It is important to analyze the differences between costs and prices. Costs are the time or resources that could have been put into another activity instead of the one that has been performed, while prices are the actual amounts of money people are going to pay for a certain product or service. According to President Obama, the “cost” of healthcare in America will significantly decrease. However, the cost will keep being the same. For instance, the time put into the research to find a cure for a certain disease will be the same, as well as the time put into manufacturing certain medications will be the same. In other words, the right word for President Obama’s phrase would be price. Let’s thereby analyze what would happen if the government controlled the prices or certain medications. First off, as it has been explained in the latter phrases, the cost for creating and manufacturing certain medications will be the same. In this case, the only difference would be that the amount of money given to those researching would be lower, making their research less effective and shorter. In other words, it would be fairly hard to get new medications out in the market if these were government controlled. Secondly, less medications would be offered, since less profits would be made by those selling the medications causing their stocks to drop significantly. Therefore, it would be hard to find any medications at all, because their stock would run out quickly no more would be supplied in a short period of time. Thirdly, the quality of these medications would drop significantly. With small profits, the manufacturers of medications would invest less into their quality and make their products cheaper. All in all, the scheme of government lowering the prices of medications will delete all of the incentives to create, sell and invest in new medications in the long run.

PSA Peugeot Citroen said that if made a great sum of money in the first half, and Daimler AG, Honda Motor Co. and Nissan Motor Co. notified quarterly results that are better than expected. Moreover, Peugeot said it had 467 million euros in free cash, after reducing all of the unsold stocks. Professional analysts were proved to be wrong when they predicted a 40 billion yen loss for Honda, while the company actually reported a net income of 7.5 billion yen. On the other hand, Daimler still reported a deficit. However, it was much narrower than the estimated results. Nissan was predicted a 58.5 billion yen loss, yet it turned out to be a 16.5 billion deficit. According to Edwin Meyer, “It will be a very bad year, but it’s getting better … The general consensus is that things will start to look a lot better from October”. All over the media, signs of the ease in the recession have been alerted. The Newsweek magazine posted on its cover that the recession is over. People all over the world are starting to have optimism, yet lots are still skeptical. Even if the recession is over, there is still a lot of debt to pay off, and don’t even think the average American will start spending money right away; it will take years for consumer spending to rise once again. The real question is, could this be the end to the recession, or just a temporary state of balance?

As it has been announced, the Obama administration plans to change the financial security system completely. What the current administration doesn’t understand is the fact that the market, as well as the people have memories; we can remember certain things. The market will automatically know what not to do, and the people have learned their lesson to not investing money in very risky stocks. New rules, and new terms will create new problems unknown to people. These new problems will have to be resolved, yet new organizations will have to be created to control the new problems. In the end, with this never ending circle, the markets will be fully controlled by the government, just like in a command regime. The following paragraph written by the great economist Adam Smith in his book, The Wealth of Nations describes how the market auto-regulates itself to fit the effectual demand by the people, and how regulations can turn out be very harmful to the economy:

The market price of any particular commodity, though it may continue long above, can seldom continue long below, its natural price. Whatever part of it was paid bellow the natural rate, the persons whose interest it affected would immediately feel the loss, and would immediately withdraw either so much land, or so much labor, or so much stock, from being employed about it, that the quantity brought to market would soon be no more than sufficient to supply the effectual demand. Its market price, therefore, would soon rise to the natural price. This would be at least the case where there was perfect liberty. 

Signs of optimism and ease in the global recession are starting to show up. According to reports made by the Government, manufacturing and service industries located in Europe contracted in June. In fact, it was the slowest pace in nine months. At the same time, U.S. consumer spending rose very gradually in May, just like it was said on my last post. Surprisingly, the Organization for Economic Cooperation got more hopeful and raised its forecast for the economy, as well as the economy of the other thirty nations that are members of this organization. As the Financial Stability Board put it, it “noted signs of improvement in the global macroeconomic outlook and in some financial markets”. Mario Draghi, chairman of the Financial Stability Board said that the world economy is showing “convincing signs of stability”. As Mr. Draghi put it, “We observe signs of improvement here and there … Still, the fragilities of the economy and the financial system are there”. On the other hand, the Dow Jones Industrial average has been showing not the most optimistic signs. It has risen since its lowest point on Thursday, and is now in the mid 8,400s. Are these truly signs of optimism, or just a parody made by the government to keep the population happy?

Very gradual increases in the consumer spending rates have been seen, with a 0.3 percent increase in May. The Obama administration’s stimulus plans have spurred a small gain in American incomes, a rather optimistic sign that the process of getting the economy back in its track is paying off. The 0.3 percent increase mentioned before was the first gain in the past three months. Earnings have also risen by 1.4 percent, the biggest gain in a whole year. All of this events have led to the 15-year high savings rate. The consumer sentiment rose in June to its highest level since February 2008. All of the efforts done by the government to get credit working back and lift the incomes are allowing consumers to spend while the unemployment rate rises. In fact, the unemployment rate hasn’t been this high even since the 1980s. The destruction of wealth caused by the housing downturn has led to the present high savings rate. As Michael Feroli put it, “It’s still too early to look for consumers to be an engine of growth for the economy”. Signs for the future? While a 10 percent unemployment rate is expected nationwide, the average household is to save every penny it has to survive the rollercoaster path of the economy, by making smaller purchases, more conservative investments and only purchasing what it needs- not what it wants.  

Home prices have once again dropped by 17 percent in May since 2008. This is mainly good news for first time home buyers, since most of these homes are in the state of foreclosure. The drop in the prices mentioned before have contributed in mayor ways to “reduce the nation’s glut of unsold properties”, as Courtney Schlisserman said writing for the Bloomberg.com. There was a 2.4 percent rise, which brings the annual rate to 4.77 million, which is still lower than forecast. Not very surprisingly, this price drop is ranked third among the deepest on record in U.S. history. The tax breaks from the Obama administration and the significantly lower mortgage rates have made it more affordable have helped support the housing industry during its fourth year in a row of downturns. However, limited recovery is likely to be expected because of the rising unemployment rates and loan costs rising once again. In the years to come, we might see the housing market rising once again, yet very gradually. Just like I said on my last blog article, people are tending to more conservative investments. Buying a home right now is very risky for a lot of American people. This is just another one of the many effects of the recession.

As President Obama said, a “cascade of mistakes” has now made his mind to propose the biggest overhaul in the U.S. financial regulatory system ever since the Great Depression, 75 years ago. This plan to literally control the market has been very controversial in the media, especially because it is going to add a new layer of regulation for the biggest financial firms, such as the ones that were bailed out during the past year. The plan is designed to add an agency to supervise consumer financial products, let the Federal Reserve oversee the companies that deemed too much to fail, and turn hedge and private equity funds under the federal government. What would we see in the future? Most likely, a lot more government control in the market, new laws, and restrictions in how to invest in the market. President Obama says he wants to sign legislation by the end of the year. The only problem is that, by that time, the “sweeping overhaul”, will sweep the market, and all of its freedom.  

As the first quarter of the year soon comes to its end, the household wealth plunged down with a $1.3 trillion deficit; the biggest downturn ever since 1952, when quarterly household wealth was kept in record. As stocks slowly emerge, yet still have their ups and downs, and the housing market and house prices are very low, the average American household has lost a very big part of what makes up its own wealth. Even though this might seem very bad, the American people are now having different points of view towards how to spend their money, saving their money more than ever, due to the new tax breaks from the Obama administration and the stimulus plans, imposing much more government control. As Christopher Low put it, “it is going to be very difficult to have any recovery in consumer spending without jobs and incomes recovering first”. However, retail sales rose in May for the first time in three months, mainly because of U.S. shoppers buying new cars and looking for bargains due to the rising price of gasoline. What are we going to see in the future? Probably, people saving their money more, making less purchases and more conservative investments, in the struggle to keep up with the economic depression. There is no doubt that tough times are ahead.