It appears that the worst is over as far as the economy is concerned. Yet, the housing market is still flooded with foreclosures, credit is still tight and the high unemployment rate weakens the consumer confidence.

If the unemployment rate remains at a high level, it will be followed by more foreclosures, more homeless families and many other social problems. To ask those unemployed persons to be optimistic, it is a bit asking too much. An old saying related to marketing is that a happy customer will good mouth 3 people but an unhappy customer will bad mouth 13 people. Many unemployed persons are going to lose their houses and dealing with depressions and anxieties. With that scale of unemployment, sorrow will spread through the communities rapidly like wildfire and it will continue weakening the consumer confidence.

Some people believe that companies have overdone in shredding their workforce during the last financial crisis. Yet, business managers are hired to protect their companies, not to protect the economy. Any such mistakes would cost their companies big time. Let's assume that business managers use light bulb consumption as an indicator like some of the economists. The government purchased a large quantity of light bulbs, and business managers were tricked to believe that the economy was in pretty good shape. They began hiring and expanded their capacities. In short term, employment rate went up. Increased expenses yet the projected revenues weren't realized, and it killed businesses. Economy and the job market suffered in the long one. Obviously, business managers don't use light bulb consumption as their sole economic indicators, government won't do things like that, and business managers aren't that easy to be tricked. Purchasing light bulb, even in a large quantity, will be a lot cheaper than any stimulate packages though. Anyway, any real job growth will need a strong recovery, and it should be strong enough to convince the business managers. Employment figure is usually a lagging indicator of the economy. PBS Nightly Business Report has conducted a survey and found most economists disagreed regarding the strength of the current recovery. If economists aren't convinced it is a solid recovery, businesses managers aren't either. Significant hiring is unlikely to be happened in the near future.

Many economists agree that a lot of new jobs come from small businesses. Small businesses, especially new businesses, need credit, and tight credit condition is not helping job creation. With the current economic condition, it will be tough for new business to set up and survive. Recent economic data gave good figures about export trade. It may be due to the low value of the dollar. It suggests that there are sectors of the market that companies may still have chances to succeed in this economic condition. Innovative technological products or services may compete well in some of those sectors. While consumer confidence is still weak, any new businesses serve the markets that are directly related to consumer spending will have a great deal of challenges, especially if they are in the retail sectors. The importance of the banks in the system is that they do best in evaluating the business plans, assessing the risks and making loans.

Some government officials proposed financial reform. One of the proposals is that constraint should be imposed to banks for taking risky speculative trading activities because of the special privileges that they receive. Such privileges include the ability to get access to the discount window and insured deposit safety net. If the banks' objective is to get benefit from the lower cost of fund and to get greater leverage on those trading activities that have no nexus to serving the customers, those government officials believe that it can be viewed those banks' trading activities are supported by the government. It is not's place to suggest what the roles of the big banks should be or what policies should be applied. Any of its discussion should be limited to the extent that is relevant to its operation and that helps achieve its objectives. Those government officials do reveal that big banks may have many opportunities as regards to investment. With many options to choose, the big banks are likely to choose the options that maximize their returns. It suggests that a healthy big bank may help the liquidity of economy but not necessary easy the credit condition that is favorable for small businesses. On the contrary, small banks may have fewer opportunities as regards to investment and therefore a healthy small bank will have a better chance in improving the credit condition of the economic environment. helps banks or government branches to auction their foreclosed house properties. Big banks and small banks are welcomed to join. If there is demand, it will help banks dispose their foreclosed properties and minimize their losses. As discussed earlier, helping small banks will be a better fit to achieve's objectives. Let's hope this storm has passed before inflation hits.

Opinion on 2-6-2010