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.

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.

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?

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.

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.

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=0

Less 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.

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, Joaquín 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.

http://www.economist.com/news/europe/21594336-germanys-new-super-minister-energy-and-economy-has-his-work-cut-out-sunny-windy-costly

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  

World Bank Sees Global Economy Picking Up

According to a recent report by the World Bank, the global economy is expected to grow from its 2.4% growth in 2013 to 3.2% growth in 2014 and 3.4% in 2015.  It is expected that this global growth will be led by the developed economies and strong economic conditions in China.
Additionally, the World Bank also warns of economic risks that could hinder the possible economic growth.  The World Bank claims that economic conditions in the US, weakening economic performance in the euro zone, or possible negative economic effects of recent Chinese restructuring economic policies could pose as a threat to global growth.
Furthermore, the World Bank also analyzes economic growth in each region of the world or specific countries.  For the US, the World Bank approves of the Federal Reserves decision to ease quantitative easing.  For Japan, it warns that economic structural reforms will be needed.  It warns that the banking sector remains weak in the euro zone.  Lastly, it states that developing country growth in 2013 was 4.8% with economic growth in East Asia and Latin America to be flat and modest respectively, and in the Middle East, economic growth will not be positive due to social conditions of that region.