbed 3.4% and Thailand’s SET added 2%.  The positive effects seem to be spreading throughout the world in the past few weeks.  Though the climbs in these stock markets are only the beginning of what needs to continue, these positive changes in response to Washington’s policies are steps in the right direction.

So what does this positive movement in the stock market mean for everyday Americans?  First, let’s take a look at your 401K.  As a result of the financial crisis, average Americans lost anywhere from 20 to 40% of their 401K.  When stocks are recovering, this inspires confidence that recovery of these funds in the future is possible.  With housing sales beginning to increase, this means that in selected areas, the bottom may have been reached for falling home values.  Perhaps we are beginning to see the positive effects of Obama’s housing plan, as everyday Americans are beginning to get access to much-needed loans again.

Tips to Save Money

We all know that saving money is important, especially during these tough economic times.  Ideally, putting away large chunks of money every time you get paid will build that savings account in no time; however, with a multitude of bills to pay, doing so is not always possible.  In this entry, we take a look at the everyday things consumers like you can do take small steps towards saving money.  In the long-run, when these everyday actions are put together, they will certainly help you fatten your wallet.

1. Call your credit card company and ask them to lower your interest rates

By placing a one-time call to your credit card company, the interest rates you pay on your credit card can be lowered.  Credit card companies want to keep your business; if you mention that you are considering taking your business elsewhere, you have a good shot at getting them to lower your overall interest rate.  Month to month, even a slightly lower interest rate will put additional money back in your pocket that you may not have had before.  Make the call-you have nothing to lose-except the extra bucks you could be saving each month!  Our past post explains other tips you can use when credit card rates change on you.

2. Bring your own caffeine to work

Stopping at Starbucks once, twice-or for all you hard-core coffee drinkers, even three times per day-is nothing abnormal in today’s world of long days and endless projects.  The problem is, the overpriced coffee that coffee chains sell can wreak major havoc on your wallet over time.  By bringing one pound of coffee beans that you buy from the store, you can get 40 cups of coffee.  Even the gourmet coffee beans run at about $4.00 per bag.  Now consider that you’re spending anywhere from $2 to $4 per cup by stopping at a coffee shop every day.  At $10 per week, that’s $40 per month and almost $500 per year.  By bringing your own coffee, that $500 will go straight back to your wallet.

3. Cut your cable bill in half by downgrading to basic cable

With tons of fancy cable packages out there to choose from, it’s no wonder Americans are spending an arm and a leg every month on cable.  Think about it-if you’re really serious about saving money, will cutting out the 300 plus channel plan really make a huge impact on your entertainment life?  You can still watch your weekly shows, you just may not have access to all of the fancy channels.  What will you have instead? An extra $50 to $100 in your pocket each month-over a year, that could lead to an extra $1200!

4. Cut out the lottery tickets

Sure, we all have the faint hope, somewhere in the back of our mind, that one day we will “hit the jackpot” and win that $20 million lottery.  The truth is, if you’re really looking to save money, consider this:  the odds of winning the Mega Millions are 1 in 135,145,920.  With people spending up to $150 per year in some states on lottery tickets, the odds that you will get that $150 back are slim to none.  Anything is possible, but when you’re serious about pinching pennies, play the odds that are in your favor-and skip on the lottery tickets.

5. Ask yourself where you get your news-online or via the paper?

Many Americans enjoy the morning ritual of reading the morning paper; however, many people find that their morning paper goes straight to the recycle bin.  As the world has moved to the Internet, more and more people get their news via websites that they check on a daily basis.  Ask yourself this important question-do you really read the paper every morning?  If you find yourself using the Internet for your daily news updates, consider canceling your subscription.  Over time, the money you were spending to actually fill your recycle bin will start to actually fill your wallet instead.

Geithner’s Plan to Clean Bank’s Toxic Assets

This past Monday, Treasury Secretary Timothy Geithner announced this week that the White House plans to clean out toxic assets from banks’ balance sheets.  This is great news, and has been extremely well-received by Wall Street.  So what will this announcement look like in terms of action?  Well, according to Geithner, the administration will team with investors to buy up half a trillion dollars of bad bank assets.  Doing so will ease credit for both consumers and businesses.  Eventually, Geithner commented, when the plan takes full effect, the purchases will grow to $1 trillion.

Think of this plan as the government joining forces with the private sector.  The administration will then purchase individual homes along with mortgage-backed securities as an initial step in the multi-faceted plan.  $100 billion will be taken from the financial rescue funds bailout money, which have already been approved by Congress, to match contributions that private investors have made.  The Federal Reserve will then step in and grant loans to the public-private ventures, along with loan guarantees from the Federal Deposit Insurance Corporation.

The head of the White House Council of Economic Advisors, Christina Romer, commented: “This has never been about helping Wall Street or helping a firm that made mistakes. We’re doing this for ourselves. … It’s absolutely about helping a system so that people can get their student loans, and that families can buy their house and buy their cars, and small businesses can get their loans.”

The Dow Jones Industrial reacted positively to Geithner’s unveiling of the long-term plan, making a 6.8 percent jump-its biggest since October.  Furthermore, this positive reaction and hopeful step towards fixing our current financial crisis gives Timothy Geithner’s roll some much-needed support and credibility as Obama’s newly appointed Treasury Secretary.  In Monday’s Wall Street Journal, Geithner wrote that the new bank program aims to accomplish the following:

Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets….The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.”

Here’s to hoping that this positive step in the right direction will continue to inspire confidence across Wall Street-but more importantly, it appears that this plan of action could ultimately make tangible strides towards pulling our economy back up to where it belongs.  When that happens, everyone will reap the benefits.

China Pressures Washington

In this entry, we will discuss the pressure China is putting on Washington regarding the stability of their investments in the U.S. economy. Below, we will take a closer look at the investments China has in the form of T-Bills, as well as the reasons why they have recently expressed concern.

China is the United States’ biggest investor. With about $1 trillion in U.S. Treasury bonds, along with other forms of investments, it is to be expected that China is inquiring about America’s financial situation. This past Friday, China’s premiere, Wen Jiabao, asked for a guarantee that China’s investments will be safe. “We have a huge amount of money in the United States. Of course we are concerned about the safety of our assets.”

So why exactly is China concerned? Well, it’s no secret that the recession in the U.S. economy is apparent to the rest of the world. With the increase in government spending, the U.S. continues to print more and more money. What could result is inflation, which would then cause the U.S. dollar to collapse in value. As the largest holder of America’s public debt, China needs to feel confident that its investments are safe.

President Obama responded to Jiabao’s concern with confidence, commenting: “And so I think that not just the Chinese government, but every investor, can have absolute confidence in the soundness of investments in the United States.” Obama feels that the stability of the U.S. economy, along with its political system, has enabled China’s investments to continue, despite the financial crisis.

So what would happen if China pulled its investments, despite President Obama’s reassurance? Well, if China sold its treasury holdings, the value of the U.S. dollar would fall. As a result, borrowing costs in the U.S. would increase. China may be hurt in the end, as it would then be more difficult for Americans to buy Chinese goods.

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