Obama Orders Federal Contractors to Provide Workers Paid Sick Leave

President Obama signed an order that required the federal contractors to pay sick employees up to seven days a year.  When addressing the union audience on labor Day Obama he berated the people in congress that they were trying to shut down taxpayer financing for Planned Parenthood.  Obama's executive order on paid leave was to appeal to his union base.  Unfortunately, this won't have any significance until after Obama's presidency around 2017.  What Obama hopes for is that it will set a bar for state and local government to expand their leave policies.

http://www.nytimes.com/2015/09/08/us/politics/obama-to-require-federal-contractors-to-provide-paid-sick-leave.html?ref=us&_r=0

Puerto Rico, Will it be saved?

In recent Business Insider articles, journalist discussed the ailing financial well being of Puerto Rico, a commonwealth of the United States. The nation has racked up a jarring $73 billion in debt as a result of excessive spending and little control.

            The economy is on the verge of collapsing; yet United States legislature has been doing little to support the growing debt and the nation cannot declare Bankruptcy under their own laws. Instead, the US legislation has had their focus on the Iran Nuclear deal, and even the risk of a government shut down in today’s volatile economy.

            With Puerto Rico, risking running out of cash flow by November, the governor and Puerto Rican people are forced to seek support in non-traditional manners. The have pursued Wall- street creditors as opposed to U.S. congress, in order to initiate a plan for economic relief and revive the Puerto Rican economy.  Wall Street creditors have not been confident in Governor Alejandro Padilla’s forecasted plans on how to restructure the economy and have in turn down graded the nations credit rating to CC from CCC. Additionally creditors are blowing off his proposals as they imply that he is asking for a debt “haircut” rather than having to pay back the full amount. In order for Wall Street to come to the rescue, Puerto Rican citizens have to comply with strict austerity measures and really let life get worse under these before life gets better. This risk of worse before better is not something the Puerto Rican people want to see, thus leaving the nation in further trouble as they search for outside financial support. To paint a picture of how things must change in order to receive support, Puerto Rico would hypothetically have to go to living frugal lifestyle, one comparable to Nordic EU nations during economic turmoil. Lifestyles that include living off little, and losing a majority of earnings to the restructure of economy (unemployment spikes, . Puerto Rico’s struggles come at a tough time as Greece’s debt crisis is still in the spotlight and Puerto Rico’s debt situation bears a strong resemblance, aside for the fact the EU is forced to help Greece and the United States is instead leaving Puerto Rico in the hands of Wall Street sharks.

“Many unhappy returns”

The article goes into detail regarding the fluctuations of prices regarding equities, bonds and residential property. The Deutsche Bank analyzed the average valuation of the three assets of 15 countries. However; it concluded that the priciest of the three assets were bonds, coupled with low inflation and the central bank purchases of government bonds lead to very low nominal yields.

With bonds now yielding essentially 2.2%, this means that future nominal returns are likely to be even lower. Even though equities may be able to deliver a normal “risk premium” over bonds with around four percentage points, that would still end up becoming 6-7% ( which is not very high). In terms of the overall portfolio it would be damaging in the sense that the optimum target wouldnt be reached.

In terms of the public sector, it would need to accept the impact of future lower returns. It would have two choices essentially, either employers contribute more or the funds could be used to cut benefits. Which may not be optimal.

In terms of the American pension funds, anyone looking into being secure for their retirement, has the option of saving more, since the average pension scheme is only 10% of employee salary. This by far would not be the optimal return for future endeavours.

Article link:

http://www.economist.com/news/finance-and-economics/21664152-high-valuations-should-give-investors-pause-many-unhappy-returns

WSJ Survey: Economists Expect Fed Rate Liftoff in September

A large amount of economists believe that the Federal Reserve will be raising interest rates at the September 16-17 meeting. Approximately 82% of economists said that they believe that the Fed will raise the interest rate, while only 13% said they think the Fed will wait until December. Over the past couple of months more and more economists believe that the interest rate will be raised in September. If the interest rate is lifted it will be the first time the Fed has raised interest rates since 2006. The rates have been sitting right around zero to pull our economy out of the recession and stimulate a recovery. The President of the Federal Reserve Bank of Atlanta, Dennis Lockhart, stated, “It will take a significant deterioration in the economic picture for me to be disinclined to move ahead.” Janet Yellen said that the Fed will most likely be raising interest rates in September. She also said that there are risks associated with tightening too soon which is why they have waited so long to raise rates.

http://www.wsj.com/articles/wsj-survey-economists-expect-fed-rate-liftoff-in-september-1439474573

Obama needs to crack down on China

The partnership between the United States and China plays an extremely vital role in the world economy. With the two largest economies and populations in the world it is very important for the two countries to find some middle-ground. $579 billion goods and services were traded between the United States and China in 2012. Two-way trade and investment between the two nations boomed, which benefits consumers and businesses alike. This partnership increases the understanding of cultural differences between the two nations.

            Problems began to arise as there were new barriers for foreign-owned company operations to establish production. Other problems arose through the regulatory system as intellectual property theft became rampant which restricted international companies to conduct business in China. Targeting American and other Western companies for regulatory abuse is causing international enterprises to question if doing business with China is in their best interests. Qualcomm is a prime example of this Chinese abuse private foreign companies were experiencing. Qualcomm was forced to pay nearly a $1 billion fine for alleged violations of China’s antitrust law. The Chinese government was also found restricting American tech companies stating that there were new cyber-security regulations that were put into place. Another government abuse case came from the intervention of the meat-processing company OSI Group. Local Chinese authorities abused the nation’s propaganda by using state-owned television station to report news.

            China still gained $119.6 billion in foreign direct investment last year which attracts international businesses. Foreign companies will continue to be cautious, however, because United States investment into China has continued to decline. This is mainly from the political and economic uncertainty and corruption the government is known for. Privately owned firms will have to be careful in conducting business with China as regulations grow and propaganda continues to be controlled by state-owned enterprises.

           

http://www.cnbc.com/2015/09/09/-down-on-china-shakedowns-commentary.html

U.S Import Prices Record Biggest Drop in Months

CNBC reported that the United States as of August, had recorded their biggest drop in import prices in the past seven months, which can be attributed to two variables. The reasons for the decline as stated by CNBC was due to the decrease in petroleum prices, as well as the wide variety of other goods. This can be attributed to a strong U.S dollar and a weak global economy in terms of demand. The United States economists had predicted a fall in prices (1.6%), just not to the severity of the current situation (11.4%). This has been the largest drop in import prices since the recession in 2009. 

As a result of this, there has been a good amount of pressure now focused on the Federal Reserve with how they're going to treat the current economic situation, which as stated by CNBC is "a low inflation in the face of a tightening labor market and strengthening economic growth." The choice the FED has been faced with is whether or not to raise interest  rates, which hasn't been done in the U.S for nearly a decade. 

This dilemma will be settled on September 16-17 when the policy setting committee meets to determine whether or not the U.S central bank will raise rates. This is all occurring due to market failures as a result of a weak global economy which in turn is resulting in incomplete markets. 

http://www.cnbc.com/2015/09/10/us-import-prices-post-biggest-drop-in-seven-months.html 
 

Hong Kong Is Not Really A Laissez-Faire Economy

The South China Morning Post writes that despite what America says about Hong Kong, it is in fact very heavily state-directed. They believe that the government also needs to play a bigger role in livelihood and welfare issues, and they argue that too much money and time is being spent on infrastructure and high-speed trains instead of the well-being people of their people Currently, about 45% of housing was built by the Hong Kong government, and they spend approximately $74 billion a year on education, their largest government expenditure. They compare what they should be doing to Singapore's Central Provident Fund, which takes out 36% out of every person's wage. To me, this discourages entrepreneurship, since it completely defunds it. Higher taxes on people of Singapore and Hong Kong discourages innovation and creativity, and problem solving is erased. However, government intervention should increase in Hong Kong, particularly in environmental concerns, since living conditions and air quality there are extremely low, and some of the worst in the world. http://www.scmp.com/business/article/1856163/hong-kong-can-hardly-be-called-laissez-faire-economy

Corporate Efforts to Address Social Problems Have Limits

Michael E. Porter of Harvard Business School and Mark R. Kramer, the managing consultant, have articulated a concept they call "shared value," which is based on the belief that companies can increase their profits while also addressing pressing social problems. Several large businesses have attempted to do so. For example, Exxon Mobil put $125 million toward training teachers in science, technology and engineering so that it has a larger pool of skilled workers to higher from in the future. Another example, studied by Harvard Business School, is Southwire, a family-owned maker of wires in Georgia which staffed an entire factory with students at risk of dropping out of high school, requiring them to stay in school in order for them to keep their jobs. The county's high school graduation rate increased by 10% and within 5 years the factory was adding $1.7 million to earnings.

While these businesses had successful experiments with incorporating social issues into their businesses, social and corporate objectives are most often not aligned. However, it has been found that many executives believe that the growing gap in income and opportunity is not only bad for the country but for business as well, as it curbs consumer spending, undercuts worker morale and can produce political polarization. Businesses are starting to realize that low wages can be costly in that they drain motivation and increase worker turnover. Additionally, companies are beginning to reevaluate outsourcing to cheap labor markets in light of the growing importance of flexible production schedules and proximity to customers, as well as an increase in piracy among outsourced labor.

While these prospects for social change through changing business dynamics look somewhat promising, addressing the U.S.'s income inequality may also require higher taxes, more stringent regulations and other changes that high-income corporate leaders would most likely not support. Robert M. Solow, a Nobel laureate in economics, believes that changing the determination of income should entail changes in corporate governance. These examples show that it is possible to merge business and social issues, however large companies like fast food chains do not appear to show much support for "shared value" initiatives, as displayed on a billboard in New York with the message: "What, I get 30,000 a year with no experience or skills? Who needs an education or hard work?"


http://www.nytimes.com/2015/09/09/business/economy/corporate-efforts-to-address-social-problems-have-limits.html?ref=economy&_r=0

Threat of euro zone deflation not rising: Bank of Italy

http://www.cnbc.com/2015/09/05/euro-zone-deflation-risk-contained-bank-of-italy.html

It looks likely that the European Union will not experience deflation this year but could still have "very, very low inflation" which is still a problem. The European Central Bank (ECB) expects inflation of 1.1 % and GDP growth of 1.7% in 2016. The Greek crisis was definitely a factor in the volatility of the European economy and the exchange rates. The ECB has stepped in to hopefully correct and stabilize the economy to some extent.

It is expected that the ECB could continue its quantitative easing program past September 2016, which was the original plan, if necessary. This is an example of the government and stepping into the markets and helping to stabilize the economy. If they do not do this the situation could be much worse but it also is a situation of government interference in the markets. The problems would eventually be solved by the markets if left as is but with must more volatility.

Technology Firms Resist US Over Access to Data

In June of 2013, former contractor for the CIA, Edward Snowden, leaked information about the US government concerning confidential information that had been obtained through spying on other countries communications.  This breach in security left consumers and other countries concerned with the safety of their information and communications. Since then, there have been other instances where the US government has asked for information from corporations such as Microsoft and Apple to assist in their investigations into various crimes. 

When Apple was asked by the Justice department to allow them to see text messages that their suspect had sent, Apple responded that: “Its iMessage system was encrypted and the company could not comply.”  The government had warned consumers and companies that this would happen due to the increase in advanced encryption used by Microsoft and Apple in order to ensure the safety of information for their consumers.  Currently, the investigation on Apple is tabled and no new developments have surfaced. 

However, Microsoft is now being asked to reveal by the Federal Court of New York to release emails sent by drug trafficking suspects to aid in the investigation.  However, Microsoft refused by saying that the information would be held in an Irish database as the emails were sent from Dublin, Ireland. 

In both of these examples, they have demonstrated a heightened company resistance in regards to the safety of information sent by their consumers.  If the US government is able to win this case and obtain these various emails from an Irish database, then that will open the doors for other countries to have access to communications from US databases as well.  Consequently, if this were to happen both national and public safety of information would be at risk.  Some Chinese firms have already made plans to build facilities on American soil in order to have access to communications sent across the country. 

Currently, Apple and Microsoft use encryption as their main mode of safety which inhibits the ability to obtain email and messages.  In order to combat this, government agencies would like for companies such as Apple and Microsoft to adopt and function under the wiretap legislation.  By doing so, the legislation states that listening to live communications is under violation, however forms such as text messages and emails are able legally be obtained.  While the issue is still being debated, Apple and Microsoft have said they would be willing to compromise under the right circumstances.  However, public and national security are still the number one factor to consider moving forward as well as the implications it could have for foreign countries to have access to US information and vice versa.    

http://www.bbc.com/news/world-us-canada-23123964

http://www.msn.com/en-us/news/technology/technology-firms-resist-us-over-access-to-data/ar-AAe2N0v

http://communications-media.lawyers.com/privacy-law/wiretapping.html

Europe is Finally Confronting the Migrant Crisis

     Hungary has become the major transit country for migrants arriving in Greece with the hopes of reaching Germany. Hungary's prime minister, Viktor Orban, has been very combative when it comes to the tens of thousands of migrants currently inside the country. His concern is to preserve Hungary's Christian roots while many of the migrants are Muslim. Orban made the decision to build a razor- wire fence along the border with Serbia to address the migrant situation. 

     This goes against the EU's proposed plan that will relocate 160,000 asylum-seekers across Europe. To determine the number of migrants each country must accept the EU will use a formula incorporating population, GDP, and the unemployment rate. Previous attempts to impose quotas has failed due to opposition from eastern European leaders like Orban. 

     It is unclear whether this proposition will pass in the EU. There is a meeting set for September 14th with the EU interior ministers that will reject or accept this proposal. So far this year 350,000 migrants have reached Italy and Greece this year and people are continuing to make the dangerous journey to safety. What do you think of this proposal on how to relocate migrants across the EU? Is it a fair way to distribute migrants across the EU?     

http://www.economist.com/news/europe/21663496-hungarys-outspoken-prime-minister-has-spurred-europe-action-europe-finally-confronting   

The International Monetary Fund has recently cautioned that China's current economic situation may potentially pose future threats to global growth and expansion. As of recently, China's stock market shakiness along with their slow economic growth has affected commodity prices drastically. Prices of certain commodities, such as oil and copper, are drastically declining which is negatively affecting exporters like Brazil and Russia. At the time of August 11th, when the Chinese Yuan was devalued, U.S. Secretary of the Treasury Jacob Lew advised against manipulating the currency. He warned this would give exporters an unfair advantage.

In the next couple of days, the Federal Reserve will be meeting to decide what to do with this year's interest rates. If the Federal Reserve raises rates for the coming year, it could potentially be worrisome for global economic growth. The IMF believes they should maintain loose monetary policies and growth-friendly fiscal policies. The Federal Reserve should make a decision driven by data in order to prevent and premature increases in interest rates.

Although China's current situation may be troublesome for overall global growth, there may be a positive spin to the global panic. India may actually be potentially benefitting from the economic spin due to India being one of the world's largest commodity importers. India believes that their investments will increase as commodity prices drop.

The pending economic condition will unravel in the days to come, with the Federal Reserve meeting. Thus, any positive or negative outcomes of China's economic uncertainty will continue to be established.

http://www.bbc.com/news/business-34136747
http://economictimes.indiatimes.com/news/international/business/china-crisis-poses-threat-to-global-economy-says-imf/articleshow/48796051.cms

U.S. Trade Deficit Falls

Recently the U.S. trade deficit has fallen 7.4% to a five month low in July. The trade deficit represents the difference between exports and imports. This fall was caused by a 0.4% rise in exports and 1.1% decline in imports. In total, the decline brought the deficit down to $41.9bn from $45.2bn in June. It is encouraging to see that our exports are increasing, but is concerning to see how much our imports fell. As a major consumer of Chinese goods, I would expect U.S. imports to rise since they recently devalued their currency. Also, the dollar is strong right now so I would expect increased imports. Could this be a sign of economic slowdown on our part?

Complementary to the previous comment about our lack of imports from China is the fact that the U.S.’s deficit with China has grown 8.5% since 2014. This bolsters the fact that we have been gradually increasing our exports, but are consuming less. The U.S. trade deficit also increased with the EU and is now at a new record high. Clearly the U.S. is doing well in terms of exports, which is good for our economy. Although, U.S. economic growth is expected to be 0.1% lower this year than last.

Source: www.bbc.co.uk/news/business-34139983

New record of the exchange rate depreciation of GBP

The value of Sterling against the dollar has dropped for 9 consecutive days since August 24th, breaking the record for the longest continuous decline of currency since 2008. Even if the European Central Bank on Thursday hinted at the expansion of the QE, the pound will have no improvement over the euro, and will continue to have lowered in value for five consecutive weeks

Britain’s increase in interest rates is expected to support the pound against the dollar. At the end of August, the value rebounded to above 1.58, and in the vicinity of the struggle is now 1.52. The euro has been against the pound for 5 consecutive weeks, the longest rebound since 2012. The exchange rate of Sterling is currently more than 3% of the median value of the survey from the Bloomberg News agency.
Standard Chartered Bank G10 currency strategy director Steve Barrow pointed out that after the May election, a sell-off would be extremely heavy.

For Labor Day Drivers, Lowest Gasoline Prices in 11 Years

Even though the global stock market has been unstable in recent weeks, gas prices for Labor Day weekend are supposed to be quite low. Oil prices have been down 50% since last summer, and the expected gallon total is around $2.42. Even though this is considered to be good news for consumers, this may signal the slowing down of the global economy.

Typical oil barrel prices currently range from $45-$50, though they have varied with the crazy stock market. There are some predictions that gas may go down to $2.11/gallon in the fourth quarter. And the average gas prices for the year would be around $2.41, which is about a dollar lower than 2014's prices.


Link: http://www.nytimes.com/2015/09/05/business/energy-environment/shrugging-off-market-turmoil-gas-prices-extend-slide.html?ref=business

Gasoline Prices to Tick Downwards As Oil Glut Remains

Gas Prices could drop below $2 a gallon by Christmas, the last time that happened was in 2004. And the cost of gas has steadily been dropping since June 2014. The Number one factor is soft oil prices, one reason being that back in October Saudi Arabia attempted to cut crude prices in order to drive costlier companies in the U.S. out of business. Another reason being that there is a reduced demand for oil in China, who had passed the U.S. in imports for oil but their has been a gradual economic decline.
It's great for consumers, not so much for drillers and gas companies
Article 1: 
https://www.mainstreet.com/article/gasoline-prices-to-tick-downwards-as-oil-glut-remainsArticle 2:
http://wypr.org/post/oil-prices-tumble-again-hurting-drillers-helping-drivers

New jobs numbers do little to illuminate the Fed's path

Although the Fed has been quite reluctant to raise interest rates sharply over the past few months, new labor statistics data might just allow them to gradually increase the rates in the next few months. 173,000 workers were added by the employers to their payrolls in August, below the average of 247,000 for the preceding year. This helped bring the unemployment rate down to 5.1% from 5.3%, close to the natural rate of unemployment. However, if this trend continues and that rates drop even further, the Fed’s models predict that wage growth and inflation will increase. So Fed might just be a little more willing to discuss about increasing the interest rates in their next meeting.

Concerns and uncertainties still remain. Some Fed researchers have said that the fall in equilibrium employment with a decrease in the labor bargaining power might have caused unemployment to go down compared to historic rates. If workers have less bargaining power, then unemployment may continue to fall even further without causing wages to go up. Inflation expectations, global uncertainty, and market volatility just add on to the list. All we can do now is wait and see how the Fed handles the situation. The outcome of the mid-September meeting will be something to watch out for. 

Link : http://www.economist.com/blogs/freeexchange/2015/09/american-economy