Sleep Walking to Disaster

I thought the title was a very apt as it seems to describe the mood which many take with regard to the ongoing Japanese crisis. The article points to 3 sources of trouble for Japan:

1) government bonds which have traditionally be bought by domestic savers. But as these savers head toward retirement, the bond market would need to be increasingly financed by foreigners who would be looking at a higher rate of return then what it is currently offering.

2) Deflation is an ongoing problem which creates a self fulfilling prophecy in a bad sense as people learn to filter that into their decision making processes.

3) Inability to pick up from current economic crisis.

The article also goes on to talk about the need for a new dynamic government who is unafraid to challenge the current status quo.

Consumer credit in U.S. fell by most in three months

Consumer credit in the U.S. declined in february more than anticipated. Borrowing fell $11.5 billion, this was the 12th drop in 13 months. This could be an indicator that Americans could take on more debt if improvements are not made in the labor market. Confidence could be restored if employment keeps rising.

The next Greek tragedy: default or bail-out?

Greece is very close to defaulting on its national debt and the shape of tis fiscal future should be decided in the upcoming days. The Greeks will most likely see an external intervention from the International Monetary Fund. Fitch has also downgraded Greece's debt to the lowest rating for potential investments, placing them very close to junk bonds.

China Sees First Trade Deficit in Years

To go along with Kevin's article. According to the official Xinhua news agency, China’s General Administration of Customs said the March reading was the first trade deficit since April 2004. China had a trade surplus of $7.6 billion in February and $14.2 billion in January.

China's $7.24B March trade deficit 1st in 6 years

So China gets a bad rap because it has its currency pegged to ours. And economics is the study of incentives. So why don't American policymakers seriously study all the possible ways to incentivize the Chinese to float their currency?

One way would be to make the value of the dollar worthless - although the cost to our economy would probably weigh in at some point.

Another would be to overvalue our currency (either by printing significantly less of it or having the Fed sell Bonds out the wazoo to get money off the streets) so that Chinese exports are significantly less competitive.

A third way would be to pay off our debt to the Chinese (around $2 trillion), reduce their ownership of government bonds to nothing, invest in a new generation of technology that only we manufacture and produce, reduce energy costs so we can afford higher labor costs to keep Americans employed, reduce military expenditures so we're not threatening to China, return to our status as a creditor nation by generating budget surpluses through cuts to programs and increased taxes, invest billions more in lower and higher education, increase immigration quotas to speed up the brain gain from other countries, and remove incentives for American companies to move themselves abroad.

- I'm all for the third option, but many people are not. They either mock the 'green technology,' or argue 'how dare we cut military spending while we're at war,' or 'you can't open the border for more immigrants to take our jobs!'

Whatever. We can always continue living like this!

Communism, Capitalism, and Democracy in China

The article opens by giving a history of China starting from World War I and going until the present. The author talks about how following World War I Mao Zedong implemented communism in China. It seems that the Chinese peasant class was not happy with the reforms and for ten years there was a fear of the government "red guard".Then author continues by talking about when Deng Xiaopang took over and implemented capitalism into the economy. The reforms were gradual but were productive. Xiaopang created SEZ's to implement and test capitalist policy. The article talks about the successor of Xiaopang and how he is continuing the capitalist reformation and even some democratic reforms. The article then provides a chart comparing a communist government to a democratic (capitalist) one. It is interesting to see the differences laid out side by side for you. Overall the article is a pretty good summary of what we learned in class, with some more examples of the reformation into communism and the gradual change to capitalism.

China Appears Set to Make Its Exchange Rate More Flexible

This article relates to how we spoke about exchange rates last class. The Chinese government wants to make its currency more strong before making the exchange rate flexible. Chinese goods are very competitive in foreign markets since its exports are cheap. China has done this by keeping the value of its currency low. This has led to some countries losing the sales of their goods for example the U.S has lost sales of manufacturing as Chinese manufactured goods are cheaper. However, with the Chinese currency being strong, Chinese goods would become more expensive in the U.S and U.S goods cheaper in China. A stronger currency(the renminbi) would make imports cheaper and "give China’s central bank more room to raise interest rates and brake economic growth without lessening the risk of drawing more speculative investments into the country." Keeping the value of the renminbi has been quite costly for China.
A flexible exchange rate would hurt low-margin, labor intensive firms such as shoes and manufacturing. If the renminbi appreciates it could result in the loss of jobs.

Retail Increases

The month of March showed serious increases in sales across the board for retail. While discount stores have consistently performed well throughout the recession, March hailed major increases in all types of retail. Certainly the early Easter this year affected March sales, but the question remains if this increase in sales is a result of an improvement in consumer confidence. Some have said the increase was too drastic to be simply attributed to the holiday, but no one will know for sure until April sales are released.

Russia and Poland agree on long-term gas supplies

Russia and Poland signed a long-term contract of gas supplies which should last until 2045. The article indicates that the contract is almost official as there are few more documents that need to be signed. Russia used to be the main supplier of natural gas to CEE until it cut the exports a few years back which put Poland into a deficit. It is not stated who initiated this type of deal but it would be interesting to find out what was the motive of Vladimir Putin for doing so.

A College Offers Job Guarantees - Or Else a Refund

This is an interesting article about Lansing Community College in Michigan offering 61 applicants a chance to take a six-week long course in a specified technical area with a money-back guarantee if they don't land a job within one year. While the students won't get a degree, they will earn a certificate of qualifaction as call-center specialists, pharmacy technicians, etc. It is an interesting proposition, but even more interesting is the timing and location where this is taking place. LCC is located in an area of Michigan where unemployment is at 11.7%, with little prospect of lessening in the near future. New jobs aren't being created, and the number of job opportunities are actually decreasing. It's certainly a risky move proposed by LCC to offer a refund if students don't get a job, but on the other hand it may force these students to put more effort into the job search, especially with a certificate of qualification in their hands.

When capitalism and communism collide

The article follows the story of Cathy Huang, a student at Beijing University. She was born in an outer province of China to a police officer and a factory worker. She got the best score on her entrance exams and was accepted to Beijing. She wants to be an investment banker and has already worked for Goldman Sachs and Lehman Brothers. She joined the communist party at the college. To join the party you must take an entrance exam so that it can "capture the best and the brightest, those with most initiative and executive capability. Its members are the pool from which the economic, military and political leaders of the country are drawn, so the advantage in making that reserve as deep as possible is clear. Party members are overwhelmingly urban and educated, largely from the upper-working or lower-middle classes - exactly the social strata that could pose the most threat if they were not given a strong stake in the current system." Cathy says that the "new" communist ideals have changed, they focus more on excellence, cooperation and patriotism rather than ideology. She explains that being a member is not a political choice but rather about contributing to China. The party recruits the students who have the top marks, which also makes you among the elite if you join. It is interesting to see the merger of capitalism and communism that is happening in China right now.

China: Capitalism Doesn't Require Democracy

The article talks about how China calls themselves communists but when you look at their economy they are really pretty capitalist. The article explains that China is only communist when it comes to the political party in charge, but that their economic system is a capitalist one. "China shows that when it comes to economics, the dividing line among the world's nations is no longer between communism and capitalism. Capitalism has won hands down. The real dividing line is no longer economic. It's political. And that divide is between democracy and authoritarianism. China is a capitalist economy with an authoritarian government." The article then talks about how the world has thought that capitalism and democracy have been seen as being a pair, and how democracy "needs" capitalism, but looking at china it seems as if capitalism does not "need" democracy.

Bernanke Says U.S. Must Choose a Fiscal Path

Ben Bernanke said that since America's population is aging, we will be posed with fiscal problems and that we need to start preparing now. He does not expect the government to raise taxes or cut spending anytime soon. However he did say that in order to not go into huge deficit spending, in the future higher taxes might have to happen, or, a different approach to Social Security and Medicare. He also talked about how more than 40% of the unemployed have been so for six months or longer and he said: “I am particularly concerned about that statistic, because long spells of unemployment erode skills and lower the longer-term income and employment prospects of these workers.”

Airline Merger

This article talks about how US Airways and United may merge. It is interesting to see how airlines look to stay alive in such trying times.

Greek Banks Ask to Tap Support Fund

Last year, Greece spiraled into fiscal crisis and saw its borrowing costs spike after it revealed its budget deficit was more than double the previous estimate. Because of this, banking institutions have been doing very poorly and now have come out publicly asking for help from a support fund that was set up by the previous government administration in case of a global credit crisis. Greek banks have repeatedly said they are not facing any liquidity problems, but some have found it harder to raise funds in money markets, making them more dependent on money market funding from the European Central Bank.

Reserve Bank of Australia Raises Main Interest Rate Target Again

RBA has increased its main target interest rate for a fifth time in the last 6 months by a quater point to 4.25%. I think Australian Central Bank is an interesting one to watch as they were one of the first few central banks in the world to start increasing its interest rate.

What perhaps has helped Australia is that it is riding on Asia's fairly decent growth due to strong growth from China despite of the global economic downturn . All in all, this is good news as its another affirmation that the outlook for the global economy is looking better.

US, India Must Push for Balanced Growth: Geithner

As the April 15th deadline for the United States to label China as a currency manipulator, the US is trying to shore relations with the emerging economic power, India. It is a great strategy to make China sweat a little bit. The US Treasury Secretary lauded India for its growth and ability to make relatively good strides in this bad economy. The Secretary also talked about how India has made an appeal to recognized in the IMF and World Bank and said that India should be recognized. This meeting had no references to the China currency problem but did speak on how countries need to be more flexible to other currencies to ease out of the economic crisis.

Your retiree medical bill: $197,000

Many insurance companies have estimated that individuals will require at least $197,000 to cover all of their out-of-pocket medical bills during their retirement. Some have predicted this number to be even higher and the average deduct of pay for Social Security benefits is around $110.50 monthly for Medicare plan B.

These ridiculously high medical costs begs the question whether government funded medical benefits, much like the systems used throughout Europe, may prove to be more beneficial in the long run. As the economy continues to recover from the recession, it seems that retirees have to add medical bills to their list of necessities required to survive. It will be interesting to see how mortality rates may possibly increase with such high costs of living.

U.S. is Seeking the Maximum Fine Against Toyota

The Transportation Department announced Monday that it is fining Toyota $16.4 million for failing to recall vehicles in the United States. Toyota began to recall vehicles in the U.S. starting in January, even though it knew of the problem back in September. They began to recall vehicles in Europe and Canada for a sticking accelerator problem at this time. Under U.S. law, car companies are required to make the government aware of vehicle problems as soon as they realize they exist. This has been the case since the signing of the Tread Act. Toyota now has two weeks to contest or accept the fine. Other fines may also be on their way as the government is currently investigating if other recalls were done in a timely manner.

This article demonstrates one of the big roles the government has played in the capitalist markets. The government many times over the past century has stepped in when businesses have endangered the lives of their customers. This may mean pollution or unsafe products. Customers want to know that the products they use are safe, so the government creates regulation to deal with imperfect information and externalities.

Launch pad Apple’s iPad will help persuade consumers that a tablet is a must-have

Another article about Apple's "amazing" new ipad and a good example of how a market economy differs from a socialist economy. For example, the inefficient cost of advertising.

Desegregation and schools: No easy answers

In 1971, in Charlotte, NC the court ruled that school districts may use busing, quotas and other methods to assure integration. Now in Wake County, the same issue is arising, some arguing that the program should remain which assigns students to schools based on levels of family income. However, the board voted against this policy. In 2000, the board decided to integrate its schools by income level rather than race. The board said that no more than 40 percent of students at a school should receive free or subsidized lunches. Under this plan, students appeared to be outperforming state averages on standardized tests. But, looking closer into the statistics, scores of black students were behind those of white students and poor students fared worse than the wealthier students, their graduation rates being lower than the state average. The chair of the board's reassignment committee believes the next step is for the county to be split into neighborhood zones and parents in poor zones can choose to send their children to schools in wealthier districts.

March jobs report shows growth

A 162,000 job growth for the month of March was reported, giving signs that the job market is heading in the right direction. The 162,000 job increase followed a 14,000 job loss for the month of February. The labor market has begun to stabilize, but the unemployment rate still remains at about 9.7%. Analysts say that just like the weather was a factor in February for the job losses in this month associated with the winter storms in the East Coast, the good weather has bolstered jobs in March.

Signaling Jobs Recovery, Payrolls Surged in March

Some positive news, for us seniors... The labor department reported that 162,000 jobs were added last month. This is the first time since the recession began that there was positive growth in the job market. This is the first sign that were moving in the right direction but by no means are we in the clear yet. In order for the job market to continue to move in the right direction the economy needs to add 100,000 jobs per month. The chief economist at RDQ Economics said "Every major industry, except financial services and information, showed gains in employment. From manufacturing to construction to retail, it really didn't matter. They're all hiring now." 40,000 temp jobs added, 27,000 in the health care, and 48,000 new census employees.

Greenspan Cites Economic 'Momentum"

The former chairman of the Federal Reserve, Alan Greenspan who describes himself as a Republican libertarian, reinforced assessments that the country's latest job numbers show that the economy is making a comeback. 162,000 jobs were created last month compared to losing 600,000 jobs last March. More jobs are being created and that trend is expected to continue. The unemployment rate remains at 9.7 percent but this is because of the improving conditions which causes more people start to look for jobs and are counted back in the labor force. Progress doesn't show up immediately in the unemployment rate. He also said the economy is "running somewhat ahead of what the administration was forecasting". Hopefully 2010 turns out to be a better year than expected.

Grants to Aid Arts Spaces and Their Communities

The Ford Foundation plans on giving $100 million to developing art space nationwide within the next 10 years. Not only is the goal to help art groups build new spaces and renovate and expand old ones but to encourage the construction of affordable housing for artists to help spur economic development in surrounding areas. This has economic benefits because according to Mr. Landesman, chairman of the National Endowment for the Arts, "From the foot traffic of people coming to studios and rehearsals to the influx of people looking for a place to eat or drink after an art opening or before a show..these buildings attract new people and often expendable income to neighborhoods.” They see their giving as something that can contribute towards community development.

One thing to think about is that many schools are trying to cut down costs. Unfortunately, the arts (including music too) is the first to go. This is just another reason to reconsider cutting these first because they do offer benefits.