What is the UK's inflation rate and why is the cost of living going up?

https://www.bbc.com/news/business-12196322 

Energy bills, grocery bills, and other household costs are increasing in the UK. Prices rose by an average of 3.2% over the last year and the Bank of England suspects that it could increase to above 4% by December and stay that high into the spring. Why is this happening? The demand for oil and gas has increased worldwide which has pushed the price up. This impacts household heating bills and businesses that run machinery, heat offices, and transport goods. The increases in costs for businesses are often then transferred over to consumers when they buy the products. 

There are supply shortages all across the world which are impacting countries everywhere. Bottlenecks have been occurring in building materials and computer chips which is increasing prices. The government is unwinding the support it gave businesses during the pandemic which has resulted in an increase in prices for those business's goods. Finally, businesses are struggling to find workers as a result of the pandemic and Brexit. This also makes it more difficult for businesses to meet demand and pushes costs up.

How will this change in the UK economy impact the United States? It likely will decrease the number of tourists going to the UK, thus decreasing demand which may allow for stabilization between demand and supply.

One TR Coin

 One TR Coin 

This article on the Economist talks about the issue of the debt ceiling which has been a big issue in the news. This article then talks about this very odd movement to combat the debt ceiling. This involves a loophole in legislation where we could apparently mint a coin with a value of a trillion dollars and it has to be made out of platinum. The idea is that we mint the coin and "pay it" to the federal reserve and this would allow us too still pay bills while the politicians argue over the debt ceiling still. Even more surprising to me at least this idea has support from Nobel Prize award winning economist Paul Krugman. 

While there is some mild support for this coin there are other obvious legal concerns. It would also undermine the Fed and create a situation where the Fed becomes more reliant financially on congress which I think is a terrible thing. The question however is would this be better then the government defaulting on its debt? I think while the effects of this coin wouldn't be great, it would be better then any outcome where the government defaults.  The effects of that would be felt throughout the world and would be devastating. So I think this coin should only be minted as an absolute last minute necessity to avoid that.

Social Media Monopolies

On Monday, October 4th, 2021, there was a social media outage. Facebook Inc's services went off for about 6 hours. This outage was one of the longest ever recorded in history. Facebook received 10.6 million, worldwide, complaints due to it. Once the problem was dealt with, all the apps went back to working faster than ever. Mark Zuckerberg commented "I know how much you rely on our services to stay connected with the people you care about." and then apologized for the outage. Mark Zuckerberg lost $6 billion due to the outage, depriving him of the 'Richest man in the world" title. Facebook Inc shares also went down by 4.9% on the same day as the outage.  

People and businesses worldwide were affected by this service. Facebook apologized for the disconnect and said it was due to a network issue. Facebook's direct quote was "faulty configuration change". This six-hour outage affected small businesses, bloggers, students, e-commerce, and essential communication. Some small businesses reported a loss in revenue as they struggled to get in touch with clients, while others have started to rethink their marketing strategies. 

Facebook Inc's services went down for all the apps which include WhatsApp, Facebook, Facebook Messenger, and Instagram. Facebook is slowly growing and becoming a social media monopoly. What we witnessed on Monday was one of the biggest consequences of monopolies. It was not just one social media app that went down. Snapchat and Twitter were the only other commonly used app that people were able to communicate on. This is why monopolies are troublesome for societies. Do you think that Facebook is growing into a social media monopoly? What other repercussions can occur due to this?  

Source: https://www.wsj.com/articles/facebook-instagram-whatsapp-experiencing-outage-11633363936

US Senators Agree to Extend Debt Ceiling to Avoid Default

 US Senators Agree to Extend Debt Ceiling to Avoid Default

https://www.bbc.com/news/world-us-canada-58835517 

The United States currently has a large deficit and in order to combat it has set a debt ceiling. Recently, the government has been threatening to default, which would cause the global financial system to spiral and put the US into another recession. The debt ceiling limits the amount of money that the government can borrow to bridge the gap between the amount of taxes it collects and the amount it needs for government programs. 

Recently, the Republicans are the ones calling for a hard debt ceiling in order to curb the Democratic agenda. However, when the Republicans were in charge of the government they constantly increased the deficit, putting the US into more debt. Despite their cries against it, they realized that in order to avoid economic catastrophe, they needed to extend the debt ceiling. They did so with less than two weeks to default. 

This instance does a great job of illustrating the polarization of American political parties. Each wants to spend money to benefit their party objectives, but will throw a fit when the other party tries to do so. I believe that US politicians need to look beyond party lines and do what is best for the greater good of the American people. 

Shortages in Germany

 Europe's most powerful economy has been facing major production shortages in recent months. Germany, which relies heavily on its automobile production, has seen drastic shortages in basic materials needed for production. These shortages include more than just microchips, which the rest of the world is short in as well. Germany is facing issues with other manufacturing inputs such as lumber, metals, plastics, and battery materials. 

Due to the shortages, German firms and officials are worried about a potential "bottleneck recession" if the supply chain is not reestablished soon. Due to the many orders for goods such as vehicles, prices have risen steeply, and at an unsustainable pace. Germany saw its highest inflation rate in three decades last August, and there is no end in site for this problem. Despite a small amount of firms moving production of inputs back into Germany or sourcing materials from a closer, more reliable location, most plants can not efficiently do this due to the costs that would arise. Although a new microchip plant is currently being built in Germany, production is still a long ways away, and when the factory is capable of producing, there is no guarantee they can source materials for production. 

Source: https://www.nytimes.com/2021/10/05/business/germany-economy.html

Lebanon's Dire Economic Situation

The middle eastern country has been in the spotlight ever since the tragic Beirut explosion in 2020. Some have said that it is a result of the current government's inability to properly govern the country. Unfortunately, the problems go deeper as the economic situation in Lebanon has become dire as shortages of goods have become more common.

To make matters worse, their currency has taken a historic tumble as it surpasses Venezuela in rate of inflation. Now, the Lebanese currency is losing value at a rapid pace making it harder to buy the already scarce goods. The currency crisis can be derived from the choice of pegging their currency to the US dollar. It brought confidence to investors early on but unsustainable as they had to borrow money to maintain the exchange rate of their weaker currency.

Ultimately, it is the responsibility of the government to properly take action. But the many crises converging will make it difficult for any politician to stop Lebanon from spiraling out of control.

Credit: https://www.npr.org/2021/09/28/1041334763/how-whatsapp-broke-lebanon 

Social Security Isn't 'Going Away'

 In 2015 Gallup conducted a poll and found that 66% of workers between the ages of 18-49 did not believe Social Security would be there when they retire. Social Security is a government-run program that is implemented to limit the market failure of information failure and income distribution. Information failure takes place because many people do not know how social security works/do not know they still need to save even though they will receive SS. Income distribution is needed because the retirees still need to receive some sort of compensation because they are not working anymore. 

SS works by replacing a percentage of your working income based on your lifetime earnings. The amount is more or less depending on your lifetime earnings and when you receive your benefits. If you wait until full retirement age, SS can replace up to 75% of your income for very low earners, 40% for medium earners, and about 27% for high earners. Every year you delay filing for your benefits, until age 70, this percentage gets larger. In SS you earn credits that qualify you to earn benefits when you retire. In 2021, you receive one credit for $1,470 up to a max of 4 credits annually. Although retirees receive compensation once they are retired and file for their benefits, SS was never supposed to be the only source of income for this demographic. 

“In 2021, $0.85 of every Social Security tax dollar you pay goes into a trust that pays monthly benefits to current retirees and their families, and to the surviving spouses and children of workers who have died. The remainder goes into a trust that pays benefits to people with disabilities and their families, and a small portion is used to cover the costs of managing the Social Security programs”. Recently The Treasury predicts the trust funds will be depleted by about 2023. The interest in these trust funds is not a major source of funding for these benefit payouts. Most of the benefits social security pays out are funded by taxes which are not expected to lower. When the benefits paid out exceed the taxes collected the SSA will cover the gap by dipping into the trust funds. Wallace states in the article that the government will need to make some sort of change in SS to adjust for benefits exceeding revenue. This is not uncharted waters for the government to alter SS, in 1983 Congress raised payroll taxes and cut benefits building up a larger fund reserve. I do not think it is very likely that social security will be gone by the time I retire or in the foreseeable future. SS is needed to help correct a market failure that would be apparent if it went away. Although a person is set to receive money when they retire they should start saving as soon as they can and put off filing for SS for as long as possible. By saving early and filing for SS later allows you to have the most money possible and makes the transition from working to retirement less stressful.

credit:

https://www.morningstar.com/articles/1060057/social-security-isnt-going-away

By Karen Wallace

Supply-Chain Crisis and the Effect it Could Have on the Economy

The supply chain is of the most crucial pieces of the economy, but even as we are experiencing a recovery after the pandemic, we are facing a new issue. Consumers are buying as much as ever before and this has pushed the supply chain to the breaking point. Mohammed El-Erian talks about a "stagflationary wind" that he says could blow the economy off course. He believes that economic growth rates are going to slow down quite a bit due to the fact that the global supply chain is struggling which will make it tough to keep up with demand.

We are seeing the issues that the UK is experiencing with the shortage of petroleum they have. They are currently struggling to find drivers to transport the oil to the stations. This comes as a result of Brexit and not allowing men and women from other countries in the European Union to work in the UK. Another country that is struggling with energy shortages is China. In the northern part of China, they are being forced to ration power and shut down manufacturing plants.  As one of the busiest times of the year approaches, Christmas, China is trying to solve this issue.

In addition to the UK and China, several other countries are struggling with the supply chain. Car companies are shutting down automotive plants in Germany until 2022. Japan is struggling to get energy and materials to the island for a reasonable price. The price per shipping container has increased nearly 300% and in some extreme classes 600%. 

The economy is going to have to work quickly to fix the current supply chain issues. There is a threat of another worldwide recession if we are not able to fix the expansive supply chain crisis. I personally do not know exactly how to correct some of these issues, but I am intrigued to see how and when they are fixed, and if it is in enough time.

Source: https://www.theguardian.com/business/2021/oct/02/supply-chain-world-economy-energy-labour-transport-covid

Biden v Big Meat: Can the US tackle rising beef prices?

Ever since the economy reopened after the pandemic, consumers have been seeing a dramatic increase in their grocery bills, especially on the prices of meat, with beef up 14% since December 2020, pork by 12.1%, and poultry 6.6%. From computer chips to processed meat, the cost of living in the United States has been rising without a doubt. Unlike many products with rising prices, the increase in meat price is not solely due to the supply chain issue. Instead, many suspects that the dominant power over prices of the few big meat processing companies has in the meat market is at the core of the problem. The four giants in the industry are JBS, Cargill Meat Solutions, Tyson Foods, and National Beef Packing Co, which accumulates between 55% and 85% of the market.

The huge market shares not only gave the meat titans power over the selling prices to retails and restaurants but also over the buying price for livestock from farmers. Due to the soaring demand for stockpiling meat during the pandemic, wholesale meat prices soared but livestock prices fell, which gave big meat processing companies record-high profits and margins. Both farmers and consumers are hurt while the meatpackers are the only ones collecting dollars from the pandemic.

Despite practicing a “laissez-faire” economic system, the U.S. government has a history of imposing policies to regulate the meat market. The Packers and Stockyards Act passed by President Woodrow Wilson and the price ceilings on beef, pork, and lamb imposed by President Richard Nixon in 1973 both aimed to monitor and control the big meat processors. Similarly, the Biden administration made an attempt to boost the competition with the big players by pledging $500 million in federal loans and grants to help small meat processing businesses to enter and stay in the meat market. In addition, the administration inquired into "price-fixing" in the chicken-processing industry already.

Of course, there are some resistances to the government regulations from the meat-processing industry. The major processors say the administration is "scapegoating" them and has misunderstood the "fundamentals" of the market. Besides, they claimed that the rising prices are not due to consolidation, but labor supply issues that led to the decreasing abilities of meat processing factories to operate at a full capacity.

Credit: https://www.bbc.com/news/business-58659478

Vaccine Mandate

United Airlines fired hundreds of employees who are reducing to comply with the character’s vaccine mandate. To be specific, UA fired up to 593 unvaccinated employees, who chose not to get vaccinated when the airline mandated vaccines for all employees. Airlines report that they want to make sure that the working environment is as safe as possible. Unfortunately, 7 employees are suing United Airlines for this decision. Moreover, 4,300 pilots of American Airlines are unvaccinated. Pilot unions are asking the White House for exemption for the president’s vaccine mandate. Across the country some essential workers are protesting the vaccine mandate. Some experts said that this mandate may lead to critical shortage in essential workers. It is very hard to get everyone vaccinated, due to right of choice, religious exemptions. On the other hand, people do not want to put themselves or their family in danger. Many people die, suffer, because of COVID-19. In order to stop this disease, I think that everyone should be vaccinated. If people are against it, then they should always wear masks. Moreover, they should be tested a couple of times per week. 

 

Yellen warns delay in raising debt limit will slow economy

     United States Treasury Secretary, Janet Yellen, is urging lawmakers to raise the U.S. government's borrowing limit. If the debt limit isn't raised by October 18th, Yellen warns that credit in the U.S. would be impaired and the country would likely face a financial crisis and economic recession. Failure to raise the debt ceiling would likely raise interest rates. The debt limit restricts the amount of money the government can borrow. It is raised to deal with government spending and taxing decisions which we have seen these actions being used during this COVID-19 pandemic. Yellen is warning congressional leaders to not make a decision on this issue in the last minute, as it could cause serious harm to businesses and consumer confidence, negatively impacting the credit rating for the U.S. for years to come. Government officials hope that Republicans and Democrats can come together to fix the debt ceiling, but Republicans argued that Democrats could use their majority to pass the bill. 

    Extending the debt is just another log that is stoking the fire between lawmakers and the Federal Reserve. Chairman Jerome Powell came under fire from some Republicans complaining about the high and growing prices for goods and services. Even some Democrats are in conflict with the Fed. Senator Elizabeth Warren stated that she will oppose a second term for Powell. She claims that Powell has made the U.S. banking system less safe which makes him a dangerous man to lead the Federal Reserve. It will be interesting to see how the relationship between congressional leaders and the Fed tie into the solutions in how to fix the U.S. economy. 

Source: Yellen warns delay in raising debt limit will slow economy - ABC News (go.com)