Supply shortages threaten U.S. infrastructure and war efforts

Link to the article: https://www.reuters.com/business/ongoing-supply-shortages-threaten-us-infrastructure-

war-efforts-2023-03-29/

Tight supplies of microchips and cement are causing difficulty for manufacturers of everything, from pickup

trucks to homes and this can also translate into higher costs and delays for the US government's effort

to help the Ukraine's war and to rebuild its own infrastructure

It is reported that supply shortages are easing for retail-focused industries but are still ongoing for growth

sectors like autos, machinery, defense and non-residential construction where demand is seen as strong.

The shortage of semiconductors also affects the defense industry as well as war-weapon makers

experience disruption in production not just for the US defense system but also for Ukraine.

However, the shortage also dissipated for personal computers after kids returned to school and parents to

their office, recorded by high sales of new computers.

French Prosecutors Raid Paris Big Banks In Tax Fraud Sweep

    If you thought the current unrest in France couldn't get worse, well, it has! Five French banks have been raided by authorities with the suspicion that they participated in a tax fraud scheme. The banks that were named were Societe Generale, BNP Parabis, HSBC's Paris office, Natixis, and BNP's Exane unit. More than 150 investigators were on the scene at the headquarters' and searched for evidence that the banks were in a "with-with trading" scheme in which suspects are accused of misappropriating hundreds of millions of euros by bilking the payment of French dividend taxes. 

    Investigators said that this case was opened up for investigation in 2021 and they were focused on looking at tax fraud and money laundering that ocurred in the form of dividend payouts. The strategy involved shareholders transferring stocks for a short period of time to investors abroad to avoid paying taxes on the dividends. Sometimes shareholders were able to get a tax refund. Investors then sold the shares back to the original owner, and both parties pocketed the savings. The rumored amount that was being laundered out was 1B euros and the French government wants to take that money back.

    German investigators from Cologne were also helping out the French and we can only suspect that these foreign parties may have been Germans. In the past there have been similar money laundering schemes made by bankers out of Germany. Past scams have defrauded citizens of billions of euros. Overall, this has occurred in many countries and it is not limited to France and Germany. 

    The timing of this conflict cannot be in any worse for the French as the citizens are already in riots and protests after Macron's draconian rule has seen the lives of millions of French people be a lot more miserable. The French are really upset right now about the retirement age rising from 62 to 64 which has gained a lot of resentment globally. These bank frauds have hurt the European economy too as we are entering a recession that sees the cost of living rise, and GDP slowing down. To add to this, we have seen 2 huge banks fall recently in SVB and Credit Suisse. I am curious to see how this all plays out and I wonder what else will break public news in the U.S. economy.

    

Link: https://www.foxnews.com/world/france-prosecutors-raid-paris-big-banks-tax-fraud-sweep

Germany at a standstill as huge strike halts planes and trains

Link to the article: https://www.reuters.com/world/europe/largest-strike-decades-leaves-germany-standstill-2023-03-27/

The 24-hour warning strike called by the Verdi union and railway and transport union EVG is the biggest one since 1992, bringing ground and air transportation to a halt on Monday, causing major disruption for millions of people.

This was followed by a 3-day wage talk as Verdi and the EVG union demanded double-digit wage increases (10.5% and 12% respectively). The action was believed to be the aftermath of higher prices, caused by Germany's being heavily dependent on Russia for its gas. 

According to the Airport Transportation ADV, around 380,000 passengers were affected by the flight suspension including those at two of German biggest airports in Frankfurt and Munich. Rail services were also cancelled by railway operator Deutsche Bahn.

While employers warned that higher wages could, in turn, lead to higher fares, the EVG chairman also warned that there would be further strikes in the future. 

Spring break is an economic nightmare for the hottest host cities

 College students are creating problems for cities and coastal towns that are dependent on tourism. 2.6 million Americans are expected to fly each day in March and April. Tourist towns dread these arrivals. This year, after 2 deadly shootings in Miami, the Mayor called for an emergency midnight curfew and no sales of takeaway liquor after 6 pm in Miami. The problem is that Spring Breakers are spending no money. They go to the cheapest accommodations and eat as cheap as possible to save money for booze. 

With these Spring Breakers comes some other non-college partiers (townies, as OWU likes to call it) who commit the most serious crimes in these parties. Over half of the people arrested in last year's Miami spring break were locals of Miami-Dade County. Although Miami would like to just boot the college kids, they cannot set limits because it is unfair to the businesses like bars and hotels and people who own Airbnbs. 

Although most of Florida would rather not have spring breakers, it is not like this everywhere. South Padre Island in Texas actually spent over $15,000 this year on college campuses to get students to travel there and spend their parents' money on spring break. 

https://www.economist.com/united-states/2023/03/23/spring-break-is-an-economic-nightmare-for-the-hottest-host-cities

Cuban Economy

Cuban Economy

Between 1989 and 1994, Cuba's trade with the Soviet Union fell by 89%, which led to a lack of domestic production and increased government control over the economy. The Cuban economy is still undiversified and relies heavily on commodities such as tobacco, sugar, and healthcare services. However, tourism is also a significant source of revenue, and the COVID-19 pandemic has hit the industry hard, causing a significant decline in foreign currency inflows. To deal with the loss of international reserves, the government was forced to unify Cuba's dual exchange rate system and devalue the Cuban peso, causing inflation and a scarcity of goods. This, along with the pandemic, led to social unrest and protests in 2021. The government introduced a second exchange rate for personal transactions in 2022, which eased import price pressures and decreased the demand for dollars. Cuba has also faced climate change-related shocks, including a lightning strike that caused a nationwide blackout and a hurricane that damaged infrastructure and agriculture. The government has attempted to expand private sector activity to boost output and relieve goods shortages. However, many Cubans are still leaving the country, with a record 220,000 caught at the US-Mexico border in 2022. The government is expected to maintain its policies while gradually opening up the economy in the future.

https://www.aljazeera.com/economy/2023/3/24/cubas-new-parliament-will-face-a-familiar-economic-hangover

China’s debt-heavy local governments look for new ways to raise cash

link: https://www.cnbc.com/2023/03/27/chinas-local-governments-finding-new-ways-to-raise-money-amid-debt-concerns.html

According to S&P Global Ratings analysts, Chinese Local governments' direct debt exceeding 120% of their revenue in 2022, a value greater than the unofficial debt level set by Chinese Authorities. The analysts further said that “The country’s provinces and municipalities have relied heavily on expanded bond issuance to carry them through a COVID-triggered economic slowdown and collapsed land-sale revenues.” 

IMF data paints a similar story, showing that China's explicit local government debt almost doubled over the last five years to 35.34 trillion yuan ($5.14 trillion), without including other categories of debt such as "local government financing vehicles (LGFVs), which allowed regional governments to tap into bank loans to complete infrastructure projects, which are also rapidly growing. This phenomenon may have been brought about by the real estate slump in China, along with the Covid-19 pandemic, which cut into local government revenue. 

The response from Beijing to this worrying growth in local government debt came in the form of an entire section in the annual work report dedicated to preventing and defusing major risks in real estate and local government debt, stating that "We (the government) should… prevent a build-up of new debts while working to reducing existing ones." This, coupled with the conservative 5% growth target set forth by Beijing may signal a shift in focus from high growth to tackling financial risk and hidden debt in local governments, an assumption further validated by recent key speeches from the Chinese president, Xi Jinping, calling on officials to address systemic risks in the Chinese economic system, along with tackling corruption at all levels of the government. The country's health spending increased by almost 18% in 2022, with revenue from land sales dropping by 23.3%, and all land is state-owned in the PRC.

Local governments will most likely turn to three channels to boost revenue, with them being taxes, asset sales, and transfers of funds from the central government. We can already see this phenomenon, with central government asset transfers increasing by 17.1% in 2021, with an additional 3.6% (10.06 trillion yuan) pm the way, according to the Chinese Ministry of Finance. Transfers to local governments accounted for about 60% of the increase in central government fiscal deficits, the S&P analysts said. 

A few local governments have resorted to other means of raising funds, by means of selling quotas for China's rapidly expanding bike-sharing industry for more than 45 million yuan in Zhangjiajie city, and 189 million yuan in Shijiazhuang.

Are We About to Feel the Economic Pain Powell Warned Would Be Coming?

     In August, while the Fed was hiking up interest rates to help combat the wildly high inflation, Jerome Powell said that these moves by the Fed would lead to some future pain. No one knew when this pain would hit the economy, but people are starting to suspect now is the time. Sine the Fed had to yet again raise the interest rates up .25 to around 4.75%-5%, banks are failing doe to bad business moves and customer mistrust, and less spending as a whole in the economy, there is much economic pain to go around.

    The Feds goal is to get the rate of inflation back down to 2%, which is a very plausible target. The problem is with the struggling banks creating more unrest in the economy. Predictions for the end of the year inflation rate have it being a little over 5%, which granted isn't much higher than where it is now but is a step in the wrong direction. Powell notes that less interest rate increases will be needed until the banking crisis is fixed because that problem will lead to the rate hike. 

    The big question for all of these things happening is if we are now entering a recession? Powell gives the politically correct answer of we will see. He was hoping for a soft landing from the economy by slowly bring the rates and economic actions back to normal, but one the economy gets close something like the banking crisis happens. He says it's too early to tell if the economy can still use a soft landing, but he isn't giving up hope. The possibility of a recession is definitely higher because of what has happened recently, but like Powell I have confidence that the economy will land on our feet eventually. 

https://www.morningstar.com/articles/1145583/are-we-about-to-feel-the-economic-pain-powell-warned-would-be-coming

Tiktok lobbying

With Tiktok coming under fire in the capital, the company has started to ramp up its lobbying efforts. They have hired over 20 influencers to come to the capital to persuade lawmakers to be in favor of supporting Tiktok and that it is safe and not selling information to China. At the same time the chief executive in being questioned in Congress on the safety of the app.  Their argument is that the app is safe and is also a job for many Americans. There are currently 150 million American users and many of them us the app for either an income or a way of connecting with other. It is more than just a dance app in their opinion but a tool for a generation. The question that arises for me is what will be the next app to take over Tiktok. It won't be on top forever and what happens when that app is not American made. Will they also try to regulate it as well? It will be interesting to see how this hearing turns out and the impact it has on current and future social media apps.

https://www.nytimes.com/2023/03/23/style/tiktok-stars-capitol-hill.html

Amazon Union Gets Favorable Finding on Warehouse Access for Organizing

    In recent history, Amazon has barred the use of work sites for off-duty workers. They had made a rule that no employee was allowed to remain on the work site beyond 15 minutes within their shifts. This posed an issue for the Amazon Labor Union. The Amazon Labor Union claimed that this rule interfered with their rights to reach out to coworkers about their own labor union, whether it be supporting their own union or to consider joining another. Amazon argued that the rule wasn't meant to directly affect the activities of the labor union. They meant for the rule to be an act towards security and employee safety. However, recently the National Labor Relations Board has found this rule put forth by Amazon to be illegal as it infringes upon Amazon workers' union rights.

    I believe it was a podcast we had listened to about markets a few months ago that had talked about how markets seem to weed out these seemingly unstoppable companies. Perhaps we're starting to see this in action. I don't think actions like these will bring down Amazon, however I do think that things are like this are going to put a stop to the idea that Amazon is untouchable. I remember during the pandemic everyone was so afraid of Amazon because that's what everyone relied on. Things like this along with their layoffs as of late just go to show that companies can't be truly all powerful in a market economy. Sure Amazon was the ultimate powerhouse for a while, when everyone is stuck at home and can't leave without a mask of course they're going to order stuff online. Amazon had a boom and now I believe we're starting to see it settle.

 

Source:  https://www.nytimes.com/2023/03/23/business/economy/amazon-labor-union-nlrb.html

Payroll Rose More Than Expected In February.

Despite the FED's efforts to bring down inflation and slow the economy, nonfarm payrolls rose by 311,000 for the month.  This is larger than the expected 225,000, with leisure and hospitality having the largest gain of the sectors.  Although it is a drop from the previous month, the unemployment market is still hot.  The unemployment rate rose to 3.6 from the expected 3.4, partially due to the increase in labor force participation.  The labor force participation is now at 62.5 percent which is the highest it has been since March 2020.  

There was also some good news on the inflation side, as average hourly earnings increased 4.6 percent from last year, below the estimate of 4.8 percent.  The monthly increase was also 0.2 percent lower than expected.

John Lynch, the chief investment officer at Comerica Wealth Management, said that easing of the wage pressure is the best news to come out of this report.  He also said "A drop in the largest costs for businesses is a welcome development. Nonetheless, 50 basis points is still on the table for the March policy meeting, given recent economic strength and dependent on next week's report.

UK inflation rises to 10.4% as food prices soar

 Across the world, and specifically in the UK. Consumer prices have jumped 10.4% as a result of the largest food inflation in over 45 years. Cost of living is also increasing at a rapid rate. Food prices have risen 18.2% in February as a result of severe shortages and rationing. There is also a severe rate of inflation in the UK at 11.1%. In addition, interest rates are rising to 4.25%, and continue to increase. But why is this occurring? This can be attributed to Brexit related labor shortages, trade barriers, high energy costs, and poor weather conditions in nations such as Spain and Morocco. This is a real world example of how prices can be such a significant signal for all of the other factors that are going wrong in the economy at the moment. As Britain now stands on its own, away from the EU, it is more difficult to resolve fluctuations in the market without the assistance from other nations within the EU. Inflation rises, prices increase, and shortages continue as continuous struggle to gain access to the proper resources and energy that they need in order to decrease prices nationally. 

https://www.cnn.com/2023/03/22/economy/inflation-uk-surprise-rise-february 

United States Workforce Fluctuation

An article that I found talks about how in the United States many workers are changing their jobs in order to have wage increases to be better off financially. A quote from the article states, “ roughly one-in-five workers say they are very or somewhat likely to look for a new job in the next six months, but only about a third of these workers think it would be easy to find one”. With the large amount of people seeking new jobs and higher wages it results in less job opportunities that are available at a higher level. Because of this there is a broken structure that could result from having too many higher positions and not enough supporting positions in companies. From the gender standpoint there are more women looking to quit their jobs than men. This will cause even more fluctuation in the gender pay gap and the way women are seen in the workforce. Overall, this article pinpoints many different aspects of why people are planning to quit their jobs more and the impact that it will have on the economy and workforces as a whole. 

Article: 

https://www.pewresearch.org/social-trends/2022/07/28/majority-of-u-s-workers-changing-jobs-are-seeing-real-wage-gains/ 

IMF chief warns global financial stability at risk from banking turmoil

The International Monetary Fund's (IMF) Managing Director, Kristalina Georgieva, warned that turbulence in the banking sector poses a risk to the global economy's financial stability. Rising interest rates have led to stress in leading economies, including among lenders, putting pressure on debts. She also highlighted the war in Ukraine and scarring from the COVID-19 pandemic as factors that could suffocate growth. The IMF chief predicts that the world economy will expand by just 3% this year and this warning comes as the European Central Bank (ECB) also expressed concerns over the impact of recent banking turmoil on business and growth.

The outlook for the UK, after Brexit, presents a challenging trade-off between low growth and high inflation, putting central bankers in a tricky position when it comes to increasing interest rates. Richard Hughes, the Chair of the UK's Office for Budget Responsibility, said Brexit would cause economic scars even deeper than the pandemic. As economic stress increases in the UK, EU, and the US, so-called shadow banks, could expose cracks in the financial system. Regulators in Switzerland continue to grapple with the fallout from the collapse of Credit Suisse, and public pressure has mounted on regulators after the vast package of support for the bank before its emergency merger with fellow Swiss bank UBS.



https://www.theguardian.com/business/2023/mar/26/imf-chief-kristalina-georgieva-global-economy-at-risk-turmoil-banking-financial-stability