Both barrels?

The Japanese economy has suffered a period of low nominal growth and deflation for the two previous decades. The Japanese Prime Minister Shinzo Abe is attempting to bring Japan's economic growth back to desirable levels through pressuring the Bank of Japan (Japan's central bank) to raise its inflation target to 2% more than the 1% it was set at (partly due to the Japanese preference on saving). In addition, Mr. Abe's administration would seek to use a fiscal package to help stimulate the economy. 

The question is whether or not using monetary policy from the Bank of Japan alone will be enough to suffice in growing the Japanese economy or will Mr. Abe's fiscal stimulus package be essential in reviving the Japanese economy. In this scenario, it may be better for a combination of monetary and fiscal stimulus to take place as monetary policy alone may not be enough for to encourage spending and create inflation. The current US economy is an example of how monetary policy is ineffective as despite interest rates are extremely low (near zero), low consumer confidence discourages consumers to borrow. The fiscal stimulus result in large amounts of money ejected into the economy in the form of large spending that will increase the nominal GDP. The major risk in involving a large stimulus package from the government would be its huge public debt.

source: http://www.economist.com/blogs/freeexchange/2013/01/japanese-economy

Next Made-in-China Boom: College Graduates

The current teenage and college-aged generation of China currently are taking advantage of a national effort to produce college graduates in numbers the world has never seen before. China is making a $250 billion-a-year investment in what economists call human capital. This is similar to the United States in the 1940s and early 1950s when the United States helped build up a white-collar middle class by using the G.I. Bill to educate millions of World War II veterans. China expects to have nearly 195 million community college and university graduates by the end of the decade. However, despite China's investment, well-educated professors are scarce in China. Therefore, many Chinese seek scholarships and federal grants to come to America to study. They hope to have around 120 million in the United States by the end of the decade as well.

The question is however, should we Americans be worried about job opportunities as China produces vast numbers of graduates to compete with us in the job market. The argument can be made that America still has the highest caliber in quality higher education. However, multinationals including I.B.M, General Electric, Intel, and General Motors have each hired thousands of graduates from Chinese universities. And what happens in a couple decades when the well-educated Chinese generation becomes the prime age to become professors, that would then lower the rate of Chinese students coming to America. Why would they come to America when they would have the same caliber professors in China the next couple decades?

In addition, in comparing elementary and high school academic curriculum and test statistics, China is well above America in math and sciences. Chinese culture emphasizes the family sacrifice to give the children all the resources to reach the highest and best education that they can afford. Hundreds of families across China and other Asian nations focus their money on getting their children through high school and college rather than pursuing material comforts. Can we Americans honestly say that as a culture we allow education to overshadow material items? I'd like to think we can but coming from an Asian background I've been thrown into both cultures simultaneously and sadly, I think American high school and elementary education is no where as demanding as other nations.

Sourcehttp://www.nytimes.com/2013/01/17/business/chinas-ambitious-goal-for-boom-in-college-graduates.html?ref=todayspaper&_r=0

Energy self-efficient by 2030: Can U.S. do it?

According to a report released on Wednesday by British Petroleum, vast stores of natural gas and oil found in shale formations could sharply increasing domestic production, making the U.S. energy self-sufficient by 2030. There are several reasons for this to happen. The first reason is the decline in oil and gasoline demand recently thanks to significant development in energy efficiency and fuel economy. The second reason is the tremendous demand increasing day by day in China and India, pushing the demand in the U.S. down from the top. The third reason is, of course, the large-scale development of shale formations only in North America along with previously "unimaginable amounts of crude oil and natural gas locked away in shale rock" across the U.S. It will make the U.S. become a global energy production leader, surpassing Saudi Arabia to become the biggest oil producer by 2020 because BP reported that fossil fuels will continue to be the dominant source for world's fuel mix.
However, whether the predictions come true or not, it depends on different factors including government regulatory on oil and gas development and the cost of extracting the oil from the shale formations. Fracking has been a controversial topic for quite some times, and until a new way of extracting the oil from the ground that doesn't harm the environment is found, public will make it difficult to actually unlock tight oil.
So the question remaining is to either keep hydraulic fracturing to get the oil but clearly satisfy the debate around the externalities or found a new practice that is not costly. It is also worth questioning how we are going to use the gas and oil in shale formations, at which rate we are going to extract, produce and consume, and how much to be exported.

Source: http://www.usnews.com/news/articles/2013/01/16/bp-shale-boom-key-to-us-energy-self-sufficiency

January market update: Avoid short-term thinking

https://www.fidelity.com/viewpoints/market-and-economic-insights/january-market-update-podcast?ccsource=email_weekly

In this update from Fidelity Investments, a brokerage and asset management firm, Dirk Hofschire, Senior Vice-President of Fidelity's Asset Allocation Research department, discusses what macroeconomic events he expects to occur in 2013 and how investors can prepare for these events.  Mr. Hofschire starts off his discussion by highlighting the reasons why the markets achieved great returns in 2012.  Among these reasons are that the major macroeconomic fears at the time, a collapse of the Eurozone or a U.S. default, did not happen.  The alleviation of these fears combined with the "accommodating" monetary policy employed by the Federal Reserve led to the positive market sentiment that caused the large returns enjoyed by most sectors of the economy.  Looking into 2013, the slow economic growth the U.S. has been experiencing is expected to continue as there is still considerable "fiscal drag" from the the budget debates that are expected to resume in March.  Looking internationally, Mr. Hofschire believes there is considerably more reason to be optimistic about the global economy in 2013 than compared to 2012.  Mr. Hofschire believes this is primarily due to China which has seen a re-acceleration in growth due to a serge in credit and liquidity being directed at real-estate and infrastructure in the country.  However, other countries as well are improving if at a slower pace as even distressed areas like Japan and the Eurozone are stabilizing.  In conclusion, Mr. Hofschire believes there is considerable reason to be optimistic heading into 2013.

Keynes, trains and automobiles

Shinzo Abe is running for the position of Prime minister in Japan and is running on a platform of revitalizing Japan's infrastructure. He announced is running for Prime Minister just days after the Sasago tunnel collapsed killing nine people. His platform is calling for about 150 billion dollars in government spending to update old infrastructure. The injection of government spending into the economy could have a very positive affect on getting their economy out of its recession. Japan already has a very large public debt that already is over 200% of the GDP so it is necessary to have a solid plan for the use of the funds so as not to waste the money and opportunity to turn the economy in the right direction.    

S&P upgrades Greece out of selective default

http://www.boston.com/news/world/europe/articles/2012/05/02/sp_upgrades_greece_out_of_selective_default/

     This article talks about how the Standard and Poor's rating agency recently upgraded Greece's credit status from selective default to CCC. This rating is still junk status and is not investment grade, however it is a step in the right direction for Greece. Standard and Poor's said it made this upgrade because Greece has successfully finalized a bond swap which has wiped 100 million euros off their debt. Greece negotiated this deal which caused private bondholders to lose about 75% or the value of their investment.
     Greece has been in a recession for six straight years and it leads to question whether their economic system is effective. A huge problem Greece is facing right now is that they are unable to pursue monetary policy since they are a part of the European Union and have no central bank.

Istanbuls and Bears (Turkish Economy)

Istanbul is a bustling center of one of the world's fastest growing economies. Recent figures revealed a 8.5% growth for 2011. However, the fast growth does not come without side effects for Turkey. For example inflation rate for march was 10.4%. Even bigger concern is Turkey's dependence on foreign capital for economy. It is even more concerning that most of this capital comes from the banking deals and therefore can leave as easily as it entered. However, enthusiasts are sure that the advantages far outweigh the economics problems of Turkey. Its domestic market is big and is expected to grow even further.
The central bank of Turkey has recently adopted a policy to help Turkey overcome "hot money" problem, associated with the euro crisis. The objective of the government is a 5% interst rate, which Turkey projects to hit in 2013.
Another one of Turkey problems is competitiveness of turkish businesses, many of which prefer to stay small, due to many imposed regulations. But the main concern is still that current-account deficit and "flighty" capital, will weaken Turkey and make it less resilient for economic troubles.http://www.economist.com/node/21552216

Start-Ups Look to the Crowd

This article talks about the success a start up website is having. Not many would think that simply publishing a business plan online would attract a million dollars in start up capital. All from strangers you have never met investing anything from one hundred to thousands of dollars. An entrepreneur by the name of Eric Migicovsky is seeing this kind of success thanks to a start-up website called kickstarter. They found  more than enough start-up capital for his line of ipod adaptable watches. Will this be positive for the economy? The possibility of economic through encouraging innovation and entrepreneurship. Or will investors be taken advantage and the group of crowd investing organizations fail?


http://www.nytimes.com/2012/04/30/technology/kickstarter-sets-off-financing-rush-for-a-watch-not-yet-made.html?_r=1&ref=global

The New American Manufacturing

http://online.wsj.com/article/SB10001424052702304811304577369771991833552.html?mod=WSJ_PersonalFinance_PF14

This article focuses on the resurgence of American manufacturing. With a weak dollar, stalled labor costs, and growing labor costs in China, America is poised to regain a lot of manufacturing. Particularly prevalent are producers of steel, autos, and chemicals. This transition could have important implications for global markets, as the emerging middle class in BRICS countries begins to demand goods from countries like the U.S.

Another one bites the dust

This article explain the hardships that Romania has been going through regarding the constant governmental failures that have been plaguing the country. The most recent area for concern deals with dubious firms selling under the market price in return for huge bribes. The author notes that one specific example of this comes from sales of shale- gas to Chevron (the American energy giant). Multiple other corruption based scandals similar to this in the past few years have brewed feelings of uncertainty for the European Union. Romania was accepted to the Union 5 years ago, and just last year was lend 5 billion Euros to stimulated it's economy. Scandals like this must cause huge concerns for the EU who's countries are for the most part struggling. Corruption and government failures not only hinder Romania's economy, but the world at large.

http://www.economist.com/blogs/easternapproaches/2012/04/romanian-government-falls

Federal Reserve sees economy improving

http://money.cnn.com/2012/04/25/news/economy/federal-reserve-policy/index.htm?iid=SF_E_River

This article discusses the Fed's predictions on economic recovery for the next year. The Fed notes that although there has been some recent improvement, it does not want to make any policy changes at the current time. The FOMC has revised unemployment rate forecasts to be between 7.8 and 8% by the end of the year. The Fed also believes growth will be between 2.4-2.9%. Although these figures are nowhere close to ideal, they represent consistent, moderate improvement in overall economic performance. The Fed believes this growth can be sustained, and hopefully will take a sharp upturn in the coming years.

Wasting Our Minds

http://www.nytimes.com/2012/04/30/opinion/krugman-wasting-our-minds.html?_r=1

This article by Paul Krugman suggests that conservative policies are harming the ability of America's youth of getting an education, and then getting a job. College is extremely expensive, and republicans like Mitt Romney are in favor of cutting government aid to students. At the same time, Romney encourages young people to "get an education" and start a business, borrowing money from their parents if necessary. Krugman argues that this ignores the fact that a huge portion of Americans don't have the financial means to follow this advice.

In addition, the article addresses the issue of tax cuts for corporations and the wealthy, and how they hurt job creation rather than aiding in it. Even those who do manage to get a decent education are by no means guaranteed to get a job as a result. Because of this, a high percentage of the recently graduated are unemployed. This is bad for the government, as these people will make up a large portion of the tax base in the future. Education is important, but many policy maker's ignore this fact, instead favoring the already wealthy.

U.S. Growth Slows to 2.2%, Report Says

This article discusses the slowdown in growth that occurred after the first quarter. It says that Republicans may try to use this to say that the Obama administration is hindering economic growth. However, the Obama administration is focusing on the positives, such as growth in consumer spending and an increase in residential building. They also say that the private sector is still picking up and the president's policies aim to help this. The growth was less than expected but did not have a large negative effect on the stock markets. Business investment declined but consumer spending increased. Construction related to mining, oil, and gas had the largest decrease in investment, while investment in factories and office buildings increased. It is not believed that another slowdown will occurs seeing as the one last year was caused by external shocks. The article ends with the idea that the growth rate of 2.2 is sustainable but then questions whether or not it is acceptable.

China's rising military and economy

This was a debate on the state of China's modernization, including its rise in the sectors of the military and economics. The debate focuses on whether or not China's influence as a superpower will make it a regional hegemon in the future. To what degree did the Asian model contribute to China's success? Would a battle over Taiwan cause negative economic effects for mainland China? How would the Chinese military and economy interact in this instance?

http://www.economist.com/debate/debates/overview/227

New rivers of gold -- Remittances from unlikely places are helping poor countries in the downturn

http://www.economist.com/node/21553458


The article talks about the remittance corridor between rich and poor countries. In recent years, the value of remittance to poor countries is enormous, and remittances are also growing in spite of the global economic crisis. Workers working abroad and send their wages back to their home countries will help the poor countries to increase investment in the economy. But in the rich world, many countries have closed their borders to protect home-grown workers. America has made its southern frontier harder to cross, which partly explains the slowdown in immigration from Mexico. Emigration has risen, too, since the economy stalled. But perhaps because they know it will be harder to come back, migrants are staying longer. According to the Pew Hispanic Centre, 27% of Mexicans deported from America in 2010 had been in the country for at least a year, up from 6% in 2005. That may help explain why remittances from America fell by only 5% in 2009, whereas in Britain, which has open borders with some of its biggest senders of immigrants, they fell by 27% (exchange rates played a part, too). Stricter border controls keep migrants in as well as out, and the remittances flowing.

This article, published by the Onion, details how a previously unemployed man has been hired, but makes 20K less than when he was laid off in 2009.  While the article is written by the Onion and is not factual in any manner, it does lend an idea of how we can tell if the US economy is improving and will soon move out of the recession.  More employed workers means that more consumer debt that has been accrued can be paid off and consumer confidence can increase.  The paying off of debt will add ballast to the housing sector and potentially catalyze banks to lend money.

http://www.theonion.com/articles/the-recovery-is-here-reports-underemployed-man-mak,27760/

ILO warns global employment situation is 'alarming'

http://www.bbc.co.uk/news/business-17890575

The UN is back-stabbing itself.

The International Labor Organization blames the government spending cut in Europe as the cause for high unemployment. They encouraged these countries to follow expansionary fiscal policy and increase governmetn spending in order to revive the economy.

However, the International Monetary Fund, another UN agency, is notorious for bailing out troubled economies on the condition of financial austerity. In other words, the IMF have always required weakened economy, such as Spain and Greece, to cut the spending and balance the book. This is, ironically, contradicting the recommendation of the ILO.

Now on sale at Costco: Mortgages

http://money.cnn.com/2012/04/26/real_estate/costco-mortgages/index.htm?iid=HP_River

This article on CNN money reveals that Costco is now selling mortgages "in partnership with First Choice Bank, a New Jersey-based community bank, and 10 other lenders." Eventually Costco plans on selling both auto and student loans, expanding its market from retail goods to whatever you need as a consumer. Doing something like this really expands the market Costco has, and the rates that Costco are giving out top that of some banks. Whether or not people will switch to receiving mortgages from non-bank sources is up for debate, but it certainly seems like those who have switched are benefiting.  

Gas Prices in U.S. Still Dwarfed by European Costs

http://www.ibtimes.com/articles/302292/20120221/gas-prices-worldwide-united-states.htm

The price of gasoline has increased by 29 cents since December raising the national average to $3.57 even though oil prices have remain relatively constant globally.  But speculation over the uncertainty in Iran has lowered consumer confidence in Europe and the US. Some economists predict the price per gallon of gas will reach $5 soon, but should we be complaining?  In Singapore, a gallon of gas cost $6 and in Turkey $9.  When comparing Europe to the United States, the main difference between is the value added tax where in the US it is 10% and in Europe, its 50%.

China's Slowdown Hurts Global Manufactures

http://www.nytimes.com/2012/04/28/business/global/chinas-slowdown-hurts-global-manufacturers.html?ref=economy

Companies like Caterpillar, 3M, United Technologies and ABB are among manufactures that have reported a decreased performance in China's last quarter. China's economic growth has slowed to its three year low. Investors are nervous but a lot of chief executives think the economy will grow again when the government eases the monetary policy and inland expansion. The Chinese government has responded that the struggling housing market has influenced consumer and industrial demand. Official forecasts for 2012 are an eight year low growth rate of 7.5%. The slowdown has also been attributed to the weaker demand from companies that rely on exports to Europe due to the debt crisis occurring on the continent. However some companies like Apple have increased their sales due to their iPhones. Even if China's growth picks back up, it is not expected to be at the rate it was the past decade especially in sectors like the automobile industry. 

India's Economic Reforms: Now Finish the Job

Although India has accomplished much in recent years, this article blames current leadership for the inability to reach its true economic potential. President Singh has done very little to promote domestic growth and has not taken advantage of the growing Indian middle class. This has led to stagnated growth in one of the most populated countries in the world. Although the license permit raj has not been used legally in the last 20 years, it continues to play a role in limiting foreign investors and corruptions have remained prevalent. More reforms and enforcement should take place in order to create stability and economic growth. 

http://www.economist.com/blogs/banyan/2012/04/indias-economic-reforms

The poor stay poor by Tami Luhby

by Tami Luhby
The title is somewhat self explanatory, the article covers the inability of the lowest income quintile to progress to higher income. Instead, the gap between the lowest and highest quintile in the United States has increased by approximately $30,000 in the past two decades.

Why China’s Rise Is Great for America

While a raise in wages for China will definitely increase prices, Eric Liu argues that this is actually a good thing for Americans. As wages increase in China, so does the amount of people that can afford American goods, potentially leading to higher wages in America.
http://ideas.time.com/2012/02/22/why-chinas-rise-is-great-for-america/

Stiglitz discusses policy making and politics

http://theeuropean-magazine.com/633-stiglitz-joseph/634-austerity-and-a-new-recession

In this interview, Joseph Stiglitz details a few issues that he has with the way that economic systems are being discussed in the academic and political sphere.

In a statement that relates to our early classroom discussion about measuring economic systems, Stiglitz argues that we should be more interested in the welfare of the majority of citizens in an economic system than the overall GDP numbers. I can't say I disagree with Stiglitz here, but he does fail to provide a counter to GDP. Although equality could be measured by the Gini coefficient, Stiglitz seems to want a merge between the two.

Stiglitz also expresses dismay at academia who still believe in the market after the financial crisis, arguing that they are preventing potential economists with different ideas from entering that market, and also blames these academics for providing oversimplified and distorted economic models to the public and policy makers. In this assertion, I feel as though Stiglitz is being unnecessarily cocky and harsh towards economists who happen to have differing views. In all honesty, I do not think Stiglitz's viewpoint is any more clearly correct than the academics he attacks. Although he sees the economic collapse of the U.S while Scandinavian countries were performing well, he fails to note the economic failure of countries that fell within the European model, including Greece and Spain.

The rather dangerous Monsieur Hollande

http://www.economist.com/node/21553446

This article describes how, following the results of the first-round election in France, Francois Hollande seems likely to be France's next President. While Monsieur Hollande does advocate for the relaxation of the fiscal austerity that is causing economic recession in Europe, he is doing so for the wrong reasons. Hollande, says The Economist, is a traditional European Socialist, following the tax and spend model of governance. Hollande wants to grow the French bureaucracy and state even further, despite the fact that it already has the highest proportion of GDP made up of government spending in Europe.  France is in need of dramatic change to help shift its policies from those of deficit spending and massive social programs, and Hollande is not the candidate who would be willing to make the tough choices.

U.S. anti-cocaine push embitters Peru chocolate makers

USAID introduced the high-yielding but acidic tasting CNN-51 coca, the key ingredient in cocaine, to Peru in 2002, to offer farmers an alternative planting coca.  


CCN-51 cocoa, developed in Ecuador in the 1960s and planted throughout Africa to supply makers of mass-produced chocolate, grows faster and yields more than most native varieties. 


"We want to help Peru become one of the world's leading specialty cocoa producers," said Loren Stoddard, director of alternative development at USAID in Peru.


Despite the program, chocolate makers are encouraging farmers to instead cultivate smaller amounts of rare, native cocoa that fetches higher prices from buyers who value complex and subtle flavors and judge chocolate by the personality of its cocoa.


Building on a culinary and economic boom in Peru, start-up chocolate makers are holding tastings to highlight accents ranging from nutty to floral in chocolate made from cocoa native to distinct microclimates, altitudes and latitudes.  They say Peru will never become a global bulk cocoa supplier like the Ivory Coast, so they instead want it to be the main cocoa source for high-end chocolate makers.  However, this can be a tough sell because Peru and its neighbor Colombia are the world's biggest cocaine producers and when farmers do abandon coca planting they usually choose the highest-yielding alternative crops.  There is a lot of pressure to plant CCN-51 from institutions.


It would be interesting to see how Peru will position themselves in chocolate market and build-up their economy.  
http://www.reuters.com/article/2012/04/25/us-peru-cocoa-idUSBRE83O19I20120425

Russia's Economy Pre- and Post- Recession

http://www.economist.com/blogs/graphicdetail/2011/12/focus-1

They did not escape the impact of the recent global crisis, but yet overall their economy was not performing poorly, and in fact it has been improving significantly: Inflation decreased to 8% from over 20% at the beginning of 2000s, unemployment has been kept in check, and an average annual growth rate of 5% since 2000.

However, most noteworthy was their fiscal surpluses over this period. This, as we learned in class, was due to their heavy reliance on oil exporting. It is noted in the article that if you stripped out revenues from oil, Russia's public finances have been worsening since 2005. Also, they criticized Russia for its high income inequality, unfriendly business environment. I think such economic conditions is quite compatible with what we saw of Putin's policy from the documentary we watched during class.

Overall, just an interesting piece of information about one of our focuses in class.

Libya looks to Islamic banks to lure deposits

http://www.dailystar.com.lb/Business/Middle-East/2012/Apr-24/171180-libya-looks-to-islamic-banks-to-lure-deposits.ashx#axzz1tOlVmAix

This article shows the confidence that companies have in Islamic banks. "Ahmed Saeed, a Libyan poultry farmer, says he’s waiting for his country to open Islamic banks to deposit money for the first time." Mainly because the system prevents usury, it's more in tune with the culture and has the reliability aspect most people crave. 
This article simply displays how Islamic banks have a large contingency of followers because of how user-friendly the system is. No interest rates attract large amounts of people, and according to a few authority figures  it would circulate money into the economy that normally wouldn't have been there. By adding Islamic banks into a country it would attract more investors, something countries like Libya need. 

Economy's Biggest Drag Right Now Is Government

Government has become its own worst enemy when it comes to the economy, with public spending putting a damper on growth that otherwise continues at a steady if unspectacular pace.

Friday'S GDP report confirmed what a drag government can be: While consumer spending grew at a 2.9 percent clip, state and local governments cut back spending by 1.2 percent on an annualized basis and the federal government pulled back by 5.6 percent.

Islamic banking grows 10 to 15% annually: IF chairman

http://arabnews.com/economy/article615047.ece

This article gives an overview of how Islamic banks have been the least affected banks from the financial crisis. It also urges Muslim countries to decrease their dependence on World Bank and the IMF and rather depend on their own resources to build their economies like China, Brazil, South Africa and Vietnam. The article also says that in the time of crisis when people are thinking about switching to an alternative system, Islamic banking is something which they can consider. If not completely, Islamic banking can work in conjunction to the present system.

Plan to fix Postal Service passes Senate

http://money.cnn.com/2012/04/25/news/economy/postal-service-senate/index.htm?iid=SF_E_River

Not surprisingly, The Senate on Wednesday passed a plan to save the struggling U.S. Postal Service. This that could save thousands of jobs and 100 mail processing plants now slated to be closed or consolidated next month.
As we talked in class, The Postal Service in the United States is facing much challenging from its private competitors. Without help, the Postal Service would otherwise cut Saturday service, delay mail delivery and close hundreds of postal processing plants and post offices, triggering thousands of job cuts nationwide.
The House has yet to take up a different bill to reform the Postal Service.  And this Senate bill, offered by members in both parties, forces the Postal Service to ease off part of its plan to slow down the delivery of first-class mail, the kind of mail that most consumers use. The bill makes controversial changes, including cuts to workers' compensation benefits, as well as a transition from door-to-door delivery to curbside delivery in some areas, such as suburban neighborhoods. The Senate bill also prevents the Postal Service from cutting Saturday delivery for two years.

It is surprising to me that the operation of Postal Service doesn't use tam money. It is, by law, an "independent establishment" of the executive branch. The profit in postal service has be sucked much by private companies. Treasury loan only cannot save its life, some proper reforms are still needed.

Gas prices seen headed lower at the pump

http://money.cnn.com/2012/04/26/markets/gas-prices/index.htm?iid=Lead

It was reported earlier in the year that gas prices would hit $5 by summer, yet gas prices have been lowering throughout the month of April and they are likely to further decline during the summer months. This is due to the fact that the price of one of the most common types of gasoline futures has dropped 30 cents. This drop in gas price futures will start to appear at gas stations over the next few weeks. Brent crude oil has been dropping in price due to tensions easing with Iran over its nuclear program. 

Initial 1st quarter growth is disappointing

http://www.ft.com/intl/cms/s/0/2f8b181c-9066-11e1-8adc-00144feab49a.html#axzz1tIeXzqg2 Comment/Summary: Overall, this is a good article that highlights why the U.S. GDP didn't grow as much as some economists predicted. US consumption increased, investment decreased slightly, and these factors were not enough to cover the decrease in federal spending. The article states that consumer saving had decreased and created the increase in consumption, government cut defense spending, and investments stalled as inventory stocks up. This is just the initial number until more information is gathered about the economy. Article: The US economy grew a disappointing rate of 2.2 per cent in the first quarter of 2012 as inventories piled up and the federal government cut spending. The annualised growth rate for gross domestic product came in below market expectations of 2.7 per cent and compares with 3 per cent growth in the fourth quarter of last year. More The weak performance did not, however, break a pattern of steady if mediocre expansion in the US, as consumption and investment grow too slowly to make up for cuts in federal spending. “The US economy remains a bright light in the global economy, although the light is hardly blinding and also showing some signs of fading,” said Chris Williamson, chief economist at Markit in London. Consumption was robust, growing at an annualised pace of 2.9 per cent and adding 2 percentage points to the growth rate. Real disposable income rose by only 0.4 per cent, however, suggesting consumers are saving less money. The savings rate fell to 3.9 per cent from 4.5 per cent in the previous quarter. “Undoubtedly the brightest spot in this report was the resurgence in consumer spending,” said Beata Caranci, deputy chief economist at TD Bank, but she warned that “we don’t expect to see a repeat performance in the strength of spending” in the second quarter. Investment would also have been almost flat if not for an inventory build-up that added 0.6 percentage points to growth. Cutbacks to federal spending, especially defence, subtracted 0.6 percentage points from the total. The first estimate of GDP must be treated with caution because crucial information – such as customs documents for March – is not ready. The number is often revised once more precise data arrives. “The latest report continues a pattern of moderate growth in the private sector components of GDP and contraction of the government components of GDP,” said Alan Krueger, chairman of the president’s Council of Economic Advisers. Republicans seized on the weak business investment. “This is the first decline in fixed business investment since the fourth quarter of 2009,” said representative Kevin Brady, vice-chair of the joint economic committee of Congress. “We need to get government out of the way and let the free market create jobs and opportunity for all Americans.” Final sales to domestic purchasers, a crucial measure of underlying demand in the economy, rose at a pace of only 1.6 per cent. That is slower than the economy’s long-run trend rate and the figures do little to resolve a divergence between weak demand and stronger job creation that has puzzled the US Federal Reserve. Many economists expected a weak first quarter after large inventories accumulated at the end of last year, but unseasonably warm weather encouraged construction activity in northern states and lured consumers out to the shops.

Why half of us don't pay income tax

http://money.cnn.com/2012/04/26/pf/taxes/income-tax/index.htm?iid=SF_BN_Lead 

This article is about the impact/effect of the current tax form in the States. It states that nearly half of U.S. households end up owning no federal income tax. A result from the tax breaks by both Democrats and Republicans, and the fact that the U.S. tax code is progressive. It is said that over the years, lawmakers have enacted reams of tax breaks, such as tax credits for work, kids and education. Therefore, the number of non-payers is increased. According to Robert Greenstein, president of the liberal Center on Budget and Policy Priorities, the major reason for the lawmakers to approve temporary tax breaks is that they want to stimulate the economy after the 2008 financial crisis. The tax Policy Center estimates that 46% of households will end up owing nothing in federal income taxes for the tax year of 2011. Greenstein added that, the percentage was closer to 40% before the recession. The Zero Tax Club includes some very high-income households. Nevertheless, it is made up disproportionately of low- and lower-middle-income households.

On the other hand, if payroll taxes are counted, the number of non-payer households’ drops precipitously, it is estimated 18% in 2011. It is because payroll taxes fund the entitlement programs, and it hits low-income households harder than most; 100% of the low-income households’ income is subject to the payroll taxes. At this point, high-income filers pay a lower percentage of their income in payroll taxes since wages subject to the Social Security tax are capped at $110,100. In addition, according to Roberton Williams a senior fellow at the Tax Policy Center, most of those 18% of households that owe neither federal income nor payroll taxes are elderly or had income under $20,000. But, they still end up paying something in taxes, such as sales taxes, state and local income taxes. From this perspective, virtually, no household in America would qualify for the non-payer group.

As tax is always one of the heated topics concerning an economy system, people have various opinions and estimations on the tax policies. Therefore, it is hard to say what polices are the best or most suitable ones to the economy. Trials and errors are inevitable.

Spain's jobless rate hits record high

This article discusses a weakness of Spain's economy; their unemployment rate. Unemployment has been an ongoing problem for Spain's economy, and according to this article it is getting worse. Today, Friday April 27th 2012, the Spanish government reported that the unemployment rate has reached an all time high of 24.4%. This new unemployment rate is equivalent to a total of 5,639,500 people in Spain that are jobless.
http://money.cnn.com/2012/04/27/news/economy/spain-jobs-growth/index.htm?iid=HP_LN

BOJ Plans To Boost Bond Purchases

http://online.wsj.com/article/SB10001424052702304811304577368901431588644.html

The Bank of Japan announced that it will increase its purchases of government bonds to help prevent deflation. The bank bought an addition ¥10 trillion in assets to their already ¥5 trillion. Along with this they decided to make many other changes including reducing their six-month fixed-rate loan provisions by ¥5 trillion. They hope that a combination of all of this will help to restore Japan's economy and experience sustainable growth. However, Japan's finance minister said more will need to be done to stop deflation so it will be interesting to see what the else the BOJ decides to do.

Groupon Must Avoid Taking 'Stupid Risks,' CEO Says

Groupon was the fastest company ever to get to 1 billion dollars in revenue. Since its founding Groupon had gone through multiple VC rounds of funding and mostly recently had its IPO and now is a publicly traded company. But this rapid climb to become a publicly traded company has had its fair share of trouble. The two biggest missteps was the delaying the IPO because of financial leaks within the company and most recently they needed to restate there earnings, which is a huge blunder for the company. The challenges that Groupon faced in becoming a legitimate public company shows the difficulty of creating a stock market with thousands of publicly traded company all need submit high level financial statements for the system to work. The challenges that Groupon faces reminds me of the Russian plan to make all of the government owned companies, public in a year and a half when the process should have years maybe even a decade.

Remembering One Past Industry used to Promote a New Industry

http://www.economist.com/node/21551529

Tourism in Northern Ireland: Horrible histories


This article describes how one past booming industry in Northern Ireland was shipbuilding. This is no longer the case, they could not compete with the Asian competition. However, in its prime, the shipyards in Belfast made many impressive ships including The Titanic. Ship building in Northern Ireland is a lost industry, but its memory is being used to promote another: tourism. Tourism in Northern Ireland has been dismal in comparison to Ireland, Scotland and Wales. They brought in approximately 2.6 million visitors in comparison to Scotland who brought in 12.4 million and Wales which brought in 8.7 million visitors. This probably has a lot to do with the historic violence in this region. However, recently there has been peace. Both sides of the government was pro-building a monument/museum about The Titanic. They were for building this monument in the hopes that it would encourage tourism. Clearly this is an industry that they are concerned about promoting. It is interesting how the loss of one industry helps promote another. This article shows how when a country decides to promote a certain sector or industry they are able to be investing in certain projects.

Buttonwood Feeling peaky The economic impact of high oil prices

Buttonwood

Feeling peaky

The economic impact of high oil prices

Apr 21st 2012 | from the print edition

AS THE developed-world economy tries to gain momentum, it faces a persistent headwind. The oil price remains stubbornly over $100 a barrel, acting like a tax on Western consumers. Some blame the high price on evil speculators—Barack Obama unveiled plans to increase penalties for market manipulation on April 17th. But there is a simpler explanation: that supply is inadequate to keep up with rising demand.
The concept of peak oil—the idea that global crude production may be at, or close to, its limit—is far from universally accepted. One leading asset manager talked recently of the world being “awash with energy” because of the exploitation of American shale gas. Nevertheless, oil is still the main fuel for cars and trucks. And crude output (as opposed to alternatives such as biofuels and liquids made from gas) has been flat since 2005.
A number of countries (including Britain, Egypt and Indonesia) have turned from net oil exporters into importers in recent years. And although rich countries have curbed their energy-guzzling a little, demand continues to surge in emerging markets.
This has left the oil market very vulnerable to temporary supply disruptions, such as the war in Libya. Speaking at a conference in Dublin this week, organised by the Institute of International and European Affairs and the Association for the Study of Peak Oil and Gas, Chris Skrebowski, a consulting editor of Petroleum Review, argued that spare capacity in the oil market could be eroded by 2015.
The peak-oil concept was devised by the late M. King Hubbert, who correctly predicted in 1956 that oil output in the lower 48 states of America would peak by around 1970. At the conference Michael Kumhof, an economist at the International Monetary Fund, presented the findings of a forthcoming working paper which showed that adding the idea of a “Hubbert peak” to energy production greatly improved the ability of a model to forecast oil prices. Based on an expected 0.9% annual increase in production over the next decade, the model predicts that real oil prices will nearly double over the same period.
The economic damage caused by such a rise is predicted to be modest, perhaps 0.2% of global GDP a year. In the past changes in oil prices have had a limited long-term impact, since any losses to oil importers are matched by gains by oil exporters. To the extent that high oil prices played a role in the recessions of the early 1980s and 2008-09, the main reason is that oil-producing countries tend to have a lower marginal propensity to consume their income, denting global demand.
Nevertheless, Mr Kumhof worries that if oil prices are high enough, the economic impact might increase substantially. On the most extreme assumptions, it could be 2% a year.
Even if the world can find more oil—in the Arctic or tar sands, say—the longer-term question is whether the era of “cheap energy” is over and how the world can adjust if it is. Developed economies are built on easy access to cheap energy, importing goods that are transported from around the world, with consumers driving many miles to work in air-conditioned offices and then flying off to sunny climes for their annual holidays. Persistently high oil prices would clearly lead to substitution (electric cars, natural-gas-powered trucks) but the transition costs could be significant.
Furthermore some potential substitutes for, or new sources of, oil (such as biofuels and tar sands) are a lot less efficient, in the sense that they require significant amounts of energy simply to produce. To the extent that this equation (energy return on energy invested, or EROI) is deteriorating, that must surely have an effect on economic growth.
“What is the minimum EROI that a modern industrial society must have for its energy system for that society to survive?” ask Carey King and Charles Hall in a recent paper*. The academics’ answer: “Complex societies need a high EROI built on a large primary energy base.”
This issue is not much considered by mainstream economists, who are too busy focusing on monetary policy, the impact of fiscal austerity or the need for labour-market reforms. But just as the industrial revolution was built on coal, the post-second-world-war economy was built on cheap oil. There will surely be a significant impact if it has gone for good.

^{“Relating Financial and Energy Return on Investment”, October 2011.}

^{Economist.com/blogs/buttonwood}

End of Cheap China

http://www.economist.com/node/21549956


China is the world’s largest manufacturing power. Its output of televisions, smartphones, steel pipes and other things you can drop on your foot surpassed America’s in 2010. China now accounts for a fifth of global manufacturing. Its factories have made so much, so cheaply that they have curbed inflation in many of its trading partners. But the era of cheap China may be drawing to a close.  


China has a manufacturing system that is difficult to replicate elsewhere, mainly due to the cheap labor cost.  However as salaries raise for manufacturing will China be in a good bargaining position towards consuming countries in the West?  Will we see Chinese exports to the West decrease?  I believe so, this could actually be a good thing as people in the US choose domestic manufacturing over abroad.  On the other hand, transportation cost have been rising and (in many cases) have negated the lower labor cost of a distant country.