Welker’s daily links 05/19/2009

May 20 2009

Published by Jason Welker at 12:28 am under

Small Firms Wait for a Credit Thaw – WSJ.com

Are credit markets still “frozen”? Apparently so for small businesses, which account for 80% of America’s economic activity:

Big companies are rushing to issue stocks and bonds to suddenly hungry investors. But credit is still scarce for thousands of mostly smaller companies that rely on bank lending.

U.S. corporations such as Ford Motor Co. and MGM Mirage Inc. raised more than $34 billion by selling stock in the first two weeks of May. At around the same time, Bill Mulrooney, chief financial officer of UniFoil Corp., was setting aside plans to borrow money for new equipment that the company had hoped would boost sales.

“I hear about the credit markets’ freeing, but it’s clearly not the case for small businesses,” Mr. Mulrooney says.

tags: economics
RealClearMarkets – Articles – Barack Obama’s Risky Deficit Spending

What future threat might the massive US budget deficits pose to America? Here’s what Robert Samuelson has to say…

At best, the rising cost of the debt would intensify pressures to increase taxes, cut spending — or create bigger, unsustainable deficits. By the CBO’s estimates, interest on the debt as a share of federal spending will double between 2008 and 2019, to 16 percent. Huge budget deficits could also weaken economic growth by “crowding out” private investment.

At worst, the burgeoning debt could trigger a future financial crisis. The danger is that “we won’t be able to sell [Treasury debt] at reasonable interest rates,” says economist Rudy Penner, head of the CBO from 1983 to 1987. In today’s anxious climate, this hasn’t happened. American and foreign investors have favored “safe” U.S. Treasurys. But a glut of bonds, fears of inflation — or something else — might one day shatter confidence. Bond prices might fall sharply; interest rates would rise. The consequences could be worldwide because foreigners own half of U.S. Treasury debt.

The Obama budgets flirt with deferred distress, though we can’t know what form it might take or when it might occur. Present gain comes with the risk of future pain. As the present economic crisis shows, imprudent policies ultimately backfire, even if the reversal’s timing and nature are unpredictable.

tags: economics

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About the author: Jason Welker is a teacher at Zurich International School in Switzerland, where he teaches Advanced Placement and International Baccalaureate Economics. In addition to maintaining numerous online resources for economics student and educators, Jason developed the online version of the IB Economics course for Virtual High School and is currently authoring a textbook for IB Economics students for Pearson Baccalaureate which will be available in Spring of 2011. His economics student wiki won the 2007 "Best Educational Wiki" award from the "EduBlog Awards".