A favorite website of the TodaysMama staff is Discussion Divas – their weekly newsletters explore current events in a thought provoking, informative and refreshing way. Each month we’ll bring you a monthly round-up from the Discussion Divas as part of the MamaVote project.
Summer vocabulary: Stagflation
Intermixed with all the usual words of summer—bikini, barbeque, beach, sunscreen—there are some new terms this year. They include “staycation,” a vacation where you stay at home or nearby to save money, and “stagflation,” one we haven’t heard in a while, and which may leave you wondering what exactly it means.
It’s funny, to pick our weekly topic we run ideas by people—friends and colleagues—to determine if it’s interesting or relevant or neither. When it came to stagflation, we got a lot of quizzical looks and yes, it is a real word, and it’s a bit scary.
Stag + flation
You’re probably familiar with inflation (when the cost of goods rises and the dollar doesn’t go as far as it used to). Then, take “stag” and think stagnant, or stagnation. Combine them and you’ll have the meaning of stagflation—when the cost of goods rise and the economy fails to grow. It’s an economic state that tends to occur when oil prices and unemployment rates are high.
The last time the United States saw stagflation was back in the 1970s.
Why you’ll hear more about it
About every six weeks the Federal Reserve takes a pulse of the economy by asking its 12 regional banks to survey businesses in their region. The latest of these surveys, known as the Beige Book, came out on Wednesday and said the economy is slowing and prices are rising. Some smelled stagflation.
Read the rest of this article and get the big picture, here.
Housing giants explained – Fannie & Freddie
As Fannie and Freddie headlines dominate, if you find your self still scratching your head over what it’s all about (we were), here’s a primer, DIVA-style: short and snappy.
Financial markets and investors shuddered as a New York Times story revealed the nation’s two largest mortgage supporters—Fannie Mae and Freddie Mac—were under “growing financial stress.” Last Sunday the U.S. Treasury was ready with $300 billion to shore them up if needed. This gesture reassured the markets.
Why were they in trouble?
Think of this like a game of hot potato—when the music stops, the person holding the potato loses. In this case, the potato is debt.
Fannie and Freddie (these are nicknames) are mandated by Congress to make it easier for banks and lenders to make loans to home buyers. They do this by buying loans made by banks and taking on all associated risk if the loans aren’t paid back. The bank is off the hook and has the cash to make more loans (and money).
To cash flow themselves and make money, Fannie and Freddie bundle up the loans into different assets that they sell off to other financial institutions. But, and this is a big but, they also guarantee the underlying loans will be repaid. If they aren’t Fannie and Freddie, are left holding the hot potato.
If their risk exposure gets too big, they may not be able to buy loans from banks (their role), thus paralyzing the home loan market. The best explanation of their risk exposure and how it has ballooned is here in this NYT graphic.
Read the rest of this article and see why Fannie and Freddie are so important to the economic health of the U.S., here.
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