The article, "Spain’s crisis and Latin America’s cash prompt a gradual rebalancing of relations" published in The Americas explains the odd transition of economies between Spain and Latin America. For two decades now, Spain has always held higher assets in Latin America, as opposed to the other way around. Latin American acquisitions in Spain jumped in 2013; far above that of Spain, who actually dropped the number in 2012. Many connect this with Mexico's actions, they have bought stakes in Banco Popular and Sabadell, along with many other firms and previous business ties. Even Brazil is accounted for almost a quarter of the global profits to Santander of Spain. With the economic turning of the tide, many Spaniards have emigrated to Latin America. I believe this is an interesting article as it reflects the rising power of Brazil and the hurting Spanish economy. It will be interesting to see how exactly this affects the process of recovery in Spain and the rise of Brazil to power.
Saturday, January 25, 2014
Should we worry about deflation?
http://www.economist.com/blogs/freeexchange/2014/01/deflation-euro-zone-1
As of recently, the euro-zone has been in danger of going into deflation. With the average inflation rate being a mere 0.8%, a continuing decline in said rate would be detrimental to the economy.
Two of the effects to economies undergoing deflation are discussed in this article. However, the euro-zone is currently only threatened by one. Debt contracts and long-term bonds were made while expectations for inflation were set to be around 2%. However, with inflation being so low, debt will increase by approximately 2% while income only increases by 0.8%, leading to less spending on needed goods and services and more spent on debt.
The euro-zone is in deep need of making policies to work towards ending deflation. However, with disagreement within the group of countries as to how to approach this situation, progress is not being made. Policies to increase inflation have been suggested, but Germany, who had experienced hyperinflation after World War I, has resisted these policies, afraid that history would repeat itself. With economies currently as unstable as Greece, Spain, etc., it is uncertain which policies will be most effective in fixing the problem at hand. Regardless, if nothing is done, economies in the euro-zone are sure to be in deep trouble.
As of recently, the euro-zone has been in danger of going into deflation. With the average inflation rate being a mere 0.8%, a continuing decline in said rate would be detrimental to the economy.
Two of the effects to economies undergoing deflation are discussed in this article. However, the euro-zone is currently only threatened by one. Debt contracts and long-term bonds were made while expectations for inflation were set to be around 2%. However, with inflation being so low, debt will increase by approximately 2% while income only increases by 0.8%, leading to less spending on needed goods and services and more spent on debt.
The euro-zone is in deep need of making policies to work towards ending deflation. However, with disagreement within the group of countries as to how to approach this situation, progress is not being made. Policies to increase inflation have been suggested, but Germany, who had experienced hyperinflation after World War I, has resisted these policies, afraid that history would repeat itself. With economies currently as unstable as Greece, Spain, etc., it is uncertain which policies will be most effective in fixing the problem at hand. Regardless, if nothing is done, economies in the euro-zone are sure to be in deep trouble.
Services Still the Backbone of Job Growth
Service companies activity expanded the most in the month of December, this increase was the most in nearly a year. This activity included increases in new orders and new hirings. Non manufacturing jobs also had an increase in activity. This rate was 56.1 in December the highest since February last year. Any activity over 50 indicates expansion in the area. So for the average of about 54 shows the expansion in non manufacturing jobs. Services had a large surge last month making up 90 percent of the new jobs in the past month. However this was the lowest amount since June.
From reading this I assume that jobs are going to continue to increase in the service job area as jobs such as Manufacturing are going to continue to diminish. Many of these service jobs are in businesses such as retail, restaurants, healthcare, and construction. Service jobs are the new manufacturing jobs such as farming was the main job source before that.
http://www.nytimes.com/2013/01/05/business/economy/services-still-the-backbone-of-job-growth-data-shows.html
What Lies Beneath China's Growth
What Lies Beneath China's Growth
In the fourth quarter of 2013 China’s economy grew
7.7% from 2012, however their gross domestic product fell to 9.5% from 18% two
years ago. This article illustrates the worry signals for China’s economy in
the future due to slower growth despite the country’s overall growth in the
last quarter. China is transforming from being investment-based to a
consumer-driven economy. With slower GDP growth this could be harmful in the
long run. Automobile sales were strong in 2013 but a drop in disposable income
will make consumption like this hard to sustain. China’s growth in the fourth
quarter in 2013 did not flow into the beginning of 2014. Industrial production
growth dropped twice in December, slowing to 9.7% at the end of the month.
Fixed-asset investment also slowed.
China’s growth boosted from their strength in production
and investment opportunity, which western countries who have been
consumer-based economy’s in the past have taken advantage of which resulted in
increased growth, especially in the U.S. Because of this co-dependence of the
U.S. and China in the past will change dramatically with China’s new change to
a consumer-based economy. Less emphasis on production in China will affect the
U.S. and competition for consumer goods will increase dramatically. It will be
interesting to see how relations of China and the U.S. will change throughout
2014. China’s property sales are also declining, which could be a result from
its increased demand to be a consumption-based economy.
After 3 Months of Drops, Home Resales Edge Up 1%
This article explores the
recent rise in home resales after a percentage decline for 3 straight months. Other
data displayed a rise in first-time applications for unemployment benefits
along with a slowdown in factory activity this month. Several economists don’t believe
this slump was enough to change the picture of an improving economy. “We have an economy that is firing on
almost all cylinders, and we expect to see a noticeable pickup in growth in
2014,” said Gus Faucher, senior economist at PNC Financial Services Group in
Pittsburgh.
Sales of previously owned homes rose 1% in December. The sales
activity actually didn't meet the pace that many economists had forecasted. A
span of brutal, cold weather last month in the Northeast and Midwest caused
sales to fall.
In another report, the Labor Department reported that state
unemployment benefits tallied 1,000 claims last week. The claims from last week
covered the survey period for January non farm payroll data. Only 74,000 jobs
were added to employer’s payrolls in December after 241,000 jobs were created
in November. The report also showed 1.35 million long-term unemployed Americans
dropped off the rolls after their benefits expired.
Economists expect the benefits expiration to lower
unemployment rate down by as much as a half percentage point from 6.7 percent. If
the unemployment rate drops because this, it could pose several problems to the
Fed. Keep in mind that Fed will not change interest rates until 2015 and until the
unemployment rate drops to 6.5 percent. If the people dropping out of the labor
force cause this decline, it would resemble a sign weakness, not strength.
Federal policy makers are meeting next week to discuss monetary policy and the
outlook for the economy.
If the expiration of benefits drives the unemployment rate to
drop, what should the Fed do next? What solutions do they impose to the
problems they could potential face?
http://www.nytimes.com/2014/01/24/business/economy/home-resales-reverse-decline.html?ref=economy
http://www.nytimes.com/2014/01/24/business/economy/home-resales-reverse-decline.html?ref=economy
Long Time Gone-Can American labour policies face the challenge of long-term joblessness?
Currently, Republicans and Democrats are deciding whether or not to extend the unemployment benefits that ended on December 28th. During recessions the government extended benefits for the unemployed to 47 weeks of federally funded benefits, extending from the original 26 weeks. After the extension ended, it left about 1.3million Americans without benefits.
Republicans are initially against extending benefits again because of the high cost of around $25 billion over the past two years. Rand Paul, a republican senator from Kentucky argues that the increased benefits give an excuse to the unemployed, keeping them unemployed longer. He backs up this point with the fact that unemployment actually grew with the extension of benefits in place. Others are opposed to the extension of benefits as well because they feel as though it will not help decrease unemployment rates.
Some, however, argue that employment benefits simulate consumer growth and boost aggregate demand. They say that cutting benefits would essentially cut jobs because of the boost in consumer growth and spending caused by the benefits.
Research has shown that typically, those unemployed for six months or more, unemployment rate rises. Also, they found that inexperienced workers, or those that were new to unemployment were much more likely to get called back to a job than those that were unemployed for six months or longer.
Obama has a few ideas to address the unemployment problem. His first idea being, setting up a National Infrastructure Bank where they would spend $40 billion on maintenance things. Another idea being establishing the Community College Career Fund Act, where colleges and programs would be awarded grants for better career preparation courses. However, Congress has yet to approve either of his ideas.
There is not much hope yet for America's unemployment problem. So, currently, Congress begins the year debating the issue of unemployment benefits.
Website URL: http://www.economist.com/news/united-states/21592624-can-american-labour-policies-face-challenge-long-term-joblessness-long-time-gone
Republicans are initially against extending benefits again because of the high cost of around $25 billion over the past two years. Rand Paul, a republican senator from Kentucky argues that the increased benefits give an excuse to the unemployed, keeping them unemployed longer. He backs up this point with the fact that unemployment actually grew with the extension of benefits in place. Others are opposed to the extension of benefits as well because they feel as though it will not help decrease unemployment rates.
Some, however, argue that employment benefits simulate consumer growth and boost aggregate demand. They say that cutting benefits would essentially cut jobs because of the boost in consumer growth and spending caused by the benefits.
Research has shown that typically, those unemployed for six months or more, unemployment rate rises. Also, they found that inexperienced workers, or those that were new to unemployment were much more likely to get called back to a job than those that were unemployed for six months or longer.
Obama has a few ideas to address the unemployment problem. His first idea being, setting up a National Infrastructure Bank where they would spend $40 billion on maintenance things. Another idea being establishing the Community College Career Fund Act, where colleges and programs would be awarded grants for better career preparation courses. However, Congress has yet to approve either of his ideas.
There is not much hope yet for America's unemployment problem. So, currently, Congress begins the year debating the issue of unemployment benefits.
Website URL: http://www.economist.com/news/united-states/21592624-can-american-labour-policies-face-challenge-long-term-joblessness-long-time-gone
The Real Health Car 'War' on the Young
http://economix.blogs.nytimes.com/2014/01/17/the-real-health-care-war-on-the-young/?_php=true&_type=blogs&_php=true&_type=blogs&ref=economy&_r=1
http://economix.blogs.nytimes.com/2014/01/17/the-real-health-care-war-on-the-young/?_php=true&_type=blogs&_php=true&_type=blogs&ref=economy&_r=1
Many critics of Obamacare have called it “the biggest generational theft ever witnessed in the history of the world.” It is argued that the health care war is currently being waged on the Millennials and especially on young men. Reihnardt gives perspective to this by explaining the more ‘problematic’ parts of the new health care law, and why it is that critics say this about the new laws.
How garbage can boost U.S. economy
http://www.usatoday.com/story/money/business/2014/01/22/samans-davos-how-garbage-can-boost-us-economy/4774147/
According to this article, the United States' economy could benefit from a circular economy. By reusing goods, or repurposing them such as old clothing, computers, and cell phones. Taking old clothes that would otherwise be thrown away and turning them into stuffing, insulation or yarn could be a $12 billion a year industry. The article states that each outdated smartphone has as much as $100 in the value of the materials inside, but only if manufacturers make them easier to take apart when the reach the end of their lifecycle. The idea behind a circular economy is to "derive the maximum value out of any used goods that can partially be reused. However, this would require that firms would need to stop thinking that every product they make will eventually be thrown away. They must think during the design phase of their products how each part of the product could be reused in the future. Recycling, particularly when keeping the circular economy in mind, could be a $1 trillion a year sector worldwide and in many places is already very lucrative. This could be the future for new products.
According to this article, the United States' economy could benefit from a circular economy. By reusing goods, or repurposing them such as old clothing, computers, and cell phones. Taking old clothes that would otherwise be thrown away and turning them into stuffing, insulation or yarn could be a $12 billion a year industry. The article states that each outdated smartphone has as much as $100 in the value of the materials inside, but only if manufacturers make them easier to take apart when the reach the end of their lifecycle. The idea behind a circular economy is to "derive the maximum value out of any used goods that can partially be reused. However, this would require that firms would need to stop thinking that every product they make will eventually be thrown away. They must think during the design phase of their products how each part of the product could be reused in the future. Recycling, particularly when keeping the circular economy in mind, could be a $1 trillion a year sector worldwide and in many places is already very lucrative. This could be the future for new products.
As goes Best Buy, so goes the U.S. economy
As Goes Best Buy, so goes the U.S. Economy
Best Buy used to cater to the U.S. public need for electronic gadget, but today there are fewer customers in its stores. This is due to the fact that baby boomers have everything they need and the younger population do not have access to credit. This points out to a broader conflict confronting the U.S. economy. The majority of people who still go to Best Buy, are the young population and Latinos. Neither of these groups are known for their vast spending powers. Those who do have spending power are more likely to go to an Apple stores if they need something. The baby boomers are simply shopped out, they have everything money can buy and today there is little reason to buy.
http://www.salon.com/2014/01/25/the_story_of_best_buy_is_a_scary_predictor_for_the_u_s_economy_partner/
Best Buy used to cater to the U.S. public need for electronic gadget, but today there are fewer customers in its stores. This is due to the fact that baby boomers have everything they need and the younger population do not have access to credit. This points out to a broader conflict confronting the U.S. economy. The majority of people who still go to Best Buy, are the young population and Latinos. Neither of these groups are known for their vast spending powers. Those who do have spending power are more likely to go to an Apple stores if they need something. The baby boomers are simply shopped out, they have everything money can buy and today there is little reason to buy.
http://www.salon.com/2014/01/25/the_story_of_best_buy_is_a_scary_predictor_for_the_u_s_economy_partner/
The Populist Imperative
Paul Krugman talks about two of the biggest problems faced by economic societies, namely unemployment and income inequality. He feels like at the very least one of these issues should be made the cornerstone of any government. He then goes on to explain how income inequality and unemployment are linked and how trying to resolve one of these issues could help alleviate the other. Krugman also feels that running a deficit to remedy the unemployment issue should be a no issue and is glad President Obama has picked to deal with unemployment while putting the deficit issue on the back burner a little bit.
It was an interesting take on the situation, and if I were to only go of based on the article I would be inclined to agree with Krugman. Why do you guys think?
http://www.nytimes.com/2014/01/24/opinion/krugman-the-populist-imperative.html?ref=paulkrugman&_r=0
It was an interesting take on the situation, and if I were to only go of based on the article I would be inclined to agree with Krugman. Why do you guys think?
http://www.nytimes.com/2014/01/24/opinion/krugman-the-populist-imperative.html?ref=paulkrugman&_r=0
Coming to a Office Near You
http://www.economist.com/news/leaders/21594298-effect-todays-technology-tomorrows-jobs-will-be-immenseand-no-country-ready
In the article "Coming to a Office Near you" the author talks about how technology will have an immense impact on our economy and on tomorrow's jobs. Technology is always improving and some people see this as a bad thing. With so much innovation an technology improvement many of tomorrows jobs are in jeopardy of being taken over by computers. The article says "a recent study done by Oxford University 47% of today's jobs could be automated in the next two decades". Although innovation and technology are threatening many of today's jobs they may be creating some as well because as the rich get richer and wealthier they will demand more goods and services. In order to combat this problem the article suggests that schooling will have to change in many ways and the government and political leaders will have to take some type of action before it get to bad and unemployment is at an all time high.
In the article "Coming to a Office Near you" the author talks about how technology will have an immense impact on our economy and on tomorrow's jobs. Technology is always improving and some people see this as a bad thing. With so much innovation an technology improvement many of tomorrows jobs are in jeopardy of being taken over by computers. The article says "a recent study done by Oxford University 47% of today's jobs could be automated in the next two decades". Although innovation and technology are threatening many of today's jobs they may be creating some as well because as the rich get richer and wealthier they will demand more goods and services. In order to combat this problem the article suggests that schooling will have to change in many ways and the government and political leaders will have to take some type of action before it get to bad and unemployment is at an all time high.
Friday, January 24, 2014
Learn ‘n’ go
http://www.economist.com/news/books-and-arts/21594960-how-quickly-can-people-learn-new-skills-learn-n-go?fsrc=scn/tw_ec/learn_n_go
In this article from the Economist, the author discusses a book called The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee.
This article brings up many questions and topics of the increase of technology. For example, as technology increases, will this drastically decrease the need for workers, thus increasing unemployment? In class today we discussed labor and capital and looked at an example of how a shock to an economy could decrease the amount of workers. From this reading, I can see how a major implementation of new technology can have a large impact on workers and jobs. However, I don't think that this would be something that would happen as a "shock" like a plague, but I do think that technology has and will continue to have a large role in unemployment.
In particular, I thought that these quotes were significant:
"People should develop skills that complement, rather than compete with computers, such as idea generation and complex communication. Policymakers should improve basic education, pour money into infrastructure and basic research, admit more skilled immigrants, and shift the burden of taxes from wages to consumption."
In order to stay employed, workers today need to find ways to compete with these new levels of high technology. With firms not needing to hire as many workers, this increases the productivity of the workers that they do have. However, workers need to develop skills that will allow them to be competitive and be able to survive.
In this article from the Economist, the author discusses a book called The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee.
This article brings up many questions and topics of the increase of technology. For example, as technology increases, will this drastically decrease the need for workers, thus increasing unemployment? In class today we discussed labor and capital and looked at an example of how a shock to an economy could decrease the amount of workers. From this reading, I can see how a major implementation of new technology can have a large impact on workers and jobs. However, I don't think that this would be something that would happen as a "shock" like a plague, but I do think that technology has and will continue to have a large role in unemployment.
In particular, I thought that these quotes were significant:
"People should develop skills that complement, rather than compete with computers, such as idea generation and complex communication. Policymakers should improve basic education, pour money into infrastructure and basic research, admit more skilled immigrants, and shift the burden of taxes from wages to consumption."
In order to stay employed, workers today need to find ways to compete with these new levels of high technology. With firms not needing to hire as many workers, this increases the productivity of the workers that they do have. However, workers need to develop skills that will allow them to be competitive and be able to survive.
The Economic Impact of the Polar Vortex and Climate Change
http://www.economist.com/news/finance-and-economics/21594252-economists-are-getting-grips-impact-climate-change-weather
The article from the Economist talks about the impact that the polar vortex had on the American economy and how weather phenomena in general pose a risk to the economy in general. Approximately $3 billion was lost in productivity due to the Polar Vortex and in only a weeks time. The author cites numerous studies done around the world that measure the economic impact of weather. The most critical results overall are that heat is detrimental to productivity above approximately 30 degrees Celsius and that weather disasters are made worse by unpredictability.
Overall I think there are a couple big takeaways from the article. Global Warming as a whole presents 2 problems. The first is the steady rise in average temperature, which facilitates heat spikes that kill productivity. The second and much more serious problem is the increased volatility of weather patterns and unpredictability of very adverse weather conditions. Given the amount of money lost in the United States to natural disasters on a yearly basis (approx $17 Billion*) its easy to see that over the next 100 years if weather patters become more volatile and violent as expected than the cost in lost productivity could be in the many trillions, let alone the cost of physical damage.
I think this is significant because when taking into consideration the cost of pollution reduction and carbon reducing technologies, taking into account the potential costs of doing nothing provides a much more accurate measure of how much we should be prepared to spend to avoid such an eventuality. That's just me however, what do you all think? (Obviously this is a complex issue because the US alone can't combat global warming, though it can make a massive, massive difference)
*http://www.preventionweb.net/english/countries/statistics/?cid=185
The article from the Economist talks about the impact that the polar vortex had on the American economy and how weather phenomena in general pose a risk to the economy in general. Approximately $3 billion was lost in productivity due to the Polar Vortex and in only a weeks time. The author cites numerous studies done around the world that measure the economic impact of weather. The most critical results overall are that heat is detrimental to productivity above approximately 30 degrees Celsius and that weather disasters are made worse by unpredictability.
Overall I think there are a couple big takeaways from the article. Global Warming as a whole presents 2 problems. The first is the steady rise in average temperature, which facilitates heat spikes that kill productivity. The second and much more serious problem is the increased volatility of weather patterns and unpredictability of very adverse weather conditions. Given the amount of money lost in the United States to natural disasters on a yearly basis (approx $17 Billion*) its easy to see that over the next 100 years if weather patters become more volatile and violent as expected than the cost in lost productivity could be in the many trillions, let alone the cost of physical damage.
I think this is significant because when taking into consideration the cost of pollution reduction and carbon reducing technologies, taking into account the potential costs of doing nothing provides a much more accurate measure of how much we should be prepared to spend to avoid such an eventuality. That's just me however, what do you all think? (Obviously this is a complex issue because the US alone can't combat global warming, though it can make a massive, massive difference)
*http://www.preventionweb.net/english/countries/statistics/?cid=185
Thursday, January 23, 2014
Factory Jobs Are Gone. Get Over It
http://www.businessweek.com/articles/2014-01-23/manufacturing-jobs-may-not-be-cure-for-unemployment-inequality#p1
This interesting article explores the possibly flawed connection between manufacturing and growth in the United States that is rooted in everyone's minds, including Barrack Obama's. The article suggests that this is flawed economics, and is evident if you peer into indicators from the past. In 1953, manufacturing represented 28% of GDP. In the 1980s it decreased to 20%, and by 2012, it had decreased to just 12%. However, during these 60 years, absolute manufacturing output tripled. This means that the over the years, manufacturers have worked on labor-saving technology and replaced lots of unskilled laborers with fewer skilled laborers. The manufacturing jobs we once had, have gone to other countries where they are cheaper to make and workers are paid next to nothing. The question is do we really want these jobs back? Even if we did, simply shutting down our borders to low-cost imports has shown to have adverse effects on our economy although many people fail to understand how that could be. Some economists suggest that subsidies to a few high tech manufacturing companies would help spur more companies to join because of a "cluster effect", but there is not sufficient evidence that this would occur in the manufacturing industry. The bottom line is that the problems with our economy are more complex than many people realize. They need different solutions and we need to let go of the idea that "China has taken all our manufacturing jobs and we need to get them back."
Serious Issues Exist Despite Eurozone Debt Crisis Being Over
The 18 country eurozone (part of the 28 country European Union that uses the euro as currency) is barely out of recession, for now. Ireland and Portugal are leaving the bailout program established, and instead raising debt on their own. Spain is improving after one of Western Europe's worst unemployment crises in history, and Italy removed former Prime Minister Silvio Berlusconi from Parliament after his tax fraud scandal. There are a lot of positives coming about from the euro debt crisis which appears to be settling down. However, there are serious issues on the surface that may indicate problems in the future if not dealt with.
Firstly, Northern European countries are getting stronger economies, but Mediterranean countries (France included) have been getting weaker and weaker. The North has more efficient productivity and less costs on capital, putting the Mediterranean are in a tough spot. Secondly, Italy, for example has an unemployment rate overall of 12.7%, and unemployment involved with youth workers is at a shockingly high 42%. Italy's debt is also approximately 130% of their GDP (to put that into perspective, the United States' debt is approximately 100% of GDP). They are extremely uncompetitive, and it is sadly going downhill from here for Italy. Another problem for them is that they do not have high productivity and low costs of capital, while on the other hand, Germany does. France is also just as uncompetitive as Italy, if not worse.
With this divergence in eurozone economies, the euro will have absolutely no economic stability for them in the long run, initiating a possible crisis to come in the future.
EconTalk: Debt, Default, and the Federal Government's Finances (1/13/14 podcast)
EconTalk brings Laurence Kotlikoff from Boston University to discuss the fiscal health of the United States Federal Government. Kotlikoff feels that future taxes will fall many trillions short of expected expenditures, pushing us further in debt and towards bankruptcy. However, Kotlikoff discusses a potential fix to this problem by redesigning the tax code because without this change, he warns that large reductions in spending or large increases in tax rates will be absolutely necessary.
He discusses the large number of Baby Boomers who will be exiting the work force and expect their social security payments from their years of paying into the system. He mentions that these transfer payments are not reported as government debt, and so warns that the true debt is much higher than the "official" debt of $12 trillion, in fact, about $193 trillion more than the reported debt. He goes on to clarify that the "true" debt that he's named is the net number of the debt ("The net of all the future taxes to pay it") and that the Federal Reserve has been printing $0.29 for every dollar of government spending right now. He emphasizes the importance of getting the economy going very quickly.
Listen to the entire podcast episode here
He discusses the large number of Baby Boomers who will be exiting the work force and expect their social security payments from their years of paying into the system. He mentions that these transfer payments are not reported as government debt, and so warns that the true debt is much higher than the "official" debt of $12 trillion, in fact, about $193 trillion more than the reported debt. He goes on to clarify that the "true" debt that he's named is the net number of the debt ("The net of all the future taxes to pay it") and that the Federal Reserve has been printing $0.29 for every dollar of government spending right now. He emphasizes the importance of getting the economy going very quickly.
Listen to the entire podcast episode here
Argentina Devaluation Sends Currency Tumbling Most in 12 Years
In most recent news, the value of the Argentina peso has dramatically diminished. The central bank has yet and does not intend to intervene. This intense fall of the peso's value against the value of the dollar has led many to worry about what is going to happen to Argentina's foreign-exchange reserves. The story does not really have anything positive to say about the outcome of the peso and Argentina's economy.
The central bank has taken these measures to protect their foreign reserves for better uses in the future. A positive impact of this decision can be that Argentina's exports will be relatively cheaper and that might increase the demand for their products in the global market. In the long run, if the economy recovers, and the currency appreciates, this decision would be looked at in a more positive light.
Japan's economy
http://www.economist.com/news/leaders/21587227-prime-minister-right-raise-consumption-tax-must-do-more-boost-japans?zid=306&ah=1b164dbd43b0cb27ba0d4c3b12a5e227
Japan had suffered from long deflation since
1994,while most countries had suffered from inflation.However, the economic circumstance
of Japan was changed. In 2012, the
Japanese president was changed, and Mr. Abe assumed the president. He really
understands how deflation was bad, and instantly attempted to cause inflation.
As a result, Japanese economic slump is getting better, meaning annualized
growth was an impressive 4.1% in the first quarter of 2013 and consumer price rose
by 0.9% in the month of August.
Mr. Abe now attempts to raise consumption
tax for health and pension costs which strain the national budget. This article
says “The prime minister is right to raise the consumption tax, but must do
more to boost Japan’s growth”. I completely agree with what this article says. Inflation
has occurred. Consumer demand generally is raised. If the consumption tax is
raised now, it is natural that Japanese show little interest in buying goods
again. This means deflation would come back again. What Mr. Abe will do is too
early. Also, the article indicates that the economic improvement remains
tentative. In other words, Japanese economy has not completely recovered. He
should wait to raise consumption tax until Japanese economy is completely
recovered. I think that it is risky to raise the consumption task in such case.
Economic Forecast 2014-2015: Looking Better With Help From Oil And Gas
In his article, Economic Forecast 2014-2015: Looking Better
With Help From Oil And Gas, Dr. Bill Conery predicts real GDP growth
in 2014 and 2015 of 3.3 percent and 4.1 percent respectively. While Conery
cites general reasons for a rise in GDP like increases in consumption and
businesses ramping up their capital expenditure on equipment, his most
interesting claim calls for net exports to carry real GDP higher. Theory would
suggest that net exports would decrease as the economy improves and our currency
appreciates, making US goods more expensive and foreign goods less expensive,
increasing imports and decreasing exports. Conery argues that increased domestic
oil and gas production will reduce our reliance on petroleum imports. Petroleum accounted for 77 percent of our imports in 2012. That ratio
is declining now and will continue to drop moving forward. Clearly, net exports
should rise as a result of slowing petroleum imports and real GDP will be
positively impacted.
Potential US Growth for 2014
After an estimated 1.9% economic growth in 2014, it is up in the air whether or not the US economy will have a better year. However, Secretary of the Treasury Jack Lew states that if things go well, growth could even be beyond 3% for 2014. To back this prediction, the IMF (international monetary fund) recently upped its prediction of 2.6% growth to 2.8%. Lew believes that because of freedom from tax rises and cuts of spending, the Economy is in better shape and has a better chance to be more successful this year. Two things that are essential for good economic growth (according to Lew) are the creation of more jobs and not quickly doing business with Iran, despite their recently limited nuclear program. President Rouhani of Iran recently stated that Iran would continue with their more peaceful nuclear program, and will try to engage themselves with other countries in order to boost their economy. Lew states that it is far to early to determine whether or not the outcome of doing business with Iran will be beneficial or detrimental.
The Wrong Guidepost on Unemployment
http://economix.blogs.nytimes.com/2014/01/15/the-wrong-guidepost-on-unemployment/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Business%20Day&action=Click&pgtype=Blogs®ion=Body
In Class, we talked about how unemployment is the number of unemployed (not employed but actively looking for a job) divided by the labor force (the amount of labor available, all employed and unemployed).
In this article, it argues that although the unemployment rate seems to have dropped significantly (currently at 6.7%), it is mainly due to the decline in the labor force and not necessarily people actually finding jobs. As millions of potential workers drop out of the labor force (stop looking for work) due to weak demand in the labor market, these people are no longer counted as unemployed. The article shows that the current unemployment rate if adjusted for declining labor force, is actually 10.2% if counting all of the missing workers and 9% if counting some of the missing workers.
The article states that using 6.7% as the unemployment rate to determine whether to extend long-term unemployment benefits is an unrealistic number and a misleading approach.
In Class, we talked about how unemployment is the number of unemployed (not employed but actively looking for a job) divided by the labor force (the amount of labor available, all employed and unemployed).
In this article, it argues that although the unemployment rate seems to have dropped significantly (currently at 6.7%), it is mainly due to the decline in the labor force and not necessarily people actually finding jobs. As millions of potential workers drop out of the labor force (stop looking for work) due to weak demand in the labor market, these people are no longer counted as unemployed. The article shows that the current unemployment rate if adjusted for declining labor force, is actually 10.2% if counting all of the missing workers and 9% if counting some of the missing workers.
The article states that using 6.7% as the unemployment rate to determine whether to extend long-term unemployment benefits is an unrealistic number and a misleading approach.
Wednesday, January 22, 2014
China Growth Figures Show Rapidly Narrowing Gap With U.S. Economy
http://sinosphere.blogs.nytimes.com/2014/01/20/china-growth-figures-show-rapidly-narrowing-gap-with-u-s-economy/?_php=true&_type=blogs&ref=economy&_r=0
Everyone knows that with China's increasing industrialization they are becoming a larger threat to the United States, but on Monday it was released that China's economy is growing roughly four times as much as the US economy. Even after adjusting to inflation China's economy grew by 7.7% just last year compared to the United States 2% growth. From 2003-2013 China's economy became five times larger, to about $9.2 trillion. This is approximately half the size of the US economy.
While the economy has been growing, it is being questioned how much longer China can keep it up. China has been financing the growth with rapid expansion of money and credit. Even large companies are paying interest up to 8% on loans, and small to mid sized businesses are having to use local money-lenders to borrow money. It will be interesting to see how China fares over the next few years.
Everyone knows that with China's increasing industrialization they are becoming a larger threat to the United States, but on Monday it was released that China's economy is growing roughly four times as much as the US economy. Even after adjusting to inflation China's economy grew by 7.7% just last year compared to the United States 2% growth. From 2003-2013 China's economy became five times larger, to about $9.2 trillion. This is approximately half the size of the US economy.
While the economy has been growing, it is being questioned how much longer China can keep it up. China has been financing the growth with rapid expansion of money and credit. Even large companies are paying interest up to 8% on loans, and small to mid sized businesses are having to use local money-lenders to borrow money. It will be interesting to see how China fares over the next few years.
Inflation is No Myth
http://money.usnews.com/money/personal-finance/articles/2013/12/31/6-things-that-will-cost-more-in-2014
In class we defined the rate of inflation as the percentage change in the general price level of a basket of goods from one period to the next. According to the article, inflation in the United States is relativity low at 1.2% but recently the Bureau of Labor statistics expects some consumer goods to have a higher inflation rate than others. The term market clearing helps explain this phenomenon that states prices are flexible so supply can equate to the demand. However, in the short run of the economy, prices are generally sticky and don't move drastically in either direction.
Food prices impact the college students spending on a daily basis. The U.S. Department of Agriculture predicts food prices to raise by 3% overall. Other food products are expected to inflate above this 3% level that include: beef, chocolate, bread, and cereal. These items are generally included in the college students basket of goods and may decrease spending power substantially. The reason for a spike in specific food prices is because demand for popular brands are continuing to increase. Beef is expected to inflate in price from 3% to 6%. The raise in the cost of wheat and flour, bread and cereal prices are expected to raise by 4%-5%.
Clothing is an essence when it comes to college students because they are always attempting to look better to impress their colleagues and impress that special college sweetheart. Clothing prices are expected to raise anywhere from 5% to 8% in 2014. The causation of this drastic raise comes from a psychological effect on manufactures that plan to raise their prices regardless. Poor crop conditions is another causation in making clothing more expensive because farmers need to use their fields for alternative crops rather than cotton.
First-class stamps for the next two years will raise by three cents. This is to help relieve the $2.8 billion debt the U.S. Postal Service endured from the 2008 recession. This may mean more emailing and less mailing letters for the typical college student in 2014.
http://money.usnews.com/money/personal-finance/articles/2013/12/31/6-things-that-will-cost-more-in-2014
In class we defined the rate of inflation as the percentage change in the general price level of a basket of goods from one period to the next. According to the article, inflation in the United States is relativity low at 1.2% but recently the Bureau of Labor statistics expects some consumer goods to have a higher inflation rate than others. The term market clearing helps explain this phenomenon that states prices are flexible so supply can equate to the demand. However, in the short run of the economy, prices are generally sticky and don't move drastically in either direction.
Food prices impact the college students spending on a daily basis. The U.S. Department of Agriculture predicts food prices to raise by 3% overall. Other food products are expected to inflate above this 3% level that include: beef, chocolate, bread, and cereal. These items are generally included in the college students basket of goods and may decrease spending power substantially. The reason for a spike in specific food prices is because demand for popular brands are continuing to increase. Beef is expected to inflate in price from 3% to 6%. The raise in the cost of wheat and flour, bread and cereal prices are expected to raise by 4%-5%.
Clothing is an essence when it comes to college students because they are always attempting to look better to impress their colleagues and impress that special college sweetheart. Clothing prices are expected to raise anywhere from 5% to 8% in 2014. The causation of this drastic raise comes from a psychological effect on manufactures that plan to raise their prices regardless. Poor crop conditions is another causation in making clothing more expensive because farmers need to use their fields for alternative crops rather than cotton.
First-class stamps for the next two years will raise by three cents. This is to help relieve the $2.8 billion debt the U.S. Postal Service endured from the 2008 recession. This may mean more emailing and less mailing letters for the typical college student in 2014.
Two-Track Future Imperils Global Growth
"'Squeezed Middle' Chafes as Superrich, World's Poorest Reap Globalization's Benefits; Capital Becoming King Again"
http://online.wsj.com/news/articles/SB10001424052702304419104579324593432465048?mod=WSJ_economy_LEADStoryTop
Stephen Fidler and the Wall Street Journal analyze the inter-related economic phenomenon of the last 30 years: globalization and rising intra-country inequality (as measured by the Gini Coefficient). While the poorest of the world's population have benefited from globalization and the investment it has brought into their economies and while the rich have benefited from the returns on capitol these investments have given them, the middle income population of the developed world has seen their income either shrink or grow infinitesimally (~1% or <1%) in real terms. What will be the effect of these developing trends on Western democracies, which are run by the very people globalization has benefited least (at least in terms of effect on incomes)?
The alarming trends the authors and their sources discuss are presented in their political context. The article is therefore a traditional piece of Political Economy scholarship. The authors' theories are wide-ranging, but they agree that change is on the way, and the wave of the future is Capitol. What do you think the ever-decreasing national returns to Labor will mean for our democracy?
Tuesday, January 21, 2014
The Loans are back: Home equity is on the rise again
http://www.economist.com/blogs/graphicdetail/2013/12/daily-chart-13
http://www.marketwatch.com/story/home-equity-loans-are-back-pitfalls-included-2014-01-21
After the mortgage crisis in 2008, many homeowners found themselves under the financial situation that is "Negative Equity" where the mortgage of a person's home was higher than the value of the investment. Since then, Americans have slowly been returning to the market, buying and helping the circulation of money raise the economy. For the first time since 2008, Houses are nearing the equilibrium point of this detrimental phenomenon and house prices are finally nearing the mortgage levels. This graph shows the phenomenon.
In connecting the graph, the second article talks about how banks are beginning to give out more loans which has partially lead to the housing market's best year since 2009. The article states that home equity loans have, since the crisis, been growing at about 16% per year. This article further highlights the achievements that banks have been making and the trends that consumers have taken on in since the great recreation.
http://www.marketwatch.com/story/home-equity-loans-are-back-pitfalls-included-2014-01-21
After the mortgage crisis in 2008, many homeowners found themselves under the financial situation that is "Negative Equity" where the mortgage of a person's home was higher than the value of the investment. Since then, Americans have slowly been returning to the market, buying and helping the circulation of money raise the economy. For the first time since 2008, Houses are nearing the equilibrium point of this detrimental phenomenon and house prices are finally nearing the mortgage levels. This graph shows the phenomenon.
In connecting the graph, the second article talks about how banks are beginning to give out more loans which has partially lead to the housing market's best year since 2009. The article states that home equity loans have, since the crisis, been growing at about 16% per year. This article further highlights the achievements that banks have been making and the trends that consumers have taken on in since the great recreation.
Economic Optimism for 2014
http://www.forbes.com/sites/kitconews/2014/01/10/economists-see-3-gdp-growth-falling-jobless-rate-in-2014/
In this article, economists Diane Swonk and Douglas Holtz-Eakin share why they are optimistic about 2014. Swonk states that the second half of 2013's momentum was "not not a fluke" and that the rise in business investment should continue in 2014 as supply chains are rebuilt. As a result of this, she expects millions more jobs to be created.
Holtz-Eakin agreed with Swonk but noted that the politics in Washington are restricting growth. He predicted a DOW growth of 5% which is close to the growth in GDP. Also, he predicts some sources of stability arising from the FED stabilizing stock growth and miners cutting back on gold production.
In this article, economists Diane Swonk and Douglas Holtz-Eakin share why they are optimistic about 2014. Swonk states that the second half of 2013's momentum was "not not a fluke" and that the rise in business investment should continue in 2014 as supply chains are rebuilt. As a result of this, she expects millions more jobs to be created.
Holtz-Eakin agreed with Swonk but noted that the politics in Washington are restricting growth. He predicted a DOW growth of 5% which is close to the growth in GDP. Also, he predicts some sources of stability arising from the FED stabilizing stock growth and miners cutting back on gold production.
Unemployment Extension Is Stalled, With 2 Proposals Defeated in the Senate
In the effort to extend long-term unemployment benefits suffered a major setback in Washington on Tuesday when two separate proposals were voted down when the Senate’s effort to reach a deal on ruling to revive them collapsed in partisan finger- pointing. Senator Harry Reid of Nevada proposed two democratic measures that would extend benefits for out of work Americans for three months. However, both measures failed due to democrats and republicans accusing each other of lack of honesty.
The democrats proposal failed by 52 to 48 which was aimed to give unemployment benefit for 11 month. The democratic majority wanted to fund this measure by cutting on a 2% on Medicare for one more year, ending 2024. The second proposal , which would have given unemployment benefit for 3month at a cost of $6.4 billion, failed by 55 to 45 .
Republicans were unhappy with Senator Harry Reid for having refused to let them offer amendments to the unemployment bill. Senator Reid did however offered a proposal for each party to introduce five amendments, but the republicans remained unhappy because they would have lost by the traditional voting system.
Lastly, the senators on both sides hoped that their disintegration negotiation was temporary rather than their defeat. While the democrats and republicans sort out their differences, millions of people are left without federal unemployment aid. Also, this setback is causing people to become more angrier at the government, and will lead to more discouraged voters .
http://www.nytimes.com/2014/01/15/us/politics/unemployment-benefits-extension-fails-in-senate.html?ref=economy&_r=0Less than expected improvement
http://money.cnn.com/2014/01/21/investing/stocks-markets/index.html?iid=H_BN_News
In keeping with recent class discussions about GDP, this article, which highlights major increases and decreases in the stock market seems appropriate. Some points of interest include BlackBerry, with a huge jump now holding the spot of best performing tech company so far this year. Expeida saw a significant decrease in value of stocks, due in part to decreased "search visibility," but perhaps also due to the fact that when money is scarce vacations are one of the first things to go. Overall, earnings are up, but not as much as predicted. This is encouraging in terms of economic recovery, but a little worrisome that growth is still slow. Hopefully the trend of growth continues and a little more rapidly at that.
In keeping with recent class discussions about GDP, this article, which highlights major increases and decreases in the stock market seems appropriate. Some points of interest include BlackBerry, with a huge jump now holding the spot of best performing tech company so far this year. Expeida saw a significant decrease in value of stocks, due in part to decreased "search visibility," but perhaps also due to the fact that when money is scarce vacations are one of the first things to go. Overall, earnings are up, but not as much as predicted. This is encouraging in terms of economic recovery, but a little worrisome that growth is still slow. Hopefully the trend of growth continues and a little more rapidly at that.
Sunny, windy, costly and dirty
SIGMAR GABRIEL has
been on a roll. The boss of Germany’s centre-left Social Democrats (SPD) has
herded his party into a coalition with Chancellor Angela Merkel and become
vice-chancellor. He is jovial, convivial and aligned with the Zeitgeist.
Demonstrating the SPD’s vision of work-life balance, he plans to take Wednesday
afternoons off to pick up his two-year-old daughter from her crèche.
But Mr Gabriel, who
is mulling a run for chancellor in 2017, will by then be judged on a more
daring project. As part of his coalition deal with Mrs Merkel, he is now a
“super minister” combining two portfolios, energy and the economy. He is thus
in charge of rescuing Germany’s most ambitious and risky domestic reform: the
simultaneous exits from nuclear and fossil-fuel energy, collectively known as
the Energiewende, a
term that means energy “turn” or “revolution”.
More a marketing
slogan than a coherent policy, theEnergiewende is
mainly a set of timetables for different goals. Germany’s last nuclear plant is
to be switched off in 2022. The share of renewable energy from sun, wind and
biomass is meant to rise to 80% of electricity production, and 60% of overall
energy use, by 2050. And emissions of greenhouse gases are supposed to fall,
relative to those in 1990, by 70% in 2040 and 80-95% by 2050.
German consumers and
voters like these targets. But they increasingly dislike their side-effects.
First, there is the rising cost of electricity. This is a consequence of a
renewable-energy law passed in 2000 which guarantees not only 20 years of fixed
high prices for solar and wind producers but also preferred access to the
electricity grid. As a result, Bavarian roofs now gleam with solar panels and
windmills dominate entire landscapes. Last year, the share of renewables in
electricity production hit a record 23.4%.
This subsidy is
costly. The difference between the market price for electricity and the higher
fixed price for renewables is passed on to consumers, whose bills have been
rising for years. An average household now pays an extra €260 ($355) a year to
subsidise renewables: the total cost of renewable subsidies in 2013 was €16
billion. Costs are also going up for companies, making them less competitive
than rivals from America, where energy prices are falling thanks to the
fracking boom.
To forestall job
losses, Germany therefore exempts companies who depend on electricity and
compete globally from paying the subsidy. But the European Union’s competition
commissioner, JoaquÃn Almunia, has been investigating whether the entire
package of subsidies and exemptions violates European law. Only concerted
German lobbying in Brussels just before Christmas has held him back from
seeking repayments for now.
Sunday, January 19, 2014
Unemployment: Long time gone
The recent budget deal between the Republicans and Democrats left an important piece of business unfinished, that being unemployment insurance. Workers are given 47 weeks of federally funded unemployment benefits after they have exceeded the maximum of what their state allows them, which is usually 26 weeks of unemployment benefits.
For the most part Republicans object to the cost of the unemployment benefit extension, which is estimated around 25 billion over the next two years. Senator Rand Paul said that unemployment benefits causes workers "to become part of this perpetual unemployed group in our economy" and that it "actually does a disservice to the people you are trying to help."
Others argue that unemployment benefits are positive because they help boost aggregate demand. The Congressional Budget Office found that the extension of unemployment benefits would boost GDP by 0.2% by the end of 2014 and would increase full-time employment by 200,000 workers.
President Obama has proposed several policies that are aimed at reducing long term unemployment. One of his ideas would be to set up a National Infrastructure Bank and spend 40 billion on deferred maintenance repairs. The president also proposed the Community College to Career Fund Act, this act would award grants to educational institutions and state and local governments for having better job training programs. Congress has yet to approve any of the policies that the president has proposed concerning long term unemployment.
http://www.economist.com/news/united-states/21592624-can-american-labour-policies-face-challenge-long-term-joblessness-long-time-gone
For the most part Republicans object to the cost of the unemployment benefit extension, which is estimated around 25 billion over the next two years. Senator Rand Paul said that unemployment benefits causes workers "to become part of this perpetual unemployed group in our economy" and that it "actually does a disservice to the people you are trying to help."
Others argue that unemployment benefits are positive because they help boost aggregate demand. The Congressional Budget Office found that the extension of unemployment benefits would boost GDP by 0.2% by the end of 2014 and would increase full-time employment by 200,000 workers.
President Obama has proposed several policies that are aimed at reducing long term unemployment. One of his ideas would be to set up a National Infrastructure Bank and spend 40 billion on deferred maintenance repairs. The president also proposed the Community College to Career Fund Act, this act would award grants to educational institutions and state and local governments for having better job training programs. Congress has yet to approve any of the policies that the president has proposed concerning long term unemployment.
http://www.economist.com/news/united-states/21592624-can-american-labour-policies-face-challenge-long-term-joblessness-long-time-gone
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