Where will the inflation go?

If everything goes as planned in the rescue plan (bailout plan), the inflation will go to the housing market where the price is collapsing.

consumer surplus from Mankiw and Wendy's

Double Stack and Consumer Surplus

Mankiw suggests that this intelligent Wendy's ad illustrates well the economic concept of consumer surplus. I concur, and would add that it also illustrates concepts such as the costs of time and decision making.

What will happen after the crisis

Will the news all go back to Paris, Britney, Michael, Hanna, Lindsay and OJ?

No Drama Obama

Drama Queen, John McCain

The Road to Obesity

Warrants are called sweetener when issued together with bonds and in the Rescue plan, Uncle Sam will get some warrants from the banks.

The sweeteners below are added to the Rescue plan so as to win some house republican votes.

1. temporarily raising the limit on federal deposit insurance to $250,000 from $100,000.
2. various tax breaks
3. a "Mental Health Parity" provision

With a deal so sweet, is Uncle Sam on the road to Obesity?

Government's role in the Economy

Adam Smith has been added to the current economists who are discussing the current financial crisis. Yes, it is him who founded Economics and argued that the seeking of individual benefits will led by the "invisible hand" to achieve maximum social welfare. But remember the "invisible hand" theory is based on perfectly competitive market and arm-length transactions with perfect information and the price is determined by the market. In the US economy today, these conditions for the invisible hand to work simply do not meet. So the government need to come in to maintain the justice in transactions (which function is ruined by the lobbyists who twist the laws towards big corporations but not the small customers through legislation) and come to rescue when the market tends to collapse (The Paulson plan is not a good plan and that's why economists are against it but the rescuing functions of the government have to be carried out). There is one more thing the Fed can do: lowering the reserve requirement but how can they reverse that back once they lowered it is a problem.

Possible Economic Disaster and the Economy in Athens OH

I will write about this later.