Fed seen remaining patient with rates amid global turmoil

http://www.cnbc.com/id/102374975

The Federal Reserve is expected to signal it remains on track to begin raising interest rates later this year, as the central bank shows confidence that low inflation and rising risks from abroad have yet to derail the U.S. economic recovery.

The Fed's first two-day policy meeting of the year concludes on Wednesday, and policymakers will likely restate their "patient" approach to raising rates, while also voicing faith that the economy will continue improving.

Fed Chair Janet Yellen faces growing skepticism that the central bank can tighten monetary policy by mid-year, with a strengthening dollar and falling oil prices adding to worries that inflation readings remain too low for the Fed to begin hiking.

But U.S. central bank officials have argued that the drop in oil prices is a transitory factor that benefits U.S. consumers in the short run.

And with unemployment dropping and growth on track, Fed officials have indicated they will move forward with an initial rate hike in the middle or latter half of the year even if other closely watched measures such as wages remain weak.

U.S. Stocks Tumble

United States stocks tumbled today citing disappointing quarterly earnings and weak economic reports. The Dow Jones industrial average fell 365 points. The S&P 500 and Nasdaq composite also fell but not at the same magnitude as the Dow. In the midst of the growth of the U.S. dollar, the missed earning expectations were seen resulting from falling oil prices and economic issues abroad. It seems the U.S. has gotten through the majority of the effects of the Recession however issues in other countries have effecting the U.S. It will be interesting to see how long these oil prices stay this low and how it will effect further stock market rises and falls.

Source: http://www.wsj.com/articles/u-s-stock-futures-decline-1422365493?mod=WSJ_hp_LEFTTopStories

Strength of U.S Dollar

The U.S dollar seems to be on the uprise. After years with a slow economy, a dollar that was losing strength, the U.S dollar is up 20% against its major trading partners. Is this a sign that the economy is doing well or that other parts of the world are experiencing tough times of their own? One speculation is is that the dollar has seen a rise with the expectation of interests rates rising in 2015. A strong dollar is  good sign that America is heading in the right direction.


http://in.reuters.com/article/2015/01/23/usa-economy-jacklew-idINL1N0V211020150123

Greece's Agonized Cry to Europe

Article Link:

http://www.nytimes.com/2015/01/27/opinion/greeces-agonized-cry-to-europe.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region&region=c-column-top-span-region&WT.nav=c-column-top-span-region



As winners of the Greek election, all eyes are on Alexis Tsipras and his left-wing party Syriza. Alexis Tsipras has promised to not follow the austerity regime set up by the Germans anymore. The party  also wants to continue reforms mean't to lowering the country's debt and maintaining Euro as their currency. With them winning the Greek elections, questions about Greece's status in EU have sprung up.

A significant majority of Greeks are no longer willing to sacrifice everything in order to pay off their debts. Greece has suffered from extremely high levels of unemployment and its economy has shrunk significantly during this period. If Greece is forced to keep following the austerity regime against it's wish then it might default on it's debt and abandon the euro which would result in broad negative economic impacst throughout Europe further destabilizing it.

Mr. Tsipras, on his part has promised to continue reforming Greece's economy, making the upper class pay their taxes and ending corruption, nepotism and cronyism in the country. The deadline for Greece's current bailout program is on Feb 28. It would be welcoming if the European leaders decide to extend the program as a way of showing support for Greece's new government as a way of showing their cooperation with the country.

Russia receives Junk Status

http://money.cnn.com/2015/01/26/investing/russia-credit-rating-junk/index.html?iid=SF_BN_River

S&P has rated Russia's credit as junk.

This verdict will make it harder and very expensive for Russia to get loans. As Russian bonds have lost the investment grade, investors will have to sell their current Russian bonds.

Economic sanctions and oil down slide has worsened the economic situation of Russia. The Russians had expected that oil would sell this year over $100 a barrel but the it is currently being sold for $45 a barrel.

Russia's central bank has hiked the interest rate by five times to strengthen the ruble. Thus, this is a clear indication that Russia is facing a financial crisis.

Russia's central bank has claimed that it will fund an emergency loan of $545 million to protect the deposits. However, Russia will then have to protect itself from inflation.

Russia's currency has plunged by 40% of it's value against the USD and S&P expects an inflation of 10%.

Is Venezuela on the Verge of Collapse?

Venezuela has been on an economic downturn since the death of Hugo Chavez. After his death, Maduro took over using the economic crisis as the platform for his campaign. However, not much has changed, and the extreme drop in oil prices has not helped the oil-reliant economy.

OPEC has refused to cut oil production, hurting the Venezuelan, Russian, and Iranian. Currently Venezuela is spending more than oil revenues are bringing in, and it is hurting them. The government is subsidizing food costs, oil costs, and have limits on the number of items a consumer can purchase at the store. Inflation is over 60%.

Venezuela is about to default on its loans. And is going to be about $5 billion under budget. It is estimated that their economy is expected to shrink by about 7%. There is a thriving underground black market that is helping people get goods and currency in USD that they cannot get in stores. The future looks bleak. The Maduro government will not take responsibility and keeps blaming The United States and it's allies for the problems its facing, when in reality it is the fault of the government for spending too much on it's citizens.

The government needs to take control of the situation before it becomes much worse, but with the uncertainty of oil prices, there may some time before their economic system improves.

http://www.thedailybeast.com/articles/2015/01/26/is-venezuela-about-to-collapse.html

Firefighters for sale.....

In light of what we discussed in class today:

http://usnews.nbcnews.com/_news/2011/12/07/9272989-firefighters-let-home-burn-over-75-fee-again

http://www.nbcnews.com/id/39535911/ns/us_news-life/t/no-pay-no-spray-case-firefighters-threatened/#.VMaVIy42eIs

Pope Calls for More Market Regulation

http://www.nytimes.com/reuters/2015/01/11/business/11reuters-pope-markets.html

Pope Francis has been the center of attention on a lot of issues social, economic and otherwise.   In this case he has taken an economic stance.  Based on his faith and reading of old teachings, he believe that there needs to be more regulation of financial markets.  The way wages are set, with bonuses and huge salaries, are bread from greed and speculation in food commodities under minds work towards ending hunger across the world.  His statements have conservative Catholics calling him a Marxist while he argues that he is simply relaying what the bible tells us.  Given the changes that face economic systems and the choices that they have to make in order to maintain a certain equilibrium and fight economic disparity, maybe Pope Francis should be listened to.  Large salaries may be more than just a show of greed but large disparity in salaries only serves to increase the gap between economic classes.  If a system would like to avoid economic outcomes such as increased poverty, more regulation may be the way to go.  Having more steady food prices would also allow for better across the board access to food products, although ending world hunger may not result so easily it would be a step towards a healthier lower class, which in turn could lessen the reliance of many lower class individuals on state provided care and, in the long run, be a step towards evening the economic playing field.

The state-of-the-union address: "Middle class economics"

In the State of the Union address, President Obama discussed his focus on income inequality. The gap between the rich and poor has been widening, as the middle class population is shrinking. President Obama is worried that this trend could damage the overall economy. His focus is on middle class economics. The goal is to help working families’ feel more secure. To achieve this goal there is talk about raising the taxes of the rich to support the poor. President Obama wants “tax reforms that protects and strengthens the middle class, lowers rates, simplifies the system, levels the playing field, and eliminates unfair and inefficient loopholes.” Republicans believe this will hurt investment and jobs. Instead they suggest cutting taxes will benefit the economy. Republicans recommend other policies that will help with income inequality, other than raising taxes.

Link to article

Will Oil Uncertainty Present an Investing Opportunity?

http://www.foxbusiness.com/investing/2015/01/25/will-oil-uncertainty-present-investing-opportunity/

The article above discuss the issues of failing oil prices and how they have affected several nations in the United Arab Emirates. Though we as American have thoroughly the low gas prices, investors in the UAE are terrified. As oil prices fall to 60$ a barrel, many investors question whether the UAE economy can continue to grow. This has caused the stock for oil prices to fall. Investors have begun selling their stock however, should they be concern this early? The UAE profited largely when oil was 100 a barrel. This created a flourish of cash within the government. As of now there has been no sign of reduce growth. I think the best thing for investors would be to wait and see if prices began to recover rather than making an immediate decision.

Obama: No greater threat to future than climate change

In President Obama's State of the Union speech last Tuesday he stated that no challenge poses a greater threat to future generations than climate change. 2014 was the warmest year since record keeping began. In Obama's State of the Union speech he claims that the last 14 of the 15 years have been the warmest years on record. The United States needs to make a commitment in order to reduce greenhouse gas emissions and curb global warming. Even though the United States has made a strong commitment to cut back on greenhouse gasses it still remains the second greatest polluter, behind China. Both China and the United States account for over one third of global greenhouse gas emissions. Since the United States and China have made strong commitments towards cutting greenhouse emissions, other nations are now stepping up and taking the same steps. Countries are warn worldwide that if these climate changes continue to be an issue it will cost governments around the world more than $100 billion a year. In all we need to take more drastic moves in order to cut our greenhouse emissions. This will not only benefit us, but also our future generations. In all we as a whole need to come together and think of the future of our planet.

http://www.cnn.com/2015/01/21/us/climate-change-us-obama/index.html

Wealth effect in europe

The ECB plans to purchase 60 billion euros’ worth of a combination of government bonds, debt securities issued by European institutions, and private-sector bonds, each month from March until at least September 2016. The ECB seems to be hanging its hat on the expectation that this action is going to increase inflation, which will translate into job growth, which will in turn stimulate the economy. I’m not so sure that is the transmission mechanism. I think the real transmission mechanism will be if the ECB is able to introduce enough liquidity into the system to drive up asset prices, and through the process of driving up asset prices, drive interest rates down further. This would reduce borrowing costs for businesses, which would improve profitability and encourage them to hire more workers.
http://www.businessinsider.com/qe-wealth-effect-in-europe-and-us-2015-1

Here's What Could Happen If Apple's watch Flops Like Google Glass

http://www.businessinsider.com/heres-what-could-happen-if-the-apple-watch-flops-like-google-glass-2015-1

With Apple joining in the smart watch market, forecasters have predicted that the watch could move 60 million units in the first year equalling $21 billion in revenue.  However, a recent survey says that the percent of respondents who said they would buy the watch fell from 10% to 7%.  This has raised the question of what will be the impact if the Apple watch fails miserably like Google Glass.  However if the smartwatch fails it will not be the end of the world.  The predicted sales of 60 million units will only cover 10% of apples projected revenue for the 2015 fiscal year.  Additionally, with the launch of the latest iPhone, the projected sales for these smartphones could make up for the possible fail of the watch.  The growing demand for iPhones only make the launch of the smartwatch a bonus.  While the success of the watch is still in question, Apple and its investors should not be worried if the watch does not meet expectations.

China's Slowdown - From a Very Big Base

http://www.economist.com/blogs/freeexchange/2015/01/chinas-slowdown

Recently, the Chinese government released statistics about the performance of the economy in 2014. The article discusses how a lot of the focus has fallen on China's fall in growth rate from previous years, resting at 7.4% (the lowest in 24 years), and 0.1% short of the government's target for growth. However, the article also suggests that focusing only on this may be a little myopic since there is also good news to be had.

While, China's growth has certainly slowed to a degree, the larger size of its economy means that it is still generating high levels of demand, even with a lower growth rate. Another concern has been that a large percentage of China's growth has been driven by investment (48.3% of GDP in 2011), and relatively lower consumption. However, consumption as a share of GDP has been rising recently, albeit relatively slowly. The second thing worth paying attention to is that real wage growth in the previous year was faster than the growth rate of the economy (8%), with rural wages growing faster than urban wages.

The article ends by noting that there may be errors in the data due to the way the government reports it, so these numbers are difficult to double check. Also, the strength of China's economy will be tested in the coming year with property investment expected to weaken. The IMF cut its forecast for China's 2015 growth to 6.8%, even lower than 2014. 

Britain's Elderly: Wealth of Generations

http://www.economist.com/blogs/freeexchange/2015/01/britains-elderly

This article discusses the current situation revolving around Britain and the pensioners of Britain.  The article talks about how those citizens who have gotten pension are a protected class with a lot of benefits.  First, these individuals do not have to pay national insurance and they receive free benefits like bus travel and cable access.  The article also goes on to talk about how, even though this class has a lot of benefits, they are in fact in a worse situation than the working class because they do not have disposable income.  The article then goes on to talk about how even though these pensioners are in a worse place when it comes to disposable income, they are in a better position when it comes to private income.  The article ultimately shows readers how currently, in Britain, there is an issue with income distribution and they question whether or not they should give benefits to those pensioners or other classes.

US and India Strike a huge Deal

The U.S. just unlocked billions of dollars in FDI with India after a deal was struck between president Obama and Minister Modi. The two countries reached an understanding on two issues that, despite a groundbreaking 2006 agreement, had stopped US companies from setting up reactors in India and became one of the major irritants in bilateral ties. The new deal resolved differences over the liability of suppliers to India in the event of a nuclear accident and US demands on tracking the whereabouts of material supplied to the country, US ambassador to India Richard Verma told reporters. This new deal will open up an excellent alternative for the U.S. As china become increasingly difficult to deal with India serves as a healthy alternative to FDI and manufacturing for the U.S. Although it has been slow paced economic process for India the New Minister has promised to increase India's FDI in the near future and has already began to do so through new bills and laws promoting foreign relations.

http://www.businessinsider.com/the-us-and-india-just-unlocked-billions-of-dollars-in-trade-2015-1

A Quiet Revolution in Helping Lift the Burden of Student Debt

http://www.nytimes.com/2015/01/25/upshot/a-quiet-revolution-in-helping-lift-the-burden-of-student-debt.html?action=click&contentCollection=Business%20Day&region=Footer&module=MoreInSection&pgtype=article&abt=0002&abg=0

As college gets more expensive every year, we look to find a solution to student loan debt. Clinton originally created an income based program- IBM - but students were not aware of this program and therefore, were not taking advantage of it. Then in 2007, the program was modified and the terms for repayment were better. The program basically made it impossible to default on your loans because you paid a percentage based off of your monthly income and after a certain number of years, your debt would be forgiven. In 2010, Obama then made IBR even more generous. The problem that still lies within this program is that no one really knows about it or what it is or how it works. But basically, in the long run the federal government is going to take over the states in American higher education. Could there be a better alternative to helping students with their student loan debt or is the government on the right track?

Inclusive Capitalism

http://www.nytimes.com/2015/01/21/opinion/can-capitalists-save-capitalism.html?_r=0

Despite the decisive victory of free-market capitalism over a planned economy, income inequality is a persistent problem in a capitalist economy. According to the article, income inequality may result in insufficient aggregate demand. Moreover, insufficient purchasing power of people in the bottom tier of income distribution may threaten the survival of corporations and the top 1 percent as they lose profit making opportunities. To overcome the problem, economists and politicians alike are proposing a modification of the current economic system of market capitalism to “Inclusive Capitalism.” Inclusive capitalism is intended to counter income inequality by restraining the accrual of wealth at the top and providing the ones at the bottom with equal economic opportunities to make the economic system sustainable. The article further details the ways in which inclusive capitalism could be implemented. The article also informs us of the constant need for economic systems to evolve and adapt in order to address new and arising economic and social problems. 

ECB unveils massive QE boost for eurozone

article link : http://www.bbc.com/news/business-30933515


President Mario Draghi of the European Central Bank has declared that the ECB plans to implement quantitative easing in the Eurozone economy.  The ECB will pump approximately 1.1 trillion Euros into the hurting European economy.  The ECB will spend 60 billion euros on bank bonds each month until September of 2016.  Quantitative easing in theory will increase the supply of money which will keep interest rates low and encourage people to borrow money.  The borrowing of money will hopefully enable people to spend more money which will allow the economy to grow.  The ECB states that the interest rates will be maintained at 0.05%.  This low interest rate will encourage people and businesses to borrow from financial institutions, meaning that these people have more money to spend and pump into the economy.  Many economists in Europe believe that the quantitative easing plan has be prolonged far too long and that finally implementing this plan will help bring the European economy out of an economic slump.  Despite the amount of economic issues in Europe, it will be interesting to see how this plan will affect the European economy and its financial sectors in the future.

US jobless claims fall from 7-month high

http://www.cnbc.com/id/102356246

The number of Americans filing new claims for unemployment benefits fell last week from a seven-month high, pointing to continued improvement in labor market conditions.

Initial claims for state unemployment benefits slipped 10,000 to aseasonally adjusted 307,000 for the week ended Jan. 17, the LaborDepartment said on Thursday.

That reversed the bulk of the prior week's increase which had pushedclaims to their highest level since early June. The rise was dismissed by economists as "noise" given that claims data is difficult to adjust for seasonal variations around the Christmas and New Year holidays.

Economists polled by Reuters had forecast claims falling to 300,000last week. The prior week's data was revised to show 1,000 more claims received than previously reported.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, increased 6,500 last week to 306,500, taking it above the 300,000 mark for the first time since September.

The claims data covered the week during which the government surveyed employers for January's nonfarm payrolls.

Despite the gyrations in claims and the four-week average rising 7,750 between the December and January payroll survey periods, there is little doubt that the labor market is tightening.

Employment gains have exceeded 200,000 in each of the last 11 months, the longest stretch since 1994, and job openings are near 14-year highs. In addition, the ratio of unemployed people for every job opening is the lowest since early 2008.

The claims report showed the number of people still receiving benefits after an initial week of aid increased 15,000 to 2.44 million in the week ended Jan. 10.

Our economic system enriches the most powerful at the expense of the 99%

http://www.theguardian.com/public-leaders-network/2015/jan/20/economic-system-enriches-most-powerful-oxfam

Oxfam calculates that by next year, for the first time, the wealth of the richest 1% of the world’s population will overtake that of the remaining 99%. This is shocking proof, if more were needed, that away from all the theory and hot air about inclusive growth, our current system is wired to do exactly the opposite: to enrich the most powerful. Either we fix this now in a controlled way or it will fail later, with unknowable but probably chaotic consequences. Political instability and violence should give us greater reason now to tackle inequality, poverty and exclusion, rather than fresh excuses not to. [....]Inclusive growth should allow the poorest people in our societies to gain a greater share of the pie at the expense of the richest. Inclusive growth should result in more and better paid jobs, and good quality services for everyone, particularly in health and education. [...] To reach the most marginalised people in our societies it is crucial to have effective welfare systems. [...] “Extreme inequality isn’t just a moral wrong. It undermines economic growth and threatens the private sector’s bottom line. All those gathering at Davos who want a stable and prosperous world should make tackling inequality a top priority.”

Eyes on Fed after ECB, other bank stimulus moves

http://finance.yahoo.com/news/eyes-fed-ecb-other-bank-230353763.html



              The European Central Bank (ECB) recently released a rather larger stimulus package this past week to help boost their own economy. This stimulus however has begun to effect potential policies here in the US. This stimulus effects the Feds plan to raise interest rates by the middle of this year. A policy that is out of sink with what is going on in the rest of the world. Even though the US seems to becoming out of economic turmoil there is still a stong sense of Global Central Policies. The raising of interest rates in the US could effect foreign economies who are putting in to place expansionary policies. This would make commodity prices even higher and add to the threat of global deflation. I think the Fed needs to take into account GCP and how changes will effect other countries  before making any new policies.

ECB Executive Gives Warning Over Weakened European Union

On Thursday, the European Central Bank launched its 1.1. trillion economic stimulus plan but a top official, Benoit Coeure, warned that unemployment and low growth have threatened the structure of the European Union.  Futhermore, Coeure has encouraged governments in the EU to speed up economic reform since the bank itself cannot generate lasting growth.  The ECB will reiterate this point when they hold talks with the finance ministers on Monday.  Even with record low interest rates, the EU economy has not seen much improvement.  In the stimulus plan, the ECB will buy about 60 billion in bonds each month from EU banks until September 2016, in what is called quantitative easing.  Lowering the cost of borrowing should hopefully stimulate banks to lend and encourage EU businesses and consumers to spend more.  This strategy has been used in the US and Japan and appears to have worked.

http://www.bbc.com/news/business-30966499