Everyone knows that in America, innovation drives growth. The United States is no longer a manufacturing hub, China has taken that title. The U.S. no longer relies on agriculture, mining, or outsourcing to sustain growth. However, this advantage may be fast becoming a non-driver of growth. With the recession, budgets have been cut and inventories are being protected.

For the first time in almost 13 years, innovation has slowed down. For 2009, the number of patent filing went down 2.3 percent from last year after years of growth, year on year. According to David Kappos of the Patent Office, “That’s unfortunate because patent filings are a reflection of innovation.” In turn, the development of new products and services provides a lot of opportunities in the country. It is recognized as a key to long-term success in today’s economy.

At the same time that number of patents filed by US companies fell, US patents that are issued to foreign businesses rose to 6.3 percent. For companies in Silicon Valley, this is a worrying sign. It has been a leader in the industry for decades but it might be in a vulnerable position because of the recession. Symantec, one of the most notable companies in tech security reported that their filings went down 25 percent as a direct result of a bigger macroeconomic issue.

Cost Cutting

Companies cited cost cutting as the main reason why they didn’t file for patents. Applying for US patent costs around $15,000 in processing and legal fees. This doesn’t include the costs companies have to bear in case they need to defend their patent. Generally, legal fees cost about $3 million to $6 million.

Henry Nothhaft from Tessera noted that “Once you have a patent, you have to go out and defend your own turf.” When companies don’t have the financial back-up to defend themselves with their finances, some would rather keep their invention hidden to prevent others from duplicating it.  Ultimately, it can spell trouble for US workers. The Obama administration cited innovation as the key to an economic recovery. It might not be the case if this competitive edge is eroded.

As if life wasn’t hard enough, legislators now want to charge Americans what else but more taxes. A nationwide tax on all goods and services is being considered to plug the runaway federal deficit. The war in Afghanistan, bank bail-outs, and even the aid to many third-world partners are definitely taking its toll. The question is, would it be right to impose taxes on individuals who have nothing to do with the deficit anyway?

Many members of Congress want to junk the proposal, preferring to cut back on spending or impose higher taxes on the rich. The former might be the best idea. Taxing the rich might sound attractive to some but it might not be good over the long term. It will pull the upper class downward instead of lifting up the poor and the lower middle-class to achieve equity in the economy.

But while it is easy to say that it is just not right to impose additional taxes on struggling Americans who are already dealing with a tough labor market and health care costs, it might be inevitable. Bad decision making has made it necessary. According to Charles McLure who worked for the Reagan administration, “We have to start paying our bills eventually.”

The favored tax route is the value-added tax (VAT). Currently, the US system uses the sales tax wherein only the final product or service is taxed. The VAT system will impose taxes on every step on the production chain. Though this system works well in many other countries, it might erode US competitiveness further because it will drive the prices of everything upwards.

The current system should generate enough revenue to sustain the economy but it doesn’t. Curbing unnecessary expenses might provide is important because it will improve the economy without eroding the country’s competitiveness in the global marketplace. However, with the problems today and with the cost of US health care being sky high, it might no longer be enough.

Among the legislators who invoked the VAT system include Nancy Pelosi, John Podesta, and two former Fed Chairmen: Paul Volcker and Alan Greenspan. Their decision might be right given the current conditions but it wouldn’t have been necessary if legislators and regulators haven’t made such as mess of things in the first place. Why should Americans have to pay?

Index funds are notable in the sense that it doesn’t require its managers to continually pick and choose stocks for investments. Rather, it contains a large sample of stocks in a chosen index. For example, S&P 500 Index Fund will contain all stocks from the index. In essence, investors will own a tiny part of all companies included in the index fund. This feature provides this type of fund certain advantages. For example, there are no trading costs such as commissions because the net asset of the fund is calculated each day.

If you are interested in know more about index funds and how to invest in it, the list below provides more information.

Mike @ Gather Little by Little wrote an interesting post titled “Investing Strategies with $10,000 or Less” The benefits of index funds are basically described in this blog entry. It requires very little costs with high profit potential. Investors who are looking for a relatively safe medium should consider this option. Meanwhile, Mike also talked about management fees and other considerations in this post.

JD @ Get Rich Slowly nailed the topic about index funds in the article “Index Funds: Why Choose Anything Else.” The post was quite helpful in helping individuals decide where to put their money. Among the advantages he outlined include lower risks, lower costs, and added bonus. In essence, index funds let you know exactly where your money is at unlike other forms of investments where only the manager has complete information.

Roger @ The Amateur Financer uploaded an article about index funds titled “Great Debates: ETFs vs. Index Funds.” The information provided in the article is quite extensive. The blogger delved into many related issues including its flexibility, tax efficiency, and lower tax ratios.

Traditionally, homes will have good value if it has a good location, near offices or within proximity of renowned schools. It also helps that homes like these are usually situation in well-maintained neighborhoods with friendly communities. However, the above-mentioned factors no longer provide homeowners with the assurance that their homes will hold its value. Why? The neighbor’s mortgage.

It is estimated that around a third of all mortgage holders are holding a loan balance that is higher compared to the market value of their property right now. They are known as “underwater” borrowers and they are unlikely to many of them are unwilling to pay more for a home that actually costs less.

The finding released by the Congressional Oversight Panel on the Troubled Asset Relief Program points out that when troubled homeowners experience further financial distress, they are likely to lose their homes due to little or no incentive to keep their properly. The resulting empty properties, especially when concentrated in certain communities, will have a dramatic adverse effect on the home prices at that area.

Home Abuse: It is Not Wanted

New developments typically look fresh and finishing touches like landscaping are usually still being added. But John Sullivan of the National Associated of Exclusive Buyer Agents report that new subdivisions are experiencing home abuse. Lawns look straggly, the paint appears dirty, and the windows are dark from dirt. These are all signs that the previous owners experienced mortgage problems.

When the mortgage debt declines 20 percent below the property value, there is a high likelihood that it will be foreclosed. Evan Feldman from ZipRealty tries to inform potential home owners about this threat. Buying a home is the single biggest investment you will make. By getting all the information about the neighborhood and the community, shock and financial losses can be avoided later on.