Draghi Withholds Further Monetary Medicine on Recovery

http://www.bloomberg.com/news/2014-03-07/draghi-withholds-further-monetary-medicine-on-recovery.html

        European Central Bank President Mario Draghi has called eurozone the 'island of stability.' He is optimistic about ECB's performance and that it will bring the inflation rate  close to the target of 2% by 2016.The ECB's current interest rate is at all time low of 0.25%, thus affecting real growth. The recovery  is expected to be at a slow pace.

 

    The current inflation rate is at a very low level which if not improved will lead to deflation.The 9.5trillion euro economy is still emerging from its longest recession since the introduction of a single currency.

     The ECB has  opted out of the quantity-easing stimulus(practiced in the USA) which would add 175billion euros in the economy. The reason for not using this model is that the benefits will be relatively limited.They fear that adding more euros in the market would slack the economy.

 

     The GDP has risen by 0.3% in this quarter  but  has contracted by 0.4% then 2013.The industrial output in Germany(euro area's largest economy) has risen. Services and manufacturing has expanded too the most since June 2011.

    

    The euro has climbed to its highest level due to low inflation rate thus eroding the competitiveness of the region's exporters.The exchange rate might influence their price stability thus ECB doesn't want the euro to grow stronger. Thus the interest rates will be kept at the current level or will be lowered.The eurozone is suffering with high unemployment too. Thus, to achieve long term low unemployment rate, some monetary policies  need to be passed.

     Thus it is uncertain to predict when eurozone will turn into 'island of prosperity.'

 

Ukraine's Problems Are Not Just Political

This article explains how Ukraine's problems aren't just political, but in fact economical as well. The Ukranian government has issued short-term debt at interest rates as high as 15%. They went under hyperinflation in the early 1990s, and their lack of access to financial markets and massive monetary expansion caused it. In between 1992-2013, Ukraine's real GDP has grown by less than 50%, one of the lowest results in the world, under Turkmenistan, Russia, Tajikstan, and Moldova.

In addition to this, this high inflation damaged Ukraine's export competitiveness. The new currency (hryvnia) drained the central bank's reserves from $40 billion in 2011 to $12 billion today. The black market in Ukraine is over 50% of their GDP, made up of corruption and deceitfulness.

A lot of Ukraine's exports were taken in by Russia, who was doing well backed by high oil prices. During the financial crisis, steel prices decreased significantly, and GDP in 2009 fell by 15%. The International Monetary Fund agreed to loan Ukraine $15 billion in 2010. With cheap gas prices in the country, it discouraged investment, causing one of the most energy-invested economies in Ukraine, two slump by 2/3 since the 1970s. The IMF unfortunately had to freeze the deal in 2011.      

To finance their deficit and meet foreign creditors, they need approximately $25 billion this year alone. The government needs to somehow figure out how they can bring in more revenue than their expenditures. Does anyone have any suggestions?


http://www.economist.com/blogs/freeexchange/2014/03/ukraine-and-russia

China's Currency: One Way No More

http://www.economist.com/news/finance-and-economics/21597965-why-chinas-central-bank-weakening-its-currency-one-way-no-more

China's currency is currently under a lot of discussion, due to the fact that many are upset about the "cheapness" of it. China's central bank has decided to weaken the yuan, and has now lost about 1% of its value. China still attracts more foreign investment than it can provide and has a large account surplus. However, now the value of the yuan is sliding. Will this be something that will persist in the future?

China sets growth target for 2014

http://www.bbc.com/news/business-26429663

            The 12th National People's Congress(NPC), China's parliamentary body, opened its second annual session Wednesday morning at the Great Hall of the People in Beijing. The new  premier Li Keqiang announce that China has set the growth target for 2014 at 7.5% and inflation goal at 3.5%. In 2013, China grew at the rate of 7.7%. It is obvious that China wants a moderate slowdown in the economy. And the recent manufacturing data has also improved this slowdown. 
            The house market has been heating up tremendously recent year in China and looks like a trend of property bubble. The new NPC promised to address the property market. According to this article, "Slower economic growth is already expected for this year. Tightening of fixed-asset investment and lending are seen to remain as the major focuses." 

North Dakota Leads on the Road to Recovery

http://www.nytimes.com/2014/03/01/business/north-dakota-leads-on-the-road-to-economic-recovery.html?ref=economy&_r=0

On the road to economic recovery, some states are doing better than others. A few indicators that show how well a state is doing economically are jobs, highway miles driven, and housing prices. North Dakota is currently doing the best in all three of these categories. A huge reason for North Dakota's success is the booming market of shale oil in the state. Employment in the state has increased by 25%, and housing prices have nearly gone up by 33%. With this in mind, I wonder how many other states will implement their shale reserves.

While North Dakota is doing well, other states are not quite where they want to be economically, notably Florida and Nevada, who are both in the bottom ten in each of these categories. These categories certainly don't mean everything, as New York doesn't have a lot of driving relatively, but is top ten in job growth.  However, in most cases these catagories can typically give a good indication on the economy in most states.

Fed Policy Has the Emerging World Lamenting the Dollar’s Dominance Read more: Fed Policy Has the Emerging World Lamenting the Dollar’s Dominance

The economies of the developing world are facing obstacles for the future as the Federal Reserve has stated that it will scale back on its efforts to boost the U.S. economy.  Due to these statements, investors have been taking their money back, which has caused devaluation of currencies in various developing countries, such as South Africa.  As a result, central banks in other countries have responded by increasing their interest rates to lessen the effect of the Federal Bank's decision on their own currencies.  This is one of the main complaints of the U.S. Federal Bank.  Although the U.S. Federal Bank's decisions affects the world economy, some have criticized the U.S. Federal Bank for being primarily concerned with inflation and unemployment of only the U.S. economy.

2 Million are missing out on Unemployment Benefits

In December around 1.3 million were no longer eligible for unemployment insurance, and every week about 70,000 more people get added on to this number.

Around 2 million people this week were no longer able to get unemployment insurance. Recently Obama has attempted to reinstate these benefits, which would cost approximately $15 billion. Democrats and Republicans have been arguing over this topic for a while now. In the past the senate has voted on this topic before and was not able to pass it, it just needed one more vote to pass. Harry Reid the senate majority leader says that there will in the near future be a vote on this topic, however; even if the senate is able to pass this bill there might come some trouble getting it through the House of Representatives, because it is controlled by the Republican Party. 

http://www.huffingtonpost.com/2014/03/04/unemployment-benefits_n_4895717.html?utm_hp_ref=business&ir=Business

http://money.cnn.com/2013/12/18/investing/stocks-markets/?iid=EL

In this article the Fed's influence on the market is discussed. The effect on the stock market was positive after the Fed announced that it would taper its bond purchasing. The Dow jumped over 290 points which was surprising to many after the negative effects that occurred in May when the Fed hinted at tapering. The Fed has strong faith that the economy will continue to create jobs and that it no longer needs as much stimulus. This confidence, therefore, could be a large reason why investors responded much better than they did in May. Do you think the markets will continue to respond well even with further tapering coming in the future?

National Debt

http://www.huffingtonpost.com/william-b-bradshaw/the-national-debt_b_4837585.html

This article speaks to the history of our national debt. Our country started out with a lot of debt because of the Revolutionary War, then was completely paid off during the 1800s. However the Civil War put us right back into debt. A similar trend continued over the years, the main theme being that wars are very expensive. Each time we had a war, it was the number one national debt problem. The author continues to explain how massive the debt is, and how great the interest is (explaining that we paid $ 414 billion in interest in last year alone).

The author then gives his personal opinion and says we need to live under our means to improve the national debt. He explains that republicans want to cut programs, and democrats want to increase taxes, especially on the rich. He says that neither of these policies can help the debt at all, and we must go across party lines to solve this issue. Personally, his worry about the national debt is a little exaggerated. Although it is an important issue, we are not going to fall off a fiscal cliff any time soon. I do not predict  us becoming at the mercy of china like this author suggests. Does anyone else think the national debt is important, but perhaps not urgent?

"Stocks finish lower on Ukraine fears"

U.S. stocks followed the pattern of other world stocks as they dropped a good amount today. The cause in the fall is due to increased tension between Ukraine and Russia. However, as the day wore on, the market was able to recover some, so not all hope was lost. The dow ended the day down 154 points, or roughly 1%. Earlier, the blue chip index had lost as many as 250 points. Investors were cautious following news that Russia has moved forward with military intervention in Ukraine. Ukraine's new leaders have accused Russia of declaring war. Investors seemed to be very concerned by threats of serious sanctions against Russia from the United States and Europe. Russia's central bank reacted by hiking interest rates, saying it wanted to maintain financial stability and inflation levels as market volatility increases. However experts say that while Ukraine's problems may raise more concerns about emerging markets, he doesn't expect the crisis will trigger another global recession. Rather, Green said the situation will be limited to Russia and Ukraine.

http://money.cnn.com/2014/03/03/investing/stocks-markets/index.html?iid=mkt_SF_news

Detroit's bankruptcy: Cram down

America's largest municipal bankruptcy case was heard on March 1st in Detroit. Last Friday, the city had filed its "plan of adjustment". This is a document stating what the city can afford to pay. In this plan, the city of Detroit included its plans to invest more than 1.5 million dollars in the besieged city. One third of this investment will be spent on demolishing abandoned properties.

In attempt to reduce part of its 18 billion dollar debt, the city will only be giving unsecured bond holders 20 cents on each dollar. These bond holders are infuriated over this. In addition, pensions will also be cut. General pensioners will only receive 66% of their monthly pension. Those in the police and fire departments have been offered 90% of their pension.

An organization known as the Detroit Institute of Arts (DIA) and other foundations are contributing a total of 820 million dollars in donation to the pension fund. Their intentions are to bolster the amount that pensioners, rather than creditors, receive. Simultaneously, the DIA would become an independent non-profit organization. Their intentions are to protect the art collection owned by the city.

The occurrences in Detroit are being monitored in other areas of the country, particularly in California. In recent years, several mid-sized cities have declared bankruptcy there. They too face growing costs of pensions accompanied by diminishing tax revenues.

http://www.economist.com/news/united-states/21597929-bondholders-choke-citys-restructuring-proposals-cram-down

    



   

Buffet supports moderate minimum wage increase

http://money.cnn.com/2014/03/03/news/economy/buffett-minimum-wage/index.html?iid=SF_E_Lead

In this article, Warren Buffet reflects that if at all possible, he would love for minimum wage to be as high as $15 per hour, but that a more moderate increase is much more sensible in terms of the economy.  He agrees with many that the poorest in America are far too poor for how wealthy our country is as a whole, but thinks that tax cuts for the lowest income earners would be a better way to help those that need it.  This seems logical; let the government have less money rather than employers, thus helping citizens and simultaneously not hurting businesses.

Jobless Rate Forecasted to Fall

St. Louis Fed President James Bullard has stated that despite the slow growth thus far economically, he still believes that the jobless rate of the US will drop below 6% because of booming economic growth. He projects that from an economic standpoint, 2014 will outdo 2013. Bullard says that the real estate market is in a position to have a great, although not as good as last year. He agrees with the notion that the torrid weather that has affected the majority of US soil is undoubtedly brought the economy down a step or two, but believes that this minor hiccup will have hardly any impact on the way the economy booms later on this year.

http://www.cnbc.com/id/101455369