Jobless Claims Lower

 The weekly jobless claims which were reported for the week of November 7th were lower than expected by the Dow Jones' economists. The week prior, claims were at 757,000 and economists were expecting around 740,000 claims to occur the week of the 7th. In reality claims came in at 709,000 which marks the fourth consecutive week that claims have decreased.

Although numbers are lower in the last four weeks, there are still serious concerns about the lasting effects of coronavirus on the economy. With a large number of people still unemployed and a lack of a stimulus since the original one in April. The Fed is calling for another stimulus to be passed soon to assist in the safety of the economy.

https://www.cnbc.com/2020/11/12/us-jobless-claims-709000-vs-740000-estimate.html

Jerome Powell's thoughts on the economy

 On Thursday Federal Reserve Chairman Jerome Powell indicated that his main concern regarding the pandemic surrounds women, children, and business owner who are susceptible to the long term consequences from the pandemic. He goes on to explain by elaborating on each piece of his statement. He first begins by saying that it is not by choice that women are out of the labor market as the pandemic has caused this. What was interesting is when he explained his concern about children he said he was concerned about kids not receiving the education that they should be getting. Within the grand scheme of things Powell talks about the business owners who have just simply been out of work and are losing the connection to the labor force as well as the life they had. With the expected surge in COVID cases Powell indicates that displaced workers will need to receive extended support. An interesting point that Powell makes is that the economy we will be returning to will be heavily leveraged in technology, this poses a challenge for many workers who are not versed in technology like the younger generations. Overall Powell's main take away was that even after the pandemic becomes subdued with the vaccine there will still exist a group of people who will still require support due to the fact that the economy is vastly different than the one they once worked in. 

https://www.cnbc.com/2020/11/12/here-are-the-things-that-scare-jerome-powell-the-most-about-the-economy-right-now.html

The Case Of The Soaring Car Prices

 The Case Of The Soaring Car Prices - Podcast

Usually, cars depreciate over time. However, since the pandemic hit, car prices have been skyrocketing. A guy named Aaron Springer was able to sell his 2014 Volkswagen Jetta SportWagen during the pandemic that he bought used in 2018 for $1500 more than what he paid for. Why are cars getting so expensive?

There are four main reasons why supply of cars is decreasing. First, production of vehicles stopped as a safety measure when the pandemic hit. Second, some states put a moratorium on car repossessions since it is a really devastating time to lose a vehicle, meaning less used cars are entering the market. Third, rental car companies weren't buying new cars to replace their older used cars which usually injects around 2 million used cars into the market every year. They've held onto their vehicles because no one was driving what they already had. Fourth, lease extensions were granted because no one wanted to deal with lease renewals during a shutdown, so those cars didn't enter the market when they were supposed to.

There are also four main reasons why demand increased. First, the stimulus check stimulated demand because people wanted to put the money towards a car. Second, people are afraid of using public transportation due to fear of getting sick, so cars are the safest transportation option. Third, people who had a car are now looking for a different car due to lifestyle changes from COVID. For example, someone may now have a longer commute, and they want a more eco-friendly, small car. Fourth, people who are working during the pandemic have extra money to spend because they aren't going out and spending their money. Plus, interest rates are low.

These eight culprits are the reasons why car prices have been soaring during this pandemic when people predicted the opposite. There's more competition struggling to get cars from a smaller pool of options.

Fed’s Bullard Says Economy Has Recovered Faster Than Expected

The Federal Reserve Bank of St. Louis leader James Bullard gave an update today. He said that the US central bank policy is in a good place right now following Covid challenges. Regarding the monetary policy, Bullard said “we don’t know what’s around the corner as far as the crisis goes, so all those things make me think that we’re in a good position for now.” 

The interest rates are at very low levels which aren’t expected to change much and there is seemingly a significant pace of purchases. He didn’t show much concern towards more stimulus because of the larger first round of fiscal stimulus which is still helping the economy. He also thinks that there is more improvement still coming with the unemployment rate. He said unemployment, which is currently at 6.9%, “could fall to between 4.9% and 5.5% by year-end, depending on when workers are called back.” Unfortunately, Bullard didn’t give any insight into possible policies going forward, but he noted that central bank and government aid have been effective during this Covid economic shock.  

I agree with him that policies and aid thus far have been effective. I am not sure that I agree with stimulus being unnecessary at this point because many people and many businesses are still facing serious hurt. Do you agree or disagree with Bullard’s statements? What possible economic events do you think are coming our way that could change our current economic position?

Derby, M. S. (2020, November 13). Fed's Bullard Says Economy Has Recovered Faster Than Expected. Retrieved November 13, 2020, from https://www.wsj.com/articles/feds-bullard-says-economy-has-recovered-faster-than-expected-11605274229

 

What a vaccine means for America’s economy

The news of a vaccine may curb the threat of the US economy sliding into a recession. Before the news of a vaccine was publicized the US economy was already recovering better than what was predicted. With many countries in Europe begging shutdown and lockdowns the US will likely follow suit in the next coming months but not as severe as European countries, these more relaxed restrictions will help the economy not lose much momentum on its journey of recovery. As the news of the vaccine breaks the chance of having a vaccine will only help our economy in it a trend to pre covid levels, all this being said the economy is still not predicted to be in the state it was in before covid until 2022 or even later but the signs of a vaccine will help the US decrease it record-breaking infection rate. Everything in the US economy seems to be trending in the right direction but we must keep in mind that these future lockdowns will hamper economic growth and employment growth. The delay of stimulus packages being passed is also a problem we will have to face. Even though the signs of a vaccine have appeared, the economy can still be set back by the constant increase in covid cases through the US, we still have a long road to travel to fully recover but it seems the road is paved for us to travel.

What do you think the act of having a vaccine will have on the economy and do you think it will come in time before the US sees lockdowns and restrictions?

https://www.economist.com/finance-and-economics/2020/11/14/what-a-vaccine-means-for-americas-economy

Big tech and corporate tax cuts: the targets of Joe Biden's urgent economic plans

When Joe Biden enters the White House on 20 January, he will face arguably the biggest set of challenges a president has had to tackle since the end of the second world war. The coronavirus is raging through the US, millions of Americans are still losing their jobs each month, and the climate crisis – ignored by the Trump administration – is deepening. Biden has set out his economic and policy plans, but without control of the Senate he may struggle to realise them. Official GDP figures for the third quarter showed the size of the economy was still almost 4% below its previous peak, despite a 7.4% recovery from the spring lockdown according to the article.

Biden intends to use wartime legislation known as the Defense Production Act (DPA) to compel US businesses to make personal protective equipment (PPE), medical supplies, ventilators and whatever else the US needs to tackle the pandemic. The DPA gives the president broad powers to force a business to come to the aid of the country.Biden has also set out plans to increase unemployment insurance, send more direct payments to struggling Americans, forgive some student loans and provide more aid to small businesses.

Climate change is the “number one issue facing humanity”, Biden said last month and his administration has ambitious plans to tackle a crisis that the Trump administration downplayed and ridiculed. His plans include ensuring the US achieves a 100% clean energy economy by 2035 and reaches net-zero emissions no later than 2050, raise the corporate tax rate to 28%, from 21%, impose a minimum tax on all foreign earnings of US companies located overseas in an attempt to stop the use of foreign tax havens and a few others.

Do you think Biden's policies will prove effective to recover the economy?

https://www.theguardian.com/us-news/2020/nov/07/joe-biden-most-urgent-economic-plans-key-elements

How to fix America's Treasury Bond Market

     It is no secret that this year has been an extraordinary one for American government debt. Typically, the American treasury bond market is the worlds most liquid bond market even in times of economic downturn. However, in March, the market seized up and as panic about Covid-19 flooded the U.S. To fix this, the Fed bought back as many treasury bonds in a span of two months than it did during the five year period of quantitive easing following the 2008 financial crisis. The market has become flooded with new issuances, but over the past week bond yields have begun to fluctuate as investors weigh the odds of more stimulus now that the election has come to an end. 

    Regardless of whether or not a stimulus is passed in 2021, the budget deficit will most likely stay 8% above GDP, an ageing population will continue to lift health care spending, and the Fed will be unable to cut rates any lower. These three factors combined with a supersized bond market will amplify the probability of increased market stress and its consequences. According to Randal Quarlers, vice-chairman of the Fed, the "sheer volume" of new issuance could lead to disruption of the U.S gov's ability to borrow and cause tremors around would financial systems. 

    There are currently two fault lines for these markets. The first one being that when Uncle Sam issues new debt, a group of dealers (mostly banks), are obliged to buy it up at a reasonable price and leave it to pile up on their balance sheets and pushing banks closer to breaching capital requirements set by regulators. This will lead to banks being unable to act as intermediaries for investors, and would ultimately cause investors to pull their money out of markets. The second fault line is the possibility "repo" interest rates spike up drastically in a short period of time. The repo interest rate is extremely important in terms of economic stability and anchors borrowing rates for businesses and households. 

    There are a few quick fixes to this problem. A temporary exemption of cash and treasuries from banks leverage rations should be made permanent and the number of primary dealers could also be expanded to minimize any issues if some of them get in financial trouble. Nevertheless, it would be wise to implement a more long term solution. The primary-dealer system should be phased out for a clearing house for treasury trades which would let smaller firms dealer with each other rather than having an intermediary middle man clogging up the market. The Fed must also get a grip on rates in the repo market by lending at its target rate to any entity that can provide short term treasuries as a collateral. 

https://www.economist.com/leaders/2020/11/07/how-to-fix-the-market-for-treasury-bonds

EU's lawsuit against Amazon

 

Antitrust charges have been brought against Amazon by the European Union regulators. They say Amazon has been using its size to unfairly bully and harm smaller merchants that rely on them to reach their customers. 

The regulators say Amazon takes data from sellers of products to customers and in turn makes similar products and sells them for lesser prices, thereby undercutting and pushing out the original seller of that product. Margrethe Vestager, the commission’s vice president for digital issues, said "We must ensure that dual role platforms with market power, such as Amazon, do not distort competition". 

This charge has also been slapped on tech giants Apple, Google, and Facebook. In October, the Justice Department of the USA leveled antitrust charges against Google. These charges on all these tech giants are only so they don't become monopolies and distort markets for their sole benefits. 

In time we would find out if the charges on all these companies change the course of our way of life. 

https://www.nytimes.com/2020/11/10/business/amazon-eu-antitrust.html

Vaccine news gives a much-needed boost to economic outlook

 https://www.cnbc.com/2020/11/09/vaccine-news-gives-a-much-needed-boost-to-the-economic-outlook.html

Pfizer came out early this week to announce that their vaccine had a 90% success rate in trials. This news gave a gigantic boost to the economy in hopes that we may be moving to getting a working vaccine out the public. This vaccine would mean big things for many businesses, such as they would be able to go back to running at full capacity. In addition to this, there are also consumers who have not been leaving their homes. This news follows just a week after we saw record breaking GDP growth in Q3. Also this news comes at a time where we continue to have record breaking cases day after day and it is beginning to become more of a concern. 

The speculation is that a vaccine would add a lot of hope to the economy in terms of growth and jobs. However, I think at the same time a vaccine could help out the economy a good amount, there are also corporations that have thrived amidst the pandemic. These companies such as Zoom, Amazon and other tech stocks have seen some unprecedented growth. But this growth may end up being wiped out by a vaccine because they have established themselves as a way to get around the virus. 

Do you think that this boost to the economy may actually be taken away from because of the losses to companies like Amazon and Zoom? How quickly could a vaccine help the economy?

“Systemic racism is a drag on the US economy”

It is undeniable that systemic racism is still an issue in the United States. Oftentimes, however, we do not always assume the consequences it can have on the economy and its vitality. In this article from msn.com, the authors argue that systemic racism is a challenge to the U.S. economy. They attribute two reasons to this: knowledge and talent. According to them, “Knowledge is developed by talent, and it takes talent to effectively make use of knowledge.” Systemic racism stalls economic vitality in the sense that it restricts supply of talent which, in turn, threatens both our prospects for growth and social cohesion. Moreover, it deprives and/or limits minority groups and lower class individuals from access to key structures and goods and services which would play in their knowledge and talent development, which the authors categorize as intangible capital.

The authors also state that “by opening the gates of knowledge and talent, we can advance social justice, combat prolonged recession and build much-needed social cohesion.” In fact, for example: “research journals suggests that between 20 percent and 40 percent of the growth that took place in the United States between 1960 and 2010 can be explained by the removal of racial and gender discrimination in talent development.” All evidence from research and others mentioned in the article show and indicate that addressing systemic racism is critical for U.S.economic recovery and long-term vitality. What are your suggestions on how systemic racism can be addressed, and how that would specifically transform the U.S. economy?

https://www.msn.com/en-us/news/politics/systemic-racism-is-a-drag-on-the-us-economy/ar-BB1aJw0u?ocid=uxbndlbing

Where Does Friedman Fall Short?

 https://www.gsb.stanford.edu/insights/anat-admati-milton-friedman-justice?sf131463165=1

In this article, Anat Admati criticizes one of the most popular tenets of Milton Friedman: that corporations should be solely concerned with maximizing shareholder’s wealth. While this approach is not inherently immoral, Admati argues that Friedman’s argument rests on the assumption that “businesses operate in an environment of ‘open and free competition without deception and fraud’” (Admati, 2020, para. 2). This position presupposes that governments are able to fairly monitor and control corporate corruption and that businesses intend to act in the best interest of society. Admati highlights the ease in which corporations can be formed, often for immoral purposes such as to instigate money laundering schemes. Once these corporations are formed, there is often limited government regulation. For instance, Admati notes a lawsuit where PG&E only paid $4 million in legal penalties for committing 84 cases of manslaughter, due to their role in a California fire. Similarly, despite several fraud charges against Purdue Pharma, for aiding in the illegal sale of opioids, no individual from the company was sent to jail. While it is easy to point to these and other examples as merely a few instances of corporate wrongdoing, Admati notes the difficulty that the U.S. Department of Justice faces in combating corporate crimes.  

These problems raise a question central to this class: how much should the government be involved in an economy’s operations? Given that corporations have been able to get away with an array of crimes, Admati argues that Friedman’s view of limited government is not able to handle a society that can truly maximize shareholder wealth. It is possible that the American public’s hostility toward government intervention is ultimately backfiring, as corporate misconduct that hurts those we assume it will protect. With a less binary view of government as something that should either be completely absent (advocated by Friedman) or completely controlling (as found in socialism), it will be easier to regulate corporations and ensure they are truly working on behalf of their shareholders.