VW faces 'about the worst situation': Ex-GM exec

As many of you may have heard, Volkswagen was found to have lied about their new engines that have been developed.  They made created engines that when they were being tested worked within the boundaries of the legal carbon emission rates.  However, the engines that were mass produced and sold to consumers did not meet these standards.  Because of this, Volkswagen could potentially face upwards of $18 billion.  However, there may be multiple facets how this problem arose to the level that it did.  Their former chairperson, Ferdinand Piech, created culture within Volkswagen that was ruled by fear.  It was stated that, "Ferdinand Piech ... is a very, very hard dictatorial, my-way-or-the-highway type of person who constantly [was] firing people, threatening people 'you better succeed at this or you're out the door, Lutz said."  When you have this kind of culture people will lie and cheat for fear of losing their job.  Consequently, Volkswagen does not see any way that they can make these engines work as efficiently as they did while still being within the legal guidelines.  

I think this is a great example of how important company culture is within a business and also how important it is to find people who fit within your company so that it will function as fluidly as possible.  Do you think Volkswagen will be able to sell their cars in the United States or do you think they will have to sell their cars in different countries where the emission regulations may not be as strict? 

https://www.yahoo.com/autos/s/vw-faces-worst-situation-ex-120800972.html

Janet Yellen Says Fed Is Likely to Raise Interest Rates This Year

Janet Yellen is telling everyone that the Federal Reserves is still going to raise its benchmark interest rate this year.  She told people that the Fed hasn't done it yet because the labor market condition were doing better and inflation was expected to follow in the increase.  On top of that, she believed that the US growth wasn't good enough to increase the interest rates.  The next committee meet at the end of October and the middle of December.  There were two other Fed officials that agreed with Yellen to delay the increase in the rates until later this year.  They wanted to make sure they had more recent economic data before increasing the interest rates.  The decision in September was very close to raising it and is becoming more realistic to happen in the next few months.  There were a couple risks for the Fed's forecast that could push liftoff into 2016.  Something that Yellen said, which was very important about inflation "To be reasonably confident that inflation will return to 2 percent over the next few years, we need, in turn, to be reasonably confident that we will see continued solid economic growth and further gains in resource utilization, with longer-term inflation expectations remaining near their pre recession level." She believe that the United States economy is stable.

http://www.nytimes.com/2015/09/25/business/janet-yellen-says-fed-is-likely-to-raise-interest-rates-this-year.html?ref=business&_r=0

Uber Rivals Form International Alliance

http://www.wsj.com/articles/uber-rivals-form-international-alliance-1442429031

The article that I chose was “Uber Rivals Form International Alliance,” by Douglas Macmillian and Rick Carew. This article talks about how companies who oppose Uber are trying to form an alliance to gain ground against Uber. Since Uber has been acting like a monopoly, many taxi service companies have been getting hurt badly. The companies that have made a deal or somewhat a merger are the U.S Company Lyft Inc. and the Chinese company Didi Kuaidi Joint Co. They agreed that a user of both apps could get rides in the other country and not have to use foreign currency. An example of this would be a Chinese citizen going to the U.S on business could use his Didi Kuaidi Joint app to hail a ride from the Lyft app and still pay in Chinese currency. Didi also invested 100 million dollars in Lyft, which is a large contribution. These companies are doing whatever they can to slow down Uber, and they are even trying to expand their alliance with other car service companies. Uber will be very hard to battle with because of its growth and power. Uber is in over 60 countries, and has raised 8 billion dollars in equity and debt financing. This is more than any other company. Both Lyft and Didi are trying to find as many investors as possible in order to compete with Uber. An example of a investor that Didi has obtained is Alibaba. Personally, I believe these companies will not be able to compete with Uber.  

Heads in the Cloud: Businesses' Tech Investments Not Always Worth It

The Fed's decision to postpone the increase of interest rates is good for businesses hoping invest in projects now. With near zero interest rates the companies can borrow funds for projects they feel will grow the company. With rates being so low the burden of debt is much less of a liability and companies who are looking to take on new ideas, the time to find funding for those is now. Firms invest in digital technology to increase worker productivity thus increasing profits and hopefully passing those increases down to the employees. Wage growth has been slow and the article points out that wages have gained less than 2% from 1979 to today, adjusted for inflation. This is a problem. The economy has grown over the years but workers are not seeing much of a pay increase.

If businesses were to invest in technology for the future they could increase employee production and potential wages. This helps the economy grow and put more money into individuals' pockets. Higher income per person results in more spending which is typically associated with higher levels of living. The market will decide how and when to invest in such projects. If there is a time it might be now before rates increase.

http://www.usnews.com/news/articles/2015/09/24/does-business-investment-actually-boost-worker-productivity

Want to Boost Global Growth by Trillions? Improve Gender Equality, McKinsey Report Says.

Many studies have shown that balancing the gender scales will not only help women, but it will help the economy too. A report by Mckinsey Global Institute showed that if women played the same role in the economy as men do it could boost annual GDP by as much as $28 trillion by 2025, or 26% of global GDP, compared with the scenario if nothing changed. The report looked at gender quality indicators from 95 different countries, which is about 90% of the women population in the world. Even if each country in the survey were to advance gender inequality by matching the rate of improvement of the best performing country in their region, it could boost growth by $12 trillion by 2025. It would also close the gap between hours worked between women and men. The highest growth would be seen in India, the Middle East, and North Africa. In regards to the United States, we could add 19% to current GDP by 2025 if gender parity was reached.
 Mckinsey researchers found four key areas in which there would be the biggest impact. The Four areas are: closing gaps in education, closing gaps in financial and digital inclusion, bolstering legal protection for women, and improving attitudes and practices toward unpaid work.
What are your guys' thoughts?

Waiting on Inflation

       Last Thursday investors waited anxiously to hear the Fed's decision on the 25 basis point interest rate hike. As most of us know, the Fed chose not to hike the rate, and instead kept it near a concerning 0%. Yellen's explanation for the deferred rate hike was regarding concerns of causing another "china like" market impact. The Chinese yuan devaluation  severely impacted markets due to the fear of externalities associated with this choice. Such as, a decrease in imports, consumption, and unemployment concerns. Investors are concerned that this devaluation will slow down the rest of the world economy.

      In a press conference Yellen said that "in light of the heightened uncertainties abroad and a slightly softer expected path for inflation , the committee judged it appropriate to wait for more evidence." Future prospects for inflation are not looking good, due to declining unemployment and its implications on wages, a hidden slack in the labor market, tumbling oil prices and their possible spillover onto other goods, and a stronger dollar's effect on creating cheap imports. From these prospects we can infer that the rate hike will more than likely be in 2016. Since unemployment is at a low of 5.1%, almost what the Fed considers full employment, the only thing we are waiting on is inflation. Being that it is currently at 0.2% and the Fed's target is 2.0%, I would project it will be a while till a rate hike occurs.

Source: http://www.bloomberg.com/news/articles/2015-09-24/yellen-s-uncertainties-could-get-between-fed-and-2015-liftoff

Cyber theft is a threat to the global economic system

Owing to the visit of the Chinese President Xi Jinping to the US, the former US Treasury Secretary, Hank Paulson, said that two of the world's largest economies, China and US, need to work together to address cyber security and internet theft in general. He said that if they cannot combat this crime together, it will spiral out of control and hurt the global economy.
Mr. Paulson addressed that the most troublesome issue to the US-China relations is corporate or cyber theft. Over the years, hackers, especially from China, have attacked a lot of US companies' websites that caused significant losses to those companies. The list of attacked websites includes Google, Yahoo, Adobe Systems, etc. How these two countries can work together to make stricter laws and combat cyber theft would be one of the major discussion points when the Chinese President visits the US this week.

Link
http://www.businessinsider.com/hank-paulson-talks-about-cyber-theft-2015-9

"There's More to Burma's "Success Stories" Than Meets the Eye"

In this Foreign Policy article, the author criticizes an article published by BCC which discussed the promise for the future of Burma. A little bit of background: up until 2011, Burma was economically isolated by the international community, as the United States and EU had placed sanctions on the country due to its rule by an oppressive military junta accused of gross human rights abuses.

The BBC article claimed that the country's citizens were doing relatively well since the lifting of international sanctions, the opening up of the economy, and other democratic and economic reforms. The BBC article described the lives of what the author considered were four individuals leading "normal" lives: a foreign-educated owner of a restaurant empire; a banker who became incredibly wealthy during the military regime; an internet entrepreneur who dropped out of university in Singapore to return home and become rich; and an astrologer who makes more in one day than the average person in Burma makes all year (about $1,000).

Foreign Policy points out that these individuals are not the bottom of the pile, average Burmese, but rather those who have benefited most from the military regime and the end of sanctions. Their success is based mostly on their wealth and the elite contacts they have. In reality, the average Burmese is scavenging the river for scraps or selling bird feed in the streets. Gaining access to the privileges that the four individuals have acquired, like an education abroad, requires massive amounts of resources, material and social, that elude most citizens.

Citizens of Burma recognize the tensions between the wealthy and the excluded, as many of them recognize they live under a "crony economy." Applied to tycoons who benefit from their relationships with the generals, who still hold a significant amount of power within the government, crony is also used to define anyone who does not care for the people's benefit. Some foreign analysts believe that cronies are essential for the country's development. However, others believe that despite the transformations within the state, only the elite will continue to profit.


http://foreignpolicy.com/2015/09/22/theres-more-to-burmas-success-stories-than-meets-the-eye/?utm_content=bufferc7e48&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

"Carmagedon" the market response to Volkswagen's crisis.

Going off Montana’s article below. Volkswagen is finding themselves in a slew of trouble after being found with technology mechanisms in nearly 11million cars, which is said to falsify their emissions test on diesel cars. The error resulting in cars polluting a larger portion than accepted by the US Environmental Protection Agency. Yes, they are risking huge fines but a new topic is how their market position is being crushed and the impact it is having on the car industry’s shares as well.

            Since the news came out Volkswagen has lost nearly 1/3 of its market cap (roughly $30 billion) in both US and European markets alike. Volkswagen affiliates (Porsche, Chrysler Fiat), while VW mediates current allegations, the company is still seeing impulsive market losses as a result. BMW, a company who has diesel cars reported almost an 8% loss to start the week. Additionally GM and Ford, who are not even affiliated with the German car dealer have reported 2% and over 3% market losses respectively, as a result. Additional engine and emission controls manufacturers in the car industry particularly those associated with VW have seen steep market reactions; BorgWarner losing 6% and Tenneco dropping 8%. While the industry is suffering as a whole due to Volkswagen’s mistake, VW is bearing the biggest loss, shares dropped 20% on Tuesday alone. The following shows the negative externalities the car market succumbs to as a result of one automakers massive fraud. Additionally it will be interesting to see if VW fires their CEO, Martin Winterkorn amidst the situation.

http://www.businessinsider.com/volkswagen-causes-widespread-auto-drop-2015-9

VW's $7 Billion Screwup

Why cheat safety regulations when the payoff in the end will come back to bite you? Why risk the lives of hundreds when you can create a safer car from the very beginning and there won't be a criminal fine to pay later?
The Volkswagen company created 11 million diesel powered vehicles that were affected by software used to cheat U.S. emissions tests. Under the U.S. Clean Air Act the company could face as much as 18 billion in fines.
It is the same thing that happened to General Motor's safety crisis, where the company did not follow federal safety rules and 124 people ended up dead, and now they are paying for that dearly.
Link:

http://www.forbes.com/sites/joannmuller/2015/09/22/vws-7-billion-screw-up-a-lesson-in-how-to-destroy-a-brand/

A Bartering Economy For Greece

As Greece has been desperately trying to cope with an increasingly worrisome economic downturn, citizens are becoming frantic for any type of alternative, as there is really no money to purchase necessities with. 

Bartering is becoming increasingly popular for Greeks, as a means for making it economically. With essentially no money to buy, bartering has become a better-than-nothing alternative. Although the recently re-elected Prime Minister Alexis Tsipras is concerned about the alternative economy, it has seemed to be working for the most part. Electricians fix houses in trade for cooking supplies and food, while babysitters work for graphic T-shirts. With Greece having such a liquidity issue, online bartering has become the even more modernized form of informal bartering. In virtual trading, "Tradenow" has become an online economy with it's own currency called "Tradepoints". One Tradepoint is equivalent to one Euro. This has been working for the Grecians as they can offer all goods and services they have in exchange for survival necessities. 

The fact that the bartering is online has proved to be efficient for everyone going through the system. A strong efficiency in a growing economic system could be a positive sign for future economic growth. Also, the online activity could potentially generate new work and business, promoting innovation and ideas. People feel safer using an online trading system that doesn't go through insecure banks and capital controls. Citizens can feel more secure in having faith in a new system, that works around a crashing economy. Although this solution may not be lasting, it poses the opportunity to navigate uncertainty while the Greek economy is still deteriorating and political volatility stands. 

However, there are ground reasons for why trade faded out as a medium of exchange in the past. A traditional form of medium of exchange must be durable, portable/convenient, standardized, and divisible.There is certainly room for inefficiencies to arise in the future. (For example, how will we gauge what matches value to certain services?) Is this economic system really plausible for modern day, even in the midst of a failing economy?

http://www.nytimes.com/2015/09/22/business/international/trading-meat-for-tires-as-bartering-economy-grows-in-greece.html?ref=economy

Xi Jinping of China Arriving in U.S. at Moment of Vulnerability

http://www.nytimes.com/2015/09/22/world/asia/chinas-xi-jinping-arriving-in-us-at-a-moment-of-vulnerability.html?hp&action=click&pgtype=Homepage&module=first-column-region&region=top-news&WT.nav=top-news

China’s economy has slowed more abruptly than policy makers have appeared ready for, alarming investors around the world. The government overestimated its ability to keep stock prices aloft, spending billions to bolster the Chinese markets.

Mr. Xi is to arrive in the United States on Tuesday facing economic headwinds and growing doubts about his formula for governing — a sharp contrast with the image of unruffled control he projected when he hosted President Obama last year.

Mr. Xi and Mr. Obama are expected to discuss their differences on a number of subjects, including cybersecurity, tensions in the South China Sea, the repatriation of Chinese officials accused of corruption and the Chinese government’s harsh treatment of dissidents and lawyers.

In a speech last week intended to preview Mr. Xi’s positions on major issues between China and the United States, China’s foreign minister, Wang Yi, sounded a defiant tone. “I wish to reiterate that the Nansha Islands are China’s territory,” he said, using the Chinese name for the archipelago. “These are China’s positions that will not change.”