Alan Greenspan, former Fed Reserve Chairman, was asked to assess what the price of gold would be a year from now. He said that he couldn't tell in a year, but could five years from now say that it would be higher. When asked about interest rates, he claims that he knows it will be considerably higher, and believes that inflation is only going to increase more and more. Low inflation and high interest rates are not ideal. Inflation is caused by a large growth in money supply and lower interest rates are supposed to compliment this, which would give people an incentive to spend. But if he views that in the future interest rates will be high, and inflation is currently low, than people have no reason to spend because there isn't enough growth in the MS. At the end of the article, he says that though the interest rates have been kept pretty low, they will indeed rise, and once they do, inflation will also.
http://www.wnd.com/2014/11/greenspan-inflation-interest-rates-gold-all-heading-up/
Sunday, November 9, 2014
The Rising US Dollar and its Implications
The U.S. Dollar is at it's highest level since June 2010 and has rallied approximately 10% from the spring this year. The appreciation of the dollar comes with some major implications globally and within the economy.
Due to a stronger dollar, import prices will be cheaper. Since the overall wage growth is still low, this rise in value will help purchasing power of consumers.
Competing firms in Europe and other countries who have not seen an appreciation in their currency, will have an export advantage.
Since commodities are priced in dollars, a stronger dollar translates into lower commodity prices. Due to the appreciation the real rates of interest and inflation will modestly rise also. Historically, higher real rates have further hampered commodity returns as they raise the opportunity cost of holding an asset that produces no income.
Although the value of the U.S. dollar is appreciating it is still only as strong as it was in 2006. It is still down 30% compared to its value in 2001.
Read More: http://ow.ly/E2fD3
Due to a stronger dollar, import prices will be cheaper. Since the overall wage growth is still low, this rise in value will help purchasing power of consumers.
Competing firms in Europe and other countries who have not seen an appreciation in their currency, will have an export advantage.
Since commodities are priced in dollars, a stronger dollar translates into lower commodity prices. Due to the appreciation the real rates of interest and inflation will modestly rise also. Historically, higher real rates have further hampered commodity returns as they raise the opportunity cost of holding an asset that produces no income.
Although the value of the U.S. dollar is appreciating it is still only as strong as it was in 2006. It is still down 30% compared to its value in 2001.
Read More: http://ow.ly/E2fD3
Standby. European Central Bank is preparing new stimulus
http://money.cnn.com/2014/11/06/investing/ecb-stimulus-draghi/index.html?iid=SF_E_River
This article explains current happenings in the European Economy and plans for further Quantitative Easing.
The European Central Bank plans to keep the interest rate low at 0.05%, as well as increase government spending by about 1.25 trillion dollars. These effects combined should increase not only investment but national income as a whole.
Some believe that these stimuli are not enough, so the ECB has announced plans of quantitative easing to increase the scope of their government spending to include corporate bonds and other assets.
It will be interesting to see the actual effects of these plans and to judge whether or not they worked well.
This article explains current happenings in the European Economy and plans for further Quantitative Easing.
The European Central Bank plans to keep the interest rate low at 0.05%, as well as increase government spending by about 1.25 trillion dollars. These effects combined should increase not only investment but national income as a whole.
Some believe that these stimuli are not enough, so the ECB has announced plans of quantitative easing to increase the scope of their government spending to include corporate bonds and other assets.
It will be interesting to see the actual effects of these plans and to judge whether or not they worked well.
Jobs Data Show Steady Gains, but Stagnant Wages Temper Optimism
The new employment report from the government that was released Friday showed evidence that despite the continued criticism of the worsening economy, the economy is actually improving. The reported showed a large increase in number of people who found jobs last month, dropping the unemployment rate to 5.8 percent which is a big improvement compared to a year ago when it was at 7.2 percent. An estimated 214,000 jobs were created in October. This all are good signs of a improving economy but there is a catch. Wages are only up 2 percent in the past 12 months. This means that yes, people are finding jobs but the workers aren’t really feeling the comfort from the paychecks. This slow recovery has been the spark for many states including Nebraska, Alaska and Illinois trying to vote for a minimum wage increase to help speed up the process.
I feel like to fully recover, its going to be a long and slow process. The increase in job creation is a positive sign and the wages will follow, but it will recover more slowly.
U.S. Ranked 65th in the World in Gender Pay Gap
According to the World Economic Forum, there is no country
in the world where women earn as much as men for doing the same job. Currently, the US stands at 66%,
meaning women earn 66% of what men earn for similar jobs. This percentage ranks
65th among 142 polled countries. Burundi, a small African country, has the highest percentage
with 83%. In Italy, women make
less than half of that men make, making only 48%. Some of the countries that have the most equality are those
where many people live below the poverty line, and there are many more low
paying jobs than high paying jobs.
The problem of gender inequality in terms of payment is a global
problem, not just in the US. But the
sad part is that the WEF expects it to take 81 years for the gender gap to
close.
http://money.cnn.com/2014/10/27/news/economy/global-gender-pay-gap/index.html?iid=HP_River
Michigan latest state to ban direct Tesla sales
Michigan, along with many other states, have banned Tesla from selling their vehicles to customers through their "direct-selling" business model. They have no brick-and-mortar store front as many other dealerships do, which allows them to keep their prices cheaper than their competitors. Seeing this as a threat for business, many dealerships have put pressure on the local and state governments to ban or prohibit Tesla from selling in their state.
I think that reactions like this just show how other companies are afraid of something different than how they operate, and they also realize that not being "direct sellers" increase the cost of their products, which would naturally make them less competitive with Tesla and other "direct selling" companies. I don't think it is fair to outlaw Tesla. If other dealerships don't want to go out of business because of Tesla's innovative business model, then they should rethink their model and change what could hinder their competitiveness.
Link: http://www.theverge.com/2014/10/22/7038407/michigan-tesla-ban-signed-into-law
I think that reactions like this just show how other companies are afraid of something different than how they operate, and they also realize that not being "direct sellers" increase the cost of their products, which would naturally make them less competitive with Tesla and other "direct selling" companies. I don't think it is fair to outlaw Tesla. If other dealerships don't want to go out of business because of Tesla's innovative business model, then they should rethink their model and change what could hinder their competitiveness.
Link: http://www.theverge.com/2014/10/22/7038407/michigan-tesla-ban-signed-into-law
Will Lebron James stimulus be good for Cleveland ?
http://www.nytimes.com/2014/11/09/magazine/will-the-lebron-james-stimulus-be-good-for-cleveland.html?ref=business&_r=0
After Lebron James announced his return to the Cleveland Cavaliers, people mostly in the Cleveland area were thrilled and celebrated in the streets. Old jerseys broke out and hope was suddenly restored for the Cavs. This year season tickets sold out after Lebron announced his returned and jersey sales rocketed. Fitzgerald one of Cleveland's boosters "envisioned" that the city will be enriched by this excitement. Restaurants located near the arena who lost a lot of business after Lebron left to Miami are now very hopeful that business will pick up. Also many stores that sell T-shirts and jewelry are also optimistic. LeRoy Brooks, a professor of finance at John Caroll University mentioned that the same people making more money will spend it in Cleveland, therefore multiplying the "James Effect". Brooks also added that James will bring between $163 million and $426 million to the regional economy. Apparently, the Lebron stimulus could reach $285 million and could create about 550 new jobs.
Last year, the Cleveland area's economic output was about $123 billion. By estimates, the return of James wold expand output by less than one half of 1%. On the other hand, other experts believe these estimates are inflated. Cleveland us paying for the right to host James, and the most projected spending is merely dollars circulating around northeast Ohio. In other words what's good for downtown Cleveland is bad for the suburbs. They believe the return of James in effect is a return in that investment. Regardless, some people still see hope. Nike paid James roughly $13 million year to endorse its products. Now James is endorsing Cleveland. The return of Lebron which was announced just a week after the news that the 2016 Republican National Convention will take palce in Cleveland, could also change the way residents think about their city. Mood matters in this case.John Maynard Keynes regarded "animal spirits" as a primary motor of growth. When people are happy or feeling good, they are more likely to take risks and make investments.
In my opinion, people might have good reason for expecting economic growth of that magnitude but i'd be more conservative about estimates than Fitzgerald and co are. what are your thoughts?
After Lebron James announced his return to the Cleveland Cavaliers, people mostly in the Cleveland area were thrilled and celebrated in the streets. Old jerseys broke out and hope was suddenly restored for the Cavs. This year season tickets sold out after Lebron announced his returned and jersey sales rocketed. Fitzgerald one of Cleveland's boosters "envisioned" that the city will be enriched by this excitement. Restaurants located near the arena who lost a lot of business after Lebron left to Miami are now very hopeful that business will pick up. Also many stores that sell T-shirts and jewelry are also optimistic. LeRoy Brooks, a professor of finance at John Caroll University mentioned that the same people making more money will spend it in Cleveland, therefore multiplying the "James Effect". Brooks also added that James will bring between $163 million and $426 million to the regional economy. Apparently, the Lebron stimulus could reach $285 million and could create about 550 new jobs.
Last year, the Cleveland area's economic output was about $123 billion. By estimates, the return of James wold expand output by less than one half of 1%. On the other hand, other experts believe these estimates are inflated. Cleveland us paying for the right to host James, and the most projected spending is merely dollars circulating around northeast Ohio. In other words what's good for downtown Cleveland is bad for the suburbs. They believe the return of James in effect is a return in that investment. Regardless, some people still see hope. Nike paid James roughly $13 million year to endorse its products. Now James is endorsing Cleveland. The return of Lebron which was announced just a week after the news that the 2016 Republican National Convention will take palce in Cleveland, could also change the way residents think about their city. Mood matters in this case.John Maynard Keynes regarded "animal spirits" as a primary motor of growth. When people are happy or feeling good, they are more likely to take risks and make investments.
In my opinion, people might have good reason for expecting economic growth of that magnitude but i'd be more conservative about estimates than Fitzgerald and co are. what are your thoughts?
Saturday, November 8, 2014
The Fed Has Not Stopped Trying to Stimulate the Economy
http://www.nytimes.com/2014/10/30/upshot/the-fed-has-not-stopped-trying-to-stimulate-the-economy.html?module=Search&mabReward=relbias%3Ar%2C%7B%222%22%3A%22RI%3A14%22%7D&abt=0002&abg=0&_r=0
This article is attacking the Fed because when it ran out of room to lower the short-term interest rates, it embarked in a different program. This program bought long-term securities to push down longterm interest rates. This lead to the Fed holding 4.5 trillion worth of assets. By holding this amount of assets it keeps the interest rates to remain low and makes it easier for businesses and families to borrow. THis Wednesday's Federal Reserve decision is supposed to end its bond-buying program. The Fed therefore expect interest rates to remain low for a while. The degree of monetary stimulus the economy is very high, but doesn't mean that is is sufficient. The reason why for that is because unemployment remains high and inflation has continued to run below the Fed's target.
This article is attacking the Fed because when it ran out of room to lower the short-term interest rates, it embarked in a different program. This program bought long-term securities to push down longterm interest rates. This lead to the Fed holding 4.5 trillion worth of assets. By holding this amount of assets it keeps the interest rates to remain low and makes it easier for businesses and families to borrow. THis Wednesday's Federal Reserve decision is supposed to end its bond-buying program. The Fed therefore expect interest rates to remain low for a while. The degree of monetary stimulus the economy is very high, but doesn't mean that is is sufficient. The reason why for that is because unemployment remains high and inflation has continued to run below the Fed's target.
Bitcoins and exchange rate
http://www.coindesk.com/gallery-fire-destroys-thai-bitcoin-mining-facility/
supplementary:
http://qz.com/293418/an-enormous-bitcoin-mine-went-up-in-flames-affecting-the-entire-network/
This article outlines the effects of a large fire on "bitcoin(s?)," a source of online currency without a central bank. As a whole, Bitcoin has run from being ~ 1:1 (bitcoin to US dollar) to a nearly 345:1 exchange rate.
As a whole, bitcoins are an unprecedented innovation in economics; rarely (if ever) in history has there been a currency not backed by an international government. So far, though (and especially as the internet culture has taken off; graphs of the value of bitcoin since 2011 have shown nearly a 3000% increase in value over time), it has been fairly successful as a currency, because people have placed value in it ("arbitrarily," perhaps).
These articles show the effect that one fire can have on the bitcoin production as a whole. Since the currency is not backed by a national bank, it can dip and rise in value to somewhat significant extents, and because of the currency's bases (read article one) are based on CPU processing, the collapse of a serious "mining" operation can have a major effect on the value. As our course has evaluated recently, this severely effects exchange rates and purchasing power.
supplementary:
http://qz.com/293418/an-enormous-bitcoin-mine-went-up-in-flames-affecting-the-entire-network/
This article outlines the effects of a large fire on "bitcoin(s?)," a source of online currency without a central bank. As a whole, Bitcoin has run from being ~ 1:1 (bitcoin to US dollar) to a nearly 345:1 exchange rate.
As a whole, bitcoins are an unprecedented innovation in economics; rarely (if ever) in history has there been a currency not backed by an international government. So far, though (and especially as the internet culture has taken off; graphs of the value of bitcoin since 2011 have shown nearly a 3000% increase in value over time), it has been fairly successful as a currency, because people have placed value in it ("arbitrarily," perhaps).
These articles show the effect that one fire can have on the bitcoin production as a whole. Since the currency is not backed by a national bank, it can dip and rise in value to somewhat significant extents, and because of the currency's bases (read article one) are based on CPU processing, the collapse of a serious "mining" operation can have a major effect on the value. As our course has evaluated recently, this severely effects exchange rates and purchasing power.
Japan Is On a U.S Stock Buying Spree
http://money.cnn.com/2014/11/07/investing/japan-pension-buying-us-stocks/index.html?iid=H_BN_News
In this article by CNN Money, it explains the recent growth in the U.S stock market as a direct result from the foreign investment by Japan. The Japanese have been looking to, and have, diversified their foreign investment portfolio by more than doubling their international stock portion of the portfolio to 25% from a mere 12%. This has resulted in about a $50 billion to the market for Americans.
Japan has one of the largest pension fund in the world, a whopping $1.1 trillion dollars, and as a result of this, they are now starting to deploy this money into different markets, mainly blue chip stocks with high dividends. All of this is due to Prime Minister Shinzo Abe's efforts to kick start the Japanese economy through stimulus spending known as "Abenomics".
In this article by CNN Money, it explains the recent growth in the U.S stock market as a direct result from the foreign investment by Japan. The Japanese have been looking to, and have, diversified their foreign investment portfolio by more than doubling their international stock portion of the portfolio to 25% from a mere 12%. This has resulted in about a $50 billion to the market for Americans.
Japan has one of the largest pension fund in the world, a whopping $1.1 trillion dollars, and as a result of this, they are now starting to deploy this money into different markets, mainly blue chip stocks with high dividends. All of this is due to Prime Minister Shinzo Abe's efforts to kick start the Japanese economy through stimulus spending known as "Abenomics".
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