Why Is The Economy So Bad?

Many people around the world might think that the US economy is in good shape, even people living in the same country. But the truth is that our economy is bad. There are several different reasons as to why our economy seems to be declining, and many of those aspects come from the war we are now having with Iraq. Not only that, there have been many job losts, the price of the oil price keeps on increasing, more money is being used to supply the troops, etc.

The unemployment rate surged to 5.5 percent in May from 5 percent- the sharpest monthly spike in 22 years- as the economy lost 49,000 jobs, registering a fifth consecutive month of decline, the Labor Department reported Friday. With people losing their jobs and owning a house at the same time, becomes harder for them to pay their mortgage and pay their bills. Owning a car is also another problem with the prices of gasoline rising.

The war in Iraq has caused economic problems too, especially now that it has been extended. With this extension, it has cost the government more to keep the troops there, by having to supply them with equipment necessary for them to protect themselves from what they have to face everyday while being there. So as we contribute with money to the country, at the same time is being used to repair the country. Everything done in the US, is connected in some way and affects us the people.

Buying a Car

In order for me to buy a car, I would not only have to like the car of course, but also see the cost of it, insurance, maintenance, size, etc. After all I will be the one using it and need to feel comfortable in it. The kind of car I would get is a Chevrolet Aveo 1.5 L 2007. I would get this car because I like it, is also a recent car. I don't see myself driving something old or used. Is the right size and when it comes to category is a small city/ economy car.

Fed Helps Market Go Up

The DOW went up over 400 points on Tuesday. This was made possible by the short-term interest rates reduced that The Federal Reserve made for the sixth time in six months, as its continuous attempt to strengthen the economy. The central bank lowered its federal funds rate by three-quarters of a percentage point, to 2.25%, leaving the option for future cuts in the upcoming months. It was one of the biggest one-day rate cuts in decades. Inflation had been elevated, and some indicators of inflation expectations had risen, with this it was going to be necessary to continue to monitor developments carefully. Investors reacted to the initial news of the Fed cut but pushed stock prices sharply higher by the end of the day.

Compound Interest and the Rule of 72

Compound interest is the concept of adding accumulated interest back to the principal, so that interest is earned on interest from that moment on. The act of declaring interest to be principal is called compounding. For example, a loan may have its interest compounded every month: in this case, a loan with $1000 principal and 1% interest per month would have a balance of $1010 at the end of the first month.

Compound interest rates may be referred to as Annual Percentage Rate, Effective Interest Rate, Effective Annual Rate, etc. When a fee is charged up front to obtain a loan, APR usually counts that cost as well as the compound interest in converting to the equivalent rate.

Compound interest may be contrasted with simple interest, where interest is not added to the principal (there is no compounding). Compound interest predominates in finance and economics, and simple interest is used infrequently.

The Rule of 72 is a method of calculating the approximate number of periods over which a quantity will double. If you divide 72 by the expected growth rate, expressed as a percentage, the answer is approximately the number of periods to double the original quantity. For example, if you were to invest $100 at 9% per annum, then your investment would be worth $200 after 8.0432 years, using an exact calculation. The rule of 72 gives 72/9=8 years, which is close to the exact answer. The higher the interest, the quicker it is.

It's basically a way or method to know how long it will take to double your money. Another example, if you deposit $3,000 into an account with a 2% interest rate, 72 ÷ 2 is 36. So in 36 years you will have $6,000.

The 72 rule can also be used in reverse: to learn the interest rate needed to double your money in 8 years, divide 72 by 8, for an answer of 9% interest.

Finding Compound Interest

Using a Compound Interest Calculator, I calculated that if I save $1 per day ($365 per year) from age 18 to 65 (47 years), with an 8% interest; which is about how much the overall US stock market goes up each year, I would have 14,078.82 at my retirement age.

US Trade Deficit

The US Trade Deficit is when the total goods and services the U.S. imports is greater than the total it exports. In other words is the excess of imports over exports. When the amount of imports exceeds the amount of exports, the country or the economy faces deficit.

The United States trade deficit shrank in December 2007 for the first time in five years. It went down because the country was importing more goods than exporting, which lead to losing money. On that particular month, the country imported around $203.08 billion and exported around $144.32 billion. This lead to the import exceeding the export by $58.76 billion.

The value of the US dollar has to do with the trade deficit falling because due to the downfall of the US dollar, it lead to people being more interested in buying cheaper products from US, which is what cause an increase of exports of US products.

I think that a large trade deficit is bad for the economy because not does it only have a negative result in the country, but it also leads to the country losing money. With the country having more imports than exports, it will most of the time lead to falling into a trade deficit; making the US depend on other countries products. Therefore, if it was the opposite, exporting more than importing would be better causing the economy to trade surplus.

Opportunity Costs

What economists mean when they talk about opportunity costs is sort of basically giving up something to get something else done, but after all you gave up that, in order to get something else that you wanted. In other words is losing something, but yet you know you will gain something else instead of that and probably it could be better since you chose to gave up the first thing in place. Opportunity cost is the cost of pursuing one choice instead of another. Every action has an opportunity cost. For example, someone who invests $10,000 in a stock denies oneself the interest that one can easily earn by leaving the $10,000 dollars in a bank account instead. Another example is the decision of attending college after finishing high school or just working. If you only work you will make money for yourself, but yet if you decide to work and use that money to pay for college, after you graduate and work on what you major on you will earn more money. You gave up only working and making money for yourself, for something that will pay off more at the end.

An example from my own life is being on a team. I gave up the opportunity of having a job and earning money for my own needs, but yet being on that team will look better on my college application and have better opportunities to go to a college of my choice. I gave up the opportunity to earn money for a better chance of going to a college that I want, which once am in the college I wanted, I can look for a job and find something that I like and maybe even earn more money.

My Investment Strategy

At the beginning I didn't have an initial investment strategy, but in order to decide on what different stocks I was going to invest, I first went to newyorktimes.org and searched different companies by the first letter symbol and went on alphabetically. From there on I chose and took a look at companies that I have heard before and that I thought would be worth investing on. But sometimes not even because a company is well known means that at some point is worth investing in it. Some of the basics that I took in consideration before investing on the stocks were the cost per share, the different price history at different times, for example how the company has either lost or gain in 5 days, 2 months, and even a year.

I picked my first 5 initial stocks because as I checked the price history in different times I saw that in most of the times there was growth, yet that didn't mean that it could go down. Since the US economy is not doing so good, I thought it will be better to invest on companies that are actually making money during this downfall of the economy. This shows that they are able to progress even when the economy is not doing so good. Not only that, also they were very well known. I tried to invest at least in one different stock of a different kind to have a variety and see how it works out, for example a cell phone company stock, a brand of clothes stock, and others.