A hair of the dog -- A bit more debt keeps the recovery on track

http://www.economist.com/node/21546034

A bit more debt keeps the recovery on track

Feb 4th 2012 | WASHINGTON, DC | from the print edition

AFTER three years of stagnant loan growth, The Peoples Bank in Coldwater, Ohio, has noticed a change. Clients who two years ago would not have qualified for a loan now find that they can. One customer who was working for only 35 hours a week two years ago is now working 45 to 50 hours. “That was his reason for coming in: he had steadier income,” says Jack Hartings, president of the seven-branch bank. Since the bank’s main alternative to lending money is buying Treasury bonds that yield only 1%-2%, Mr Hartings is eager to make new loans.

Across the country, bank lending, which shrank almost steadily from early 2009, is growing again (see chart), thanks to modest employment growth, stabilising home prices in many regions, and the Federal Reserve’s Herculean efforts to hold down interest rates.

Both of these sectors were helped by easier credit. Moderate job growth, skimpy pay rises and higher petrol prices held growth in income after taxes and inflation to just 0.9% last year. Consumption grew faster because households borrowed more and saved less. Saving, which had topped 5% as a share of disposable income in the wake of the recession, had fallen to 3.5% in November.

This is helping. In the fourth quarter, America’s economy grew by 2.8% at an annual rate, the fastest in an otherwise dreary year. Much of that was from inventory restocking which will not be repeated. Still, consumer spending rose at a 2% annual rate and house building expanded by 11%, the most since 2004.

This was not sustainable, and indeed the saving rate jumped back to 4% in December. Are further increases in store? If so, that would hold back consumption, which accounts for roughly two-thirds of GDP. And indeed that is the main reason recoveries after financial crises are usually sluggish: households and businesses have to hack back the debt they accumulated during the boom years, a process called deleveraging. Households have as expected reduced their debts relative to their incomes; much of that has come by defaulting on their loans. More such defaults are probably in store. The question is, will consumers also divert more of their income from consumption? That would cause the saving rate to rise further.

Nathan Sheets, an economist at Citigroup, reckons that household debt, now running at 120% of disposable income, should be 100% to 110% given the current configuration of interest rates, unemployment and asset values. This, he reckons, can be achieved with a saving rate of just 4.5%, not much higher than it is now. But the Bank Credit Analyst, a financial forecasting service, thinks households’ current net worth is more consistent with a saving rate of 6%.

A higher saving rate would be much less painful for the economy if it were achieved through increased income rather than lower spending. That could happen. The non-partisan Congressional Budget Office (CBO), in its economic outlook released on January 31st, reckoned that real disposable incomes would grow by 3% this year thanks both to faster wage growth and a big drop in inflation. That, it reckons, should support growth in consumption and overall GDP of 2%.

Plenty could go wrong with this scenario. Oil prices could spike again; banks, worried about Europe, could tighten their lending standards, as they already have done for some business loans. And at the end of 2012 an even bigger threat looms: taxes will automatically rise and spending shrink unless Congress votes to override existing legislation. The CBO reckons that would slice the deficit in half, but at the cost of pummelling the economy. For private deleveraging to proceed, public deleveraging may have to wait.

S.E.C. Is Avoiding Tough Sanctions for Large Banks

http://www.nytimes.com/2012/02/03/business/sec-is-avoiding-tough-sanctions-for-large-banks.html?hp
Since the recession began there has been some animosity between the public and Wall Street, whose speculation is often blamed for causing the 2008 recession and helped birth the Occupy movement.  This article shows that the Security and Exchange Commission had actually been avoiding punishing companies that mislead its investors, and at a time when President Obama wants to "make punishments for fraud count" this looks unsettling.  Though deregulation is part of the Anglo-Saxon model of capitalism there could be a strong public backlash against the organization because of it.

Brazil's future More personal security, less inequality

Fernando Henrique Cardoso on Brazil's future

More personal security, less inequality

The Economist: Can we start with the way Brazil’s place in the world is changing? Brazil seems to be trying to create a new sort of world power—a “soft power”.

Cardoso: In the last century Brazil’s economy grew very consistently up to 1980. Only Japan grew faster in per-capita terms. From that point on Brazil has been always looking for roles. In Brazilian people’s minds, we are a giant. But our size, for so long it was an illusion. We did not yet have the capacity to play an important role. We were all the time envisaging what we might become.

Brazil aspired to be part of the core group of the League of Nations; after the Second World War Brazil raised that possibility again [during the creation of the United Nations]. Churchill vetoed it, saying that the Americas could not speak with two voices. Churchill was wrong. So we have always aspired to a big role.
In the 19th century, because of the struggle between Spain and Portugal, we were involved in wars in the South, and the Brazilian empire was perceived by our neighbours as a trap. Then the axis moved towards the United States and Brazil became a Republic and much more quiescent—and again hesitated. To what extent would we play a hegemonic role in the region? We never assumed such a role. We preferred to be more loved than feared.

At the end of the last century, the economy became so vigorous, we had established democratic traditions and we rediscovered our cultural particularities. These give us a sense that maybe we can play a role in the area of “soft politics”: not just to be economically strong, but also because of our capacity to accept others, to be tolerant. We love to consider ourselves as open-minded, as a racial democracy. It’s not entirely true, but it’s an aspiration with some ingredients of reality. Because in fact we are more tolerant than several other countries.

Compare the United States and Brazil. Both are countries built on migration, but in Brazil migrants have fused much more, and what has been even more impressive is that the cultures have mixed. We do not have a Black culture in Brazil, and a White culture. It is senseless in Brazil to speak about a Black culture: it is our culture.

And we are very accepting of variety in religion. We are not intolerant—Brazilians are syncretists, not fundamentalists. And because we are a country composed of migration we have contacts with many different parts of the world. Lots of Brazilians are Japanese and maybe more than 10m are Arabs. More than that are Germans; there is no other country in the world with more Italians, in absolute numbers. And all this fused. We never exactly know our descendancy.

Brazil has always been in favour of multilateralism, instead of bilateral relations, and of trying to negotiate, to bridge. Brazilian diplomacy is based on that. We need to look South, to the basin of the Rio da Plata—and to America; both relations with America and the South. There are elements of flexibility in Brazilian culture; they originate with the Portuguese, not only in Brazil.

If you compare the Portuguese and the Dutch in Africa, it is quite different. The Portuguese always had sexual relations with the native people. There is a phrase I like to repeat when I’m in Spain. In the eighteenth century the Marquess of Pombal [Sebastião José de Carvalho e Melo; the first minister of the Kingdom from 1750 to 1777] sent a letter to his brother, the viceroy of the North of Brazil, saying, we have to promote the Portuguese who marry indigenous women, because it is better to have half a Portuguese than one Spaniard! They were fighting the Spanish and worried about the demographic question. They felt the children were somehow Portuguese. That was not common in the Spanish world. They kept more separate.

Then in Brazil, the dominant ruling class normally tried to disguise the fact that inequality was so high. One of the ways to disguise differences is to treat people as if they are closer than they really are, to speak as if we were equal. To some extent this is a tricky thing, even if people are not aware of it: it is a way to maintain differences without provoking a strong reaction. The traditional part of the ruling class in Brazil will always be mild, soft, always saying “please”, not ordering. This is not the same now with the new bourgeoisie: they are much more arrogant than the old traditional elite groups in Brazil. They are different; more capitalist.

The Economist: Let’s talk about those social changes. Brazil has changed an enormous amount in recent years.

Cardoso: The landmark was the new Constitution. The beginning was the struggle against the military and the strikes, and the new constitution was the baptism of a new society.

The Economist: It’s still changing. This Republic is young; the Constitution was only written in 1988. You’re working out your institutions still. You are part of that process of institution-building, possibly the most important of all Brazil’s institution-builders.

Cardoso: The sense of institution has always been very present in Brazil, compared with other parts of the New World. The Portuguese monarchy was stable, and we were heirs to the Portuguese crown. All the institutions came here with the king of Portugal and Rio [de Janeiro] became the capital of the Portuguese Empire. And simultaneously this is a highly disorganised society! It is difficult to combine these facts: that we have institutions and simultaneously we are very ready to disobey them. It’s a flexibility—the jeitinho. It is good and bad. In some aspects our legislation is wonderful but the practice is a disaster. For example, we have very strict rules for the behaviour of public servants and politicians, and with respect to public money. And in spite of that corruption is there.

The Economist: Is corruption increasing?

Cardoso: Always we have had some degree of corruption, here and there, but the system was not corrupted. Now the system allows corruption as a normal ingredient. Everyone knows that when you organise a cabinet you have to share power with parties. But you are not sharing power, you are sharing opportunities to have good contracts.

The Economist: Was that not the case for you?

Cardoso: No, no, no. Maybe in one or another case, but now the whole system is based on this. This is novel. It’s a very bad development. In the political culture flexibility has become… not flexibility, but tolerance of crime. You have institutions, you have tribunals—but nobody is in jail.

US economy ended 2011 at a healthy pace

US economy ended 2011 at a healthy pace

The final quarter of 2011 finally showed economic growth for the United States. The Fed contributes this growth to consumer spending. However, in the first part of 2012, we have not met the Fed's expected growth of 2 percent. They look into reasons which may attribute to growth and whether or not we will meet their marks by the end of the year.

Where is Syria crisis heading?

Conflict between the Syrian government and the opposition recently has resulted in 5000 deaths since last march. Meanwhile, The UN is currently trying to form a resolution towards the fighting. The "Western" portion of the UN is commited to possibly transfer power from the Syrian government because of its violence towards protestors. This article intrigued me because it gives us some thought on the aftermath of some economic systems.

Zakaria: The end of an era for Japan

For the first time in 31 years, Japan has recorded a trade deficit. In simple terms, that means Japan imported more than it exported last year. Now this is not that unusual for some rich countries: the U.S. has had a trade deficit since 1975, and yet we've grown. But the U.S. economy is not built on exports. Japan's economic rise on the other hand, has been almost entirely powered by exports.

So what has changed in Japan?

Fixing Capitalism Means Taking Power Back From Business Read more: http://business.time.com/2012/01/19/command-and-control/#ixzz1kvMsrmeM

With the global economy sputtering, and government unable to successfully address big issues like income inequality, unemployment and growing debt, it's a subject that's front and center not only the US, but also Europe and Asia.
The article points out that a important way of fixing capitalism will be reconciling the large and growing imbalances between the public and private sectors. The rise of big stateless corporations, which now rival many countries in terms of economic and political clout, poses special new challenges to governments. The author also worried about the fact that we have also lost the sight of the philosophical ideas that historically gave national governments their authority. Market neither have a conscience nor do they ensure opportunity. Rather, they seek efficiency, and efficiency loves scale, and enterprises that grow to scale become elephants stamping out opportunities around them.

The Changing Nature of Inequality

http://www.economist.com/node/21543178

This article details the changing face of the wealthiest Americans. Inequality has been rising, and the form of inequality has changed. The article talks about how Mitt Romney represents the face of the new super-rich, who have made their money in the finance sector.

Insurance enough??

Some of the largest players in the U.S banking and finance industry are hoping to be able to save their money following the Euro crisis that is currently running amuck.  Fortunately, they will likely take advantage of their right to use credit swaps in order to salvage their potential losses.  One can think of these credit swaps as a form of insurance against just this kind of things occurring.http://dealbook.nytimes.com/2012/01/29/u-s-banks-tally-their-exposure-to-europes-debt-maelstrom/?ref=business

Davos Tells EU to Fix Crisis for Good

http://www.bloomberg.com/news/2012-01-30/davos-tells-euro-leaders-to-fix-crisis-for-good-after-two-years-of-failure.html

Attitudes following the meeting of the World Economic Forum are mixed with regards to European recovery. Nearly all agree that the outlook for the next year rests on what happens in Europe, but there is disagreement over whether the policies being pursued are correct or if they go far enough. Some believe that there need to be increased guarantees surrounding debt, and that the actions of the ECB haven't solved anything, but only have given breathing room to sort out the issues.

The largest threat to European stability remains the threat of Greek default. Opinions on the fallout from a Greek default are mixed, with some in the financial community believing it would be a disaster, while others believe that it would be a manageable crisis. Whatever the case, the fact that the crisis continues to unfold year after it began is a sign that it progress has been slow going and that the end is still not yet in sight.

Some analysts believe that this respite will be short lived, and that the markets will soon react to the fact that the crisis has yet to be solved. Whatever the case be, until the issue of solvency among the European nations is settled, the crisis will continue.

National debt soars as UK adjusts to 'new equilibrium'

This article details the current economic status of the UK, specifically with the amount of debt the nation has accrued.  The total debt for the UK recently reached 1 Trillion pounds.  If one were to add the debt of the financial sector and households to this total, it would account for 500% of the nation's GDP.  What sets the UK apart from other nations that are reeling in debt, is the fact that the UK has not made progress towards attacking the debt issue.  While the US is advancing towards a solution with the defaulting of unaffordable mortgages and creation of jobs to help pay debts.  The UK in some respects is doing the opposite.  People have been saving more and spending less due to decreased incomes.  Consequently this has decreased consumption for the UK's economy.  In response to the decrease in consumerism and rising debt, the country's economic leaders have called for the "Great Deleveraging."  The UK plans to place more of a concentration on growth through exports to help right its economy.
http://www.guardian.co.uk/business/2012/jan/24/national-debt-soars-uk-new-equilibrium

Germany’s Merkel drives home need for Europe’s strugglers to reform

http://www.washingtonpost.com/business/markets/germanys-merkel-drives-home-need-for-europes-strugglers-to-reform/2012/01/25/gIQAjhgxPQ_story.html

This article is one of the continuing focus on German chancellor Angela Merkel with regards to her stance and leadership with the European debt crisis.  As Europe's economically strongest and largest nation, Germany, coupled with the French, have taken leadership positions and Europe and the world wait tensely.  Merkel is trying to take a pragmatic approach to getting Europe on efficient austerity measures.  She does not believe that increasing the amount europe is borrowing for the IMF with be successful; “It makes no sense if we keep promising more money but don’t combat the causes of the crisis.”  She also does not think that creating "eurobonds" would be beneficially and not worth the squeeze so to speak, as it would drive up Germany's comfortably low borrowing costs.  Merkel instead believes that searching through Europe's financials searching for money to attempt to tackle high unemployment in economically struggling countries.  She references Spain specifically saying that unemployment with their young adult demographics is one issue to focus on.  She stresses work force and human capital development and that trying to get out of debt by taking on new debt does not make sense.


I find it really interesting to see how Europe has put themselves in an economic whole.  I do not know enough about the situation but what did a best case scenario for the Eurozone look like?  Was it reasonable to think that everyone would be flushed with money and growth.  Also the social and historic dynamics behind the situation.  It is almost comical to think that Germany and France and working so hard to try and fix the fiscal problems of Greece and Spain, et al.  Why should they care? How tied together are all the countries now?  What would happen if Germany said forget you all and just go back to the Deutsche Mark?

State Capitalism: A Viable Alternatives ? - Debate on the The Economist

link to the article here

In class we learned about some different variations of the two extreme models of economic systems: Capitalism and Socialism. Interestingly, there is a current debate in The Economist about whether State Capitalism is a viable alternatives for the US.

Basically, State Capitalism is usually described as profit-seeking activities undertaken by the state with management of productive forces in a capitalist manner. So as we can see, state capitalism is nominally socialist.

Currently there are two sides of the debate. Representative of the motion that opposes the proposal succinctly stated: "State capitalism is not simply an economic system. It is a political invention designed to ensure that market activity and wealth serve the interests of the state and those who run it. This is the primary reason that it will not become a viable alternative to liberal capitalism" 
And the defender of the proposal stated: "State capitalism is not just a command economy ran by authoritarian elites. Democracies and autocracies follow the model. There is not one single political system within state capitalism and no single model of influence on the economy" 

These sentences are just the beginning of the debates, and there is a lot more on the web. It is really interesting to see the arguments of the two sides. It is also interesting to see that there are far more people believing in State Capitalism than those who do.

US Private Sector Emerges from Government Shadow

Overall in 2011, private sector gained a lot of strength. This is due to the shrinking of the government and the corresponding growth of the private sector. For example, private sector grew by 4.5% in the fourth quarter. Inflation also subdued during that period. However, the price index for personal consumption expenditure grew at 2.4 percent, which means that we can expect a reduction in unemployment. This helps explain why the probability of Barack Obama being re-elected has increased up to 55 percent from 52 last week.

Which Emerging Economies will Fare the Best if there is Another Recession

Who has the most wiggle room?

http://www.economist.com/blogs/freeexchange/2012/01/emerging-economies

This article is about how emerging economies can be very tied to other more developed economies, typically through exports. It has been suggested recently that the Euro Zone crisis may cause another recession. Because of this when other more developed countries get into trouble financially, there can be great consequences for this happening. It reminds me of the saying "The US sneezes and Europe catches the cold." There will be less demand for the goods and services that the developing countries are exporting, and therefore they will have a decrease in capital entering the country. In this article they make an index for "monetary manoeuvrability and fiscal flexibility" which they have coined "wiggle-room index." This attempts to measure what emerging economies will be in the best shape if there is another recession. This means that they will be able to sustain growth even through another recession. The top three are Saudi Arabia, Indonesia, and China. This was very interesting to me, because a lot of times we don't think about how one economy will hurt another, particularly when they are not in close proximity. 

Deflation

This article was quite eye-opening for me. It speaks about the deflation in our economy and the effect it will cause if it is not adjusted. I thought this related to class in the effect of the ways economic systems have evolved and changed to get better. 

"In August, the Fed's Open Market Committee announced that it would hold its balance sheet steady rather than wind it down, by using the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities. In November, it shifted course again and began asset purchases it said would total $600 billion -- the so-called "QE2,'' or second round of quantitative easing, meant to shore up the economy by helping to keep long-term bond rates low." This is causing deflation in our economic system and could be waiting around to cause some serious trouble.

Japan's Economy Picks Up Except for Exports

http://www.reuters.com/article/2012/01/17/japan-economy-report-idUST9E7NF05H20120117

This article discusses Japan and its struggle since the tragic earthquake. After months of picking up the pieces and rebuilding their economy, Japan has begun to see growth. However, they still are not out of trouble. All though the economy is picking up, Japan's exports continue to stay low. Mostly because the euro has weakened and as a result European demand for Asian exports has slowed. This raises the issue of Japans growth and reconstruction slowing from lack of demand.  They are working to prevent deflation but if there is decrease in demand for products from Europe could it be out of their control?

The Quiet Driver of Economic Growth: Exports

http://economix.blogs.nytimes.com/2012/01/27/the-quiet-driver-of-economic-growth-exports/?ref=economy

This article is about the increasing importance of exports to the United States' economy. In recent times, foreign trade has been looked down upon due to the trade deficit. However, in the past year, exports have brought in over $2 trillion, or 14% of the GDP, which is the largest share they have held since 1929.

This suggests that the increase in economic growth that has been happening over the last few months may be at least partially a result of this increased exporting. Foreign buyers have been more willing to buy American products because the decline of the American dollar has made them less expensive. In fact, exports have been on the rise for most of the last 50 years. The strongest portions of this growth in exports is actually petroleum, metal, chemicals and agricultural products. It is the "old" economy which is making a comeback. Despite the fact that this growth may be a result of the decline of the dollar, it is still growth and therefore still beneficial to the economy.

The euro crisis returns: Italy vs. Greece

http://www.economist.com/node/21543168

This article describes signs of a continent-wide European recession and the resurgence of the euro crisis. The fiscal compact of Germany's Chancellor Merkel and the debt talks in Greece will have a lot to do with the region's crisis. Despite these major developments, the article's primary focus is on Italy and its potentially impending debt default. The article suggests that in order for Greece and other European countries to begin restructuring their economy, Merkel's fiscal compact must focus on stopping the backsliding of Italy. 

One major problem of Italy's debt is lack of demand, high interest rates and higher taxes. What would an even more centralized economic system do to Italy's economic crisis? Would this enable the country to have lower interest rates and taxes? 

Additionally, the outcome of Italy's economic future relies heavily on whether Greece will default. It's safe to guess that if Greece defaults, then the market may shift to Italy and bog down this already economically unstable country.

Come On, China, Buy Our Stuff!

http://www.nytimes.com/2012/01/29/magazine/come-on-china-buy-our-stuff.html?ref=world

While discussing the trade deficit between the USA and China, its causes and effects, this article touches some interesting discussions that we had in class:

Firstly, it mentioned how the United States gave away countless low-end manufacturing jobs by opening up the U.S. market. The same comment was made by professor Skosples last Friday.

Secondly, the writer tried to explain why American companies failed to sell their products to Chinese customers: one significant reason was due to the cultural difference in taste and also due to their spending habit. This is a classic example of the impact of customs on the production of goods and services, which define the economic system.

Thirdly, the article went on great length to how China’s currency policy had a profound impact on the U.S. economy. It brings me to question how the classic definition of economic system fits in the modern change of global economy. Property rights for example may differs greatly with the appearance of multinational companies and foreign investment

7 ways to fix the economy

I found this write-up on msn.com in their Money section. It discusses 7 ways, multiple, economist think the US Economy can be improved. The economist featured in the article all agree the economy is showing signs of improvement but it will not see the same healthy state until the job market directly changed. This article is exhibiting the idea that through the government assisting in the creation of new jobs and the improvment of current jobs, will improve the US's Economy. This will increase the amount and wealth of consumers in all markets,fueling the markets. In return improving the state of the Economy.

The 7 ways addressed are some-what simple but more difficult actualy to accomplish:

Extend the payroll-tax holiday not; "not long term, just 1-2 years."
Spend federal dollars to put the jobless to work; "defecit spending genearting jobs."
Build out the nation's infrastructure; "the impact of fiscal stimulus on financial, commodity, labor and household markets."
Free the markets; "Stop introducing new stimulus policies, both fiscal and monetary.
Bring back the 1990s;  "We need two things simultaneously: short-term fiscal stimulus and a long-run return to the fiscal responsibility of the 1990s."
Repair aging roads and bridges; "The best thing the government could do is return to pre-2001 tax policies and use the (additional) revenue to invest in public infrastructure."
Fix the tax code; "Say what you want about the wisdom of raising taxes on the rich, but there's no evidence that doing so will lower unemployment or spur growth."

Through government intevention there is hope of improving the job market and in return improving the economy. This can seem appealing considering the fact that both sides can get actual benefit from the improvements. The government recieves hope of carry over improving the health of the Economy and cunsumers get the improvement of personnal living. Maybe the way of improvement is through improving the job market.

http://money.msn.com/investing/7-ways-to-fix-the-economy

African Union Opens Chinese Funded HQ in Ethiopia

Today, the African Union celebrated the official opening of its new building in Addis Ababa, Ethiopia. While a building’s grand opening may not usually make world-wide news, its unique creation has raised some interest. The 100 meter, $200 million, building was funded entirely by China – even most of the furnishings and materials were paid for and imported by China.  Functioning as the headquarters and conference center for African heads of state, this has served as the most obvious example of China’s increasing influence on the African continent; the center is being called “a reflection of new Africa” by the AU chairman, Teodoro Obiang Nguema. Chinese firms  have also built roads and  outsourced car manufacturing to Ethiopia.

The AU has been very positive about the investment and both Chinese and Ethiopian citizens have benefited from the increased availability of jobs through its construction. Overall, trade between Africa and China has increased by more than six times in the last ten years - to $120bn in 2011.

This article reminded me of the discussion we had in class about China’s role in the world economy. While China’s GDP growth may slow as it “catches up” to the United States, I believe that this investment demonstrates the potential of an economic alliance between China and African nations. It makes sense as the demand for natural resources increases globally and it becomes easier to outsource manufacturing. I expect to see this relationship develop further in the coming years.

African Union Opens Chinese Funded HQ in Ethiopia 

http://www.bbc.co.uk/news/world-africa-16770932

Obama Pushes ‘Buffett Rule’ to House Dems

This article is about an announcement that president Barack Obama made.  He said that he would work on revising tax break that helps rich people pay lower tax rates than many wage workers.  President Obama calls it a Buffet rule, which is interpreted from Warren Buffet’s comment; “I shouldn’t pay taxes at a lower rate than my secretary.” 

Revising the current tax break would help wageworkers and Obama would win the popularity vote.  It is predicted that this would close the gap of inequality a little, but when we think about the large amount of national debt of US, it is not so bright news in my opinion.  More tax break for many wageworkers mean that it will be a tax break for majority.  If top 1% income group’s revised tax break (higher tax rate) can cover the loss tax from majority, it’s the best, however, the fact isn’t like that. 

Also, Democrat’s debate on extending debt limit and extending payroll tax cut last year helped Democrats to gain more votes.  Extending debt limit means more debt but intension of more economic activities.  Extension of payroll tax cut will help workers to gain more income, but current popular programs like Social Security and Medicare will suffer from lower budget.       

      

As we all know, Mr. Obama is trying to run a presidential election in 2012.  His announced policies have positive and negative affects in the economy.  The debates that democrats make seems to be helpful in a short run, although, the policies were in demand by many people.  

Link:

http://www.bloomberg.com/news/2012-01-27/obama-pushes-buffett-rule-in-populist-talk-to-house-democrats.html

Europe struggles to find a strategy to grow out of its debt crisis

In this article, the current situation in Europe is further examined and what is to come of their next summit on January 30^th. The article discusses whether or not countries will be able to come to some sort of common ground over what should be done. While all the countries believe that growth is the answer, they all have different opinions over what is the best way to increase growth.

At the summit, the will be attempting to pass “fiscal compact” which would require all signatories to have a balanced budget. There is opposition to this, such as Mrs. Lagarde, and the opposition believes this “makes Keynesianism illegal” and what they need to do is ease monetary policy and countries that have surpluses should spend more.

Three more problems in Europe are the fact that they have so much public spending, their production is falling further behind the United States after almost catching up in the 1990’s, and it is hard to obtain patents. Since there is no patent that exists that covers you in multiple European countries, it is very difficult to get a patent. They are trying to fix this and make one that gives you protection in many countries now.

U.S. Economy Picks Up Steam

This article examines the current situation of U.S. economy. Although the U.S. economy grew at its fastest pace in 18 months in the fourth quarter, the author points out that slower growth is likely to happen in the coming month due to a weak demand.
The U.S gross domestic product grew at an annual rate of 2.8% in the fourth quarter last year. But the acceleration is less the 3% a year, not enough to bring down the unemployment rate as indicated by economists.
The author also points out that the boosted in spending at the end of 2011 is in part by drawing down savings. This is unlikely to last very long. Economist Mr. Campagna said:"Everyone is just scared to overspend." Without enough consumers willing to buy services and products, a market-economy system like U.S. will suffer from low consumption and firms are not motivated to produce more product and services and the economy will only recover very slowly.

An Economy Crumbles: Uncertainty about whether Greece will stay in the euro is crippling its prospects

http://www.economist.com/node/21543522

The article is analysis of whether or not Greece will still be in European Union due to their downturn economy that has been in a recession for the past five years. The Greek banks have borrowed 43 billion euro of emergency funds from the Greece Central Bank. Credit is in short supply so banks had to decrease the amount of loans which has increased the price to obtain loans. At the end of 2011, the IMF released a report stating that a “50% write down on private-sector bonds… together with €130 billion of extra official financing at low interest rates would give Greece a decent chance of getting its public debts down to 120% of GDP by 2020”.  The unemployment rate has risen to 18%.  Greece has a deficit of 10% GDP which is a concern for a country that has so much “slack” and consumes more than it produces.

The uncertain future of the Greek economy has lead to few investors or businesses to make long term commitments in Greece. Greece’s future will be determined next year once its place in the euro is confirmed. It also depends on the IMF’s agreement for a new support package which they would only agree to if they think Greece’s “public finances are on a sustainable path.”  

One suggestion for the Greek economy is to shutdown “underutilized” public entities. Another suggestion is to fix the corruption of the tax system by outsourcing the job to “foreign tax officials or private-sector tax consultancy”.   In order to stay in the euro they have to convince the institutions or countries that are going to loan them money that they are not go to throw their money away. 

Bitcoins: Does an Internet Currency Mean the Doom of the Dollar

Since the financial crises, politicians and economists have been calling for a change to our economic system. Some even suggest getting rid of the Federal Reserve and returning to the gold standard for more stability. If stability is the issue, why not switch to a currency that can regulate itself? Bitcoin, created in 2009, is the worlds “first decentralized digital currency.” In theory, Bitcoin seems perfect; Through a set of complicated algorithms, it is controlled against theft, counterfeiting, and inflation. In practice, could a concept like Bitcoin perform as well as it's designed? 

Although this article focuses specifically on the Bitcoin and the concept of a digital currency, it brings up a lot of great questions as to where our economy, and the world economy are headed. With a currency that can regulate itself, what’s going to happen to regulatory institutions like the Fed? How would a decentralized currency affect politics?

http://business.time.com/2011/06/29/bitcoins-does-an-internet-currency-mean-the-doom-of-the-dollar/

http://www.economist.com/node/18836780

How Bitcoin works:

http://www.economist.com/blogs/babbage/2011/06/virtual-currency

http://www.weusecoins.com/

GDP Report Hurts Stocks

The nation's gross domestic product—the value of all goods and services produced—grew at an annual rate of 2.8% between October and December, up from 1.8% growth in the third quarter. The reading fell short of expectations for 3% growth, though the data showed the U.S. economy grew at the fastest pace since the second quarter of 2010.

U.S. stocks were down more than half a percent in midmorning trading, jeopardizing the market's chances for a fourth-straight weekly gain, after investors were disappointed by the most recent reading on domestic economic growth. 

The Dow Jones Industrial Average futures dropped 74 points, or 0.6%, to 126664. The Standard & Poor's 500 fell 4.3 points, or 0.2%, to 1314 and the Nasdaq Composite Index was flat at 2806.

 http://online.wsj.com/article/SB10001424052970204661604577186481168230406.html?mod=WSJ_hp_LEFTTopStories

Cuba's Communist Convene

This article gives the reader insight into Cuba's political process. As discussed in class, Cuba and North Korea are the only two nations in the world with a command economy. Cuba has been lenient economically recently, and with the country's political leaders gathering this weekend, it could mean that the leadership could loosen its economic grip on the country.

Raul Castro also introduced term limits on the presidency. If we use the Soviet Union as a case study, we may find that eventually future leaders will introduce economic and/or political policy that might lead to the collapse of the economic system. I believe this will happen after the death of Fidel and Raul Castro.

The paradox of prosperity

In this article, China is being examined as an economic power. However, it's being ridiculed in a way due to its continual use of a non functioning economy. "The paradox, as some within the party are coming to realize, is that for China to succeed it must move away from the formula that has served it so well." Even though China is fast moving towards establishing itself as a world superpower, both economically and militarily, it still has ties to its old communist methods. The article explains that for China to finally make that step towards becoming a world superpower, it must leave the old communist ties behind. http://www.economist.com/node/21543537

Portugal under pressure, but default unlikely

Portugal, along with many other European countries, has come under close scrutiny recently due to the debt crisis. Many investors fear that Portugal may be the next to fall. Today the yield on 10-year government bonds hit 15%, which is the highest it has been since the introduction of the Euro in 1999, and 3-year bonds hit 21%. Portugal currently has a 162 billion euro debt load, and the fear is that investors could lose up to 50% of their holdings if the country decides to default on its debts. Investors have been looking to Greece as a potential example of what also may happen in Portugal. Additionally, the economy is expected to shrink 3% this year.

Yet, investors still have bigger worries in the larger markets such as Spain and Italy. Portugal has been praised for the progress it has made on fiscal reforms. In fact, analysts are saying that Portugal is not in immediate danger of default, but the government needs to do a better job of controlling public spending. In contrast, Greece has struggled to make budget cuts and structural reforms. It is predicted that Portugal will return to the public markets in 2013.

Africa's Hopeful Economies

This article starts by explaining a new trend of increasing numbers of self made African billionaires. Africa suffers from gross inequalities, but there is an up and coming middle class. The Standard Bank (a bank that operates throughout the continent of Africa) estimates that 60m African household have an annual income greater than $3,000 at market exchange rates; by 2015 this number is expected to reach 100,000m. This "new middle class" can partially be attributed to Africa's increase in international trade, decreased inflation and higher productivity over the past few years. The article relates Africa to China 30 years ago when it took off as an international super power. Africa and China  appear to have have many similarities besides economic growth. To start Africa's population is estimated to double from 1 billion people to 2 billion in the next 40 years. Also demographically, the mean age of Africans is 20. As this generation moves into the working class age, Africa's productivity will certainly increase. These similarities to an up and coming China should not be ignored but factors such as corruption, war, and disease continue to cripple the continent. Also looking at statistics for "Africa" can be dangerous because each of Africa's 54 countries provide severely different economic and social challenges that need individual economic policies. Until these factors can be dealt with, this naturally rich continent will continue to be home to a mainly poor population.http://www.economist.com/node/21541008

Fed Signals That a Full Recovery is Years Away

The Federal Reserve declaring that the economy would need help for years to come, said Wednesday it would extend by 18 months the period that it plans to hold down interest rates in an effort to spur growth. The Fed said that it now planned to keep short-term interest rates near zero until late 2014, continuing the transformation of a policy that began as shock therapy in the winter of 2008 into a six-year campaign to increase spending by rewarding borrowers and punishing savers. The Fed forecast growth of up to 2.7 percent this year, up to 3.2 percent next year and up to 4 percent in 2014, but at the end of that period, the central bank projected that the recovery would still be incomplete. Workers would still be looking for jobs, and businesses would still be looking for customers. The economic impact of the low-interest rate extension, however, is likely to be modest. Many businesses and consumers can’t qualify for loans, a problem the Fed’s efforts do not address. Moreover, long-term rates already are at record low levels and, like pushing on a spring, the going gets harder as it nears the floor. Finally, the Fed already was widely expected by investors to hold rates near zero well into 2014, limiting the benefits of a formal announcement. Since the beginning of the financial crisis in 2007, the Fed has alternated bursts of activity with periods of rest, concluding several times that it had done enough only to find the economy still struggling to recover. The Fed announced last summer that the central bank intended to keep interest rates near zero through at least the middle of 2013, and that it would seek to reduce long-term interest rates through changes in the kinds of investment securities it holds. Since then, two meetings had passed without the introduction of any new programs. This is a perfect example of what we were talking about in class about economic systems vs. economic policies. The distinction is very clear in this article, and it will be interesting to see if these policies that the Fed plans to enact and continue, will spur the growth they predict low interest rates may incur. 

http://www.nytimes.com/2012/01/26/business/economy/fed-to-maintain-rates-near-zero-through-late-2014.html?ref=economy

A world in chaos? That may be a good thing.

http://www.bloomberg.com/news/2012-01-25/u-s-economy-preferred-by-investors-in-global-poll-on-markets-1-.html

In this article, it provides readers with a general view of the Economic Chaos taking place today. It is said that the chaos could be arranged in the order of A, B, C, D. A is for anger, B is for borrowing, C is for competitiveness, and D is for deadlock.  A category includes European anger at austerity measures, tens of thousands of Russians protesting the current policies of once popular Putin, and so on. Also, corruption is still a serious problem in the developing countries which also angers people.  More chaos in B includes the problematic borrowing and the debt issue. America’s federal government, state governments, financial corporations, and households all carry debt. Also, European government-debt-fueled schemes have reached their inevitable end. As a result, the economy is stagnant.  According to the article, the middle-class living standards in the West have not risen for several years, which might be partly caused by the advent of a poor global labor market. Millions of workers now compete with one another for the jobs in the same (although very large) market. D, for deadlock, is another remarkably global phenomenon that at the top of governments. For example, America’s Congress understood the debt problem before raising the debt limit; however, solving it is so painful that it didn’t get gone until the last desperate moments. In summary, although the chaos is disturbing and annoying, it says that hope is in there if we look hard enough, and it could also mean that the chaotic challenges are closer to finally being resolved.

 From this article, we can see that there are different problems existing in different countries, which could also mean in different economic systems. As discussed in class, there is not  a perfect economic system, but instead probably a better one. Moreover, it is also very hard to compare different economic systems among different countries, as we don’t know which elements of these systems cause the problems and how they should be resolved.

    

Japan posts first trade deficit since 1980

It is not a surprising topic to see after the disastrous earthquake and tsunami happened last year. We have been keep hearing that many electronics and manufactory companies was influenced. The export was weaken after the natural disaster. Also, with the shut down of several nuclear plants, the power was limited, which has brought many pause of production.
In addition, tourism has been hit too. People began to afraid of nuclear residue radiation, even dare not to buy brands made in Japan, especially food and skin care stuff.
There were also influences from strong yen and eurozone economc crisis. The article brings upm"In the latter half of the year, floods in Thailand knocked out more Japanese production capacity, while overall shipments were hurt by a strengthening yen, up 17% against the euro over that period."
There is a debate about whether this deficit will continue or not. Some think that the data already shows that in the new year, there is a obvious increase in trade. While other think that this deficit will linger.
In my opinion, this hard time for Japanese economy has not met the end yet. The influence of nuclear issue is huge. From what I know, many people already gave up buying Japan-made stuff, not to mention tourism and agriculture. Export of Japan will be absoltely hit in the coming, say 5 years. The recovery time will be longer than people thought.

Economy in U.S. Preferred by Investors: Poll

Economy in U.S. Preferred by Investors: Poll

At the World Economic Forum today representatives showed confidence in the United States economy in several polls.  Most important among them is a poll showing that 48% of experts believe America will be among the best countries to invest in this fiscal year.  By invest the poll is mostly referring to stock markets, which are always strong in the very laissez-faire American Economy.
This comes about due to several factors.  America is pulling out of its recession.  Job Growth in Ameria.  The European Union is facing a debt crisis and the impending defaulting of Ireland. 

The countries tied for second in the poll were Brazil and China. 

Fed adds more punch to low-rate pledge

I believe as the economy grows bigger and bigger, it is more difficult for any single entity to control the whole economy. However, when the economy gets into trouble, it all falls back to the government to step in, first to help, and second as a insurer. In other words, the government proves to be more important than ever with the role of stabilizing the market. Maybe, the government can play a bigger role in the economy in the future.

Obama: Debt ceiling fight contributed to poor economy

Obama: Debt ceiling fight contributed to poor economy

In President Obama's State of the Union address last evening, the economy was a substantial topic. In this article, he targets Washington for our economic issues and inability to pay our bills. Also, he states rules and regulations which he hopes to enforce upon the Congress and House to try and "clean-up" politics for the betterment of our economy.

World Needs to Create 600-Million Jobs in Next Ten Years: ILO

This article discusses the current state of world unemployment and how jobs need to be created to avoid civil unrest. An agency of the United Nations believes that 600 million jobs will need to be created. Because of the poor economy worldwide, there are over 200 million people unemployed. The other 400 million jobs needed come from the new people joining the workforce annually. Even for people that are employed, in developing countries many of them still live below the poverty line. In more developed nations, young people (ages 15-24) are suffering more than ever. Effective government policies will need to be put in place in order for anything to happen regarding unemployment. One way to improve the unemployment rate is to encourage private investment.

Perceptions of Corruption compared to Development

http://www.economist.com/blogs/dailychart/2011/12/corruption-and-development

This link provides an interesting explanation and graphic representation of corruption, in the form of the Corruption Perceptions Index, as it compares to the Human Development Index which provides a combined measure of education, health and wealth.  It relates to our discussion of efficiency and corruption in class.  It was especially interesting to me to look at the countries that were high in corruption and low on the HDI scale that may be affected negatively affected by the corruption in their country.  Particularly their economies will be hurt by the lack of external investment when investors feel uncertain about the economic environment and the potential for major gains.  These countries were largely located on the African continent and war torn countries such as Afghanistan and Sudan.  It will be important to follow the policies undertaken to address the perceptions and realities of public-level graft, as corruption can have major political implications in a country.  The outliers of Greece and Italy as more developed states, but with a higher perception of corruption can be compared to the outliers of the other extreme such as Cape Verde, Bhutan and Botswana that are less developed countries, but have a lower perception of corruption than many states in their region.