For China and Japan, the Economic Challenges Ahead are Similar

When it comes to economic policy, Beijing and Tokyo have very similar goals. Both countries want to fight against the changes in their economy due to the mounting debt and rapid growth in population. In China, the government is trying to move the economy towards more domestic consumption and growth in the service sector. In Japan, the government is trying to haul the economy out of years of deflation and lethargic growth. 

Faster growth is hard to achieve and much of the hard work has yet to come. Both countries are going to face a tougher challenge of making their economies and business environments more efficient and competitive. "For both China and Japan, the problems are deep-seated and structural". It's not about being able to cut interest rates to stimulation growth, they have to do a lot more. 

http://www.nytimes.com/2014/04/18/business/international/for-china-and-japan-the-economic-challenges-ahead-are-similar.html

China and its future

http://www.economist.com/news/special-report/21600797-2030-chinese-cities-will-be-home-about-1-billion-people-getting-urban-china-work

Great article building on the future of China. I think it covers a lot in class and builds on it. This is because, now we can understand a lot of the context more than we would have before we took this class. China's urbanization is what helped increase GDP, but now that is a problem and how China will react will define the Economic Systems class of the future.

Fears Grow Over China Property Flameout

In the United States, we can look back and remember our housing crisis, it just happened a few years ago.  China now might have one looming on the horizon.  But, there's a possibility that while it may happen, foreign investors will largely be protected as because much of China's markets are closed to foreigners, which gives some relief to the world as they remembered some of the global fallout from America's housing bubble bursting.  But the internal fallout could be just as bad, hitting China's banking sector.

However, promising signs show, such as resilience in the labor market, which isn't starting to fall, indicating that perhaps the future is not as bad as it might seem.

Read the article here.

The best place for entrepreneurs: Detroit

Entrepreneurs claim that Detroit is one of the best cities to start their new business ventures because there is such flexibility in the city.  The city is filled with unused buildings and many people seeking job opportunities, all possible at a fraction of the cost.  Crime rates are still one of the most daunting challenges in the city; however receiving loans for banks is also extremely difficult.  The bankrupt city claims that businesses and residents are still functioning, and the arrival of entrepreneurs will hopefully spark excitement.  Inexpensive real estate costs are a huge perk to business ventures, however the sustainability of their shops and homes is struggling.  But the pros are outweighing the cons, and there is much hope for Detroit.  There are nearly 50 programs that support developing ventures.  Whether in the technology, mentorship, food, retail, or advertising industry, Detroit is doing its best to make a comeback.    

 

http://www.nytimes.com/2014/04/17/business/smallbusiness/entrepreneurs-seeking-a-place-to-start-a-business-find-a-surprising-answer-detroit.html?ref=business

 

Toyota Recalls 6.4 million vehicles

Toyota is recalling 6.4 million vehicles globally over five separate issues. Some 3.5 million vehicles are being recalled to replace a spiral cable attached to the driver's side airbag that may be damaged when the steering wheel is turned and result in the airbag not being deployed in a crash. However, Toyota said it was not aware of any vehicle crashes, injuries or fatalities caused by the numerous conditions. This is not the first time a recall of similar magnitude is being done by Toyota. The latest recall, which affects 27 different models, is the fifth major one that the company has issued in recent months. Not surprisingly, these recalls have had negative effects on Toyota’s sales (revenue). However, recalls are not uncommon in the industry. For example, General Motors is in the middle of recalling millions of vehicles as well. Will Toyota once again weather the storm?

Heartbleed's Implications for the Banking Industry

First off, an irrelevant pet peeve: I hate stock graphics with flowing ones and zeros in the context of any computing-related news story. That the notion of code bugs is so prevalently dumbed down into the words "VIRUS" and "TROJAN" rendered floating amongst said binary bits is equally depressing. Of late, the so-called Heartbleed bug has come to the fore, and given its huge implications in numerous industries, reporters are already treating it as some arcane, science-fiction force. Although the gravity of the situation is not understated, the nature of it is certainly overstated.

Suppose you have a boss, who gives you a very specific set of instructions that must be followed to the letter. One of these instructions has enormous potential to be exploited by evildoers, but neither you nor your boss are aware of this. If a customer or client were to approach you and exploit this oversight right before your eyes, you might think, being an intelligent human being, that something really ought to be done about this flaw, as you serve the customer. Further suppose that your job is to find a customer's paperwork in their file, and hand it to them. Most customers will give you some files at the desk, whereupon you read the Boss's instructions:

1. Process the files the customer just gave you and remember the amount of paperwork they said they submitted
2. Go to the file cabinet
3. Find the customer's file
4. Get as much paperwork as the customer just said they gave you
5. Give the new paperwork back to the customer

The typical customer might give you, say, 5 forms, so you process the 5 forms and give them 5 new forms from their file in the cabinet. Our Evil Customer, Eve, gave you 5 forms, but said she really gave you 65535 forms and expects 65535 forms back from the file cabinet. 65535 seems like a lot, but you remember your boss's directions to the letter: you process the 5 forms, remember that Eve gave you 65535 forms, find Eve's file, and give her 65535 new forms. Of course, Eve's file isn't even that big. After you pull Eve's 5 new forms from the file cabinet, it starts spilling over into other people's files, but you gather all of these anyway until you have 65535 forms, containing other customers' sensitive information. Eve thanks you for your help and leaves.

As you can plainly see, it's not that the entire bank is flawed to its core. The solution isn't to burn down the bank, nor to execute all current employees, but--as you probably gathered--to change Steps 1 and 4 so that you save the amount of paperwork they gave you, not the amount they said they gave you. If C programs could talk, they'd have alerted someone to this problem ages ago, as you would have in the bank scenario. See? This was far more straightforward to comprehend than looking at a graphic of the word "HACK" centered in a field of floaty green bits.

All of the code that enumerates these instructions is publicly available for anyone and everyone to view. While trusted institutions, like those to whom you give passwords, use OpenSSL and peruse its framework, criminal hacker rings and rogue government organizations scrutinize the code vigorously to try and find such vulnerabilities for their own use. Financial institutions may try to uphold a reasonable standard of trust, but so long as the standards they use are better understood by ill-intentioned persons, the entire financial system is compromised due to lack of trust.

In the short run, organizations will incur costs by having to flush databases and reencrypt the data therein, swap their private keys, and urge their customers to change their almost surely compromised credentials. I, like nearly everyone else, find myself overwhelmed by the prospect of changing so many passwords across the internet, so this is nothing short of an incredible nuisance. But financial institutions may see fit to prepare for such incidents in the future by forming coalitions to scrutinize certification algorithms as well as, or better than, criminals. It seems like a basic step to take, but organizing private groups and motivating them toward collective action for the greater good is never anything short of a challenge.

Eastern Ukraine Violence Brings ‘Crunch Time’ for U.S. and EU

http://www.bloomberg.com/news/2014-04-13/-crunch-time-for-u-s-eu-as-pro-russians-battle-ukraine-forces.html

This article analyses the impact of further European and US involvement in Ukraine's crisis. The main discussion revolves around further economic sanctions from the West on Russian businesses. The problem here has to parts. One is the backlash the governments of the West are receiving from companies that do business in Russia. The second part is great uncertainty that further economic sanctions will have impact on Kremlin's decision to continue their detribalizing mission in Ukraine.

Russia has gone too far and Putin realizes it. The entire world understands the situation and the propaganda that Putin sells to his people. Russia lost great deal of legitimacy on the global stage but it maintains support of countries that have historically opposed the West. What is happening today has clear signs of the Cold War standoff but with Ukraine being a battleground. Russia's benchmark has fallen 8.5% since February and the ruble (Russian currency) has fallen in value, but that had little affect on Putin's actions.

Those the West has to make a critical decision about what sanctions actually work and will eliminate a chance of military intervention. Further economic sanction on energy and banking sectors will put strain on Russian economy but might not force Putin to withdraw from Ukraine.

World Bank and IMF Updates

At recent World Bank and International Monetary Fund meetings, relief over the seeming emergence from the global financial crisis was undermined by worries about post-recession economies' ability to sustain economic recovery and growth efforts. Pointing to rates of deflation, lagging rates of investment, and concerns over the global economic implications of the situation between Ukraine and Russia, officials are concerned that countries will recover in the short term but be unable to sustain recovery in the medium and long terms. In addition, officials are worried about the tenuous nature of international investment rates in developing countries - without assured investment, the World Bank and IMF argue that development may stagnate.

I think this article reiterates the idea that investment in an economy creates a model for sustainable economic development. In addition, the idea that investing in the development of other economies can benefit the investor country because it creates potential trade and mutual development relations.

http://www.nytimes.com/2014/04/13/business/international/finance-officials-push-for-bold-action-to-sustain-economic-growth.html?ref=international

Three Expensive Milliseconds

Interestingly, the article announced that we are about to complete a tunnel, which costs hundreds of millions of dollars not to transport passenger or freight but to carry fiber-optic cable, which would save "three milliseconds" of the communication time between future markets of Chicago and the stock markets of New York. Wow! (and meanwhile, four years ago, we did cancel another "desperately needed new rail tunnel" nearby )
This expensive 3 million second is to serve the "high frequency traders". Obviously these traders must have benefited a lot to be able to influence someone to pass / or to pay for this tunnel. However, aren't these arbitrageurs? Yes, their value is that they get the market back to the equilibrium, which is important. However, they are not producing anything, they are not adding any value to the economy, and also not investing into the future, they are basically take advantage of the inefficient market ... by "millisecond".
Well if it is their money, they have the right to do it. If it is not they may have the power to do it. No matter what, personally it seems kind of wrong how much we value present (to the extent of millisecond) rather than the our future (education and environment) !

http://www.nytimes.com/2014/04/14/opinion/krugman-three-expensive-milliseconds.html?ref=opinion

Singapore Maintains Currency Stance as Economic Growth Slows

Singapore Maintains Currency Stance as Economic Growth Slows

This Bloomberg article discusses the Central Bank of Singapore's decision to continue a gradual appreciation of the Singapore dollar. This decision was made in an attempt to "curb inflation while supporting growth as the economy expanded less than analysts estimated last quarter." Singapore’s manufacturing sector grew 4.5 percent in the first quarter from 3 months prior, compared with 10.4 percent in the final 3 months of 2013. Services fell 1.8 percent in the same time frame, while construction expanded 10.7 percent. The article discusses the likely transfer of capital back to wealthier nations in the coming months if growth is not spurred in the city-state island. 

U.N. Climate Panel Warns Speedier Action Is Needed

It is no surprise that global warming is a problem, but we are now starting to find that it is a more pressing problem than we thought.  According to this article, there was a study done saying that if we do not start taking aggressive action against climate change, it will become extremely expensive, and almost impossible, to take action against it in the future.  Fortunately, we are finding that the world leaders are more supportive of environmental preservation than they have been in the past, so the likelihood of action being taken is higher, although, at this point, it is still not high enough.  Developing countries are using coal plants at an alarming rate, while wealthier, more developed nations are making adjustments to fight climate change more slowly.

http://www.nytimes.com/2014/04/14/science/earth/un-climate-panel-warns-speedier-action-is-needed-to-avert-disaster.html?hp&_r=0

Unemployment in America: Closing the Gap

http://www.economist.com/news/finance-and-economics/21596529-americas-labour-market-has-suffered-permanent-harm-closing-gap

This article talks about the gap between potential labor and actual labor. The numbers look at the unemployment in America. It calls for concern in the idea that the amount of labor called for may be permanently stunted. This would be a major concern for America as unemployment would always remain high if that were the case. It is an interesting article if you are interested in unemployment and how it affects our economy.

More US Sanctions on Russia

http://online.wsj.com/news/articles/SB10001424052702303873604579495991860073278?mod=WSJ_hp_LEFTWhatsNewsCollection&mg=reno64-wsj

The US has stated that they are prepared to "step up sanctions" against Russia if Russian military actions do not end in Ukraine. The article states that it is unclear how these sanctions can be effective in slowing the revolt. These sanctions will target Russian business sectors including mining, banking, and energy. This increase in sanctions is the most visible sign of US anger towards Russia and resulted from the Russian activists seizure of government buildings on Saturday.

Will these sanctions help end the violence? Or will Russian activists continue to ignore them?

The Future of Finance

We always pride ourselves in are free markets and say little government involvement is the best. However, the last financial crisis in the mortgage market was helped along by the subsidies and government insurance in banks. These policies increase risk-taking because if a bank is government back they don't feel the need to actual look in depth at their performance. The article says "governments should as far as they could treat financiers like any other industry, forcing bankers and investors to take as much of the risk as possible themselves. The more the state protected the system, the more likely it was that people in it would take risks with impunity."

If we continue on this path of state involvement and cradling of the financial markets we will mute the beneficial effects of finance. "Healthy financial markets speed up an economy, channeling credit to firms that need it. They can also make an economy fairer and more competitive, providing the funds for those without them to challenge incumbents. Modern finance is a more slanted system in which savings are drawn towards subsidies and tax distortions. Debt-fuelled housing goes wild while investment in machines and patents runs dry. All this dulls growth."

How do you think we should go about changing the state and federal involvement in the financial market?

http://www.economist.com/news/leaders/21600699-state-subsidies-and-guarantees-are-once-again-corroding-financial-sector-and-creating-new

Abdullah leads in first results of Afghan vote

For those of you that do not know; last Saturday, Afghanistan had its third presidential election.  This will be the first time in Afghanistan that presidential powers will be handed over peacefully.  Despite international concerns for the election and Taliban promises, there have been little to no terrorist attacks to intimidate the voters.  This compared with Iraq's recent elections, has led me to believe that Afghanistan is turning out to be quite a success story.  According to a friend in Kabul, people were excited to cast their vote, and you don't have to look any further than the number that went out and voted to see this: 58% (an equivalent percentage to the number that voted in the US 2012 election).  The two front runners, Abdullah Abdullah and Ashraf Ghani are both businessmen and seem like good choices for Afghanistan's future.  Ghani is more favored in the international community, because he has spent many years abroad, while Abdullah appears to be the hometeam favorite.  Abdullah, looking at his record, seems better suited because of his dedication to liberate Afghanistan from Taliban oppression during the late 90s.

http://www.reuters.com/article/2014/04/13/us-afghanistan-election-idUSBREA3C07T20140413