FedEx is starting to feel the pain from the global slowdown

Due to the economic slowdown in China, a ripple effect has been felt across several global economies in which several American companies do their business. Due to this weakening of the global economy as a whole, the U.S. dollar has in turn strengthened relative to the European Euro and the Great Britain Pound. While many American consumers think that a stronger U.S. dollar is better for the U.S. economy due to cheaper traveling options, that is not entirely true. A stronger U.S. dollar can sometimes prove fatal to many companies due to the fact that foreign buyers can no longer afford their products.

This as proven to be just the case for FedEx, a massive American package shipping company. In the last 3 months alone, FedEx's export revenue decreased 7% and the number of packages it ships international priority has also decreased by 5%, with their stock also failing over 3% on Wednesday, September 16^th. With China still recovering, how much will the global economy truly be hurt? Are we headed for a global economic depression?

Link: http://money.cnn.com/2015/09/16/investing/fedex-earnings/index.html

Fed Leaves Interest Rates Unchanged

The Federal Reserve has decided to keep interest rates near zero while they continue to assess slower global growth on the domestic economy, since there was a perceived lack of confidence in the strength of the domestic economy. This decision came as no surprise to many investors.

However, there is a bit of good news: The Fed expects to raise rates later this year. Thirteen of the seventeen members think rates will raise 0.25 percent, and some even predicted a larger increase. The Fed Chairwoman, Janet Yellen, said it was a close call as to raise the rate at current moment. She said one of the major reasons why the rate wasn't raised was because of concerns over China's economy and slower growth in other foreign economies.

Another good takeaway from the announcement is that Fed officials are convinced labor market conditions have nearly returned to normal, and they predict unemployment will stop falling when it hits 4.8 percent.

Even though the Fed says they'll raise interest rates soon, could China's worsening economy derail the plans? And will unemployment really stop falling once it reaches 4.8 percent?

http://www.nytimes.com/2015/09/18/business/economy/fed-leaves-interest-rates-unchanged.html?_r=0

E-Cow-Nomics Poster

Recently my suite mates got one of the best posters I've seen. As an economics student, I found it to be very witty and quite comical. Hopefully you will enjoy the poster and its relevancy to class.

The poster describes economic/political systems with cows, but is actually quite productive in doing so. As the poster progresses, the contents become more comical in nature but "Humor is the good natured side of a truth" (Mark Twain).

Light-hearted approaches can be great ways to learn. Are there any fun things like this that you have seen?

Here is the poster link:
http://i.imgur.com/6vunIdy.jpg

Economists don't see a major slowdown in China

In recent weeks there has been a lot of focus on the Chinese economy with their stock market dropping and the Yuan depreciating. Many people are now beginning to seriously panic and have begun thinking that the next great financial crisis is at hand. This article, however, disputes that claim.

This article points out that analysts are taking the long view, arguing that weakness is part of China's "new normal" -- an extended period of slower expansion as the country transitions from an infrastructure-led economy to one driven by consumption. Economists are sticking with their forecasts of 6.9% GDP growth for the year for the time being. If the situation continues to worsen in the coming weeks and months then there is a possibility that they will revise this.

Spanish economy showing small signs of improvement

Compared to other European countries on the economic periphery, such as Italy, Portugal, Ireland, and Greece, Spain is making small improvements despite still having a long uphill battle. One of its first major problems is unemployment, which is now down from the 2013 incredible high of 26% to 22%. Although this is still very high, and for people under 30 years of age it is almost 50%, it is still leading against that of Italy, for example. Additionally, the Spanish have also implemented some reforms to help promote more business; they have reduced the number of procedures required to have a business, and have lowered the corporate income tax. These reforms have allowed Spain to move up in the "ease of doing business" rankings according to the World Bank. Spain's growth rate is also one of the highest in the euro area.

However, the economy is still far from where it should be and the growth that has been observed can be contributed to the fact that Spain has a lot of room to grow quickly because of how bad it had plunged. The GDP is about 4% less than what it was in 2008 when things were at the peak, but the Euro Zone as a whole is only 1% less. What more, some economists say that Spain's improvements are not due to the reforms put in place by President Rajoy, but by the fact that businesses had to lower wages and make other adjustments at the economy's downturn. Despite this, Spain is definitely not looking at a similar problem as Greece because it has been recovering for a longer period of time, and does not have similar political turmoil.

http://www.economist.com/news/finance-and-economics/21660550-growth-has-returned-dangers-still-lurk-back-its-feet

Chinese Rail Firm Makes Inroads with U.S. Factory and Boston Transit Deal

Article: http://www.nytimes.com/2015/09/04/business/china-railway-crrc-boston-transit.html?ref=international

          China Railway Rolling Stock Corporation (CRRC), China’s largest rail manufacturing company has broken ground on Thursday by building a sixty million dollar plan in Springfield, Massachusetts which will be assembling new cars for Boston’s subway system. This plant will be hiring up to 150 people being part of a $566 million contract that CRRC won last year. The contract states that CRRC will be providing 284 cars for the Boston Transit system’s Orange and Red Lines. One of the reasons that this was possible because it received backing from local authorities; this was because the provisions included the rail cars being assembled in Massachusetts plant.  

          I believe that this is a great opportunity for both the CRRC and the locals of the state of Massachusetts. This will decrease the unemployment rate within the state as well as improve living standards. This is another example of globalization, CRRC a state owned corporation operating outside China and creating jobs within the U.S. This will also highly reduce the production cost; being that the cars are assembled within the state it requires minimal transportation. Furthermore, this opens doors for CRRC, they will have potential to beachhead to win more contracts in the U.S., it also part of the Chinese government’s policy to encourage technology and infrastructure companies to export their skills and seek foreign investments. 

Market greed and failure to blame for obesity epidemic

https://www.blogger.com/blogger.g?blogID=8612138668326220332#editor/target=post;postID=3875115550759471048

Market failures are to blame for the growing obesity epidemic, according to a study. According to the article, consumers, mainly children, are uninformed when it comes to the long-term consequences of eating unhealthy and being obese. Weight gain even has negative consequences, even if it doesn't necessarily lead to obesity. The problem, according to the article, is that too many people are buying the unhealthy food products as a result of them mostly being cheaper than food with better nutrition. This is a problem because it leads to higher health care costs and insurance costs as well.

Aneel Karnani, a professor of strategy at the University of Michigan's Ross School of Business, said "market failures are commonly addressed by corporate social responsibility, industry self-regulation, social activism and government intervention" (Malicdem, 2015). The study showed that government intervention was actually the only factor that helped fight against the spread of obesity. Incorrect beliefs were also to blame for the growing epidemic, as many people simply believe that a lack of physical activity is the main cause of weight again. This is untrue because even if you do some form of physical activity multiple times per week, it doesn't matter unless you are providing your body with healthy fuel that can be used efficiently and effectively. They conclude by saying they hope the people are able to "learn about taking steps that work" (Malicdem, 2015).

China Data Add to Doubts About Beijing's Ability to Meet Growth Target

http://www.wsj.com/articles/china-industrial-production-growth-lower-than-expected-1442125441

According to reports, Beijing is having problems of reaching their growth target of 7%. This is a major problem for China due to the fact that Beijing is going to require more help from the government to stimulate activity. Some problem areas that are known are factory production and fixed-assets. China's industrial production fell below the forecasted median percentage by .05% which is a big deal for them. Production all over China did not hit their expectations but, retail sales were increasing and accelerating better than expected. A plan China has to increase growth is to cut required bank reserves and pressure local government officials to accelerate infrastructure spending. Even though this has not worked well in the past because China has already done five interest rate cuts and multiple reductions in bank reserves. This is the slowest the Chinese economy has boosted in 25 years. China is hoping to see the 7% growth in the last three months but the key to get there is to have a strong 3rd quarter.

The Fed’s Policy Mechanics Retool for a Rise in Interest Rates

The Fed has been making the decision to raise interest rate, not clearly when, but possibly soon. However, this time, they will execute the plan by relying on “a new system assembled from spare parts.” A team led by Simon Porter - the head of the Fed’s market desk in New York - has been experimenting by moving billions of dollar around the financial system. The Fed’s tradition way of raising interest rate was selling Treasury bonds to banks to take out the money in the market, but the immense stimulus campaign started in response to the 2008 financial crisis has pumped an excessive amount of dollar into the market that it has become to drain out money to discourage lending. “Selling quickly could roil markets; selling slowly could allow the economy to overheat,” so a new method was needed.

Instead, the Fed plans on throwing in more money to pay lenders not to make loans. This will freeze the excess money, instead of draining it all. And of course, there is a number of skeptical options with the new method, but the Fed officials shows confidence about the plan. Janet Yellen announced, “The committee is confident that it has the tools it needs to raise short-term interest rates when it becomes appropriate to do so.” Two years ago, Lorie Logan, one of Mr. Potter’s top aides, suggested the Fed could achieve the goal of raising interest rates by borrowing from companies at a minimum rate. The resulting deals, known as “overnight reverse repurchase agreements”, showed a significant breakthrough. When liftoff arrives, however, the Fed plans to place this machinery inside the familiar language of the old system and is likely to announce that it is raising the federal funds rate from its current range of 0 to 0.25 percent to a new range of 0.25 to 0.5 percent.

Link: http://www.nytimes.com/2015/09/13/business/economy/the-feds-policy-mechanics-retool-for-a-rise-in-interest-rates.html?ref=economy&_r=0

Democracy and Economic Growth

Does economic growth go hand in hand with a strong democratic regime?  There is a theory attributed to the late 1950s-70s known in political science as "Waves of  Democratization"where political scientists not only examined the idea of political revolution but also Economic revolution that may come with it. A political system that leans towards being more democratic is very much in line with the concept of being a free market, whereas the opposite is thought true for autocratic, closed, communist regimes in that they tend to be more centralized, controlled economies. However to say that the aforementioned ideas are true for all cases is an overstatement, this is an idea that requires attention from both economists and political scientists and we have had varying opinions from both.

Japan and South Korea are the two countries with the highest GDP in South Asia and both are part of this five decade long push towards democratization. India, whose economy has doubled since the 1980s, is also the latest push towards democratization and lots of economists have predicted that India is rapidly on its way to being the worlds next superpower Economically speaking in the current century. IS economic growth related to democratization? Causation may not always imply correlation. In fact there are many who think that autocratic regimes may in fact cause more development given they follow certain policys. Paul Collier argues that South Korea has developed as a result of its very long association with autocracy up until the 1990s and that their homogeneous society is a cause of that. He argues that democratic and economic growth in the developing world is more prevalent in societies that have a more diverse pool of ethnicities. India is one such example, South Korea is not. Collier also argues that China (the one outlier with his theory) has developed because its economy functions more like several small controlled states over a more giant area. There is also the question of what drives economic growth in these rapidly growing economies, India or example has doubled its GDP since 1980 with its primary focus being the service industry whereas Chinas GDP has grown by 7 times its 1980 level with its primary focus lying out on industries. Even further still is the ida that it is not democracy that causes economic growth but the opposite. Does Economic growth cause democracy? Robert Barro is an economist who has done extensive research in the developing world and has found that economic development is directly related to democratization and not the opposite. What do you all think? Is democracy championing economic growth or the opposite?

China: New Signs of Slowdown

http://www.bbc.com/news/business-34237939

Fixed asset growth has slowed to a 15 year low to 10.9% for the world's second largest economy, China. Manufacturers have also cut down prices at their fastest pace in 6 years which is not a good sign for the Chinese economy. They have cut down their interest rates 5 times since November which helps explain why investors are not confident in holding savings in the Chinese market. The Chinese market is expected to grow at only 7.3% this year which is the lowest projection in 25 years.

On top of these issues, food prices have begun to soar as well in China causing high inflation which has caused civil unrest in some Chinese states. Is this the start of a major recession for China or do you think that the communist state is simply going through a phase they will be able to recover from? As we discussed in class, government intervention can be harmful and in a state owned market like China has, the market is not free to do as should. Is this proof that a free market is better or simply just a hiccup the Chinese can over come?