Can India's currency ban really curb the black economy?

On Tuesday, the Indian Prime Minister, Narendra Modi, decided to ban the 500-rupee and 1,000-rupee bills. These bills can be deposited in banks and post offices until December 30th, and they are allowing up to 4,000 of the bills to be exchanged. The two banknotes currently represent 86% of the cash in circulation. The government stated that the main reason for the ban is to "curb financing of terrorism through the proceeds of fake Indian currency notes and uses of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contraband into India." In addition to this, they would like to reduce the amount of black money. The article defines black money as "money that has been earned, either through legal activities or corruption, without any tax being paid on it." The new bank notes will be inserted into circulation in the next three to four weeks.

With this ban, the real estate, luxury goods and retail markets are likely to be hit hard since the majority of transactions in these areas are done with cash. However, prices are expected to fall, making real estate more affordable and increasing the demand for houses. Many are worried that the currency ban will cause many problems in the short term. Some people are converting their black money into gold as the government hoped would happen. It is unknown exactly what effect this ban will have on the economy, but the government will need to do more to completely flush out the black money from circulation.



http://www.bbc.com/news/world-asia-india-37933231
http://www.nytimes.com/2016/11/11/world/asia/india-rupee-ban-narendra-modi.html?_r=0

Oil Price Shocks and the Election

Crude oil prices fell nearly 4%, bringing prices to about 43$ per barrel which is the lowest in two months after the U.S. election. The price drops are a result of investors dropping risky assets such as stocks .DJI and the dollar .DXY. Oil prices however bounced back Wednesday after it became clear that Trump had won the election. So overnight there was a 2$ rollercoaster dip and rise in the price of oil. Some analysts say with Trump there are supportive factors for oil prices such as shifting U.S. policy toward Iran. Although Trump has criticized the nuclear deal with Iran, which if revoked, oil prices would rise. Iran suggests Trump should stay with the deal and the Obama administration will remain committed to it through its final months. On the other hand, Trump's election is believed to make it more difficult for OPEC to raise oil prices because they may have to face lower demand of crude oil if global economic growth slows due to Trump's victory and his pledge to open all federal land and waters for fossil fuel exploration. 

It's fascinating that the U.S. election was able to create a minor shock in the price of oil worldwide. There are many foreseen pros and cons that could affect the oil industry that it's hard to predict what may actually happen. 

http://www.reuters.com/article/us-global-oil-idUSKBN134024

Unemployment rate is 4.9 percent, but a more realistic rate is higher than that

This article talks about how the national unemployment rate fell to 4.9% in October but relying on that one headline number alone as an indicator of the economy's direction ignores important information just below the surface. Economists look past the official unemployment rate at a figure called the U-6 rate. This gives a broader definition of what unemployment means. In October, that figure fell 0.2 of a point, to 9.5%. This rate is defined as all unemployed plus "persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of a labor force." So this is basically the unemployed, the underemployed and the discouraged, to sum it up.

While the unemployment rate has returned to the prerecession levels in the past few months, the U-6 remains stubbornly above prerecession levels even though it has seen significant gains in the past few years. The labor force participation rate has also been an area of concern and it fell slightly in October to 62.8%. The average hourly wages, however, rose 10 cents to $25.92 and average weekly wages were up as well.

http://www.cnbc.com/2016/11/04/us-unemployment-rate-is-near-5-percent-but-a-more-realistic-rate-is-higher.html

US manufacturing economy fails employers and workers

      This article describes the problems that factory-manufacturing jobs are facing in trying to get and employ workers. They speak about how drug problems are one factor contributing to a labor shortage. It mainly discusses that Drug tests are disqualifying more applicants. Also, the amount of U.S. workers who fail drug tests has hit its highest level in a decade, 4 percent, according to a recent study by Quest Diagnostics, one of the nation's largest testing labs. 

      

According to some employers, some applicants just don't show up after they find out they have to take a drug test. Some other struggles employers face involve U.S. Factories in the countryside are distant from pools of unemployed workers in cities and low wages discourage others from taking jobs that are available. Also, employers say tougher immigration enforcement makes it difficult to fill many low-wage jobs. All this is affecting the manufacturing sector and productivity as well.

http://www.cnbc.com/2016/11/04/us-manufacturing-economy-fails-employers-and-workers.html

Fed Signals It’s on Track to Raise Interest Rates in December

The Feds are ready to raise Interest rates for the first time this year in December. The Fed's policy making committee stated " Inflation has increased somewhat since earlier this year but is still below the committee's 2 percent longer-run objective". Although, the economies health has still been improving and the unemployment rate stood at 5 percent in September, which is close to the historically normal level; Also, Inflation rose to 1.2 percent over the last 12 months ending in September, up from 0.8 percent during the 12 months ending in July. The economy has expanded at an annual pace of 2.9 percent in the third quarter.

"Higher Interest rates will slow Economic growth, but proponents of a rate increase argue that raising rates slowly could extend the current economic expansion. If the Fed waits they say, it may then need to raise rates more sharply, which has often pushed the economy into a recession."

http://www.nytimes.com/2016/11/03/business/economy/federal-reserve-interest-rates.html?rref=collection%2Ftimestopic%2FEconomics&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=2&pgtype=collection

Last look at the economy before the election

Everywhere it has been reported that the economy is very healthy right now. Job availability is increasing, putting us at optimal levels of unemployment, most recently it has been reported wages are increasing substantially (about 2.8%), hidden unemployment seems to have gone down, and the labor force seems to have grown. There is slight inflation, but this is healthy, meaning income increases have not had any dramatic impact on comsuption.  The second article looks at how this may change with the election, with proposed decreased taxes, and increased government spending, both fiscal policies may actually end up yielding similar results in attempts to grow GDP and reduce the deficit.However, we need to look at more than just these two policies and their impact on GDP. The trade deficit is likely to be shaped by possible new policies which will in turn impact the real exchange rate for small open economies.
The initial impact of the change in fiscal policy by the new president will have a greater scale effect in the long term on small open economies most impacted by trade with the US. As smaller open economies adjust, in the long term, the US will start to see the implications of our policies.
The economy today, is looking similar to the way it did just before the recession in early 2008, leaving it up in the air if the change in office will cause a boom or bust.



http://www.nytimes.com/2016/11/05/business/economy/jobs-report.html?rref=collection%2Ftimestopic%2FUnited%20States%20Economy&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=4&pgtype=collection
http://www.wdef.com/2016/11/07/how-the-economy-stacks-up-for-donald-trump-and-hillary-clinton/

US productivity jumps to fastest pace in two years, topping estimates

In the third quarter, U.S. productivity increased at its fastest pace in two years, but as a trend, the idea remains weak. 

The Labor Department reported on Thursday that nonfarm hourly output per worker, grew at a 3.1 percent annual rate. This is the first grow in three straight quarters of decline. Economist had only predicted productivity to rise at a 2.0 percent rate. 

With this productivity growth came an acceleration in GDP as well. This increase came despite total hours worked rising only at a 0.3 percent pace, which suggests this quarterly increase suggests a pickup in wage growth. Labor costs rose at a 2.3 percent rate compared to the same period of 2015. 

Though good news, productivity is unchanged compared to the third quarter of 2015.  

To read more click here. 

US Manufacturing Economy Fails Employers And Workers

               Balance. Does it actually exist? In the long-run they say it does or is it just having stability in the places we want there to be stability. The US economy is largely a service economy. "According to BEA, in 2009 services accounted for 79.6 percent of U.S. private-sector gross domestic product (GDP), or $9.81 trillion." The evolution has been rapid, but what about the sectors of US jobs that aren't service? In a recent article released by CNBC it seems the US manufacturing economy is not only declining but failing on both ends for employers and workers. What's going on? At Bremen Castings, a family-owned employer of 350 workers who make parts for trucks and other equipment, describe the problems of the manufacturing industry as multi-fold. The crisis has taken root in the Midwest crippling the economy. "Drug tests are disqualifying more applicants. Low wages discourage others from taking jobs that are available, and employers say tougher immigration enforcement makes it difficult to fill many low-wage jobs." Motivation to work is no longer there. "Since the recession ended in 2009, more U.S. workers are choosing unemployment over the jobs available to them." Simply put, people want jobs that pay adequately of their worth. When people don't feel valued they revert to practices that compromise themselves. "In some regions, the surge of opiate addiction has tainted the labor pool." It's interesting how the effects of pay can effect the motivation of someone's psyche. Economics is not an exact science, but one that has a social input. Numbers are numbers but we give them context and importance.

Reference: US Manufacturing Econmy Fails Employers and Workers