What do you think? Can you come up with an example where markets would be an efficient way to arrange allocation of a particular good or a service but not necessarily fair, or equitable, or acceptable in some way? Would like to get some examples in the comments.
Saturday, February 10, 2024
Thursday, February 8, 2024
YOLO spenders have created a huge credit bubble in the US economy
Consumers today have taken on a massive amount of debt but are spending like crazy and it's creating a bubble in the US economy. Today, consumers drive 70% of the US economy and in the fourth quarter of 2023, their spending jumped up by $208 billion. At the same time, household saving rates currently sit at a mere 3.7% which is way down from the historical rate of 9%. What’s worrisome is that along with this, households have added a shocking $212 billion to their debt during that period, resulting in over a 100% increase in consumer spending that was financed by debt.
While consumers show no signs of slowing down, credit card delinquency rates with 30-day default rates have risen from 5.9% a year ago to 8.5% today and one in every twelve holders of credit cards is missing their payments. The last time this happened was in 2011 when unemployment was at 9%, but today it sits at a near all time low of 3.7%. Delinquency rates for auto loans and mortgage loans have also increased lately, but none of this seems to worry consumers.
Cooper Meek
Fast Passes.....yes or no? The wealthy are cutting the line at the airport, Disney World and ski resorts
An interesting article on the topic of efficiency and fairness. What is your take on the ability to pay to skip lines? Is waiting in line to get a service and using a fast pass the same product? What happens when more people use these passes? Are there negative externalities to the people who do not pay?
The wealthy are cutting the line at the airport, Disney World and ski resorts
Monday, February 5, 2024
Attacks in the Red Sea are disrupting Global Trade. Here's how it could affect what you buy.
Car factories have stopped production in Belgium and Germany, spring fashion lines are delayed all over Britain, and a Maryland company that makes hospital supplies doesn't know when they are going to get parts from Asia. Attacks in the Red Sea are delivering an unexpected shock to global trade, along with pandemic related port jams and Ukraine's Invasion of Russia. The attacks are coming from Houthi Rebels in Yemen that are seeking to stop Israel's offensive against Hamas in Gaza. They attack cargo ships by forcing them away from the Suez Canal and causing them to have to go around the tip of Africa.
Ryan Petersen, CEO of global supply chain managment company Flexport, described what is happening right now in the Red Sea as short-term chaos that will lead to increased costs. This problem will continue to grow the longer the war in Gaza drags on. Petersen explained that the disruption in the Red Sea lasting a full year could inflate prices of goods by 2%. This will lead to even higher interest rates and weaken the economy.
Japanese Yen
The Japanese Yen has hit a new YTD low against the dollar during the Asian session. The US jobs data released on Friday is also shows that the US economy is doing well, which allows the Fed to keep interest rates high. This is keeping the dollar at a higher value, which makes the difference greater.
Fears of continued tensions in the Middle East and the China's slowed growth may also be affecting the Japanese Yen. Also, a recent survey found that the Japanese services sector, which accounts for 70% of the country's GDP, has expanded at the highest rate since September. This may cause further inflation due to the Bank of Japan needing wage increases in the service sector and the need for higher prices.
https://www.fxstreet.com/news/japanese-yen-drops-to-fresh-ytd-low-against-usd-bears-seem-non-committed-202402050159
Market Failures and Public Goods
This is a lecture by an Austrian economist Peter G Klein at the Mises Institute. If the two economist in the podcast we went over in class are pro-market bordering on the extreme, then this is the extreme. The lecturer gives a radically pro-market take on market failures and public goods, arguing heavily against any sort of government involvement in the market and attempts to make the case that well-defined property rights are the best way to solve problems like negative externalities, and also makes a case that private firms do have reasons to provide public goods absent the market. He goes over examples like the Pigouvian tax and Coase Theorem and argues against them on theoretical grounds, trying to show how externalities aren't as easily quantifiable as they may appear, and again that most seriously negative externalities could better be solved through well-defined property rights rather than any government interference in the market. He goes over public goods like the famous lighthouse example and firework shows and argues that private firms can and have managed to provide them in the past. He uses radio as an example of a good that was at one point considered impossible to profit off of, until entrepreneurs learned to advertise on the radio to make profit. Overall, its an extremely pro-market take, as is to be expected from an Austrian economist, but I found the lecturers arguments on externalities in particular were interesting to consider, and as a whole the lecture is a nice comparison to the podcast we listened to, with this economist somehow going one step further.
Externalities, Public Goods, and the Role of Government | Peter G. Klein:
https://youtu.be/y95f3n_-nMY?si=FkIQHxeHa-qRldfJ
Sunday, February 4, 2024
India's Paytm, the online payment company, faces regulatory crisis
This article discusses challenges faced by Vijay Sharma who is the founder and CEO of Paytm, which is one of the leading online payment companies in India. Recently the central bank ordered Paytm to shut down its banking arm to stop most of their operations by March 1 due to "persistent non-compliances" and "supervisory concerns." This decision has led to a substantial drop in Paytm's valuation, causing concerns among investors.
Paytm's valuation plummeted to $3.7 billion from its IPO valuation of around $20 billion in 2021. The stock also experienced a 75% decline since its IPO. Analysts, including those at JP Morgan, suggest that the company needs to "restore credibility" to regain investor confidence.Majority of Indians now use digital services to makes payments as small as buying a candy or buying groceries and even medication. As of right now, Paytm is trading at 487.2 rupees, which is a significant decrease from its market listing price of 1,950 rupees in 2021. Over the recent months, SoftBank, one of the major supporter of the company, has reduced their ownership stakes. And other huge investors like Alibaba and Berkshire Hathaway have divested their holdings. Despite all these challenges Vijay Sharma remains optimistic, even referring to the regulatory crisis as a "speed bump".
https://www.reuters.com/business/finance/indias-startup-rockstar-paytm-ceo-sharma-battles-regulatory-crisis-2024-02-03/
U.S. economy added 353,000 jobs in January
In January, the U.S. job market added 353,000 nonfarm payrolls, exceeding expectations while the unemployment rate remained stable at 3.7% when projections expected it would be 3.8%. The average earnings rose by 0.6%, which is double the estimate, and the wages also increased by 4.5% on a yearly basis. Job growth was common among sectors, which gives a strong start for the labor market in 2024.
The report shows a strong U.S. economy. This could delay Federal Reserve interest rate cuts. The market reactions were mixed with futures showing an over 80% chance of no rate cut in march. Even though there are positive job figures, a broader unemployment measure rose to 7.2%. There are still concerns about the division between hourly earnings and hours worked.
https://www.cnbc.com/2024/02/02/us-economy-added-353000-jobs-in-january-much-better-than-expected.html?&qsearchterm=economy
India budget 2024: What does it say about the economy, elections?
Just before national elections, the Indian government recently released an interim budget that included both anticipated policies and surprises targeted at investors and rural voters. India hopes to raise its sovereign credit rating through this consolidation, more capital spending, and welfare programs. For the next fiscal year, the government of Prime Minister Narendra Modi (BJP) plans to target a lower fiscal deficit than what the market had anticipated—5.1 percent. Capital expenditure on infrastructure projects is expected to rise, though at a slower rate than in previous years. Budget cuts were implemented, mainly in the areas of food subsidies and fertilizer bills, which may have been influenced by worldwide patterns. Especially, the budget gives special attention to the rural economy, keeping in account problems such as low consumption and providing support for programs like affordable housing and fisheries.
All things considered, the budget conveys the government's optimism about its chances of reelection, and some analysts even suggest that it is part of the ruling party's plan to win another term in office.
Turkey's High Interest Rate
Turkey's high inflation has led to to raise interest rates to 45%. Inflation in Turkey is up to nearly 65% and their currency, the lira, has hit a record low compared to the U.S. dollar. Analysts say that this will be the last interest hike for a while with local elections coming up in March. Their Central Bank referred to this as the end of their monetary tightening cycle. The Anarka government had a very loose monetary policy which led to this loss in value of the lira. Through the more recent finance team, interest has been raised from 8.5 to 45% since last year. Some still believe this is not enough to combat the rate of inflation.
https://www.cnbc.com/2024/01/25/turkey-hikes-interest-rate-again-to-45percent-as-inflation-remains-stubbornly-high.html
Denmark's National Debt Lowest in 25 Years
The recent figures from Denmark's central bank, Nationalbanken, reveal a notable decrease in the national debt, standing at 294 billion kroner. This is a reduction of 28.6 billion kroner compared to the beginning of 2023 and is equivalent to approximately 10.5 percent of Denmark's GDP. The recorded debt level is the lowest since the Nationalbank began tracking it, showcasing a positive outlook for the country's public finances. Senior economist Kristian Skriver from the Danish Chamber of Commerce attributes this achievement to recent surpluses in public finances, propelled by factors such as high employment, low unemployment, and robust consumer spending.
Additionally, Denmark's disciplined budget practices, where politicians adhere to allocated spending, contribute to the low debt. The low state debt not only fosters economic confidence but also allows for keeping interest rates relatively low. This economic resilience, coupled with the ability to borrow more money if needed, positions Denmark favorably, especially in times of crisis. The country now ranks among the few with the lowest national debt globally, outperforming many European counterparts.
https://www.thelocal.dk/20240123/denmarks-national-debt-at-lowest-level-for-25-years
U.S. economy added 353,000 jobs in January, much better than expected
Job growth within the United States greatly exceeded expectations in the month of January. The estimate for the month was 185,000 which was only about half of the actual 353,000 nonfarm payroll additions that were seen over the course of the month. The unemployment rate also stayed at 3.7% which was lower than the 3.8% estimate. Other metrics such as average hourly earnings and year-over-year wage also increased more than expected.
The report also showed the job increase in December was 333,000 which is higher than originally reported. The combination of increased job growth and increased rate of wage gains is now expected to delay the Fed’s interest rate cuts, the latest estimate is that there is an 80% chance the Fed will not lower interest rates in March.
Across the economy, GDP growth was seen that went against the predictions of a recession. All of these factors create a very complex situation for the Fed when it comes to monetary policy decisions in the near future. The Fed does plan to cut interest rates soon, however not without further indications of cooling inflation, Chair Jerome Powell acknowledged the Fed’s concerns about the impact inflation has on consumers, particularly those of lower incomes. Recent data on inflations shows that core inflation is at 2.9%, close to the Fed’s goal of 2%, however the Atlanta Fed’s measure of “sticky” inflation still remains up at 4.6%.
Source - https://www.cnbc.com/2024/02/02/us-economy-added-353000-jobs-in-january-much-better-than-expected.html
Germany's Economy Shrinks 0.3%
Germany is typically considered an economic powerhouse in Europe. The country was once an exemplary model of growth at a time when many other major developed economies were struggling. Unfortunately, the International Monetary Fund predicted Germany to be "the worst-performing major developed economy" in 2023. In recent years the country has suffered from a variety of economic blows.
In support of Ukraine, Germany no longer sources their energy from Russia. Due to this, there have been times when energy prices have more than doubled. Inflation influenced consumers to decrease their spending. To combat this, the Central Bank raised interest rates harming the development of new infrastructure.
Many of the main forms of transportation and new housing/work spaces were negatively affected by the decrease in spending on infrastructure. However, this is not all attributed to rising interest rates. Covid relief funds were meant to be allocated to modernizing the country for economic and environmental benefit. Unfortunately, these funds were unable to be reallocated and a budget crisis ensued.
Germany must now rework their budgets while struggling with other economic stressors.
Subscribe to:
Posts (Atom)