The US unemployment rate has risen above 10% for the first time in 27 years, leaving the US in a state of despair.

President Barack Obama will hold a jobs summit on Thursday, focused on job creation.

Although he has included business leaders amongst the 130 experts attending the summit in Washington, Republicans in Congress will opposed to any major spending plans.

President George W Bush has already frustrated them by spending billions on bailing out the banks and car makers.

The “big government” image and creating big financial defecits to be paid for by future generations are unpopular in Washington.

Economy.com’s Mark Zandi believes deficits are a major worry, but we can’t afford to be concerned about it now.

“That’s a problem not for 2009, not for 2010. That’s a problem for 2011, 2012 and beyond,” he says.

“We have to make sure that we don’t go back into a recession, because if we go back into recession, the cost to taxpayers will be even greater.”

“The deficits will be measurably larger, so I think it’s important to spend more money now.”

According to Mr Zandi, government spending needs to be aimed at assisting local government offices, as with tax funding falling, many employees are at risk of losing their jobs.

President Obama is on the look out for new ways to combat unemployment.

Unemployment benefits usually run out after six months in the US, but have been extended because of the highest unemployment rates.

Mr Zandi believes continuing with providing benefits to the unemployed as essential to maintaining demand, as those with no money make no purchases.

That situation could develop into a ‘catch-22’, downward spiral, as consumers that don’t consume, results in businesses cutting their workforce, causing more unemployed with no money to spend.

Another area where Mr Zandi feels the government can make a unique contribution is providing credit to small and medium-sized businesses.

Banks are still cautious over lending after the credit crisis, but have always given capital to start-up companies to help them expand, and these new businesses usually provide America with the majority of new employment.

Mr Zandi believes that “it’s clear that even when the economy gets back on its feet, we’re going to have very high unemployment in many parts of the country for a long time to come.

“One reason is that the people out of work don’t have the skills and education necessary to be employed in the jobs of the future.”

The most important factor when choosing to manage your personal finances effectively is time. A greater time investment will almost always result in a greater financial return.

Therefore the sooner you start to manage your finances, the greater return and financial ease you will feel in the future. Many people fail to plan ahead, which results in struggling to juggle finances at a later point in life.

Money management should focus on four primary questions:

1.       What financial goals would you like to achieve?

2.       When can you expect to achieve them?

3.       What finances do you currently have?

4.       What level of risk would you make to achieve these targets?

Choosing somewhere to live is an essential in everybody’s lives, and therefore, buying a house will be the biggest financial purchase that people will make. The financial investment into a home will affect all your other finances.

Making big decisions on your lifestyle will affect your financial goals. If you consider a luxury holiday to be one of life’s essentials, you will have less money left over for savings and investments.

When do you want to retire? What expenses do you currently have? Deciding what your priorities are will help to determine what money you will have left.

It is worth assessing your current liabilities, as these expenditures and assets could be reduced or sold and free up money for the future.

Calculate how much spare money you have so that you can form an investment plan. Investments can vary dramatically. Some are high risk for higher reward or loss, and some are low risk for a steady growth on investment. It’s up to the individual to decide what level of risk you are prepared to make.

Once these considerations have been made and your plan is in places, it’s important to assess the decisions you’ve made and how they affect you on a day to day basis. You plan may be too restrictive, leaving you with not enough money to live on, or perhaps you could make greater short term sacrifices to benefit you in the long term.

A small amount of time spent on your current finances can be highly rewarding for your future.

The US economy saw its first growth in over a year, rising to an annual rate of 3.5% between July and September.

Experts believe that a major spending plan by the US government which featured a scrappage scheme to encourage the car sales market has been the main cause of the upturn.

Some economists believe that there could be more setbacks lurking ahead, despite the official statistics showing that the recession is over.

A spokesman at the White House announced that recent economic progression was “a welcome milestone” but it would take more time for a full recovery to be recognised.

The US economy had risen 0.9% in relation to the previous three months, whereas the UK economy remained in recession, unexpectedly dropping 0.4%.

Hugh Pym, the chief economics correspondent for the BBC, revealed that the growth rate of 3.5% was greater than the 3.3% predicted by most experts.

He continued:”The sheer scale of the stimulus in the US has made a big difference, it was much bigger in percentage terms than that in the UK.”

“That the US, the powerhouse of the world economy is growing once again, is good news for the global economy has a whole.”

The last time the US economy grew was in the second quarter of 2008, by an annual rate of 2,4%.

The National Bureau of Economic Research will reveal the full extent of the US economic climb from recession when it analyses all the factors.

Some factors were significantly responsible for helping US economy during the third quarter, according to the Commerce Department.

The spending on durable manufactured products rocketed up at an annual rate of 22.3% which was the highest quarterly figure since 2001 and was spearheaded by the ‘Cash for Clunkers’ scheme helping new car sales.

Consumer spending increased on housing products by 23.4%, the greatest quarterly surge in 23 years, and came as a result of an improving housing market.

The big increase is considered by many to be due to the government’s $8,000 tax credit provided to first-time house buyers.

Government spending increased by 7.9% as stimulus spending spread and exports saw their biggest rise since 1996, rising by 21.4%.

Brian Bethune, an economist for HIS Global Insight stated that “it’s good to have the economy growing again.”

“But we don’t think that rate of growth is sustainable because it is distorted by all the government stimulus.”

“The challenge here is to get organic growth – growth that isn’t helped by fiscal steroids.”

However, unemployment is at a rate of 9.8% and a sharp fall came in September in the car sales industry as a result of the popular car scrappage scheme coming to an end in August.

Dean Baker, co-director of the Centre of Economic Policy Research believes that “you can say that the recession is over, but it sure won’t feel like that.”

“There is a lot of downward momentum that isn’t going to go.”

Plans to split British bank Northen Rock in two which would allow for its partial sale has been granted by the European Union.

The divide would result in two separate banks forming and are already being described as the “good” and “bad” banks.

The “good” bank would offer new lending, retain some of the existing mortgages and hold its savers’ money.

The “bad” bank would be used to repay the existing government loans and hold the remaining loans.

 Decisions made by the EU to accept the move are seen by Northern Rock as “an important and positive step.”

Changes to the existing setup will be made towards the end of the year.

The EU revealed that the good portion of the bank would be expected to grow and then be sold to third party, with the bad bank allowing its assets to dissolve then becoming liquidated.

The good bank may be sold prior to the general election next year with potential buyers being speculated already, with Virgin and National Australia Bank, owner of Clydesdale and Yorkshire Bank, among the interested parties.

EU Competition Commissioner, Neelie Kroes, believes that the move would make the bank a good long-term option, revealing that “this decision demonstrates once again that the EU’s state aid rules provide an appropriate framework to allow state support for a sustainable restructuring of banks without giving individual banks an unfair competitive advantage.”

Whilst Jonathan Todd, European Commission spokesman, said caps would need to be applied for the duration that the good bank remains owned by the public.

Some of the caps include a balance sheet reduced to a quarter of its size prior to the crisis, not being the market leader for loan interest rates, a cap set to limit its lending to one-third of Northern Rock’s 2008 levels and also a cap on retail deposits to be slightly lower than the pre-crisis level.

An investigation was engaged by the EU into Northern Rock in April 2008, two months after its nationalisation.

The results from the investigation showed that the UK government was kept at a “necessary minimum”.

By 30 June, the bank had paid back approximately half the taxpayers’ £26.9bn loan and will gain a further £8bn from the government during the end of year restructuring.

The EU stated that the restructuring would reduce its market share to below half of its pre-crisis level and “correct the excessive expansion of Northern Rock pre-crisis.”

Northern Rock released a statement, saying “this approval is an essential requirement of the planned legal and capital restructure, which is central to the business plan for Northern Rock.”

“The restructure will strengthen the capital and liquidity position of Northern Rock significantly, and offers value for money to taxpayers” and it would be “business as usual” for its customers.

According to official figures, the UK experienced an unexpected contraction of 0.4% for the third quarter, showing that the UK is still stuck in the recession.

This quarterly contraction is the sixth consecutive contraction, the worst run of figures that UK gross domestic product (GDP) has experienced since records began 54 years ago.

The GDP of a country represents the value of goods and services produced by a country. The figures released may be altered at a later date, as this is just a first estimate.

The Office for National Statistics (ONS), had been expected to show quarterly growth of 0.2%. However, no growth in retail sales for September and a 2.5% fall in industrial output for August had dented people’s positive expectations.

Experts have revealed that one of the main causes of the contraction was an unexpected drop in the services sector, with distribution, catering and hotels generating some of the worst figures.

Nearby countries France and Germany exited the recession earlier this year, and it is generally considered that the UK’s reliance upon the services sector, and more specifically, the finances sector being the main reason.

The UK economy has now experienced a 5.9% contraction since its high point prior to the recession.

The Bank of England is set to re-think its quantitative easing plan after seeing such a poor result in GDP figures. Quantitative easing involves the Bank of England printing money to buy bonds from companies and banks in an effort to encourage positive activity in the economy.

HSBC’s Bronwyn Curtis spoke with the BBC, revealing that “back in August we had a worse-than-expected second-quarter GDP number and that is the reason that the Bank of England extended the quantitative easing programme,”

ING’s James Knightly felt that the data was “awful with no positive news” and “clearly suggests that the likelihood of an expansion in quantitative easing by £50bn or so over the next quarter is rising, although [it] is not a foregone conclusion.”

It is considered by many experts to be disturbing that measures taken by the government and the Bank of England have failed to make a positive impact. However, David Kern, the chief economist with the British Chamers of Commerce believes that “continued intervention – including help for businesses to access finance, and incentives to promote investment – is still needed.”

“Above all else, business confidence must be nurtured, to ensure that recovery is not further delayed.”

Official statistics show that one of the main measures of inflation has reached its lowest point since September 2004, another sign of sterling weakening. The annual rate of 1.1% in September was lowered from 1.6% in August by the Consumer Prices Index (CPI).

A separate measure of inflation conducted by the Retail Prices Index (RPI) found that mortgage interest payments and housing costs also dropped, from -1.3% to -1.4%.

The pound also reached its lowest point in the past six months when it fell 0.5% against the Euro to 1.0628 Euros and to a five-month low of 1.5730 US Dollars.

Weak

Duncan Higgins, a senior analyst for Caxton FX, felt that “this is bad news for the pound.”

“The CPI figures will weigh heavily on the UK currency and will continue to discourage investment.”

A report conducted by the Centre for Economics and Business research predicted UK interest rates would not rise above 0.5% until 2011 and fail to meet the 2% mark until 2014; a further damnation to the outlook for the pound.

Meanwhile, the strength of the UK economy was dealt a further blow last week when it was revealed that industrial output dropped in August.

A prediction for the GDP had to be recalculated by the National Institute of Economic and Social Research after the UK economy failed to grow during the June/September quarter.

However, the economy is still very “frail” according to the British Chamber of Commerce (BCC), despite business confidence improving.

In an effort to sustain a stable broader economy and prices, the Bank of England is making efforts to retain 2% CPI inflation. Should the CPI inflation drop below 1%, the governor of the Bank of England must provide a written explanation to the Chancellor, Alistair Darling.

High energy prices a year ago, in comparison to lower energy prices this September are being blamed for the recent fall in inflation. The Office for National Statistics (ONS) reported that electricity, gas, and other fuel bills tumbled by 7.3%. Energy costs have started to level more recently, with little change from August to September.

Jonathan Loynes from Capital Economics predicted that we can expect to see CPI back at the 2% mark by the start of 2010, due to increased energy prices and VAT returning to 17.5%. He does believe that a “huge amount” of unused production capabilities would keep inflation down and “keep alive the threat of a period of outright deflation late next year or beyond.”

In contrast, Keith Wade of Schroders UK forecasted that it “probably will be the low point in inflation.”

As we hear news that US interest rates have been slashed by three quarters of one percent there are high hopes that we may see similar action in the UK. However, will the Bank of England really see the need to take such action? Is the UK economy as bad as the US economy?

While there is no doubt that we will see further ongoing reductions in UK interest rates over the coming weeks and months, it seem very unlikely at this moment in time that we will see such a knee jerk reactions as that seen in the States. Let’s not forget that the credit crunch began in the US and it is the US housing market which is currently bearing the brunt, with record numbers of home owners on the verge of being evicted, personal debt at record levels and unemployment starting to move upwards.

Only this week we have seen massive billion dollar write-offs by some of America’s largest financial companies, many of whom where left with massive losses on bonds and other financial instruments when the sub-prime credit market collapsed. As yet we have not seen such large write-offs in the UK, but that does not mean that the UK financial sector has remained unscathed, more that loses (all be it smaller) have not yet been quantified.

So why is the UK economy potentially different to the US economy?

While there is, and always has been, a close correlation between the UK and US economies they are not currently at the same levels in the boom and bust cycles. Indeed the UK authorities have managed to reduce the often wild swings between the boom and bust cycles, where perhaps the US authorities have not been as successful. This has resulted in a stronger core UK economy although that said there will be a marked downturn in 2008, with many areas of business already seeing reduced demand.

The UK authorities need to strike a balance between pain for the economy and the consumer against a need to keep the rate of inflation under tight control. However, it looks as thought the government’s core target rate of around 2% will be breached within the next 12 months with the Bank of England suggesting that the rate could climb above 3% during this next phase of the economic cycle.

Either way the UK economy is in much better shape than its US counter-part where further over exuberance on behalf of the financial sector and the consumer has led us into the current situation. The UK consumer has long been a little more reserved that the US consumer, but there is still no doubt that 2008 will be a difficult period all round.

While the US housing market was flying high and everybody was making money, the banks, builders and home owners alike there were no clouds in the sky and everybody was happy.  Since the onset of the sub-prime mortgage collapse we have seen US house prices fall and millions of US citizens put at real risk of being evicted from their homes after falling behind on their mortgage payments.  But why is there no solution yet?

As often happens in America the problem seems to be the ideals of each of the main political parties, with one favouring regulation and the other demanding a solution from the private sector.  While the politicians engage in cheap points scoring and fighting in Congress, literally millions of Americans are looking to pack their bags very soon and move home – only they have no where to go!

Each day that the politician cannot reach agreement sees more people moved out of their homes, more homes going on the market at sub-market prices and more pressure on the economy.  The situation has the potential to push the US into a very steep recession if no help is forth coming very very soon.  The banks know this and the politicians know this but they seem unable to put a package together – even though they have had up to 12 months notice that the situation was getting worse and worse.

Could this happen in the UK?

While you can never say never, the US financial industry has been guilty of pushing high risk loans to those who could ill afford the payments.  Even while the US housing market was flying high, behind the scenes in the sub-prime market, more and more home owners were falling behind with their payments – but was this headline news when the market was rising and rising?

It will be interesting to see how the authorities finally decide to resolve the situation, especially with the presidential election next year.  Who will be brave enough to make the big decisions? How long can they afford to sit on their hands? How will George Bush’s final months be remembered?

In a move which is sure to have epercussions for world stock markets when they reopen on Monday, the Dow Jones was rocked on Friday, falling over 2% after a raft of downbeat announcements.  It  seems that the combined effect of announcements by Caterpillar and Bank of America have brought home the delayed impact which the recent credit crunch will have on the economy.  As we all know, if the US sneezes, the rest of the world catches a cold, so influential are their markets.

So what does this mean in the short term?

In what some may see as a healthy correction, you can expect a fall in world wide markets in the short term and it seems inevitable that interest rates in the UK and US may have to move lower to lessen the impact on economies. 

What happens if the economy slows?

A slowing economy can have a massive effect on employment, investment and the government budgets for public services.  The more people unemployed will reduce the tax intake, which will mean either additional borrowing by the treasury or less money for public services.  The economy is like a large ship which is very hard to steer, and takes a long time to change direction.

The authorities now have an excuse to reduce interest rates, and while there have been reductions overseas, the Bank of England have held steady and not taken any knee jerk decisions so far – which has been applauded by many, but criticised by others.  The next few months will be vital!

While there have been many doom and gloom merchants on the TV and in the media, forecasting massive falls in stock markets, and a slowing of the worldwide economy, we have yet to see any confirmation, but is it on the way? Or has the financial world rode out the dangers of the credit crunch?

On the surface it seems as though worldwide markets are now over the worst, but is this really the case, or is there a storm brewing for the future? Historically we will not see the worst effects of the recent episode until the announcement of company results, with all eyes on the financial sector.  There is no doubt that holes have been blown open in balance sheets, and there is pressure on profitability, but is it really under control?

The price of gold has been rising steadily over the last few months, and is close to an all time high.  Seen by many as a safe haven in times of trouble, it has often moved in the opposite direction to worldwide stock markets.  Will the gold price fall back, or have markets remained a little too resilient after the recent episode? As we mentioned above, the full impact of recent events will not become apparent until company’s release their half year and full year profits, and more importantly forecasts for the immediate future. 

A prominent economic group have recently forecast that up to 6,500 jobs are at risk in the City of London’s financial district – a hangover from the credit crunch.  In the UK it seems as though the economy is set for a period of great turbulence, which was part of the reason why Gordon Brown even contemplated calling a snap election.  While the skies may be clearing, we are not out of the woods yet!