Chapter 8 Blog- IMF makes public debt warning

http://ca.news.finance.yahoo.com/s/20042010/24/f-afp-imf-makes-public-debt-warning.html

Summary
The stability of the global financial system is being threatened by the rising public debt. The International Monetary Fund said that the risks to global financial stability are limited as the economy began to recover. Concerns over the advanced sovereign risks could hurt the stability gains and cause the collapse of credit for a period of time. During the economic crisis, the debt grew since governments had to bail out some banks, pay for unemployment benefits and economic stimulus programs. Greece was on the verge of bankruptcy; therefore the government had to increase taxes and cut spending to decrease the state debt. Even though a full-blown depression has been avoided, there are still risks since the economy is still recovering.

Connection
In the text book, public debt is defined as the money owed by the government. Money had to be borrowed in order to help the country as what it said in the article when government needed money to pay for unemployment benefits. When Greece had to increase tax rate in order to finance government borrowing, then this will cause tax disincentives. Individuals will earn lower incomes and if they have lower incomes then they would be spending less, resulting in a lower level of GDP. If a large amount of money has been borrowed, it would take a long time for the money to be paid off. The burden of paying off the debt is shifted to future generations even though they did not borrow the money.

Reflection
With the rising public debt, I wonder how the government plans to pay off the debt. Even though it was used to bail out banks, pay for unemployment benefits and projects to help the economy, does it actually help in the long run? Since there are some negative effects to borrowing money such as not being able to pay it off and allowing future generations to deal with the issues, there are the citizens too. They would be concern over the amount of money that is being borrowed and with a large public debt they could lose confidence in the government. Hopefully the public debt will be paid off soon and the global financial system will be stable.

Chapter 5 Blog- Bernanke: Housing, jobs biggest economic hurdles

http://www.google.com/hostednews/ap/article/ALeqM5gQ6iVGh2tkgdbkyaZBrqeP-BqpdwD9EUEIE81

Summary
Due to the recession, high unemployment and problems in the housing market is the main economic issue that the United States is facing. The economy seems like it has stabilized and is improving, but many Americans are still unemployed. Not a lot of people are being hired even if the number of people being layoff has decreased. Unemployment is at 9.7 percent. Federal Reserve Chairman Ben Bernanke said he has not seen a recovery in the housing market (foreclosures keeps increasing). Bernanke believes that record-low interest rates should help with the recovery of the economy, but it will not quickly increase the employment rate. He will have to decide when to increase the interest rates and if done too soon, it will disrupt the recovery of the economy. Inflation may occur if he waits too long.

Connection
Chapter 5 focuses on unemployment. It lists the many types of unemployment. Becuase of the recession, demand-deficient unemployment could be a possibility of the recession. Many people are spending less money on goods and services since there was a high rate of unemployment during the recession. Even though the economy seems to be stabilized, many Americans are still without jobs. When the consumers are not spending money on goods and services, then employers will not need as many employees to work because of the lack of demand for the goods and services, which leads to many people being layoff. This also causes sales in several businesses to be reduced.

Reflection
As the country recovers from the recession, businesses may improve and people will be able to find jobs. Then consumers will be able to spend more on goods and services which will increase the level of spending. This will allow an increase in the number of jobs available and the unemployed will be able to find jobs. I agree with the article when it said that Bernanke will need to consider when it would be a good time to increase the rate because if the rates were increased too soon, then those who were unemployed during the recession will not be able to find jobs quickly. If he waited too long to increase the rates, inflation may occur because the demand of the goods and services will increase which causes the prices to increase too. When the economy finally improves, people will be able to find jobs and spend in order to create the need for more workers in businesses.