Experts agree the economic recovery is ailing, but there’s little consensus on a cure.

President Barack Obama and his allies want to continue stimulus efforts, but Republicans argue that continuing to throw money at the problem is only driving up the national debt.

An August survey of the National Association of Business Economists found that three-quarters of its members believe that promoting economic growth should be a higher priority than reducing the national deficit, according to CNNMoney.com.

With fears about a double-dip recession growing, the survey of 84 NABE economists who work at private-sector companies and industry trade associations provides no clear answer on how to keep that from happening.

Nearly 75 percent of NABE members said they don’t think another stimulus package is necessary to get the economy back on track. At the same time, a majority believe policymakers should do more to boost job growth, said CNNMoney.com.

After rebounding from the most serious economic downturn since the Great Depression, the rate of continued economic growth has slowed significantly. Government figures released last Friday revealed that U.S. domestic product, the broadest measure of economic activity, grew at an annual rate of 1.6% in the second quarter; down sharply from the previously estimated 2.4% growth rate. And it’s a big drop from the 5% growth rate seen in the fourth quarter last year, said CNNMoney.com.

Just under half of the NABE economists said deflation is the main threat to the economy in the short term. Deflation occurs when both prices and demand fall, creating a downward spiral that can stifle economic growth for years, said CNNMoney.com. Responses were mixed whether inflation or deflation posed a greater risk to the economy over the next three years.

There was also little consensus among NABE members on when the Federal Reserve should raise interest rates and begin selling assets it bought during the crisis, said CNNMoney.com.

Only 38% of economists surveyed believe that the nation’s current financial policy is “about right,” but 64% of them supported recent legislation to extend unemployment benefits.

The economists did reach agreement on the issue of tax cuts. A majority of them said that none of the existing tax cuts on individual income, dividends and capital gains should be allowed to expire, said CNNMoney.com.

When Congress returns to session next month, they will have to determine the fate of more than 100 tax breaks that have expired or are set to expire soon.

It is not always tough to find men CEOs as it is tough to find women CEOs. In a recent conference staged at Stanford University, just six female CEO attended. That too the moderator could find them with much difficulty. It is a real shame. But in high-tech entrepreneurship, it seems that a new wave of female entrepreneurship is all set to erase the gender imbalance.

One good example of such women CEOs is Carol Realini. She started a company then sold it, started another public company and now currently is working on a third company. For this, she raised $140 million in five years. According to Realini, the scenario has improved in last 10 years for female entrepreneurs. Nowadays, women are taken seriously and it no longer said that women can’t become CEOs or raise money. Realini, CEO of Obopay, says “The challenge of being a woman CEO is, one, you’ve got to get in the game. So, you have to be willing to try.” She says that it is important to navigate into the world of venture capital in order to learn methods of raising money.

Entrepreneurs need to be smart and follow those who have become successful in their entrepreneurship. People need to ask for and be flexible and compromise with their private life for some length of time.

Challenges are for all – male entrepreneur as well as female entrepreneur. Realini says, “It is not about women. A man’s got the same challenges and a male entrepreneur, a black entrepreneur, a gay entrepreneur, they’re all going to have the same challenges.”

A paper by Oakland venture capitalist Cindy Padnos has revealed that women are positioning themselves as good entrepreneurs. More women are starting companies, making them public and bringing bigger returns to small investors.

The July snapshot of the job market proved that the government sector has declined in jobs and the private sector has barely expanded. As evidence to this fact are 14.6 million Americans still jobless, government employment which has fallen by 59,000 and the economy shedding 131,000 jobs after 143,000 temporary census workers were removed from the federal payrolls.

The employment rate remained steady at 9.5%. On an average, the private sector has added 90,000 jobs a month this year. In July, the private employment rose to 71,000 after 31,000 in June. Two-thirds of the private sector job creation occurred during the period of March and April.

Tig Gilliam, chief executive, Adecco Group, says, “It’s a double whammy because it causes people to take a psychological step back. Now, it looks like not only has the economy slowed, but maybe it wasn’t as good when it was originally reported as we thought.”

The Dow Jones Industrial Average initially went down to 160 points but later it rose 21 points to 10,653.56. The 10-year treasury yield plummeted to 2.82 percent following demand for US government debt. The two-year note dropped to 0.514 percent after an all time low of 0.494 percent during the day.

Congress, White House, and the Federal Reserve came under pressure to increase the measures being taken to bring growth in the labor market. Fed officials are considering on reinvesting proceeds from mortgage-backed securities so as to continue support to the economy.

Without strong evidence of economic stability, even expanding sectors seem wary of adding new jobs. Private employers have increased their shift timings instead of making new recruits. Overall weekly work hours rose 0.3 % and in manufacturing 0.5 %.

In July after 9 straight months of growth, temporary employment declined to 5,600. This is supported by government figures. Mr. Gilliam of Adecco says “momentum has slowed dramatically. If that’s the case and that’s where we’re going for the next couple of months, it suggests a step back in the job-market recovery.”

Since last July, state and local governments have cut 48,000 jobs. To aid state governments, a $26 billion package is set to be released but this will only be minimally effective. A weak labor market would levy pressure on incomes and consumer spending. In June, consumer credit dropped at a 0.7% annual rate. Revolving credit declined at a 6.5% rate. 6.6 million people remained jobless for 27 weeks and this accounted to 44.9% of unemployment.

In an economic downturn, does “compassionate capitalism” go out the window?

Kip Tindell and John Mackey, the founders of The Container Store and Whole Foods, are trying to ensure that doesn’t happen. Both businesses were built on the philosophy that employees and the community are as important as investors and customers.

Tindell and Mackey created the nonprofit Conscious Capitalism Alliance, which will hold its third annual business summit in October. Trader Joes and Seventh Generation are among the 130 invitation-only participants attending the conference.

But will it make a difference in how companies actually do business these days?

Entrepreneur.com blogger Carol Tice observes that the doing well by doing good mantra that many businesses preached several years ago has quieted since 2008.

“But do these high-minded values still work for entrepreneurs trying to keep their businesses alive in the recession-plauged 21st Century?” Tice asks in her blog.

What’s your take — is it unrealistic to expect successful companies to also be good corporate citizens?

The S&P 500 Index fell 0.4 percent to 1,121.64 paring weekly advance to 1.8 percent. The Dow also fell 21.42 points or 0.2 percent to 10,653.56. The treasury yields also declined with the two-year rate falling below 0.5 percent, which is a first.

Job Scenario

The unemployment rate is stagnant at 9.5 percent. Overall, employment fell by 131,000 as temporary jobs were reduced by the Census Bureau. In the S&P 500 index, JP Morgan Chase declined 2 percent to $ 40.44. IBM also dropped 0.8 percent to $ 130.14. EOG Resources fell 3.1 percent to $ 99.26. Harman International Industries Inc. dropped 12 percent to $ 29.88.

Companies witness fall

Registering its biggest drop since May 2009, the Washington Post plummeted 7.6 percent to $377.56. Its Kaplan unit may have a material adverse effect due to the proposed rules of the US Department of Education.

Activision Blizzard Inc. declined 6.5 percent to $10.99. The company that is the largest video game publisher estimates its sales in this quarter to be $ 725 million while analysis estimates $ 914.5 million sales on average.

Earnings Alert

Companies from Humana Inc to Allergan Inc claimed profit much greater than what average analysts estimated. Earnings beat estimates at more than three quarters as the S&P 500 advanced.

Kraft Foods Inc. rose 2.4 percent to $30.36. American International Group gained 2.6 percent to $ 40.93. Perkin Elmer Inc. climbed 11 percent to $22.29.

Major Recovery

Data compiled by Bloomberg and S&P revealed that profit earned by 443 companies in the second quarter aggregated to $21.45 a share. “We’ve had a huge recovery in corporate profits mostly due to cost-cutting,” said Brian Lazorishak, senior analyst at Chase Investment Counsel Corp.

As forecasted by S & P, sales per share were estimated to total $235.54 this quarter. Sales have recovered less than 7 percent from the first quarter of 2009 where there was a three year low of $221.80 a share.

Slowing of Growth

In the first quarter, growth slowed to 2.4 percent from 3.7 percent at the last quarter of 2009. This triggered fears that the nation might be entering into another recession. In June, consumer spending reports pending home sales and factory orders, were all weaker than what economists presumed it would be.

Joseph E. Stiglitz, Nobel Prize winner, Economics, says, “The recovery is so weak that it is not strong enough to generate new jobs for the new entrants in the labor force, let alone to find jobs for the 15 million Americans who would like a job and can’t get one.”

It is concerning that jobs are not growing. Economic indicators reveal that jobs are still lagging. The economy cannot recover until and unless more people become employed. The month of July has seen a worse-than-expected loss in jobs and that is a result of the temporary census jobs that have closed up.

Though July has seen a gain of 71,000 private sector jobs, it still falls below the expectations of economists. It is very obvious that jobs do not pick up until the economy does, but then there is something very unusual about the 2008-2009 recession. In 2001 as well, the world experienced a recession. But then it was not the same then as the economy experienced a business-led slowdown.

This current recession has a shortage of jobs. Last October, the economy experienced a 10.1% unemployment rate and currently it still prevails as 9.5%. During the last downturn, the unemployment rate never reached even close to 9.5 % as the highest
unemployment rate then was 6.3 %. “Coming out of a credit crisis, recoveries tend to be much weaker. I don’t anticipate a strong bounce in jobs or the economy,” says, Bill Seyfried, professor of economics at Rollins College.

It is very unlikely for the economy to improve until and unless more people are back to work. Consumer spending is another important driver to get the economy moving in the short term. Therefore, consumer spending has to increase at a decent rate. But it is very unlikely to happen as big businesses, in-spite of having a huge cash balance, won’t be hiring until the consumer spending increases. And how can people start spending, when there is either no job or a high–paying job or employees having concerns about holding on to their jobs?

Sean Snaith, director of the Institute for Economic Competitiveness, University of Central Florida, says “It is a chicken vs. the egg dilemma, but the weakness in the labor market reflects a gradual and slow recovery. The aftermath of the long recession has left scars on consumers and it’s going to take time for them to heal.”

The current scenario is grim as both consumers and businesses are waiting for the other to make the first move. Businesses should be brave to hire and make consumers more confident so as to help create demand. Bill Cheney, chief economist at John Hancock Financial says, “The real problem is not that employment lags, but that it’s lagging too much. At some point, jobs have to kick in for the economic engine to really work. Each month is like a little bit of torture where there are reasons to worry even more.”

Mr. Walt Minnick, the Idaho representative is considered the most conservative Democrat in congress. In 2008 presidential elections, he took his seat by just 2 points. He gained support from unlikely sources like the United States Chamber of Commerce and Tea Party Express. Minnick started his political career as a Nixon administration official. But he resigned after the Saturday Night Massacre in which Attorney General Elliot Richardson was assassinated.

In his early years, Walt Minnick remained a successful businessman. He did a job with Trus Joist, a $30 million Boise based forest product company. He served the company for 21 years -16 years as president and now the company’s revenue is $700 million. He says “I realize I liked Trus Joist a whole lot better when it was a $70 million company than when it is 10 times that size, and bureaucratic.” Following this, he started his own business that dealt with nurseries. He comments, “I learned it as boss, but I’d take orders from anybody, depending on what job I was doing. Now, that’s good training for being a congressman.”

While in congress, Minnick introduced a bill meant for resuscitating local banks and to address other small business issues. Minnick points out key issues related to the current recession.

No business, credit demand

Minnick comments that the current recovery is ragged and uneven. Some businesses are going gangbusters, some are seeing small improvements, and others are trying to hang on by cutting costs. So, only businesses that have a sound base to expand and are improving can ask for credit. The rest cannot ask for loans from community banks and other financial institutions and this is the reason why the recovery is faltering.

Corrupt Banking system

The market value of the commercial real estate does not support loan values that are outstanding. Under such a case, the borrowers are found not to possess the reserve equity that can downsize the borrowed loan. In many cases, borrowers are forced to default on loans. The banks then resell the property at distressed rates. The F.D.I.C. also wants a one-to one ratio and is asking banks not to renew loan terms but to get rid of them.

Federal Government’s Role

Federal Government should quit spending money that it does not possess and restore the banking system. Pump-priming should no longer continue. Minnick says “Quit throwing money at the problem. Balance its budget. Quit digging the deficit hole deeper.”

Possible solution

Minnick says that his bill encourages large financial institutions to buy small loans and compile them into market-sized packages. The bill will also have the provision to allow the treasury to give federal guarantee to investment packages like quality, performing loans, so that they can be sold in institutionalized markets.

Banks continue to fail as they are still suffering from losses. A Minnesota bank has been closed recently taking the toll of failed banks over the 100 mark this year, says the Federal Deposit Insurance Corp (FDIC).

Local lenders across the country have seen lingering effects of the financial crisis. With the closing of The Community Security Bank of New Prague, Minn., the number of failed banks is now 101. The FDIC predicts this trend of failing banks that began in 2008 to peak this year. But for the nation’s largest banks, conditions have improved and lending in select areas have escalated. Many failing firms are also reported to have found new sources of capital.

Small banks are vulnerable to closing down and this is happening at a rapid pace. The FDIC has reported a rise of firms in its “problem bank list” in this year’s first quarter to 775 from 702 in 2009. In areas of commercial real estate, regional lenders continue to suffer from loan losses.

Andrew Gray, FDIC spokesman, says that failures this year will not approach historic levels but it is expected that failed banks would exceed last year’s total of 140. This is the reason that Biz2Credit is reaching out to grow our network of community and regional banks. These banks need to find qualified candidates to lend to while qualified candidates need access to loans.

Financial institutions that are insured by FDIC earned $18 billion in this quarter. This is a three-fold increase and is the highest profit since 2008. Though the fund has a deficit of $20.7 billion but it is inclusive of the money that the agency has saved anticipating future bank failures. The fund has grown by $145 million, the first increase in the last two years.

Job seekers choosing to open their own businesses dropped to a record low, according to Challenger, Gray & Christmas, a Chicago outplacement firm.

Just 3.7 percent of high-level job seekers exiting the program were starting new businesses down from 7.6 percent in the first half of 2009 and 9.6 percent in the second half of last year, according to a survey conducted by the company on July 19.

Experts suggest that an improving job market and the difficulty getting small business loans may be steering people away from entrepreneurship, said Business Week.

Federal Reserve Chairman Ben Bernanke said last week that small businesses, and especially startups, are crucial to job growth and economic recovery. Bernanke once again called on banks to loosen credit to small businesses.

Some see the lower startup rate as a sign that the economy is improving. The unemployment rate is still high, but the private sector added 593,000 jobs in the first half of 2010, according the Bureau of Labor Statistics.

Startup activity typically increases as the economy improves, Challenger CEO John Challenger said in a statement.

Obtaining a loan is no easy task. Banks check many aspects of a borrower’s history, such as previous bankruptcy filings, liens, or judgments. Previously, obtaining a $150,000 business loan just required a 700 FICO score and a one page application. The process of lending used to be transacted in the same amount of time required to buy a cheeseburger in a drive-through as well as only relying on borrowers’ personal credit scores. The unsecured nature of loans gave little recourse to lenders apart from the personal commitments and principles of borrowers. The personal guarantees become void when principles are broken. This is the reason why Kenneth Lewis, former chairman BOA, in 2008, commented on the banks’ deteriorating credit quality as “a dam disaster”.

Banks of today are still compensating for the blunders of such loans. This has made the process of obtaining a loan much stricter than before. The underwriting processes that work these days can be summarized as follows:

1. An assessment of character through personal credit report.
2. Borrowers’ basic character can be questioned with a skipped or missed student loan or child support payment.
3. Late payments of mandatory payments like mortgage, car, and credit-card payments are taken into consideration by lenders. Even one late payment is considered an indication of a possible beginning of risk.
4. The qualitative sections receive more attention. This includes payment history and public records data.

Importance of Credit Scores

The personal credit score of a borrower is analyzed to find out if the person fits into the general risk profile of the bank. It is assumed that there is a strong correlation between personal credit and the capability of businesses to pay back loans. Scores are also found in the business credit reports, but with the reliability of such as being more questionable than personal credit scores. The reason being that such scores are less reliable as they are made with the cooperation of business partners and often exclude information about prior bankruptcies, payment history and outstanding liens.

Personal credit scores do not affect one’s application but it determines the borrowing costs. Credit agencies like FICO, FICO II, or Beacon have their own methods of calculating credit scores and so it may vary up-to 50 points. Cost of capital increases if the score is below 700.

Income Proof Required

Borrowers wanting to obtain $50,000 in loans, have to verify their income first and provide details of three years of business and personal tax returns. Banks want the guarantee of the borrower’s personal resources in addition to financial pro formas and other personal guarantees. The size of the bank also determines the depth of investigation. A regional bank has a smaller buffer to overcome losses and so they have made deposit certificates compulsory. In case of nationalized banks, the protectionist stand may be far less.