H. Nejat Seyhun, contributing writer to The BusinessThinker magazine, is the Jerome B. & Eilene M. York Professor of Business Administration and professor of finance, Ross School of Business, University of Michigan. He is an internationally recognized authority on financial issues and Derivatives.
The budget and debt-ceiling negotiations between the White House and Democrat and Republican leaders of the Congress have not been especially fruitful so far. Based on Treasury estimates, the United States Government will run out of money sometime around August 2 unless the $14.29 trillion debt ceiling is raised. According to many financial market commentators, the consequences of a United States default are nothing less than catastrophic. If a default occurs, U.S. will not be able to pay principal plus interest on some maturing debt. In addition, it will not be able to fully meet its payroll obligations. Yet, in spite of all the potential doomsday scenarios, we are within three-weeks of August 2, and the 10-Year benchmark Treasury Note has barely budged. It is actually yielding slightly less today (at about 2.91%) than a month ago (2.95%). Even the 30-year Treasury bonds have hardly moved. The yield on the 30-year Treasuries has only increased from 4.20% to 4.30% over the past month. What explains this curious phenomenon?
Dr. Periklis Gogas is an invited contributor to The Business Thinker magazine. He is Assistant Professor at Democritus University of Thrace, Greece, teaching Macroeconomics, Banking and Finance
The recent public debt crises in Greece and Ireland have put forward the issue of sustainable public debt in many of the developed industrialized countries. This crisis, like the mortgage crisis of 2008 and many other crises, stems from the extensive low cost flow of credit in recent years. Debt growth seemed harmless and innocent enough in an era of optimism, rising assets’ valuations and seemingly robust economic development. Unfortunately, for different inherent reasons, these debt bubbles started to burst for Greece and Ireland and the future looks gleam for many other heavily indebted countries in Europe, North America and Asia. The European Union, acting rather sluggishly, has, finally, put in place the European Financial Stability Facility (EFSF), a mechanism for dealing with bailouts of heavily indebted EU countries that are a threat to the economic stability of the Union and the Euro. As it is common for economic policy in the European Union, member states and the corresponding institutions that are responsible for designing it, act in panic or on undisclosed agendas. The last example is the proposed by France and Germany “competitiveness pact” that includes, among many others, increasing retirement age limits even for the countries that face no pension fund problems, setting minimum corporate tax rates across-the-board within member countries and applying constitutional provisions in all member states for implementing balanced budgets. These arrangements in the “competitiveness pact” may be problematic for two reasons: Continue reading
We have been losing our manufacturing base at an ever increasing rate to overseas competitor nations. Large portions of American manufacturing have experienced a sharp drop in their domestic and world markets. Let me illustrate by looking at three pivotal industries: motor vehicles; electronic computing equipment; and machine tools. In the past couple decades the share of the domestic market held by domestic manufacturers producing in domestic plants has declined from approximately 80% to about 50% for motor vehicles, from 90% to below 60% for computing equipment, and from 80% to below 60% for machine tools. Exports have also fallen more dramatically in each of these industries.
It is hoped that we can find a way to put our talents together to deal with the very real problems facing manufacturing in the USA. My purpose here is to suggest ways to do so.