Federal Reserve toes the line

Entering the New Year, the Federal Reserve shows fews signs of any significant changes to their plans. The federal funds rate is still near zero and there have been no signs that the fed is reevaluating the second round of quantitative easing, despite promises to do so. The fed's bond buying policy creates a great fear of rising inflation. The goal of the bond buying policy is to create jobs and stimulate the economy by putting more money into it. High prices are the risk that many fear will come when the economy absorbs more money. Inflation pressures are low at the moment and the fed does not see any danger in their pursuit of monetary stimulus.

Egyptian Markets Fall as Protests Gather Support

The benchmark for Egyptian index fell today to its lowest level in two years.
The ten percentage point drop forced a halt in trading.
Brokers were quoted saying the drop will continue because of 'panicking investors'.

The article goes on to talk more about the riots in general, I haven't found much more on the economic consequences for Egypt or the area (although it would be assumed to agree with this article - instability always hurts the economy).

New-home sales rise

this article talks about how the housing market has shown some signs of improvement lately. some economists believe that this jolt is only because of the california tax credits that expired at the end of the year. this article also mentions that there are high expectations for the housing market in 2011. I still believe that it will be several years before we see a full recovery in the housing sector.

British Output downhill

The GDP of Britain faced a 0.5% decline in the 4th quarter of this year. Even though forecasters were not predicting drops in the British output, this drop in the 4th quarter is the last component of a 2% drop in the GDP the year of 2010. Construction is a very significant sector of the British economy and the harsh weather of the last quarter is said to have affected that sector significantly. The Business service and finance industries were also participants in the drop in output in this last quarter which reminds us of the intensity of the reliance of the British economy on these industries. The British economy could be about to face a slow year in 2011.

The Recovery: Still Patchy

The recovery seems to be long-lasting and strengthening, leading to hopes that American firms are hiring again, but hold the cheers. America remains over 7m jobs short of the previous employment peak, and figures published on January 7th showed that the economy added just 103,000 jobs in December—scarcely enough to keep up with population growth. The unemployment rate fell in that month by nearly half a point, to 9.4%, but that was mainly because so many jobless workers gave up and stopped looking.

Even though some labor markets are experiencing a strong rebound, this may be mainly due to geographic variations. More than ten percentage points separate the nation’s highest unemployment rate, in Nevada, from its lowest, in North Dakota. Growth has been seen, but it's highly concentrated. Of the million or so jobs added in 2010, two-thirds were created in just 11 states, and one—Texas—accounted for 20% of the country’s net job gains. And even within the fastest-growing states, hiring has been tightly packed in just a few cities, leaving most residents feeling glum. Firms in Professional and business services are expanding through contracts with outsourcing firms rather than permanent recruitment. This reflects the uncertain nature of recovery, but it also indicates a move towards leaner business models.

For now, too much of America does not feel that the recovery is real.

Cocoa prices soar on Ivorian ban

I personally find this article interesting because, it raises an important question which is “to what extend should the politic of country be intertwine with his economy”? I believe that it is unacceptable for Alassane Ouattara to stop all export of cocoa just to arm ONE man. This as seen the article affect people globally, people that have nothing to do with the political conflict in Ivory Coast. This increases the price of cocoa and will increase the price of other cocoa based product such as chocolate.

The economy should not be used for political influence.

Renewable energy without Uncle Sam's help

NEW YORK (CNNMoney) -- At a solar power company in downtown San Francisco, Edward Fenster plans on doubling his workforce to 8,000 people in the next year.

Fenster is chief executive of SunRun, a company that puts solar panels on residential rooftops.Over the last four years, his business has grown from one employee (himself) to 4,000, most of them contractors SunRun hires to do the installations.

Sun Run's growth spurt is in large part due to the subsidies it enjoys from the federal government. Fenster expects his customers to more than double next year.

Generally, tax breaks mean the federal government absorbs about 30% of the costs for a solar project. That's fairly standard across the wind and solar industry. Fenster knows just where his business, and others like it, would be if those subsidies disappeared.

I think investing in renewable energy is very important that its environmental programs should not be cut for many reasons such as creating jobs, building new factories, environmental-friendly, free of foreign oil imports etc. However, on the other hand, the products for renewable energy tend to be expensive to consumers but will be beneficial in the long run. Ideally, this renewable program could be used as a buffer against foreign imported oil in order to prevent jobs from being lost.

U.S. Economy: Confidence Increases More Than Forecast

Confidence among U.S. consumers rose more than forecast in January, reaching an eight-month high, as the outlook for jobs brightened. Growing optimism, an improving labor market and tax relief may combine to help spur consumer spending, which accounts for about 70 percent of the economy. At the same time, the absence of a sustained housing rebound and unemployment above 9 percent are among reasons the Fed may announce tomorrow it will stick to a plan for more stimulus.

The gain in consumer confidence this month contrasts with the Thomson Reuters/University of Michigan preliminary sentiment index, which fell this month as Americans worried that higher gasoline prices would hurt their finances.

The proportion of Americans who expect their incomes to rise over the next six months increased to 11.4, the highest since May. The share of consumers who said jobs are currently plentiful rose a point to 5.2 percent. Those who said jobs are hard to get decreased.

Confidence rose in all nine U.S. regions, led by a 21.3- point surge in the West South Central area, which includes Texas and Oklahoma. Texas led states with the biggest payroll gains in December as employers added 20,000 workers, a Labor Department report showed today.

Even though consumer confidence may have risen due to a large amount of spending during Christmas, I see this is a good opportunity as the good news spread. The market is still enjoying the leftover consumer confidence from the three months end of 2010. However, the gain in the consumer confidence may act as a boost to both producers and consumers, encouraging them to do more purchasing and selling.

Economists forecast U.S. growth on upswing in 2011

A poll was taken of 46 economists who say that there has been an increasing amount of optimism about the U.S. recovery. These economists predict the economy to annually grow at a rate of 3.2% to 3.4% each quarter of this year, 2011. Economists see this growth becoming ‘self-reinforcing’ which is a nice change of pace for our economy. Businesses are expected to use the growth of their stronger sales to begin hiring more aggressively and generate a higher income. As a soon to be college graduate, this is very reliving to hear. Unemployment rate is starting to drop and jobs will open up and U.S. corporations will be more confident and demanding. The job market is finally becoming more stable as the economy recovers.

Greece - World's largest solar farm

Greece has decided to construct a 200 MWh photovoltaic facility in western Macedonia, which happens to have the largest unemployment rate in Greece. Not only will this project save 300,000 tons of carbon emissions per year, but it will also ensure 200 permanent positions in the economy. It is interesting to note that this has happened after a fairly recent bailout, while the project itself will cost 600 million euros. This is a bold move for Greece, 600 million euros for 200 permanent jobs may seem like a lot, but this investment for the future will surely outweigh the cost. Hopefully this will signal more wealthy economies to invest in similar technology.

Japan Just a Warm-Up

The United States is seeing strong similarities between Japan in the 1980's and China today with their rising economic powers. The difference seems to be that China is much stronger and more powerful than Japan was in the 1980's. China has been encouraging outside investors where Japan did not. China has put much of their focus on long term projects including commercial aircraft, telecommunications equipment, high-speed trains, clean energy, and automobiles. Due to this promising economic future, China has also managed to attract many entrepreneurial investors from the Unites States looking to partner with these up and coming ventures. This recent action in China is going to further increase their economic power and increase the United States' economic dependance on them to survive.

Increasingly Confident Fed Is Set for First Meeting of 2011

The Federal Reserve will use its first policy meeting of 2011 this week to revisit its economic projections. The statement that will be released on Wednesday will likely reflect a guarded optimism about the economy and keeping to the Federal Strategy- putting $600 billion into the baking system.

The Federal Reserve is also try to improve its communication and transparency by scheduling meetings with the Federal Open Market Committee.

Ben Bernanke stated this about the future of the economy, “increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold.”

The economy is expected to grow by up to 4 percent this year, above the 2.5 percent needed just to maintain the unemployment rate at its current level of 9.4 percent. Inemployment is expected to remain close to 8 percent

A great burden for Zapatero to bear

First it was Greece, then Ireland, then Portugal and now it’s Spain. While in the US the economic crisis is almost over, in Europe bailout of countries is still a major topic of the news. After recent subprime mortgage crisis, it looks like most of the countries who was effected by the crisis undergone some changes in their economic system. This article talks about some of the reforms that president of Spain, José Luis Rodríguez Zapatero, is proposing. Mainly most of the reforms call for new transparency rules for banks, to clarify exposure to toxic loans. This article once again illustrates just how big the role of the government is in the economy of a country.

U.S. companies fear the Chinese New Year

The Chinese New Year is two weeks away, and that means trouble for American firms. As Chinese workers are going home to celebrate this major holiday, factories in China will be shut down for 15 days straight.

The problem is old, but the negative effect that it causes has been increasing recently. American firms fear that many workers will not come back to their jobs after the holiday. This will cause a great shortage in the U.S. for products that are made in China.

The problem is contributed by the Chinese government incentives to keep the peasant inland to work on farm rather than leave home to work in factories. Moreover, the quality of life in China has improve significantly over the years, causing workers to look for better jobs with higher wage.

As manufacturing cost is increasing in China, due to lower supply of workers and demand for higher wage, many American firms are moving their factories to other countries like Vietnam, Indonesia, India, and Thailand. Others even choose to produce their products in the U.S., since this will help retailers to fill their inventory much faster.

China Growth Shows Contrast With U.S.

China has been experiencing unprecedented growth over the past several years. The economy has grown from the 6th largest in 2000 to the second largest in 2010. They are currently growing at a rate of 9.8% in the fourth quarter of 2010. That is in three tiems faster than the economy in America is growing. The two largest economies are facing two different problems. China is struggling to control prices because of inflation and in the United States the problem is price stagnation.

Traders Beat on Pay as Gap Survives Crisis

This article explores the income inequality between jobs in the finance world and other types of jobs in the United States. Interestingly enough, the salary of many Wall Street workers has actually increased in the last couple of years. This has caused much public anger because many of these bonuses for employees are still coming out of tax dollars. Meanwhile, jobs such as cancer scientists and neurosurgeons are being paid half as much as workers in the finance world. The basic explanation for this, according to finance companies is that their workers are now under more stress due to the current economy-they are saying that the marginal utility of the worker has gone up due to economic pressures. Whether this is true or not, it appears as though there is a definite trend towards management jobs as opposed to jobs in the life sciences, which now makes sense after seeing the income inequality between the two. This trend may cause problems within the economic system and create discontent within the society.

The Rise of The Redback

As many know, China is one of the fastest, if not the fastest growing economies in the world. With new markets and a growing economy, the yuan has a lot of potential to grow (the yuan is the currency in China). China's president Mr. Hu Jintao believes that, "the dollar's role reflects America's historical clout, not its present stature" Mr. Hu means that the dollar is not what it used to be as the leading currency in the world. China is planning on opening up their financial markets in order to begin to compete with the US dollar. It is said that China's economy will surpass the USA economy within the next 20 years. So far, China has been attracting new businesses opening in Chinese currency, and is the worldwide leader in exports. The action of this is referred to as the pool of "Redbacks". With new opportunities in China, people will be more likely to invest stock and bonds through the Chinese markets. Later on, China is looking to lend its own currency rather than borrowing in their own currency. Unfortunately the current system is not set up to support this new movement. With the many investments that China already has in other countries, the investments weaken when Chinese currency strengthens. They will have to find a way to counteract this in order to really take a strong stab at gaining the worlds best currency.

Rising Commodity Prices: Blessing or a Curse?

In the article, it reveals how commodity prices are rising globally and how that may affect both the US and world economy. In the short term, these rises are beneficial for speculators looking to make quick money. However, these higher prices are unstable, says The Economist. With food prices rising worldwide, rising prices of commodities could hurt those in developing (and some industrializing) countries. In the United States, rising prices benefit in the short term, yet smack of trends from early to late 2007, when the author of the article claims the the major downturn began. This downturn is blamed on the rising prices of oil, which constrained consumers' budgets, reducing their ability to buy luxuries and some more expensive necessities.

Whether this upward trend in commodity prices ends in a crash or not will also have a large impact on the world's political makeup. Depending on the parties in charge in the US and Europe, fiscal policies could see rapid change--again, pending the fate of the commodity market. Rising prices in the oil industry have twice in the last 40 years pushed the US into a recession (1970s and 2000s), will food and oil prices combine to extend our economic woes?

China in the Mind of America"-Sputnik moment

Recently there has been a lot of concern about China's rapid rise in economic strenght. The mentioned article in The Economist explores the nature of some reactions by senior American political figures to this controversy.

The situation seems dire: drawing the comparison to the Sputnik moment in 1957. However this seems like a cliche political moment. A large number of Americans are overreacting to the rise of China. Many US political figures are not helping matters by exporting the blame of tough times, to pacify their respective constituencies.
Paul Romer, a Stanford University professor and Hoover Institution fellow mentions in his podcast that it is absurd to think that China will be anywhere close to the US in GDP per capita in the next 5 years. He goes on to mention that as China continues to grow, it's production will experience diminishing returns and it is unlikely that China will ever economically surpass the USA!

America is currently intimately interlocked with China in international trade. To view China as a threat is illogical. As whenever the American economy suffers, the Chinese economy feels the pain as well.

Economic gains vs. Environmental risks

World oil consumption is rising, the IEA says that demand may reach 110m barrels per day. For Alberta’s tar sand, where tar sands contain the world’s second-largest trove of oil, this is great news. The Canadian Association of Petroleum (CAPP), says that the sands will produce nearly 3.5m b/d by 2025. 

The IEA says that the production of oil that is easy to reach with conventional methods, like drills and wells, is at its peak and there is a necessity to look towards new sources like the Alberta tar sands. With 173 billion recoverable barrels, the tar sands are worth 15.7 trillion, where Alberta will gain some of the wealth, the rest going through Canada with contracts of goods and services and even some going to poorer eastern provinces.

Because Canada is America’s biggest supplier of oil and petroleum, TransCanada is looking at building a $7billion pipeline, named Keystone XL, that would send 510,00b/d of oil from Alberta to refineries in Texas. With the 2010 gulf oil spill still on people’s mind, many are uneasy about the environmental risks associated with such a long pipe. It seems like whenever new locations of oil are found, they are in an environmentally rich area. Environmental concerns around Alberta’s tar sand include threatening local rivers, poisoning fish, destroying landscape, killing wildlife and polluting the air. It will be interesting to see if Canada looks past the environmental risks for the economic gains.

Rising inequality in the United States

Inequality has risen in the United States and there are important reasons why this is a problem. Inequality and poverty go hand in hand. The reason behind this is that lower classes lacking access to education and benefiting less form all the factors considered in the solow curve leads in the long run to more poverty. Furthermore inequality directly leads to social and psychological aspects that harm society. Competition is one of societies key aspects of society and increasing inequality has a a negative psychological effect on the lower classes. Inequality does not have a direct impact on a countries GDP, at least not in the short run, so many may not consider inequality as a severe problem. Tension between social classes and the obstacles that inequality imposes on upward mobility within the social ladder are issues the inequality leads to that affect society in a negative way. Countries with a lower Gini coefficient like Norway experience less political and crime than countries with higher instability like Brazil for example.

Global Poverty and Inequality

This article speaks on a very pertinent topic, global poverty and inequality. I found this topic to be fitting because as we discussed in class, equity(inequality of the distribution of income) is one of the five main institutions of an economic system. In almost all cases, inequality of distribution of income is an unavoidable way of life. Even for socialist nations who pride themselves on this very institution see some inequality, and for their lack of inequality comes at the expense of the entire nation being equally poor! So is inequality of distribution of income such an important issue? Some would say yes because as the gap between the rich and poor shrinks, entrepreneurship and general business activity increase, growing the economy efficiently and quickly. On the other hand, is it worth losing economic and social freedoms to ensure the success of this institution? I think not.

In Wreckage of Lost Jobs, Lost Power

This article discusses our recovery from the recession compared to the recoveries of other countries such as Britain, Germany, and Japan. I really enjoyed this article because of how it made me think about a lot of the terms and concepts we have been studying in class and how they relate to the economy in its present state. It starts off by explaining the confusing and problematic situation we are currently experiencing in the United States- GDP has recovered better here than in Russia or Germany for example, yet we are continuing to suffer from a deep jobs slump worse than in many other countries. Basically what is happening is that we have a smaller amount of Americans producing goods and services more efficiently. David Leonhardt explains that it isn't this simple and the basic structure of the American economy and the balance of power between employers and employees might be at fault. He suggest that we start studying and considering the policies implemented by other countries as possibilities for our own employment recovery.