The three automakers...

The three car makers, Chrysler, General Motors and Ford were all asking for an injection of cash from the government in order for them to survive. Their arguments are based on the government's plan of the bailout for the banks(Troubled Assets Relief Program, TARP, or the $700 billion bailout plan), that what they did for the banks, the government should do the same to the car makers. There is a problem with this argument though, as car makers are not similar to banks in terms of their importance to the economy. Yes, people are right to say that these three companies are the American dream, they were built and grew in America, they ought to be bailed out. In this entry, I will try to elaborate on the situation and express my views on it.

First of all, I would like to make clear that TARP was aimed for helping financial institutions by buying their toxic assets in return for some sort of liquidity to survive. For example, once the biggest insurance company in the world, AIG, was brought down to its knees by these troubled assets, CDS(credit default swaps), which are contracts between two counterparties. The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument defaults. Now, obviously quite alot of these financial instruments, most of them subprime mortgages or financial instruments repackaged but are related to them, defaulted and AIG was bounded by the contracts to pay these buyers of the CDS. Of course they didn't have this much cash to pay up and in the end had to ask for loans from the government for them to survive.

As mentioned in my last entry, I am a supporter of free market, so I should not be promoting these bailout plans and schemes. However, the situation then was so desperate, the US Treasury and the Fed had to come up with something unprecedented to rescue what was left of the financial system. With the banks, they are the backbones of the whole financial system and financial systems are the backbones of a country's economy. If any of these banks failed, other banks would act like domino effect and fall one by one, that is why the government had to step in. The reason for this effect is the notion of fear. Because banks were so scared of lending to each other, liquidity dried up and no one was able to have any money to pay up their creditors and hence more and more businesses are shutting down. When the Treasury decided to save Bear Stearns, the market thought that the worse was over, but when Lehman Brothers were left out to rot by the government based on the reason that the government had to show that they are not going to save everyone, and had to file for Chapter 11 bankruptcy, the market was so scared that banks tightened their lending even more. It is because of this inconsistantcy that leads to the market we have today. Then why was AIG granted loans for them to cripple on with their business, AIG was not a bank, but like everyone said, it was "too big to fail". These CDSs linked with so many other financial instruments and these instruments were from so many other sectors of the economy that, if AIG was left to fail, all these other business would have been directly affected and the government cannot allow that to happen.

Many people argue that the three car makers are also just as important to the US economy as all the other banks and since these banks were saved, the auto industry should also be bailed out. This point is not totally wrong as these three companies are very important to the American people in another aspect. They were the American people's dream of not needing to import things from other countries. Politicians will have an easier time passing bills to bailout the automakers than they did when passing the TARP. The population felt that the banks were in such bad position because of their greediness and their executives' salaries and bonuses were too high. On the other hand, because these car makers were products of the American people, they didnt mind as much if the government helped them out. What these people did not consider is that these car makers are in this position not mainly because of the credit crunch, as their businesses were in decline already before it started, they are in desperation because of bad management. Many people look at the disadvantages these three companies have when compared against japanese car makers, like unions in the US have more power over employers and so will demand higher wages and other benefits. But things like car trends, car designs, changing of consumers' tastes from high performance cars to environmentally friendly cars can be changed over time, but obviously the three car makers, especially General Motors and Chrysler, never made the attempt to compete with other car makers from Japan. This led to the decline in sales for them and eventually they go close to filing for bankruptcy.

Unfortunately, during the time of me writing this entry, the US government decided to grant loans to General Motors and Chrysler, worth a total of $17.4bn. This boosted the share market for a bit for the next few days, but the government has in turn, told everyone out there, that when a big company is going to fail soon, they will be there to save them no matter what the reason is. The current administration is managed by a Republican, and I understand President Bush's desire to hand over the administration as smoothly as possible, but if so many interventions happen in such short period, surely more will be following under Mr. Obama's new administration and the new Congress, which will be dominated by Democrats. That, will only be a bad thing for the market and the economy as a whole.

Education

Following my last entry, I promised I would talk about how to not only decrease government's education expense, but also improve the quality of schools. The idea is actually very simple. For people that know me well would know that I am a supporter of free trades and the idea of "small government, big market" (another reason I support Mr. McCain over Mr. Obama). The way I am going with this is, if the education system is not controlled by the government as it is now, it will be much more efficient (Adam Smith's "Invisible Hand"). People might argue that education is a public good, and there is no other way it can be maintained to sustain the quality of teacher. I say, it is actually quite plausible to turn it into a private service and as we all know, the private sector is a lot better at improving quality because they need to gain a competitive advantage to survive.


First off, I understand that universities take a lot of money from governments for researching and other purposes. But what happens if the economy goes bad and the government has a budget deficit, they would either have to cut their spending, and that includes the education budget, or raise tax rates to get the budget back to green figures. We, as consumers, would want neither of that as both would increase our cost of living either directly (increase in tax payments) or indirectly (cut in education budget and force universities to increase tuition fees to cover their own expenses). But if we were able to privatize them, they will not be subject to fluctuations in the economy. People might ask, what about the budget for researching, where is it going to come from if there is no government backing? The logic is simple, if universities are privatized, they can woo businessmen to sponsor them in return for first options on their more talented graduates. this would in turn encourage the university to invest more to improve their students' grades either by luring higher quality professor or asking successful individuals to be guest lecturers to attract even more investors to give them money. Here comes another question, doesn't the state of the economy affect how much investors are willing to pay as well? Yes it does, but for people that do finance, getting more investors is exactly the same as diversifying your portfolio. So even if there is a recession, fluctuations would be greatly reduced. Instead of having just one sponsor backing you up, and that sponsor is directly related to what consumers spend, and that sponsor also have to invest in many other institutions, a university will be able to get exclusive sponsors and a large number of them.


Apart from tertiary educations, there are also secondary and primary schools and also pre-schools to take care of. As we know, many schools nowadays try to improve every aspect about them to attract students. Things like sports fields, gyms, technologies and try to be the best in literally every subject they have on offer. If some other schools have a particular subject that a certain school does not have, they will get a teacher currently employed and has a bit of knowledge about it to teach it. Not only is this inefficient (as the teacher of the new subject is not an expert on it), this also pulls down the quality of learning for students. After years of watching soccer and having seen players that can play in a variety of positions, me and my father came to a conclusion, "the more versatile a player is, the more average (to put it politely) that person is at every single one of these positions". It works the same for schools, as a school needs to concern about maintaining the quality of many subjects, the lower the quality will be as there is always only a limited amount of resources. So here comes another economic concept, specialization. I am not telling schools to only teach subjects they are good at, but to concentrate more on them while maintaining the required quality for the other subjects. This way, teachers will have more time to concentrate on the subjects they are good at and not have to prepare for every subjects the school has to offer.

The idea I proposed above obviously does not decrease education expenses for the government, but it is one of the main factors in the process to achieve that objective. Many countries offer free education up to a certain age or grade level, the amount of money spent for this purpose takes a big proportion of the government's budget. What I am proposing is not a new concept, but many countries are reluctant to use it as it might lower the quantity of some of the less highly regarded schools' applications and might result in a closure of some of these schools. The policy of issuing school voucher is the government sponsoring each child and that child can use that voucher as part of their school fee to apply for whichever school they wish to attend. The reason I talked about specialization is because parents don't choose certain schools for their kids for no reason, they choose a particular school because that school is good at something that their child wants to do. Back to how the voucher works, it does not matter if the voucher is the full payment of the school fee or not, the fact that parents will now be able to choose schools and result in much higher quality and efficiency will more than compensate for that. As for those less highly regarded schools, they will find ways to improve their competitiveness to survive if there was no government intervention at all. Once the quality of the students improve, less money will be needed from the government to spend on social welfare and courses made for re-educational purposes (for people that cannot get a job).

Like I said before, the schemes I proposed can drastically reduce government's expenses and improve teacher quality at the same time. Some extra information, the Department of Education in Hong Kong often changes the education system and still says the system is good and helping students improve. But it is quite obvious over the last few years that Hong Kong students' competitiveness against other countries' children is decreasing. Funny enough, these government officials that supports the education system actually send their kids to other countries for education at the first possible opportunity. Another reason I say politicians know nothing about education and market forces, all they want is more power over the life of ordinary citizens.

What?! Tax?

With prices of commodities rising constantly and oil prices breaking record highs(though they are down to around $116 per barrel now), we, as consumers, bound to start thinking of how to maintain our budgets, wonder if we will get a pay rise to keep up with inflation. However, there is actually something we hardly think about, as we assume that it is unavoidable, is the amount of tax we pay to the government. Sometimes we hear governments say they will do a one-off tax return, or offer tax cuts to low-income population while increasing the tax rate for higher earners(like one of Barack Obama's policies), we hardly ever hear anything like permanent tax cuts. We might wonder if it’s even possible with everything a government has to pay, in this entry, I will try to explore the possibility of that happening.

Tax is the main income for a government. They use it to pay for expenses like roads, social benefits, public services. A government will have a budget surplus if their tax revenue is more than all the expenses while a budget deficit is the other way round. There are many types of taxes the government can impose to increase their income, like the Goods and Services Tax, Income Tax, tax on petrol and many more. With this many ways a government can take money away from us, one might think that it is pretty hard for a government to go into a deficit, and yet, many governments, especially this year, due to economic slow downs, will report red figures. This is because tax earnings are directly related to how people are willing to spend. Even though wages did not necessarily have to have changed during the year, as less people go out to buy things, income for businesses decline and so will directly affect how much tax the government receive.

Before I talk about the possibility of tax cuts, I want to compare the tax rates for a few countries and why they can be so different. First I want to ask many of you a simple question, have you ever wondered why America's tax rates are lower than countries like Germany's or New Zealand's? For simplicity sake, I take the tax bracket of 33%, since both NZ and America has it, the maximum income allowed in that bracket for America, is USD 357,700, while in NZ, the maximum allowed is NZD 60,000. It does not take a genius to figure out what a big difference there is. I know that there are also other taxes payable in the US, like Medicare, Social Security tax and the state income tax, but they only take up a very small proportion of incomes, and some states don't even have income tax. Now, if we compare how much the US government has to pay each year for expenses like health care, the army and others, against how little the NZ government has to pay(the reason i say the NZ government is paying a lot less is because of the small population size), one might start to think why New Zealanders have to pay such high taxes.

Now, back to the thing about tax cut, I remember my high school economics teacher saying, the reason why governments never make permanent tax cuts is that, people will spend all of it and therefore drive up inflation. What she said was definitely true, but that does not mean it is bad for the country at all. Economists say that one off tax returns are better than permanent ones because for one off returns, people recognize it might not happen again, and therefore will save it. But for permanent cuts, people know it will be the same for the future and therefore will definitely spend it. However, what my teacher did not consider was that, when economies are bad, tax cuts are the best way to help spur the economy on (given the inflation rate is relatively low). Oddly, some governments, like the Hong Kong one, do a strange thing when they report budget deficits. Instead of announcing tax cuts, to increase consumer's disposable income, they would increase tax rates and say that the main priority is to get the budget back into positive territory (which I never understand why, nor do my parents, I reckon not many people would understand the logic behind it).

You might ask, if governments report negative numbers, how can they give us tax cuts? The answer is to cut back their expenses. There are many expenses they can spend less on. I understand that the budget for stuff like roads, street lights and public services cannot be reduced, but things like education, insurance subsidies and unemployment benefits can be reduced, and these sorts of expenses take a large chunk of the annual budget. You might ask another question, how on earth can a government cut its education and unemployment benefits budget? Don’t worry, I will explain how to cut the budget for those three examples I mentioned. For insurance subsidies, a government can do exactly what America is going to do, a universal coverage. For people that cannot afford health insurance, the government will subsidise the gap between the price and what they can afford. That way, they don’t have to pay for the full claim of the doctor’s fees from citizens; instead, they would be able to transfer the cost to insurance companies.

The reason so many people stay at home and cannot be bothered to look for work when they can is because the wages a job pays is less than the benefits the government give them. If, however, the government encourages people to work by covering the difference between the wage and the benefits, even if the government pays more than the difference, the budget will still be reduced by quite a margin.

The last example I gave (education) is quite complicated, and it will lead to another entry later on by me, so I will not give any big hints here. But I will say, the proposal I will explain will not only reduce the government budget, but also help improve school, teacher and student quality.

It is clearly quite possible for a government to give out tax cuts, especially when times are hard, when an economy needs a boost. Just an extra note to my readers, the government of Bermuda does not impose any compulsory income tax, just a few percent of a tax of some sort, but it is still surviving. Also, the Vatican does not force anyone to pay them anything, but they try to ask people to donate for them to keep running. I’m not suggesting governments should abolish tax; I’m just trying to say that, tax cuts are perfectly possible. The real problem is not how much we pay to the government, but how the government is spending the money. It is our money after all.

What next for the Fed...


One of the main function of the Federal Reserve is to adjust the interest rate according to current economic conditions. The members of the Fed get together on a regular basis, the first and third Monday of the month, unless they call for an emergency meeting, to decide if the discount rate should be changed or not. Since the 10th of May 2006, the discount rate has dropped from 6% right down to 2.25%(as at 1st of May 2008). There is no argument as to why the Fed had to decrease the rate at such a drastic level, but one big problem the Fed has to face now is the continuous rise in inflation and the slowing down of the America economy, in other words, stagflation has arrived.

On the one hand, the price of oil and food are rising non-stop. On the other, because of the credit crunch, lending has tightened and with confidence declining, investments will decrease and so will growth. The problem with changing the discount rate right now is that, there will always be a trade-off no matter what the Fed do. That is, if they decide to increase the rate, inflation should be checked and held at the same level for sometime, but the future of the economy will be even gloomier. But if the Fed opts for the alternative and decide to decrease the discount rate, inflation will rise even further. All this comes down to one question, what is the main concern for the central bank?

The European Central Bank's(ECB) priority was never in doubt, they decided that containing inflation is their main objective right from the beginning, that is why they never lowered their interest rate during the credit crisis. Of course, they had an advantage over the Fed, and that is the credit crunch didn't spread as much as they did in America, hence they only had to deal with the rise in prices of commodities. But as time goes on, Europe is starting to feel their economy slowing down, some odd countries are still maintaining high level of growth, like Germany, but the growth is slowing down as well. One big difference for the ECB, compared to the Fed, is that their interest rate is the same for all the members of the Euro. This means that even though some countries might be experiencing higher unemployment and lower growth than others, they will have to settle with the same interest rate and hence might not be as helpful if the interest rate is decided for that particular country.

Now back to the Fed, with the discount rate as low as it is right now, the US dollar is consequently low as well. This means that Americans will have to spend more than before to buy the same item. This is because, although low dollar means that American exports will be relatively cheaper, which should help curb the current account deficit as the amount of exports increase, imports will be more expensive than before and this is one of the reasons why inflation is getting higher. One might ask, "if imports are getting more expensive, won't that lower demand level?". The answer to that is yes, it will. But since Americans consume more than they could produce, in the case of oil and food and other commodities, they have no other options but to pay more to meet their needs. To counter this problem, the Fed can raise rates so that the dollar will rise again, compared to the other currencies, so things will be cheaper for the consumers. A downside to this though, as talked about earlier, is that increasing the rate will decrease borrowings and hence investments. With many people suggesting that the American economy is already recession, higher rates will only make the matter worse. Even though the rate at present is very low already, as a matter of fact, even lower than the rate of inflation. This means that even if I put money into my savings account, the interest I gain is still not enough to compensate for the higher price of the goods and services I consume.

If, however, the Fed decide that avoiding recession is a much more important issue, they might decide to maintain the discount rate at the current level or even lower it, which is highly unlikely. Given that most of the inflation is caused by oil and food, and the core inflation(inflation rate excluding oil and food lol) is actually quite stable, the Fed can bank on the fact that the rise in prices for oil and food is only temporary(this is supported by a lot of analysts, even by the newspaper I read). Even though the rise of price for oil and food is only for the short term, it doesn't mean there will be no harmful effects for consumers. Assuming that the Fed decided not to change the rate, inflation will definitely rise continuously as a result. This means that consumers will expect higher inflation in the future and therefore pursue for higher pay from their employers. Even if these businesses can pay higher wages, they will have to somehow pass on the extra costs to consumers, and the spiral goes on.

If we look back at the 1970s, we can see that the price of oil was rising non-stop, but after a while, the price started to drop again. This time however, is a bit different than the 70s, and that is the rise in demand of oil and commodities are mainly driven by the emerging countries like China and India and we also can expect that their demand will not curb as quickly as we might hope for. We also know from recent history(the dot-com bubble in 2001 and the crash of the Asian markets in 1997) that it takes a few years before an economy can recover to the state before the crisis, in this case, the credit crunch. Of course, we have to also consider the fact that the emerging markets are now relying less on the American economy, unlike those scenarios before, when the American economy represented the world economy. The chairman of the Fed, Ben Bernanke has suggested that there could be a possibility the discount rate will be raised at the end of this year, and we deduct from this that the Fed is trying to avoid both recession and inflation at the same time. It remains to be seen how much and how many times they will raise the rate, but the most important thing is that the ECB and the Fed should act in a coordinated fashion. This is because if the Fed chooses to avoid recession over inflation and the ECB decided to raise interest rates, the US economy will surely face even higher inflation, and things might start to get out of hand.

A barrel a month, keeps your money away

With the price of oil getting higher and higher, consumers' budgets get tighter and tighter. This week, we have seen another record high for the price of oil, we have also seen the price of oil jumped from $127 to $138 in a single day. Now Goldman Sachs is predicting that the price will go up to $150 a barrel. Russia's Gazprom even said that the price of oil will increase to $250 a barrel next year. One might ask, "why is this happening?".


A lot of consumers think that the reason for this hike is because oil companies are getting greedier and because these companies know that the demand for oil is very inelastic, they can increase the price to as high as they would like. We also have people blaming the speculators for the problem, so what is the main reason for the price of oil that seem to have no limit?


There is no one main reason for this, rather, it's a series of unfortunate events that created it. I will try to break them down one by one, I will also talk about those that I think played no factor in the rise. First up, and I will go for the easy one, and that is the oil companies and if they are just getting hungrier for money. Many consumers think that these companies are like monsters that eat into people's pockets and their appetite is getting larger by the day. So, if this theory stands true, why does the oil price go down? It's quite obvious that this is not the main problem.


Then, there's those speculators. For those of you who don't know what speculators are, they are people that trade the futures of oil, in other words, they gamble if the price of oil will rise or fall. All they do is by trading papers and when they mature, they can settle them with a cash payment or sell them on to genuine consumers. One funny thing about economics is that, people do business solely by using their own expectations about the future, which are informations that were picked up from the market. Because of this, when speculators buy contracts that say the price of oil will be $200 in six months time, the demand at this moment will shoot up. This might be confusing at first, but if we look at it this way, say that today's price of oil is $150, and if a person buys a barrel right now, and sell it six months later, he would have made a profit of $50. Where I am going with this is that, as more and more people believe that the price of oil will keep on rising, and we know that supply will remain the same in the short term, demand will increase as people fear they will have to pay a lot more in the future.


All these come to a conclusion, the price of oil is the direct result of the mechanism of the basic economic model of supply and demand. During the last few years, the supply has grown by a little. On the other hand, the increase in demand, especially from the developing countries, has been outweighing the increase in supply. So why don't the refineries build new equipments or develop new oilfields to make the extraction of oil more efficient? It's because investing in the extraction of oil is time draining and requires a lot of capital. Also, since each refinery can be used for decades, these firms will have to be prudent in making decisions to invest. Moreover, it is also difficult to get the right permits to start construction. The cost of developing new fields has risen even faster, plus, we have these environmentalists protesting every now and then about the pollution these refineries produce. Although many geologists believe that there are still a lot of oil to be discovered in the Middle-East and the former Soviet Union, the regions' governments, as well all know, can be stubborn at times in allowing outsiders to have access.


If the economic model stands correct, that when the price increase, demand decreases, why do we see so little downward movement in the level of demand? Although demand in rich countries has been dropping for the past two and a half years, the thirst for oil in developing countries like China, India and Brazil has overshadowed the drop. But it is still weird that the rise in consumption in these countries(though at a slower pace) don't fall as much as we might have expected. This is partly because their economies are growing faster, but also, for countries like China, India, Malaysia etc. their consumers do not feel the rise in the price of oil through subsidies from their governments. This means that in some parts of the world, petrol is not sold at the market price. According to the newspaper I read, the cheapest petrol is in Venezuela, at 5 cents(US dollars) per litre, and China's price is at 79 cents, and then we compare that to United States' $1.04 per litre. With the price of oil rising each and every day, the cost of subsidies must rise too, and sooner or later, governments will have to lift prices. The main reason they need to subsidies oil is because if they had not done so, these countries' inflation would have been pushed through the roof. In order to keep their economies going at full speed and to avoid their consumers protesting and rioting(We have to remember that these countries' political situation are all not very stable, the only thing that keeps them quiet is by increasing their wealth and lowering their cost of living, or by force) like those truckers in Spain, they had to shield their consumers from the rising cost of fuel. Some governments believe that by capping the price of oil, they can in turn help the poor. What they did not consider is the fact that the poor cannot afford oil in the first place, if they never had a car, how are they going to consume petrol. Rather, this only helps the rich and industries that are energy intensive.


These problems cannot be fixed in the short term, as mentioned earlier, demand and supply for oil is quite inelastic. People need time to replace their old cars with new hybrid ones, or to move to more urban areas where they can easily have access to public transport. Also, it takes a long time to develop a new oil field after discovery. In the long term, the level of supply will rise and demand will drop. But for us, the consumers, the near future does not look so bright.

Why a chocolate bar turned sour and umm, not so crunchy anymore...

We all know that around one and a half years ago, there was a large amount of defaults of mortgages in America which led to a thing called credit crunch, and these mortgages were mostly subprime. But for many of us, it is not clear what caused this and why it has led to such devastation in the financial markets.

A few years ago, when every country's market were all going very well, everyone was making their money, when there was nothing to worry about, and then all of a sudden, an eruption of foreclosures brought a lot of banks and lenders to their knees and eventually bankruptcy. But why? I remember one of my ex-colleagues saying "Oh, the reason the subprime mortgages turned so bad was because all the banks did not want to have them on their balance sheets and so they had to pass it around to other banks and financial institutes, hence the spread of the disaster." I thought to myself, and why is it that you think the banks took it onto their own balance sheet in the first place? Just for the sake of taking more risk and look like a hero?

When the times are good, you seem to take the pedal off and lose your concentration and allow yourself to take more risks. These banks and institutes obviously thought that it was fine to bear these extra risks as they would yield higher returns. But here comes another question, if everything was going so great, why did these borrowers had no other choice but to default their mortgages (remember these are subprime, it means that these borrowers have a bad credit history)? These mortgages all had a term, and that is, at a specific date, the interest rate will reset to a higher point. These borrowers obviously could not handle these repayments and had to default the mortgages. Banks had no alternatives but to write-off these so called "assets" from the balance sheet and moreover, their reputation and trust for each other deteriorated and this stopped them lending to each other and hence the credit crunch.

You might ask, even though the banks had to write off these mortgages, how did it spread from the banking sector to the whole of the financial market? We don't call these people pros for nothing, they somehow, using some very complicated financial manipulation, repackaged these mortgages, link them into some other type of investments, and made them into attractive looking investing vehicles for other investors like the hedge funds, pension funds to buy. So from the bank sector, the virus spread to the normally safe hedge funds and pension funds and this caused major chaos and shock into literally everyone in the markets and as the level of lending decreases, growth also slows, add that together with inflation, we come to a situation called stagflation.

When white chocolate collides with dark chocolate

How can I say this blog is about politics without writing about America's hottest topic ? It's the lovely Ms. Hillary Clinton and the charming Mr. Barack Obama. Now, we all know that Mr. Obama has finally clinched the Democratic Party's nomination, so I am not going to talk about what happened before. What I am going to talk about is what comes next for him.

Recently, a lot of people have discussed the possibility that Mr. Obama will pick Ms. Clinton as his running mate, and this will help him gather some of her votes, especially white-collar voters. But what he lacks mainly and is often attacked by critics for, is the lack of experience at the age of forty six. In November, he will be up against a man who is seventy one years old, who not only have served in the Vietnam War, but during that time, he has been shot, captured and tortured. Just by talking about this, Mr. John McCain will be streets ahead if the election was decided on experience.

What we have to remember is, American is tired of both the Bush administration and the Republicans, although Mr. McCain is trying very hard to distance himself from President Bush, he is a Republican no matter what. On the other hand, Mr. Obama has this ability to convince voters that he will be able to carry out reform to both the economy and foreign policies for America. One of his main point in his campaign would be to cease free-trade agreements with other countries, and as we all know, this will do a lot more harm than good(if any).

Now, about the possible alliance with Ms. Clinton. Although he could bring some of Ms. Clinton's voters to his side, it might not be a wise idea to do so. One of the main reasons for this is because, with Ms. Clinton as his running mate, and a possible future vice-president, they do not have this aura of authority, and certainly not enough for a commander-in-chief(America's president is the commander-in-chief). Both of them have literally no experience in the fields, or put it this way, not even anywhere close to the fields. I remember reading one of Ms. Clinton's speeches saying "I remember landing under sniper fire (in Bosnia, 1996)" and "running with our heads down to our vehicles." I found it extremely amusing when I read from a newspaper reporting that the site she was in was actually safely secured by the military. If Mr. Obama really wants to compensate his weakness in these areas, he would have to choose a person that has experience in the military, and has much more experience in politics(Like Mr. Jim Webb, Virginia's junior senator, a former secretary of the navy).

What we have to remember though, is that Mr. Obama is going off the charts with his fund-raising for his campaign, so he surely has no problems there. On the other hand, Mr. McCain is a little bit behind in the financial aspect, and also, some people criticize him for his age, but he would counter and say that he has a lot of experience. Plus, Ronald Reagan was elected when he was at the age of 70.

My personal choice would be Mr. McCain, mostly because of his economic views and of course his experience, and plus, I don't really agree with Mr. Obama's way of changing the policies in America, put it frankly, I just think it's the wrong way to go.