The "Jedi" Effect

This article talks about a “Jedi mind trick” so to speak that Japan has employed in hopes of turning around their economy. The Idea is that the central bank has created negative interest rates (it’s as if our discount rate was negative). These negative interest rates in turn force banks to pay Japan’s central bank if they want to hold money in the central bank.  Hence, this discourage banks from depositing money in the central bank, however, this ploy only applies under quite extreme circumstances. Considering this, one can see how it’s a Jedi mind trick, since it only applies to a few banks, yet most banks have acted as if this applies to them. More money in the economy has already help Japan lower the value of the yen, which in turn encourages exporting to other countries. Unfortunately, this method has not been able to help with Japan’s inflation problem yet. Japan is hoping to see higher inflation to pay off its whopping 230% debt (that is its 230% the size of the economy). Theoretically, inflation should be right around the corner since Japan is forcing more money into the economy with this policy and since Japan is printing more money. The hope is this “Jedi mind trick” will prevent another period of deflation and get Japan out of its stagnant state.

https://www.washingtonpost.com/news/wonk/wp/2016/01/29/japan-is-trying-to-save-its-economy-with-a-jedi-mind-trick/

America's Best Days May Be Behind It

Looking back 50 years ago, life, over all, does not look that different. Just like 50 years ago, today’s middle-class owns washing machines, air conditioners, phones, and cars with an average life expectancy around 70 years. Compared to 100 years ago, Americans typically moved around on horse-drawn buggies on dirt or cobblestone roads. Most homes were not even wired for electricity and the average life expectancy was 53. Americans like to think that they live in an era of dramatic change, but when one compares today to the momentous innovations of the mid-20^th century it is hard to see it that way.

The article goes on to discuss Robert J. Gordon’s new book, “The Rise and Fall of American Growth” which “…ends by doubting that the standard of living of today’s youths will double that of their parents, unlike the standard of living of each previous generation of Americans back to the late 19^th century.” Professor Gordon foresees innovation creeping along at the same pace. Moreover, the labor force will continue to decline as aging baby boomers leave the work force and women’s labor supply plateaus. Gains in education will contribute little and the growing concentration of income means that whatever the growth rate, most of the population will not gain from it. He argues that the explosion of the innovation and prosperity from 1920 through 1970 was a one-time phenomenon. From now on, progress will continue on at a more gradual pace.

As Mr. Bernanke of the Federal Reserve points out, long-term interest rates have been declining for an extended duration of time. This is partly due to China's accumulation of savings, but the decline mainly suggests that investors may be agreeing with Professor Gordon. 

What do you think about Professor Gordon’s outlook for the future of innovation? Should we really minimize the enormous gains we have made in the past 50 years? 

Link: http://www.nytimes.com/2016/01/20/business/economy/a-somber-view-of-americas-pace-of-progress.html?ref=economy&_r=0

Positive Outlook for New College Grads

After the financial crisis in 2008, finding employment for some seemed to be an almost impossible task (unless you were willing to take a low-wage position), especially for those who had just graduated from college. Previously, obtaining a college degree basically meant certain employment and a higher wage, however this was not the case after the financial crisis. People began to question the value of a college degree, was it actually worth the time and money? Those who just had their high school diplomas seemed to be having the same amount of difficulty finding a job, and were earning wages that were comparable to those of college graduates. Fortunately for us as current college students, things seem to be turning around for young college grads. As this article by Josh Zumbrun discusses, incomes for the newest college grads are higher than they have been for over a decade and unemployment rates of recent college grads have also been decreasing (4.9% in September). From the latest data, the median wage of those obtaining a bachelor’s degree increased from $40 to $43 thousand (adjusted for inflation). While this may not seem necessarily like a significant huge difference in amount, it is certainly a step in the right direction. In addition, the top 25% of recent college grads are earning wages of at least $60 thousand. Previously, incomes for college graduates had been declining (but not as fast as those without degrees), and now these incomes have returned to numbers that we haven’t seen since 2003. This news is certainly good news for us as soon to be college grads entering the labor force. However, not only is this good news for us, but I also see it is as good news for higher education institutions in general. For higher education institutions such as OWU I believe that this will instill confidence for those considering the investment of a degree, and I think we can see a rise in class numbers as the value of a degree continues to progress.

What do you think this means for the future financial stability of colleges as people start to see the monetary value in higher education once again? Will small liberal arts institutions who have seen a decline in class numbers such as Ohio Wesleyan, Denison, Kenyon, etc. start to see a rise in their numbers again?

http://www.wsj.com/articles/ny-fed-report-finds-rising-incomes-falling-unemployment-for-young-college-graduates-1454079989

India's economic growth to surpass China's in 2015-16

http://zeenews.india.com/business/news/economy/indias-economic-growth-to-surpass-chinas-in-2015-16-un_126627.html

http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG


China may not be the economic world power for much longer. In  2016, India is expected to exceed china’s economic growth rate with a GPD growth of 7.7%. India will also help to bring about growth in South Asia as well. China is expected to grow with a 6.8% GDP in 2016. Many economies are expected to grow in 2016 due to stronger domestic consumption, investment, and exports. South Asia’s GPD is expected to grow 6.9 percent in 2016 which was a notable change from the expected growth in 2014. India’s economic growth is the probable cause of this and increased growth may also be in the future for Iran, Afghanistan, and Pakistan as well. When the largest economy (India) in a region of the world's largest group of poor people booms, the surrounding countries will benefit from from that growth. 
 
China's growth rate may be lower than it has been in the past, but 6.8% GDP growth rate is still very good/high. The country’s growth rate was 9.5% in 2011, 7.8% in 2012, 7.7% in 2013, 7.3% in 2014, and 6.9% in 2015. China may not be the complete world power for much longer but its certain China's powerful economy is not going away. Although, regions like South Asia do have the potential to take upon the manufacturing capability of China due to China's rising labor costs.  

It’s not just Flint: Poor communities across the country live with ‘extreme’ polluters

Flint Michigan has been in the news recently as it was uncovered that lead contaminated water had flown into poor minority communities. However, by shedding light on this community in Michigan has also lead to investigations of other like communities across the US and researches have unearthed some sad results.

A study conducted by Mary Collins of New York College looked at what she termed "hyper-polluters" or businesses that pollute a significant amount. Given these businesses she cross referenced them with their location in 2000 to see whether or not there was a correlation with their location and the communities they were established around. She found that these "hyper-polluters" were more likely to be located near a poor minority community.

Recently, industrial emissions examined 16,000 organizations from a variety of sectors not including power plants and found that 90% of the toxic pollution emitted was done by only 5% of the businesses in their test area. Consequently again, these 5% were found to be located in poor minority communities.

Through this research they hope it will help the EPA to targeted and voluntary programs for these "hyper-polluters" in order to lessen their emissions and better the environments of these poor minority communities.

Do you think the EPA will be able to help these firms and communities to better each other's environments or do you think it will have to be through legislative action or some more aggressive form of change to help these communities?


https://www.washingtonpost.com/news/energy-environment/wp/2016/01/27/its-not-just-flint-poor-communities-across-the-country-live-with-extreme-polluters/?hpid=hp_hp-more-top-stories_ee-pollution-1105am%3Ahomepage%2Fstory

Apple of Market Discord

Over the past few weeks, oil and the Chinese market have been blamed for the recent downturn in domestic markets. While these are obviously major causes, my article points to a simple cause that earns much less attention. That cause is the horrendous performance of Apple shares in the past year.

While it may seem far-fetched at first, my article shares some interesting facts that point to a deep correlation between the performance of Apple shares, and the overall performance of the S&P 500. Apple shares have dropped by 20.4 points since May of 2015. This has closely reflected the average performance of the S&P 500. In fact, it was found that Apple shares and the S&P 500 have a correlation coefficient of .7, while crude oil and the Shanghai composite only have correlation coefficients of .4 and .3 respectively.

If Apple were to slowly lose their largest revenue generator (the iPhone), could it drag down the US markets? The answer is yes, but not by a large margin. I believe that the correlation between Apple and the performance of US markets is nothing more than a relationship between any large company and the market that they operate in. Obviously when a large company struggles, the markets will take a slight hit. Inversely, when the S&P 500 is down, Apple will likely feel the impact of it as well. While this article is interesting and points out a peculiar relationship between Apple and domestic markets, I think that it reaches a little too far in its conclusion that Apple is one of the major causes of growth and recession.

Link: http://www.bloomberg.com/gadfly/articles/2016-01-26/apple-not-china-or-oil-is-biggest-drag-on-the-stock-market

All Roads Lead to Iran

Link for the curious: http://www.nytimes.com/2016/01/26/business/international/airbus-iran-aircraft-talks.html?_r=0

After nearly two decades of being economically isolated from the Western world, Iran is now open for business after its economic sanctions have been lifted following their promise to curtail its nuclear program. The new market proves to be opportunistic as Western businesses are now providing flows of cash to and from the middle eastern nation. Companies have been eagerly waiting to make inroads into Iran as its population consists of a large portion of young consumers who have shown their taste for western consumer products such as Apple.

Although there is large optimism for the promise of a new market, investors also share worries about Iran's entry into the oil market in an already tumultuous time where we have seen oil drop below $30 per barrel. Oil is one of Iran's most profitable exports so they will obviously be looking to return to a leader in the industry.

Another serious issue regarding the opening of Iran's market is how to make credit available from western banks. Currently, the United States Treasury marks them as a "State Sponsor of Terrorism" label. The label means that no money intended for Iran can move through American banks, which is very difficult to do in today's day and age.

There definitely do seem to be two sides to the coin in terms of Iran's newly reopened markets. On one hand, you have a huge market of hungry consumers for Western products who have been denied acquiring these products for almost two decades. On the other, you have the issue of credit not being available from American banks as the Iranian political relationship with the United States has a history of being strained. Do you see this as a smart or risky opportunity for Western companies?

High Stakes - Lottery

The great Powerball, having a winning value that does not fill the size of billboards was split amongst three people in California, Tennessee and Florida. Draw sales went upto an alarming $787,000 a minute during the last hours. To people it seems that playing a lottery might be fun but you have a 1 in a 292m chance of winning, which makes it financially foolish to do so.This year, the lottery companies increased the size of the geographic pool, thus the potential pool of participants. The lottery this year was available to residents of 44 of America’s 50 states. 
If the chances of winning become so slim that no one guesses the right combination of numbers, the prize rolls over, growing to a vast sum. Both Powerball and the British national lottery changed their rules to this effect in October, by increasing the number of balls in the draw. In Britain the change slashed the chance of a winning guess from 1 in 14m to 1 in 45m. In America it fell from 1 in 175m to 1 in 292m. But there always remains a chance to win a small prize. So even as lottery designers have been lowering the chances of winning the jackpot, they have been boosting the chances of winning lesser prizes, notes David Spiegelhalter of the University of Cambridge.

http://www.economist.com/news/21688208-lotteries-pull-punters-making-it-harder-win-americans-have-1-292m

Searching for Signs of Slowing at Apple

Apple stocks are beginning to be reconsidered in the stock market. Sales are projected to decelerate and there is no sign of a new device waiting to be revealed. Investors are awaiting the downward shift of Apple. Signs of investor weariness are shown in their renaming Apple stock from growth stock to value stock. This label is used for companies that are predictable or reliable. It is not possible for Apple to maintain the growth it has boasted of. This new label could be a disadvantage for Apple. Angelino Zino (senior analyst) states "investors don't like to see the words tech and value combined because when growth slows at a tech company, it usually means that something essentially is not working." Investors are turning to companies such as Amazon, Facebook, and Netflix for growth. The contrast is seen in projected growth: the companies listed above were expected to show 23-40% annual revenue gains for the last 3 months of 2015, when Apple was only expected to show 3%. (Bloomberg data)
Reasons for the slowdown in growth include factors such as China's slowing economy. Hopefully Apple will find a new direction to take the company to ensure sustained growth in the coming years.
New York Times, Katie Benner, 1/25/16

Effects of Low Oil Prices

Effects of Low Oil Prices

http://www.triplepundit.com/2015/04/plastic-recycling-suffers-from-ongoing-low-oil-price/

http://www.ptonline.com/articles/recycled-resin-prices-plummet

Even with price of oil plummeting and being very low at this time, alternative energy sources are still becoming more and more competitive in the market. This is not the case for the plastic industry. Particularly recycled plastic. Plastic recyclers are struggling to stay afloat. Why is this? PET (polyethylene terephthalate) or recycled plastic struggled from the start because most business use to think it was not as good as original plastic. Before the drop in oil prices, the decision to buy recycled was common because it was less costly than original made plastic. This is not the case now. Recycled plastic is currently more expensive that original plastic because oil used to originally make plastic is extremely low. Original plastic costs 67 cents per pound to manufacture and recycled plastic costs 72 cents per pound. Oil prices will rise again, but until than, using recycled products is the environmental friendly way to go, but this is just not reality for business making smart financial decisions. These plastic recycling business do need to stay afloat for the long run due to the inevitable rise of oil prices in the near future. 

Why Europe has little to fear from global markets

This article mainly analysis global market's influences on European economy. With further and deeper development of economy globalization, the connection among countries becomes more closed. It's much easier for countries to be influenced by the changes of world markets. Even though many european stock markets had fallen by more than 10% in around three weeks and 20% since last summer,  and there's worrying that the slide in world markets gonna derail the eurozone's fragile recovery, however, the global economic slowdown seems not work to Europe's economic advantages.

This is because of the uniqueness of European economy. As mentioned in the article, the not sharp but uniformed falls in European stock market reflect it's good post-crisis regulations. And also, little direct trade links with China protect Europe from the landing of Chinese economy. At the same time, European countries also take advantages in the falling of world oil price. These all show the point that even it is necessary and unavoidable for countries to get into the world market, it's still important to keep itself from over reliant to the international markets. Countries should keep their uniqueness and relative independence to decrease the affects of global economy slides.

Here's the link:
http://www.marketwatch.com/story/why-europe-has-little-to-fear-from-global-markets-2016-01-24

Doom and gloom: Do failing markets mean recession is on the horizon?

This article looks into the possibility of a looming recession that people are worrying about since the "indexes in Asia and Europe have fallen more than 20%." We have learnt in our classes that recessions are hard to predict, and the same thing is repeated in this article when they cite the fact that sometimes we cannot even recognize it till it is too late.

The author of the article seems to believe that even if a recession were to take place it would be the faults of the markets themselves for being so nervous. I thought his description of how recessions progress through this was very well explained. He essentially said that if asset prices fall, then consumer spending will decrease, which we know from our class will lead to lower aggregate demand which will discourage economic activities in the short run, so it might lead to devaluation of currencies to be at a good rate of inflation. Except during a recession this becomes a downwards spiral of rising inflation.

The author also said that this fall in the currency could lead to a sort of "destabilizing credit event." This in turn makes less developed countries compelled to raise interest rates to put a stop to this, which really does not help.

The main point discussed in the article is that most governments around the world will not be able to deal with a recession of staggering standards if it were to hit. So a self-induced recession would not be a good thing for anyone seeing as the Fed or the policymakers in the other countries do not really have the ability to help out as much.

Decrease in Oil Prices - Good or Bad?

This article analyzes the impact of the decrease in price of oil to $27 a barrel from $110 a barrel. It represents one of the biggest questions of macroeconomics by analyzing the benefits for the consumers and the losses for the producers.

The article addresses the long-term impact of this fall in oil prices, citing the decrease in oil exploration as one of the major drawbacks because the current price of oil does not justify even large, multinational companies going into remote areas like the Arctic to search for newer sources of oil.

Moreover, the article examines the impact of fall in oil prices in oil-importing countries like India and South Korea because it gives them a chance to divert funds to renewable energy options, whereas for oil-exporting countries like Venezuela, Saudi Arabia and Russia, the governments will need to cut spending to ensure that their trade deficit does not become a big proportion of their GDP. (This is especially interesting in the context of Russia, which is already facing economic problems as well as a fall in the value of the ruble)

Finally, this fall in oil prices may be a warning, according to some economists, that the already volatile world economy may not be entirely on the path of recovery and could face more problems in the near foreseeable future.

http://www.economist.com/news/leaders/21688854-low-energy-prices-ought-be-shot-arm-economy-think-again-whos-afraid-cheap?spc=scode&spv=xm&ah=9d7f7ab945510a56fa6d37c30b6f1709

Housing Economist See Job Gains Offsetting Stock-Market Pains

The U.S Housing Market has a number of different factors that would seem to have a negative effect on the market such as higher interest rates, lower oil prices, and unstable financial markets. However, economists are predicting that because of current labor markets in the U.S having higher employment rates as well as wages, in addition to an increase in the cost of renting compared to buying, the result should be sustained growth in the housing market this year. Although this is a general prediction, there are a few areas that might be more affected and not have such a strong housing market this year. Mainly, such areas that are very dependent on oil, such as North Dakota and Houston. 

Even though the stock market has not had a very stable year, the housing market should not be affected by this because when looking at the demand for homes, it is mostly affected by employment and the economy. Mortgage rates are also expected to remain low, which would also benefit the housing market. 



http://blogs.wsj.com/economics/2016/01/20/housing-economists-see-job-gains-offsetting-stock-market-pains-2/

Phase Two: Russia's economic problems move from acute to chronic

Phase Two: Russia's economic problems move from acute to chronic

Russia's economy suffered heavily in 2015 and it seems to be getting worse. The decline of oil prices hurt Russia's exports and government revenues. Russia's GDP fell by nearly 4% and inflation was right around 13%. The currencies' value, which already dropped by half in 2014, dropped another 20%. The article suggests Putin may be tempted to print roubles if the government would happen to run out of ready cash, but this would only raise inflation higher and speed up the roubles decline. This would also lower the purchasing powers for Russian firms and families.

Consumer spending is declining at a steady rate and retail purchases are down more roughly 13%. Foreign travel has also dipped by 30% from the previous year. It seems that Russia is facing "a decline in quality in life" according to Natalia Zubarevich of the Independent Institute for Social Policy. Real Wages in Russia fell by 4% in 2014 and fell again in 2015 by 9%, which happened to be the first dip under Vladimir Putin. Finally, the article points out that to a foreign buyer, labour is now cheaper in Russia then in China even though foreign investment in Russia is also falling. Vladimir Putin believes the first phase of the economic crisis is over and that the second phase will be better.

For Good or Ill

This article analyzes the effects of European countries accepting refugees from a war-torn Middle East. One fear that people have is that allowing many refugees into a nation is that they will drag down wages. This however is not true according to the article. The author even notes that natives displaced by refugees often find themselves obtaining new jobs that are higher paying.

Their are even some positives economically that refugees can bring a nation. It is a well known fact that Europe is aging at a rapid rate. Likewise, most of the refugees are perceived to be young. When they begin to earn an income they can help counteract the aging population and pay into the pension system to help sustain it. In the short term refugees will add an expense to GDP through welfare payments. It is important to note though that refugees will also contribute to GDP and essentially offset these costs. Also, evidence shows that after some time a very small rate of refugees will still receive welfare benefits. With evidence from the article it seems to me that in the long run refugees will surely help Europe's economy, and offset the added expense that they will cause in the short run.

http://www.economist.com/news/finance-and-economics/21688938-europes-new-arrivals-will-probably-dent-public-finances-not-wages-good-or