Merchandising - Vital signs: slower inventory cuts can help boost growth

http://www.businessweek.com/investor/content/oct2009/pi2009108_704845.htm

Summary:
After analyzing data on "labour market, factory orders, and the Institute for Supply Management's manufacturing survey", economists' forecasts on economic growth for the third-quarter are at a low percentage (under 3%). Companies' inventory reports from August are heavliy relied on to predict the third-quarter GDP where these companies should have had their liquidation reduced by a large amount (in the second-quarter their stockpiles reduced to $160 billion), because "Every reduction of $30 billion in the rate of liquidation adds about one percentage point to GDP growth." Although more records from August are needed for more precision on the forecast, economists "expect the lower rate of inventory cutting to boost GDP by about 2 percentage points." In other words, when inventory is reduced, the GDP is increased, thus improving the economy. For the consumers, they are a main componene for the quarter's growth. In August, sales on cash-for-clunkers (used cars) increased by 2.7%; but the economy in September on consumer spending will go down, slowing down the merchandising business. However, when it comes to consumer price inflation, the Federal Reserve (or Feds) and economists do not share the same point of view. The Feds do not want an unwanted "pickup in inflation" while economists do not want deflation.

Connection:
In Chapter 11, it describes in detail about the merchandising business and how certain variables affect the profitability of a business. In this case, the article relates to this chapter, the inventory in particular. When the inventory is high, the assets are high because this is something that a company owns. However, according to the inventory calculation, when there is less inventory in the ending quarter, profit is increased. Therefore, having more inventory would have a negative impact on the company's profit because less products were sold than produced. Lowering the liquidation rate would give a positive impact to the GDP rate.

Reflection:
In my opinion, the article narrows to two specific examples of how the GDP rate can increase. It is too narrow because the Gross Domestic Product is measured by how the total number of producers and consumers interact with one another and whether the outcome of it will have a high or low or even negative change. The examples of production pertains only to the amount of inventory and cash-for-clunkers, and not the whole market of producers and consumers, which is probably why the GDP increase of the two examples in the article is a small increment.

Madoff Sentenced to 150 Years for Ponzi Scheme

Link:
http://www.bbc.co.uk/worldservice/business/2009/06/090630_madoff_sentence.shtml

Resources:
http://www.cbsnews.com/stories/2008/12/15/cbsnews_investigates/main4670631.shtml
http://www.economist.com/businessfinance/displaystory.cfm?story_id=14214978
http://s.wsj.net/public/resources/documents/st_madoff_victims_20081215.html

Summary:
On June 30, 2009, Bernard Madoff (former Chairman of Bernard L. Madoff Investment Securities LLC) was arrested for one of the largest frauds in American history. His investment firm with exclusive clientele led his customers to believe they would gain between 10-15% interest in the fund-management investments (bonds, treasuries, etc.), but he would pocket the majority of their money and return only part of it.

Connections:
A few of the many connections to Madoff's ponzi scheme include the Generally Accepted Accounting Principles. He faked transactions, violating the Objectivity Principle because there is no reasonable evidence supporting the transaction. Sending fake statements to clients would mean disrupting the Revenue Recognition Convention because the money put into the investments have not made any interest/profit. Not only did he violate the accounting principles, he also made a negative impact on the global economy with his scam of over $67 billion in losses that include world wide companies and people. Madoff's whole ponzi scheme caused many companies' shares in stock to drop and caused many wealthy investors to put a large amount of money into his fabricated funds, worsening the economy.

Reflections:
Because Madoff's scam added up to over $67 billion, it resulted in his sentence of 150 years in prison. 150 years seems a long time, espectially since he is at a retiring age, but I think he deserves his sentence becaue it makes businesses become more aware of the consequences if one were to try and cheat off one's clientele. Furthermore, such a scam would directly and indirectly worsen the global economy. It is the last thing everyone would want, especially with the ongoing progress of the economy. Another point to add on Madoff and his scam is he not only violated the accounting principles and made a negative impact on the economy but also did something immoral. Many charital works including Steven Spielberg's were under the hands of Madoff. Throughout this article, it makes me want to think twice before investing in any type of fund, for one does not know how their money is handled under the hands of a stranger.