RS 10: Cyprus & Deposit Insurance

Cyprus is an island country in the Eastern Mediterranean Sea that has made economists and bankers turn heads across the globe. Why is this shocking? Well, for starters, I had never even heard of Cyprus before I read this article. If I had heard of it, I thought it was from a movie or something heinous like that. Cyprus is so small that its population is the same as the population of the Bronx and all of the banks of Cyprus combined are still smaller than the 30^th largest bank in the United States.

Cyprus is being talked about because they have deposit insurance. All banks are risky businesses (just ask Tom Cruise),

whether in a small neighborhood in Cyprus or big city in California. What a bank does is actually a scary idea. They take our money and loan it out to people who don’t have to give it back for 30 years…when you hear it explained that way, you wonder what idiot even came up with the idea of banks. Why the heck would anyone think their money is safe in this messed up institution?

Deposit insurance basically says that “if the bank runs out of money, the government will step in, take over the bank, and make sure ordinary people with checking and savings accounts get their money back.” THIS is why people can trust in their bank. But it still makes me wonder…are interest rates really that great that people would risk putting their money in accounts? Do they just not care if they lose their money? Are people just not educated enough? Deposit insurance only covers so much, so I would hope people don’t go over the insured amount god forbid they could lose a large chunk of their money.

Back to Cyprus, they recently broke a major deposit insurance rule. “As part of a bailout agreement with the EU, the government of Cyprus announced a plan to take 6.7 percent from every insured bank account, and 9.9 percent from accounts with more than 100,000 euros.” This means that the average person who puts their money in a bank would not get their money back. THIS MEANS A PERSON LIKE ME WOULD NOT GET THEIR MONEY BACK. This is not okay. If people in the European Union notice this trend happening, people will stop believing in the banking system and eventually everyone will pull their money out of their accounts, messing up the entire financial and economic systems of Europe.

Word to the wise, piggy banks are back in style. 

RS 9: Dow Jones

The Dow had a record high recently, but was it actually high or a record? The Dow is flawed because the inflation-adjusted numbers aren’t a great way to measure what is actually happening in the economy.

I always hear about stock prices and the “Dow-Jones” but I honestly never actually understood WHAT it was. Who is Dow Jones? Oh wait, WHAT is Dow Jones? NPR “rains” on the Dow’s parade and explains what the Dow Jones industrial average is. The stock market is made up of American companies and global companies all over the world. People want to know how investors look at these companies and how they are doing. They add their share prices together and divide the number by an arbitrary number, the “Dow divisor” to see how it is doing. What companies make up the Dow Jones? They don’t change very often, and they are a random grouping of companies. Companies such as Apple or Google aren’t included in the 30 companies that make up the Dow, and therefore the large game changers in the economic world aren’t included in this “important” calculation.

Say you have a company, and you have 100 shares being sold at $1 each. Another company chooses how many stocks and shares they want to divide itself into nd chooses they will have only 2 shares for $50 each. This is the market capitalization: the amount of shares times the price of each share. Say both companies go up 10%. Since the 100 shares stock is broken up into 100, you would add a dime to each share, however the $50 shares would be now $55 each.

The Dow is calculated the way it is, assumedly, because it’s always been calculated this way. They haven’t updated their algorithms with the changing times, and they need to! This number that means so much to a lot of people, means so much to people who don’t realize that it is outdated and imprecise.

Even though these people on NPR hate the Dow numbers, they still report them when they come out. People don’t know how to stop utilizing the Dow numbers because there isn’t any real comparison. The stock market and the Dow don’t always match up what is actually going on in our economy! The Dow does better and grows faster, so these “high’s” and “low’s” may not be as important as some people make them seem.

RS 8: Unemployment Rate (That Rhymes!)

How do YOU keep a secret? Do you lock your door or hide in your closet so you don’t speak? You obviously can’t tell anyone, not even your significant other or best friend.

Indicator of all indicators: the job numbers….the unemployment rate. They come out every first Friday of the month and people are always DYING to see them!

If the numbers are bad and people know that the market is going to get bad, people can premeditate their stock selling and could sell shares before the market goes down in orders to make million or maybe even billions. If the numbers leaked out, the unemployment rate comes out too early, as it did in November of 1998, people can utilize this information for insider trading. The payroll numbers for October were found accidentally on the government website. Ray Stone, an economist, was a superstar that month. He was on television shows even! The Bureau of Labor Statistics ended up putting up the numbers an entire day earlier because of embarrassment practically, and also put out an 81-page report for how to prevent this sort of thing for happening again. An NPR representative wasn’t even allowed to see an economist’s office suite because of the confidential information in it! Even some fellow employees don’t have access. Karen, an economist at the BLS, even admitted that they have to take out the trash on their own, and that if they have IT issues, they have to fix them themselves!

People in this industry will only know the numbers 3 days before they come out! She isn’t allowed to even talk about her day with her parents. “The first rule about working at the BLS, don’t talk about working at the BLS.” Reporters have specific methods of how they can report the BLS reports. Code words are used to do microphone checks, and the word is changed each time. The reporters are given the code aloud, and a worker at the BLS counts down from 5 after the word is said to signal the reporter as to when they can speak and say the reports! How heinous! As crazy as this system may be, it obviously works. It ensures that each and every journalist and media branch admits the information to the public at the same time.

The jobs report can be really great and helpful, but often it’s best to take the unemployment rate with a grain of salt. Seasonal adjustment affects the number, in the summer more teenagers are out of school looking for jobs which changes the rate semi-dramatically. It’s a hot number to know but how important is it really on a monthly basis? 

RS 7: George, Lettuce, and CPI

George Minichiello is a professional shopping inquirer. He is sent from location to location, whether it be a grocery store or a shoe store, to check on the prices of items from companies that make up the “market basket.” The market basket is the random mix of items that are being bought on the market by Americans. George is a surveying who figures out with items are being bought.

“George is one of hundreds of federal employees who goes to stores all over the country and record the prices of thousands of different things. A bag of romaine lettuce. A boy's size-14 collared shirt made of 97 percent cotton. A loaf of white bread.”

Since prices are constantly changing, George is constantly working. There are 450 people nationwide that follow prices of goods so that they can keep the CPI information up to date and correct. The CPI is an economic indicator that measures inflation in the United States. It stands for “consumer price index” and it’s value affects everything that costs money, from a price of pizza to health care.

Online prices and in store prices often differ, so it is interesting to me that they have 450 people nationwide checking each store. If a sales clerk at Forever 21 is in a rush, they probably won’t accurately describe the prices to the price inquirer or they will make errors. Their job is vital and accuracy is key!

I think this is definitely the best way to calculate the CPI. By having a worker individually check a price, though repetitive, it ensures that companies cannot forge prices or make errors.

George is described as a methodical man. He has regular stops and places that he checks pricing at. There are certain things he cannot reveal to NPR, such as the name of the owner of the stores or the names of the stores itself. I don’t understand why it’s so secretive! He is checking the prices of lettuce at a grocery store, not undercover drugs. Lettuce tell you George, you need to chill. How many people really care what the CPI is a week before it comes out? I guess nerdy economics people. But you would have to follow all Georges and every price…and I would hope those people aren’t that extremely nerdy! 

P.S. Hearing this guy talks about ribbons and lace on women's dresses = priceless and awkward. 

RS 6: Cliffhanger

If Obama doesn't jump soon, I'm gonna push him off the cliff...the poor guy has dealt with this enough!

In the 2010 mid-term elections, the democrats lost the House of Representatives, and inside the white house President Obama knew things were going to change. 87 new Republican freshmen came to the capital, and they came ready to fight. Many thought all 87 came with fires blazing. The 87 new people came to change Washington but first they had to get through John Boehner, the new Speaker of the House. He was leading a class of insurgents and was no way in hell ready for the ride they were going to take him on. Imagine a dog leading a large group of cats. Cats don’t bite much individually, but 87 cats is scary as hell. The 87 freshmen were just that, ready to bite since the smaller masses of Republicans couldn’t do it before. Republicans rallied together to go against Obama’s stimulus package and took various actions to force Obama to cut spending and raise the debt limit.

The Young Guns were made up of three young Republicans, Majority Leader Rep. Eric Cantor (R-VA), Majority Whip Rep. Kevin McCarthy (R-CA) and Budget Chairman Rep. Paul Ryan (R-WI), who claimed to be the young, new faces of the Republican Party. Paul Ryan, future VP runner, created a manifesto similar to Eisenhower’s times with his idea for a national budget that called for government spending cuts, no more Obamacare, lower taxes, and the privatization of health care. Obama responded to this proposition, with Paul Ryan in the room, and offended most if not all of the Republican Party.

Soon, it was time for Boehner and Obama to form an alliance and make some large changes in the capital to make large changes to our debt. After Boehner promises Obama some tax increases to raise funds, Congressman Cantor, a fiery representative for the Republican Party, breaks hell loose at White House meetings to fix the budget. After offending Obama, Eric Cantors gets thrown to the media wolves and Democrats, gets tucked down a notch or four, and Boehner is given the opportunity to make his Grand Bargain happen. As the bargain closed, a group of senators, split Republican and Democrat, called “The Gang 6” came forward with a bipartisan plan. After trying to fix the Grand Bargain when Obama asked for $400 billion more, Boehner doesn’t take the deal and describes the White House as a bowl of jelly. Angry at each other, they both held press conferences describing the situation. The deal they ended up cutting was what they called a fiscl cliff. It was a temporary plan until after the election; it was a pushback you could call it, that put the issues on a cliff with not much time to make a decision.

After the Republican’s lost the 2012 election, they had some soul searching to do and Obama had a lot of work to do. Obama hammered home his campaign platform that the wealth’s taxes would go up, but by December when the fiscal cliff deadline was soon approaching, Boehner wasn’t ready to make a Grand Bargain. His plan B, after “backing out”, was to direct the House to make the legislation to fix the fiscal cliff and to have them create the plans and make the decisions. Conservatives in the house were angry that Plan B included a tax increase on millionaires. Just before the vote on the plan, there was an emergency meeting of the Republican Caucus meeting. There would be no vote. The Republicans didn’t agree with their own leader.

When will the script change? Biden and McConnell, made a last minute plan…as usual. People who make over $400,000 per year would have tax increases, but decisions on government spending cuts were not made, and policy and political changes that are necessary have not been met either. The script is repeating itself over and over, Boehner makes a bargain, Obama asks for a little more, and Biden and Senate swoop in with a last minute, short-term solution. I think that cuts in government spending need to happen…sure it’s cool that Obama’s kids get to see Bieber perform in the White House, but he’s got to be a pretty expensive gig.

P.S. There were WAY too many good memes on this topic...had to put all my favorites in here!