This article discusses how the Bank of England has lowered interest rates to a low of 0.9% in 2009 during financial crisis, but continued to keep it at that rate when the economy began to progress. But Britain's economy has been recovering fast and are being urged by the banks to raise the interest rates because the capacity within the economy could be used up soon as it adds to inflation rising. Because of the interest rates being kept low for so long, an abundant amount of the economy was already used up and is only getting smaller. Despite all of this, MPC members are very against raising the interest rates now because of weak inflation which effects their export market. While I can see why the banks are right in encouraging the rise in interest rates, MPC members of the UK are right, as they want to keep a trade surplus and not fall into a possible deficit making things worse. This means keeping their export market stable.
Website: http://www.theguardian.com/business/2014/oct/26/raise-interest-rates-bank-england-mpc-ian-mccafferty
Sunday, October 26, 2014
Is the U.S. holding too much oil in reserve?
According to the
article, The U.S. has
the largest emergency stockpile of oil in the world. And now that the country's
oil production is booming, there's questions if America needs to hold so much
crude in reserve.
The talk of shrinking the oil
reserve is a major shift from the political debates of the past years, when
Americans were being squeezed by high gas prices.
For
now, the oil prices in the United States have stumbled to the lowest levels
since 2012, and gas prices have fallen below $3 a gallon in many parts of the
country.
Currently, there's
enough oil in storage to meet the nation's needs for 106 days. In contrast,
most oil consuming nations have 90 days of oil supply in storage.
http://money.cnn.com/2014/10/24/news/u-s-oil-reserve/index.html?iid=H_E_News
Slave labor in America today
This article speaks mostly about immigrants who are 'victims of forced labor', sucked into the world of labor trafficking. These workers often enter the United States legally. About 71% of them enter with visas. About half of those who are smuggled in and those who enter legally often pay recruitment fees that can leave them in debt for years. While the International Labor Organization estimates that there are around 21 million victims of forced labor, there are no official estimates of how prevalent it is in the United States.
However, research has found systems in place to facilitate labor trafficking and exploitation. Sometimes, employers don't pay attention to how workers are being recruited but others they are directly involved in fraud and exploitation and coercion of workers.
Workers often hear about jobs in America from people in their own country and are then set up with a recruiter who speaks about the unique experience of working in America and the better life they could provide for their family. However, almost always a key part of the job is misrepresented. Wages and benefits are portrayed as more generous than they are and the nature of the work is either misrepresented or severely exaggerated.
For recruitment, victims pay an average of $6,000. However, fees can run up to around $25,000. These fees are often paid by selling possessions, taking out mortgages or high interest loans.
For those who came to the U.S. legally, workers are taken to the embassy or consulate to get a visa. Victims were coached on what to say and were often not told of worker's rights. If they were interviewed at all, often times a trafficker was present.
These victims are subject to all kinds of abuse, especially mental and financial. They are often paid less than promised or not paid at all, threatened with violence, forced to work excessive hours, and have all their movements controlled. They are also forced to live at their workplace.
Money is deducted from their paychecks for a myriad of things including made up fees and never received health care. They are never able to repay their debts.
This severely affects the personal finance and life of around 21 million people annually. I think it's terrifying. I had no idea how prevalent forced labor is in today's society and how it affects not only the victims and their families, but everyone around them as well. It's affecting our economy and our general well being. We as a people need to invest in the prevention of this practice and rehabilitating and aiding all those affected by it.
http://money.cnn.com/2014/10/21/pf/labor-trafficking/index.html?iid=SF_PF_River
However, research has found systems in place to facilitate labor trafficking and exploitation. Sometimes, employers don't pay attention to how workers are being recruited but others they are directly involved in fraud and exploitation and coercion of workers.
Workers often hear about jobs in America from people in their own country and are then set up with a recruiter who speaks about the unique experience of working in America and the better life they could provide for their family. However, almost always a key part of the job is misrepresented. Wages and benefits are portrayed as more generous than they are and the nature of the work is either misrepresented or severely exaggerated.
For recruitment, victims pay an average of $6,000. However, fees can run up to around $25,000. These fees are often paid by selling possessions, taking out mortgages or high interest loans.
For those who came to the U.S. legally, workers are taken to the embassy or consulate to get a visa. Victims were coached on what to say and were often not told of worker's rights. If they were interviewed at all, often times a trafficker was present.
These victims are subject to all kinds of abuse, especially mental and financial. They are often paid less than promised or not paid at all, threatened with violence, forced to work excessive hours, and have all their movements controlled. They are also forced to live at their workplace.
Money is deducted from their paychecks for a myriad of things including made up fees and never received health care. They are never able to repay their debts.
This severely affects the personal finance and life of around 21 million people annually. I think it's terrifying. I had no idea how prevalent forced labor is in today's society and how it affects not only the victims and their families, but everyone around them as well. It's affecting our economy and our general well being. We as a people need to invest in the prevention of this practice and rehabilitating and aiding all those affected by it.
http://money.cnn.com/2014/10/21/pf/labor-trafficking/index.html?iid=SF_PF_River
http://money.cnn.com/2014/10/21/news/economy/wealth-income-growth-ratio/index.html?iid=SF_E_River
Wealth is growing faster than income and recently broke a record for the growing gap. The current wealth to income ration is 6.5. For the past 100 years its been between 4 and 5. Economists say this could be a foreshadowing of another recession.
Economist Tim Yeager explains that an "asset bubble" can be created because people become over optimistic about the stock market and pour their money in, causing a bubble in the market. He goes on to say that this has been happening more frequently and is causing financial instability.
It safe to say, however, that the increase in job growth could bring in an increase in wages. If this happens, which has already started in some States and cities across the US, then I wouldn't expect to see another recession.
Wealth is growing faster than income and recently broke a record for the growing gap. The current wealth to income ration is 6.5. For the past 100 years its been between 4 and 5. Economists say this could be a foreshadowing of another recession.
Economist Tim Yeager explains that an "asset bubble" can be created because people become over optimistic about the stock market and pour their money in, causing a bubble in the market. He goes on to say that this has been happening more frequently and is causing financial instability.
It safe to say, however, that the increase in job growth could bring in an increase in wages. If this happens, which has already started in some States and cities across the US, then I wouldn't expect to see another recession.
Eurozone bank stress tests
http://www.economist.com/news/business-and-finance/21628422-europes-banks-have-been-probed-some-have-been-found-wanting-who-stressful-tests
Europe recently executed a new plan to stress test it's banks to detect potential failures of the system.
In Italy 9 such banks failed and 16 others across southern Europe also failed. As a result of this test these banks will have to reclassify loans and raise more money. They are still trying to figure out exactly how the markets will react to potential lack of trust in some banks.
Currently the entirety of the European union is being held up in value by Germany's productivity, so it is good to see that (as far as I can tell from the article) no banks in Germany failed the stress test.
Hopefully the next time stress testing occurs less failures will arise.
Europe recently executed a new plan to stress test it's banks to detect potential failures of the system.
In Italy 9 such banks failed and 16 others across southern Europe also failed. As a result of this test these banks will have to reclassify loans and raise more money. They are still trying to figure out exactly how the markets will react to potential lack of trust in some banks.
Currently the entirety of the European union is being held up in value by Germany's productivity, so it is good to see that (as far as I can tell from the article) no banks in Germany failed the stress test.
Hopefully the next time stress testing occurs less failures will arise.
China’s future growth Even dragons tire
The announcement this previous week regarding China’s
Economy indicated a 7.3% growth rate in the third quarter year on year. This
rate was widely considered as the economy coinciding with what is described as its
new “Normal slower rate”. It is significantly lower than China’s 10% growth
rate up until two years ago. The article goes into detail regarding the slower
growth rate and how in the future it can be predicted that China’s growth rate
is bound to be even lower.
According to the IMF China’s growth rate will go down
drastically by the end of the decade, it would further shoot down from 7.3% to
6.3% by the end of the decade (still just an extrapolation). The article points
out the theory of “regression to the mean” which is about 2% growth per year
based on real GDP per person globally. It
further points out that economy’s that grow rapidly tend to drop quite
drastically, judging from past patterns of growth. For example Brazil in 1980
and Japan in 1991, seemed very sound but barely managed any growth for the next
20 years in terms of real GDP per person. However, this may not be a sign of
failure but rather a sign of successful policy or good fortune.
In China due to these regressions markets have become more
liberal over the years. The article also argues that richer countries than
China are democratic and ( if there is a transition) if China were to have a
democratic change it would lead to a period of falling growth as indicated by
previous cases. The article also predicts that in terms of market exchanges it
would be a safe bet to say that China’s economy would still be smaller than
America’s.
There is a detailed graph regarding the above made
assumptions presented in the article as well.
source link: http://www.economist.com/news/finance-and-economics/21627627-new-study-asks-how-long-chinese-economy-can-defy-odds-even-dragons-tire
Dallas Hospital Losing Patients
The Texas Health Presbyterian Hospital has been having serious issues getting patients to come there to seek medical attention since the death of Thomas Eric Duncan who had Ebola. The hospital has 900 beds but has only been able to fill around 300. Thomas Eric Duncan died there last week and also infected the two nurses who were caring for him before his death. People have shunned the hospital and refuse to go there for any medical reasons. This has caused major economic issues for the hospital. Before the Ebola crisis, the hospital had accounted for 17% of the $3.5 billion in annual revenue for its parent company, Texas Health Systems. Although the hospital is taking a large finical hit, the Texas Health System has no intention on closing it down. The Ebola virus has affected the United States physically, mentally, and now finically.
http://money.cnn.com/2014/10/17/news/companies/ebola-hospital/index.html?iid=SF_E_River
http://money.cnn.com/2014/10/17/news/companies/ebola-hospital/index.html?iid=SF_E_River
Wells Fargo Survey Finds Saving for Retirement Not Happening for a Third of Middle Class
https://www.wellsfargo.com/about/press/2014/middle-class-retirement-saving_1022.content
This article focuses on the average amount of retirement savings throughout the US. According to the fifth annual Wells Fargo Middle-Class Retirement study, the average middle-class American only has about $20,000 saved for retirement. 41 percent of middle-classed Americans between ages of 50 and 59 are not currently saving for retirement, and nearly a third of the respondents claimed they might not have enough money to survive after they retire. Across all age groups, almost half are unsure whether they will be able to “live the lifestyle they want.” The author discusses a few main saving tips; start saving as early as possible, increase your rate of savings, and leave the saving account untouched.
iTunes Struggling Sales
iTunes has been experiencing a nose dive on their music sales. With new, cheaper, ways of music-lovers getting their songs, it is making iTunes a long second or sometimes even third option for the consumers to get their material. Many new apps like Pandora allows the consumer to download the application for free and listen to a category of music with minimal advertisements. There have also been new apps that charge monthly with unlimited downloading ability for those days. Apple's sales have dipped 14% from the previous year, compared to a shallower dip of only 2% in 2013. It is incurring a rapid decline in sales where some actions has to be done, or Apple's system must be modified, or else iTunes would soon be outdated except for storing music on your phone.
The recent decline worries record company executives due to their fears of causing a loss of revenue. When iTunes was the main platform for music downloads it provided record companies stability, knowing they would get paid properly for each individual song or even album. With multiple alternatives, some being free, record companies pray that consumers turn to the $10-month subscription options so they could still earn a profit. iTunes needs to adjust their system to get back to the number one music download option.
Sources: http://online.wsj.com/articles/itunes-music-sales-down-more-than-13-this-year-1414166672
The recent decline worries record company executives due to their fears of causing a loss of revenue. When iTunes was the main platform for music downloads it provided record companies stability, knowing they would get paid properly for each individual song or even album. With multiple alternatives, some being free, record companies pray that consumers turn to the $10-month subscription options so they could still earn a profit. iTunes needs to adjust their system to get back to the number one music download option.
Sources: http://online.wsj.com/articles/itunes-music-sales-down-more-than-13-this-year-1414166672
Borrowing Binge
China's debt is worrying investors around the world. According to The Economist, "China is on a borrowing binge". Since 2008 China's debt has exponentially increased from 100% of GDP to a current high of 250% of GDP. This is a staggering and worrying number because this is a Debt/GDP level that would be exhibited by wealthy nations, not emerging markets such as China. Most investors are worried because history tends to repeat itself, and a massive increase in borrowing, which is a result of China's huge debt increase, usually precedes a financial crash. This trend was exhibited by Japan, South Korea, and other emerging markets in the 90's and America and Britain in 2008. What is also concerning that bolsters the belief of an economic crash is that nominal growth has been continually declining from 15% a year in the 2000's to 8.5% a year now. This is also accompanied by a consistently decreasing inflation of 1.6%. This decrease in nominal growth makes it harder for debtors to pay their bills and thus makes a debt crisis seem inevitable.
Lucky for the world economy, China controls its banks, and thus it can bail them out to avoid economic crisis. So, the biggest problem isn't actually the debt, but instead complacency. This is because half of China's debt is owed by companies, and in turn state owned enterprises and property developers. What China needs to do is have its officials do a better job of cleaning up the financial system. As the economy begins to slow as a result of this overwhelming debt, and housing markets fail just like in the U.S. in 2008, a good portion of these loans will prove unable to be paid. However, even if loans begin to be unpaid, since China has such a unique regime it will be fine. This is because most of the banks are state owned and similarly most of the companies are owned by states or the government. Thus if China starts to face an economic credit crisis it will just have banks lend more and lucky for China it has an enormous amount of foreign-exchange reserves which would also save it. Since China has so many economic cushions, or at least more than other economies did in the past, it has plenty of time to tackle its debt crisis. Now the only problem that remains is how efficiently will it do so.
From the October 18th-24th edition of "The Economist"
Lucky for the world economy, China controls its banks, and thus it can bail them out to avoid economic crisis. So, the biggest problem isn't actually the debt, but instead complacency. This is because half of China's debt is owed by companies, and in turn state owned enterprises and property developers. What China needs to do is have its officials do a better job of cleaning up the financial system. As the economy begins to slow as a result of this overwhelming debt, and housing markets fail just like in the U.S. in 2008, a good portion of these loans will prove unable to be paid. However, even if loans begin to be unpaid, since China has such a unique regime it will be fine. This is because most of the banks are state owned and similarly most of the companies are owned by states or the government. Thus if China starts to face an economic credit crisis it will just have banks lend more and lucky for China it has an enormous amount of foreign-exchange reserves which would also save it. Since China has so many economic cushions, or at least more than other economies did in the past, it has plenty of time to tackle its debt crisis. Now the only problem that remains is how efficiently will it do so.
From the October 18th-24th edition of "The Economist"
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