The Big Question for the U.S. Economy: How Much Room Is There to Grow?

            I found this article interesting because some economists are suggesting that the United States is reaching its full productive capacity.  It is mentioned that just about everyone who wants a job has one, and offices/factories are operating at full speed.   GDP is rising and nearing the Budget Office’s estimated point of the highest “potential GPD” that the United States can reach.  In order to break the “potential GDP” limit, an economic boom is needed.  Without the boom, “higher growth will translate into inflation, not higher output and outcomes.”  The article suggests that in order to break the limit the United States needs to focus on reducing its economic slack.

 

            Slack is created from millions of Americans who are “coaxed” into working in the economy, but are not searching for/wanting to work a job. Other evidence of slack in the United States is that “American companies were operating factories at 75.7 percent of their potential in January.  That’s roughly the rate they’ve been for the last five years.” If the United States wants to experience this boom, they need to figure out how to eliminate as much slack is possible.  It is suggested that before we develop new office space, we need to focus on filling up the vacant spaces in order to become more efficient.  The question is how much slack truly exists in the economy and how can we work on reducing it?

 

https://www.nytimes.com/2017/02/24/upshot/the-big-question-for-the-us-economy-how-much-room-is-there-to-grow.html?hp

Confidence in the Economy Depends on Political Affiliation

In his article, "'Unprecedented' divide: Democrats fear recession, Republicans see a boom", Matt Egan looks at how consumer confidence is dependent on your political party affiliation. There has been an upswing in consumer confidence over the past three months in general in the United States, but this is mainly due a large increase in confidence among Republicans who believe large amounts of growth are coming to the economy. Democrats tend to be more pessimistic about the economy, believing a recession is coming, and Independents are somewhere in the middle.  The party affiliation and amount of confidence in the economy seems logical to me during this time.  Many other issues are becoming increasingly split along party lines. Confidence in the economy appears to be no different, although economists don't agree with the predictions of either major party. They think that economic growth or lack thereof is unclear for the future. We will just have to wait and see if who is proved right in the long run. 

http://money.cnn.com/2017/02/24/investing/democrat-recession-republican-consumer-confidence-trump/index.html?iid=SF_LN

China Names Guo Shuqing, a Rapid-Fire Regulator, to Oversee Troubled Banks

This article discusses how Guo Shuqing, a stock market regulator tried to bring market-oriented changes to China's murky, debt-laden banking system. Guo was selected as chairman of the China Banking Regulatory Commission last Friday. Experts believe that the weak China financial system is holding its economy back. Bad loans are expected to rise as the economy continues to slow. Also, banks have become more dependent on raising money through speculative investment products that they hide from the government, making it difficult to assess the risks they pose to economic stability. China had tried to shuffle their leadership positions in the banking system in hope of fighting money laundering, capital flights, thus strengthing the financial system.

China needs new leadership and new policy changes in order to set its foot on the right track to help China's fraud-ridden and heavily politicized financial system. Mr. Guo is a rare example of someone who has had extensive experience in both political and economic experience in China. He worked at the China Securities Regulatory Commission, the top stock market regulator and achieved a series of reforms in just 17 months. However, Mr. Guo does not have much time, who will be turning 61 this year. The ministers who run the central bank and the main regulatory commissions usually retire at the age of 65. I really look forward to what kinds of reforms Mr. Guo will bring to the Chinese financial system.


Link to article: https://www.nytimes.com/2017/02/24/business/china-banks-guo-shuqing.html?ref=business

Why taxing robots is not a good idea

Bill Gates has recently proposed a tax on the automation of labor. There have been many people whose jobs have been displaced with the growth of automation in industries that require low-skill labor. Throughout recent years industries are not outsourcing their labor to countries where the product can be made cheaper and more efficiently. With the innovations in technology, firms are deciding more and more frequently to turn their labor into capital and allow for a cheaper and more efficient product that is made in America - but not by people.

What Bill Gates wants to see is a tax that would slow down the otherwise detrimental rapid growth of automation in particular industries. He posits that the negative externalities that arise from this rapid innovation must be checked with a Pigouvian tax in order to make a more comfortable transition. It would aim to reallocate some of the profits made by the firms to social services such as training and education in jobs which have not been affected by automation. With this what Mr. Gates has proposed we are compelled to ask ourselves exactly what the social impacts of rapid automation might look like. The hits that the working class has taken from globalization in the last decades has been quite concerning to say the least. the wealth gap continues to increase while the working class sees their wages lay stagnant.

The article proposes that this tax on automation would, of course, slow down innovation. This causes an issue because "automation is occurring not too rapidly but too slowly." Therefore imposing a tax on innovation now would not be in the best interest of the economy as a whole.

Should there be a tax imposed on automating labor in the US? If so, when should it be imposed?

http://www.economist.com/news/finance-and-economics/21717374-bill-gatess-proposal-revealing-about-challenge-automation-poses-why-taxing

Trump calls China a currency manipulator

During the election campaign, China and Mexico were two countries repeatedly on Trump's targets, and he blamed them both for everything wrong with U.S.'s economy.
He is now set to label China as a currency manipulator. He claims, according to the article, that China is using devaluation of its currency as a tactics reduce America's exports globally.


http://money.cnn.com/2017/02/24/news/economy/trump-china-currency-yuan-mnuchin/index.html?iid=SF_LN

Trump says trade with Mexico is "unbelievably bad."

This article talks about another one of Trump's attacks on the U.S. - Mexico relationship and how unhealthy it is for our domestic economy. It goes beyond just that to explain what the trade deficit really implies and how it isn't as bad as President Trump makes it out to be.
Interestingly, the article says Trump blames loss of American jobs to Mexico on NAFTA, but not Canada. He doesn't have much data to back up the Mexico claim either, any way.

http://money.cnn.com/2017/02/23/news/economy/trump-trade-mexico-kelly/index.html?iid=SF_LN

Japan’s move to end ‘death by overwork’ will drag economic growth: Deutsche Bank

According to the article, Japan has taken measures to control the excessive overwork. The Japanese workforce has a long-running reputation for long hours and the country even has a word, karoshi, which means death by overwork.The government statics show that workers at 12 percent of companies work more than 100 hours of overtime monthly and 23 percent of companies have workers putting in more than 80 hours of overtime monthly. Getting companies to stop requiring excessive overtime is targetted to increase women's participation in the workforce, reforming Japan's labor market structure, which is a crucial part of Abenomics. 
However, according to the Deutsche Bank, this humanitarian policy would lead to lower household income, corporate earnings, and the economy's potential output. The bank cut its economic growth forecasts for Japan to 1.0 percent in 2017 and 1.1 percent in 2018, from 1.1 percent and 1.4 percent respectively. They think because Japanese workers usually work longer than the hours they report, so the actual cut of hours would exceed the published data, which cannot be fully countered by the rise in labor productivity. This would actually decrease the family income and further decrease their consuming because they cannot afford it. From that point, this policy gonna actually worse Japan's economy. 
http://www.cnbc.com/2017/02/19/japans-move-to-end-death-by-overwork-will-drag-economic-growth-deutsche-bank.html

Federal Reserve may raise US rates 'fairly soon'

The article mentions how the Federal Reserve officials have said that there is a chance that they increase increase rates. Unemployment is expected to rise which in turn could increase inflation which would force the Federal Reserve to hike up the rates.

                  The Federal reserve predicts that this increase would probably be around March. I think that this increase would effect the cost of borrowing. With higher interest rates payments on credit would be more expensive which in turn would decrease consumption. Moreover, there would an increase in saving rather than spending. The expectation of interest rates rising would in turn make people spend a lot, increasing consumption until the hike in interest rates is actually implemented. Consumer confidence will also decrease because a hike in interest rates does not promote investment or purchases. High interest rates would decrease consumer spending an investment which will cause Aggregate Demand to fall leading to a decrease in economic growth and as the article mentions, higher unemployment.

                  It will be interesting to see if the Federal Reserve actually follows through with this expected hike in interest rates.

Link: http://www.bbc.com/news/business-39059743

Big banks rack up $6.4 billion in ATM and overdraft fees

I thought that this was a very interesting article to read. I don't know about you but the bank that i have does not have atms around here so every time i go to get money out i have to pay a service charge. i have always wondered how much money the banks make off that, according to this article banks make a little over 1 billion dollars from theses charges. The article then goes into detail about how banks make over 2 billion in maintenance fees and almost 5 1/2 billion in over draft fees. i understand that banks have to have some fees to keep there customers in line so they don't spend more money then they have in there account but should a bank really be able to charge you for holding your money for you? 

link: http://money.cnn.com/2017/02/22/investing/atm-overdraft-fees-rise/index.html?iid=SF_LN

Brexit and financial centers: Picking up the pieces

Britain's vote to leave the European Union came as a shock and disappointment to many of the other EU nations. However, with the early stages of the exit beginning next month, many are wondering where the financial institutions are going to move to. France, Germany, Ireland, Luxembourg and the Netherlands are all competing for some of the financial institutions to move their respective areas.

Many of these countries have their positives and negatives. France is pushing hard to attract financial institutions and change their image as "interventionist, high tax and work-shy place". They are lowering the corporate tax rate and giving income tax breaks to the wealthy that live outside of France to try to combat this image. However, with the current presidential election going on and the possible election of Marine Le Pen might influence the decision.

Germany stands as a possible option as well since they are the dominant euro economy in Europe and have multiple large financial institutions already in Frankfurt. Luxembourg wants to be an option however, they are not changing any regulations to make it more attractive to business firms. The Netherlands speaks english and its an enjoyable place to be however, there are school and housing shortages. Additionally, Ireland is worried that they will not have an advantage or the know how in large scale business and have shortages of housing, schools and infrastructure. There are other options that firms could relocate to that are not in Europe as well. Financial institutions could relocate to places like New York, Hong Kong or even Singapore.

The article believes that Frankfurt could gain 10,000 jobs while Paris could gain 10,000 jobs in finance and up to 20,000 jobs in law and accounting. Slowly, many banks and businesses have already begun the process of moving institutions to other countries in the wake of Brexit. Where the financial institutions end up is up in the air but wherever they end up, the economic benefits to those countries will be great.












http://www.economist.com/news/finance-and-economics/21717032-other-cities-compete-not-london-each-other-european-financial-centres

How Trump is fabricating existing laws

http://www.cnn.com/2017/02/22/politics/donald-trump-fabric-new-laws/index.html


This article was extremely interesting to me.  It is a story about interpretation.  I did not realize, or piece together, that no new laws will be passed or considered in Trump's attempt to execute his plans and ideas.  I am interested to see how he plans on continuing the policy changes and ideas through the already existing infrastructure of this country.  With the mentality that Trump has, it almost seems that Obama laid down the stepping stones for his ideas to be executed.  I am curious to see how these sort of fabrications and interpretations continues.

Business executives' optimism surges under Trump

The survey found that 76% of executives believe the new administration will have a positive impact on their business. Reduced regulation and tax reform policies are cited by the executives to be the leading cause of why it will be positive for their businesses. The report is based on a survey that ended January 20th, the day Trump was inaugurated. But the confidence isn't just about Trump, the year-to-year increase in confidence also reflects an absence of market turmoil like in January 2016 when stocks dropped because of crashing oil prices and problems in China.

Trump ran his campaign on promises to ramping up spending on infrastructure and military and cutting taxes. The majority of the executives want to see regulations reduced first, followed by lowering taxes, and improving infrastructure. If Trump keeps his promises companies will have more room to hire full time employees and to increase benefits.

http://money.cnn.com/2017/02/21/news/economy/jpmorgan-business-executive-confidence-trump/index.html?iid=hp-stack-dom

Trump's Immigration Do-Over

http://www.cnn.com/2017/02/22/politics/donald-trump-immigration-ban-stakes/index.html

The article discusses the implications of President Trump's second chance at imposing an immigration ban. The new travel ban would still temporarily deny immigrants from several primary Muslim nations from entering the United States and aims to overhaul the the shape of the American immigration system. Local and state authorities would be given higher authority, possibly leading to mass deportations. Trump's first ban which was shot down by the courts, was seen as a bad look for the administration and was a huge blow to the notion that Trump's skill as a business man would trump his lack of political experience. President Trump was quoted saying that "The new order is going to be very much tailored to what I consider to be a very bad decision." These comments, which don't give much information regarding the ban, are somewhat concerning to the public.

It will be interesting to see what the new travel ban entails and wether or not it will be adopted by the American public / Government. It seems that Trump's first few weeks in office have been somewhat dismal and disappointing placing large weight on the new proposed ban. Lastly, it will also be interesting to see how the public reacts to this ban a second time around as the last ban sparked protests and mass debates regarding America's immigration policy.

The Great Divide: Study Finds China Approaching America's Level of Income Inequality

A recent study has determined that while China's GDP has nearly reached America's levels, so have their levels of inequality. Inequality has increased substantially since the country has opened their doors to private enterprises. Now the poorer half of China is only receiving 15% of the country's pre-tax income.

This inequality is continuing at a bit of an alarming rate. From 1978-2015, the income of the poorer half of Americans fell by 1%, but this percentage is quintupled in China respectively.  This dynamic is pretty interesting for a country that still considers itself communist.

Article 

Greece's Creditors are Now the Main Impediment to Solving the Country's Woes

This article in The Economist outlines the current deadlock over the second review of the third bailout of the country of Greece.  The continuation of “Greek debt dramas” is continuing to exasperate the European community.   Last week, European creditors were working to close the review, which would allow them to lend Greece the funds it needs to meet $6.7 billion in bond repayments (due in July).  Unfortunately, talks have run aground.  The International Monetary Fund has yet to join the bailout (it did for the last two), and is pressuring Greece to pass tax and pension reforms worth 2.5% of GDP, which would kick in after the bailout expires.  The left-leaning Greek government will have an extremely difficult time getting these austerity measures through parliament; the country has already faced a number of protests from farmers and unions.  Furthermore, the conditions attached to the bailouts drastically reduce government control over economic policies. The IMF has good reason to hesitate before jumping into another bailout; it has seen Greece consistently fail to meet previous targets and has little faith in the country.  Moreover, European governments are insisting on IMF participation in the bailout before they get involved, effectively granting the IMF veto power.

Ultimately, the IMF doesn’t think the country can sustain the primary-surplus target of 3.5% by 2018.  GDP has shrunk by over one quarter since 2008, nearly 25% of the workforce is jobless, and more than ⅓ of children are poor or nearly poor.  Although the article does not elaborate, I would be very interested to know the definition of poverty for children in Greece.  Greece is also experiencing a brain drain, as young people (understandably) seek jobs and other opportunities abroad.  Despite this, Europeans insist that Greece is on track, and will in fact meet the objectives set by the IMF.  The article also explains that Greece is unable to devalue its currency, as it has in the past, and is instead forced down the path of internal devaluation and austerity.  Overall, this deadlock is not as serious as 2015, when Greece came close to being ejected from the euro, but it is an example of the problematic bailout architecture.  Personally, I do not blame the IMF for airing on the side of caution when it comes to the Greek economy.  Clearly something needs to be done, but insisting on stricter and more intense bailout targets is ineffective.  What is the solution?

"Greece's Creditors Are Now the Main Impediment to Solving the Country's Woes." The Economist. The Economist Newspaper, 18 Feb. 2017. Web. 21 Feb. 2017.

http://www.economist.com/news/europe/21717043-biggest-difference-now-between-imf-and-europeans-greeces-creditors-are-now-main