Fed Gov. Brainard sees 'downside risks' increasing, says balance sheet runoff should end this year

Federal Reserve Governor Leal Brainard said on Thursday that she is growing more concerned about economic growth, particularly the impact that the global slowdown will have on the United States. The same morning, she said she will be watching the developments in the retail industry because the sales came up well short of market expectations. Overall, the downside risks have definitely increased relative to the outlook for continued growth. The Fed said in January that it would be patient in continuing interest rate hikes. Brainard says she is comfortable waiting and learning as more data comes in about the economy. She did indicate that the Fed should be nearing the end of the program to reduce bond holdings on its balance sheet which once stood at 4.5 trillion and is now around 4 trillion. In her own view she believes that the balance sheet normalization process should come to and end later this year.

I have a few questions about the Fed and their intended policies. The Fed pre-great recession had a less than 1 trillion on their balance sheet (Federalreserve.gov). If it has taken 10 years to roll off 500 billion then I hardly expect they can roll off at an increased rate by the end of the year. I may not understand exactly how the roll off works but removing 3 trillion in bad bonds by the end of the year sounds impossible, so it will be interesting to see how the market responds. At the same time, the Fed is being cautious about hiking rates. I believe that accelerated rate hikes and accelerated roll offs would spook investors about how solid our domestic market is but may be necessary to prevent future failures. I don't believe that the Fed can sustain a massive bailout as of right now and if a huge recession all of the sudden came into our lives the Fed wouldn't be able to help really. I doubt there will be a great collapse like in 2008 where we will need this, I just think that a continuous push for economic growth may over extend the Untied States and the Fed wont be there to bail the economy out again. 

https://www.cnbc.com/2019/02/14/fed-gov-brainard-downside-risks-have-definitely-increased-on-the-economy.html

China's Top Problem Isn't The Trade War

China's top long-term economic problem is probably not what you have seen dominate social media recently. It is not the ongoing trade war with the United States. It is the rapid rise of housing prices. Soaring new home prices are lining landlords pockets, while young people's dreams of forming a family are deteriorating. The average price of new homes in China has increased for 44 straight months. These increased prices are making homes just too expensive for the average citizen of China. This in turn hurts the country's long-term growth prospects. In fact it hurts much more than the current trade war. The article states that unlike the trade war, housing affordability constraints could be here to stay. The author notes that the middle-income trap and the Lewis point could be factors impacting this issue. It also is noted that this is a product of deliberate land policies that favor rich landholders over the average citizen. China has done this by creating "ghost cities". These are cities full of vacant buildings and apartments that are too expensive for the average worker. They are merely viable because landlords expect to sell them one day at higher prices. Meanwhile this creates a housing shortage that subsequently pushes prices up in the rest of the housing market. This is bad news for young families looking to start a family. Could this explain the drop of marriage rates by 30% the past five years? Low marriage rates are not good for China's long-term economic growth. This could lead to lower birth rates and a shrinking labor force. Not something China wishes for as it tries to compete with labor-rich countries. Soaring new home prices are a grave concern for China going forward. If they hope to continue to grow economically, it is imperative that they fix this problem.

https://www.forbes.com/sites/panosmourdoukoutas/2019/02/17/chinas-top-problem-isnt-the-trade-war/#6f137479ecfc

China and U.S. to Continue Trade Talks Next Week

The trade war with China continues with both sides trying to reach an agreement before the March 2 deadline. If the deadline is not met Trump has threatened to raise tariffs an additional 15 percent. Though if a deal seems imminent Trump would be willing to extend the deadline. Trump claims that the talks are going well and has emphasized that the deal will cover the "theft" and "unfairness" that is present in China's trade policy. One of the Trump administration's main focuses is restricting the Chinese government from investing large sums of funds into "advanced manufacturing sectors" that rival American companies. This point is important to both China and the U.S. as both see it as a matter of national security. China's involvement with high tech industries seem to remain an issue and will be an enormous barrier moving forward in the trade talks.



Article: China and U.S. to Continue Trade Talks Next Week

A Bold New Plan to Tackle Climate Change

The problem of climate change has long been a tricky issue. Partly because it is an economic issue, security issue, equity issue, and many more, but also because the industries that stand to lose from the rise of more environmentally friendly activities have extremely powerful lobbies.
This article from The Economist details the rise of an equity-based response to climate change. Admittedly, the plan is currently in its early stages and is vague on cost and nature, but the equity approach to climate change seems to have at least some merit. The idea of decreasing economic inequality while at the same time reducing the carbon dependence of the state may sound good to some of the masses that could attain jobs in the growing "green energy" sector, but does that discount the coal workers and the coal lobby? Certainly the wealthy coal industry wouldn't have much of an incentive to cooperate, and this approach of mobilizing a group of people who are more passionate and better funded than those in the carbon energy industry seems far fetched.
Additionally, an appeal to the masses might serve to alienate those who work relatively low-paying jobs for coal or natural gas producers. As well as being incredibly expensive, convincing people to get behind it en masse is a task equally as daunting as creating a functioning piece of legislation.

https://www.economist.com/finance-and-economics/2019/02/07/a-bold-new-plan-to-tackle-climate-change-ignores-economic-orthodoxy

JP Morgan rolls out the First US banked-backed Cryptocurrency

On Thursday, February 14th, JP Morgan Chase announced that they are launching the first US bank-backed cryptocurrency. The product will be known as the "JPM Coin", which is a digital token that will be used to instantly settle transactions between clients and its wholesale payments business. JP Morgan currently moves roughly $6 trillion around the world each day for corporations. In the current financial system, it costs a lot of money and takes a great deal of time to send wires, especially cross-border. Western Union, widely known for its cross-border wire payments, currently charges around 15% of the total transaction in fees and takes several days to receive the payment. This is absurd.

With the creation of the blockchain, the current financial system will have the opportunity to utilize this technology to better their infrastructure. This will allow corporations to send money cross-borders in a real-time settlement, and for a very small fraction of the price as well. Blockchain now puts SWIFT in a sticky situation because countries and institutions have been using SWIFT  to send wires across borders for quite some time now. SWIFT's biggest competitor could soon be digital currencies. It is unclear when the final product will be available, however, JP Morgan is currently running a trial with the JPM Coin.



https://www.cnbc.com/2019/02/13/jp-morgan-is-rolling-out-the-first-us-bank-backed-cryptocurrency-to-transform-payments--.html

IMF warns of global economic "storm" as growth undershoots

The International Monetary Fund (IMF) lowered their global economic growth forecast from 3.7% to 3.5%. Managing Director Christine Lagarde explained that there might be an economic storm coming due to the economy growing slower than they expected. She cited “four clouds”; trade tensions/tariff escalations, Federal Reserve financial tightening, and the uncertainty of the Brexit outcome along with the slowdown already adversely affected the Chinese economy. Due to the tariff war between China and US we are already also seeing an impact on the growth of the global economy. US-China “spat” is not only having an impact on trade but eroding confidence and being reflected in volatility in the markets. Additionally, increasing borrowing costs by governments, firms and households are adding to the concern.

Lagarde summed up, "When there are too many clouds, it takes one lightning (bolt) to start the storm,".

Source: https://economictimes.indiatimes.com/news/international/business/imf-warns-of-global-economic-storm-as-growth-undershoots/articleshow/67931691.cms

Visa, Mastercard mull increasing fees for processing transactions

The two biggest card networks are considering raising certain fees pertaining to transaction processing. One of the fees considering being changed is the interchange fee, the fee charged to merchants when consumers use a card at their business. Visa has said that these fees would only effect merchant banks such as JPMorgan, Bank of America, and Citigroup. The question then is whether or not this cost will be pushed on to the consumer. Logically, when fees are increased, companies then have to charge more for lost revenue. My question is if these fees are pushed on to everyday consumers, will it make people spend less money. The card companies have claimed that businesses that use their services get more business. Their justification for the fee increase is that they have increased their anti-fraud/ security measures significantly.

https://www.reuters.com/article/us-paymentprocessors-fees-idUSKCN1Q41ME

"U.S. Retail Sales Unexpectedly Show Steep Drop In December"

According to the Commerce Department, the newly released late economic data on retail sales in the U.S. showed a significant decrease in December 2018. Instead of increasing by 0.2% as predicted, overall sales unexpectedly declined by 1.2%. Eleven of the thirteen largest retail categories experienced a decline of 3.9%. Amongst various specified samples of industries all showing declines in sales, the auto industry was one of the few that did experience an increase of 1%. Along with these statistics, the Commerce Department also stated that the annual growth rate of retail sales dipped to 2.3% in December, coming down from 4.1% in the month prior. This is most likely due in part to the lengthy government shutdown that began in the latter portion of December. This drop in overall sales could also be an early indicator of the U.S. economy finally slowing down from previous periods’ successes. While this is not a huge cause for concern at the moment given the (hopefully) temporary effects of the shutdown, it’s definitely something to pay attention to in the near future.

   

https://www.rttnews.com/story.aspx?Id=2979275

https://www.latimes.com/business/la-fi-retail-sales-20190214-story.html

Trump Plans National Emergency to Build Border Wall as Senate Passes Spending Bill

This Thursday President Trump was signing a seven-part spending bill that would keep the government open till the end of September, but his mind was on other things. He announced that he would place the country in a state of national emergency in order to “stop the national security and humanitarian crisis at the border.”

The bills’ border security compromise only placed $1.375 billion for 55 miles of steel-post fencing, which is less than the $5.7 billion for 200 miles of steel or concrete that he had previously asked for. By declaring a state of national emergency, Trump’s main objective would be to gain funds that Congress had not granted for building the wall. There was quite a lot of controversy and opposition over this method from both parties, the article calling it “presidential overreach.” Many Democrats have begun to create legislation in the hopes of stopping the President from using money from other sources such as the disaster relief fund. Some also say that although the wall may be the President priority, perhaps declaring it as a national emergency is too much. Supporters say that it will “give him that flexibility that he wants and needs,” and since Mr. Trump could not get what he wanted before the shutdown, then this is just a way to get done what “needs to happen.” It was mentioned as well that this could lead to future presidents taking this approach to other prominent issues.

Mr. Trump sees this as the only way to get the border wall without another shutdown like the last one where 800,000 employees did not have paychecks. The article discussed two laws that would probably have a hand in justifying the President actions. One allows the secretary of the Army to construct developments “that are essential to the national defense,” while the second permits the secretary of defense, in support of the armed forces and in an emergency, to allow military construction projects. It will be an experience to see how Trump justifies using other funds and the aftereffects of his decision to put the country into a state of national emergency.

https://www.nytimes.com/2019/02/14/us/politics/trump-national-emergency-border.html

German economy narrowly avoids recession

Article: https://www.bbc.com/news/business-47236841

Germany's economy narrowly avoided a recession in 2018. During the third quarter, their economy experienced a 0.2% contraction, followed by a 0% growth in the fourth quarter. Per the definition of a recession, at least two consecutive quarters of contraction, they missed the mark.

This does not paint a good picture for their future. Their slow, or lack of growth last year could be explained by a slowdown in the global economy. Moreover, the car industry has had a significant impact as new regulations are punishing firms and discouraging consumers from buying.

However, German unemployment is very low (around 3%), thus consumers may begin to spend more as they see economic surveys improve with time. An increase in spending could help Germany's production and boost growth.

Amazon backs out of New York

Amazon, citing local opposition is backing out of having a New York headquarters.  New York City had previously offered substantial amounts of money and other incentives to Amazon to bring their HQ2 to their city.  However Amazon has now backed out of the deal.  This is an extremely interesting idea as we are seeing how the public sector sought to stimulate private enterprise but is now seeing the company back out of a deal where they would have gotten free money.

https://www.reuters.com/article/us-amazon-new-york-idUSKCN1Q32F9

Technology and the impact it has on the labor force

As technology continues to advance production in economies across the world, in the United States this is having a negative impact on workers in certain industries. Businesses are becoming more and more automated each year, replacing manual labor with various types of artificial intelligence. Because of this, the job market is becoming significantly more competitive and workers without a college degree are being pushed into the lower skill, lower production industries. Now not only are workers being pushed into new industries, but their wages remain low as well. Really, what automation has done is divide the American workforce into two parts. At the top, there is a small group of individuals who are highly educated and make good money at top firms such as Intel. However, a majority of workers find themselves on the other side of this equation; stuck in places such as the service industry, where wages remain low and have shown limited growth.

An interesting point raised in the article is the economic paradox that comes from automation and technological advancement; overall productivity and growth have remained low. It appears that now when someone enters the workforce they will have to look at the lower production side of the economy, as someone's chances of landing at the top remain relatively small.

Moving forward, I am interested to see how jobs in industries such as social services and health care are impacted, not only in the number of jobs but in wages too. As technology continues to push forward and drive workers out of their jobs, will their wages ever be able to catch up?

https://www.nytimes.com/2019/02/04/business/economy/productivity-inequality-wages.html

Record Number of Americans Behind on Car Payments

According to CNBC, as the auto loan debt has continued to increase, so has the amount of Americans who cannot pay their car payments. Recently, the New York Fed has released a record number of 7 million people who are at least 90 days behind on their car payments at the end of 2018. This number is a little more than 1 million more than the previous record, which took place in 2010.

This rise in the people unable to pay their car loans suggests that not everyone has benefited from the strong labor market and warrants. There is one bright side, as the overall level of credit has actually improved and rose by about 8% which suggests that auto loan stock is continuing to increase and becoming more high quality than it has in past years.

There have been more and more debt that continues to pile on. As the household debt has increased by $32 billion in the fourth quarter and student loan debts have risen to $1.46 trillion. But as credit inquiries fell to a record low in the recent Fed survey, it seems that Americans feel as though they do not need to bring on more debt. It will be interesting in the coming months to see if this survey will actually apply, or if we will see more and more debt continue to increase in the future.


Source: https://www.cnbc.com/2019/02/12/a-record-number-of-americans-are-90-days-behind-on-their-car-payments.html

Steel Lobbying in Washington Reaches 20 Year High

In "Big Steel, a Tariff Winner, Steps Up its Spending in Washington," author William Mauldin outlines the increase in lobbying by steel producers in the broader landscape of the protective tariffs put in place by Trump. A key statistic is that lobbying spending by these steel producers reached $12.2MM this year, a 20% increase from 2017 numbers and also the highest spending in twenty years. Out of all of the steel producers, Nucor Corp, spent the most with $2.23MM and also lobbied in connection to Trump's nomination of trade officials with strong ties to the Steel Industry. The President of the American Iron and Steel Inst. believes that tariffs and quotas have helped the steel industry "rebound" but is wary that these gains could "evaporate" if tariffs are lifted prematurely.

A concern of the tariffs means that producers are forced to pass on these price increases to their consumers. In terms of the broader understanding of economic systems, where relative prices reflect relative costs, efficient manufacturers are becoming less efficient due to trade policies, and consumers may start flocking to cheaper alternatives.

Moreover, lobbying to this extent reminds me of the idea of public failure, where small interest groups utilize collective action to create advantageous laws and practices. The revolving door of regulators is also at play here, since key trade officials clearly have close ties to the Steel Industry and will draft policies that are beneficial to this sector, undoubtedly.

This article makes me wonder if there is a solution to this spending which could be more efficiently utilized in the production arena instead of the political one, or if lobbying is so entrenched in our political system that we would need to dig deeper in order to find a solution that does not put so much power into the hands of people with specific agendas.

Article Link: https://www.wsj.com/articles/big-steel-a-tariff-winner-steps-up-its-spending-in-washington-11549987962

Boom: Best economic optimism in 16 years, 50% ‘better off’ under Trump

https://www.washingtonexaminer.com/washington-secrets/boom-best-economic-optimism-in-16-years-50-better-off-under-trump



Most firms and politicians agreed upon that they feel better off than a few years ago. Financial optimism reached 50 percent, which was never achieved since 2007. 69 percent of the people that participated in the survey believed their financial situations would improve in the near future.
It seems that consumer confidence is at a positive level, and unemployment rate is at a relatively healthy rate as well. Among politicians, despite the difference in parties, the majority of them agreed that the States would be better off in the future.
Whether or not the evaluation towards Trump varies among people, the economy itself seems very positive to the United States. If the economic indicators such as growth rate, unemployment rate, etc. are maintained properly, the economy would be in great shape for a longer time.

US-China trade war: UN warns of 'massive' impact of tariff hike

As the trade war between China and the US continues, many people are predicting large negative impacts on the global economy. If a trade deal is not met by March 1st, the US will raise tariffs from 10% to 25% on Chinese goods. The UN Conference on Trade and Development has spoken out about the negative impacts this will have. The entire international trading system will see huge effects. Smaller less developed countries will feel a huge set back as aftershocks go through the global economy. Companies will shift away from Asian producers and supply chains and look elsewhere. They also warn that the US should not be expecting much business to come from this; only 6% are predicted to come and produce in the US. There is also worry that this trade war may trigger other trade wars in response and cause more damage to the global economy. Despite all these negative impacts, there are some countries who are expected to benefit. Countries like India, Brazil, Australia, the Phillippines, and Vietnam are expected to have a huge economic boom as companies may choose these areas to produce in.

It will definitely be interesting to see the effects on different economies as this trade war commences. China has such a large economy that such negative damage will definitely be felt around the world.
I also think it will be interesting to see the effects on the US economy and whether we will end up benefiting from this after all. No matter what happens, there will be both short term and long term effects from this.

Link:  https://www.bbc.com/news/business-47126114

Ford spends $1 Billion and adds jobs to the U.S

Ford plans to spend $1 billion on the expansion of the redesigned Ford Explorer and Lincoln Navigator. The company is shifting their focus to sport utility vehicles (SUV's) and because of this, is cutting jobs overseas, and adding some back to Chicago. This addition of jobs brings the total employee number to 5,800 employees in the Chicago plant.
Ford is also building a new body shop and paint shop at the assembly plants, there are also plans to make major changes to the final assembly area. The company also plans to install some new manufacturing technology, including 3D-printing tools and robots.

Throughout this expansion, Ford has struggled to remain in good standing in Europe and is therefore cutting their jobs there. The reason I thought this article was important and tied to our class is mainly because of how Ford transcends over different economic systems. Expansion in the US comes at a price for European workers, but its obvious that the disparity in systems and inability to compete overseas is causing Ford to make this decision. Having been to Europe multiple times, you can see the extreme competition is causing Ford to make crucial decisions.

Attached is the link to the article. This also could indicate future economic concerns about US companies overseas, or maybe this is solely industry related.


https://www.cnbc.com/2019/02/07/ford-investing-1-billion-into-chicago-factories.html

The divide on Venezuela: Who’s supporting Maduro, and who’s following the U.S. lead in recognizing Guaidó

Nations including The United States, Isreal, Canada and numerous South American countries are backing president Juan Guaido in Venezuela. Pressure is mounting as the current president Maduro will not step down or allow for a legitimate vote. Maduro gave the U.S an ultimatum for U.S. diplomats to leave the country as soon as possible. President Trump has not ruled out using military force to swing the presidency in Venezuela to a more favorable side for the United States. One potential problem with this is that Russia and China both back the current president Maduro. Many nations including Syria, Iran and Turkey have also voiced  objections to the U.S.-led campaign to recognize Guaido. To Russia, Venezuela has so far been a key cornerstone in its strategy to win over countries in proximity to the United States, both for military and economic reasons. Russia is willing to deploy aircraft over Venezuela if they feel like it is necessary.

These developments could potentially be very problematic for the United States in many ways. Getting involved with another country's overthrow of a government has not been super successful over the past 50 years and has consistently increased government spending on the military. If conflict truly does arise it will add more to the overall deficit and impact relations with world super powers. China and Russia seem stand pretty firmly with the current president and it would be silly to engage in a "must win" war over Venezuela and anger China and Russia. There are times for countries to flex their muscles but to me this seems like just another reason for world super powers to get angry at each other just so they can threaten war to try and scare the opponent. Venezuela is in pretty bad shape and is in dire need of an overhaul. But if history repeats itself, the Untied States will win and set up an unstable leader that the people do not back and will be overthrown in 10 years. Venezuela will then be worse off than they originally started.




https://www.washingtonpost.com/world/2019/01/28/divide-venezuela-whos-supporting-maduro-whos-following-us-lead-recognizing-guaid/?noredirect=on&utm_term=.24cd2f5a3a89

Recent economic news

The strong hiring shown in the ADP National Employment Report on Wednesday suggested there had been minimal impact on the labor market from the just-ended 35-day partial shutdown of the federal government.

Data showed contracts to buy existing homes tumbled to a more than 4-1/2-year low in December.

Amid growing uncertainty over the economy’s outlook, the Federal Reserve on Wednesday kept benchmark U.S. interest rates steady and said it would be patient in lifting borrowing costs further this year.

Article: https://www.reuters.com/article/us-usa-economy/u-s-private-payrolls-rise-strongly-housing-market-struggling-idUSKCN1PO2AG

Nissan cites Brexit 'uncertainty' as it scraps plans to build model in Britain

It is no secret to anyone that the uncertainty surrounding Britain's impending departure from the European Union has many companies on edge regarding future business deals in the country. With no departure deal in sight, one large corporation has decided not to make an investment in Britain. Japanese car manufacturer Nissan has stated it is scrapping plans to build a new model in the city of Sunderland. In its decision the company cited uncertainty over Brexit as the reason to not pursue a plant in Sunderland. The decision further highlighted employers' fears of a no-deal departure by the UK from the European Union.

The automotive industry of the UK has been hit extremely hard since the vote to leave the European Union. Investment has decreased dramatically and the Society of Motor Manufacturers and Traders stated in June that investment in models, equipment and facilities in Britain was half of what it was the year prior. Clearly an indictment of how car manufacturers feel regarding the aftermath of the Brexit vote. The head of Britain's top business lobby group has also warned that the country's car industry could be wiped out by Brexit.

The European Union provided exceptional trading terms for companies to do business across borders throughout Europe. With the confusion and uncertainty of Brexit companies are weary of what foreign trading will look like without the ease of the EU's trade agreements. Many questions remain. Will Britain reach a satisfactory agreement with the EU? What other industries are most at risk of leaving the country? What effect will this have on the economies of the other nations in Europe?

Australian regulators target banking 'oligopoly'

The chief executive of the Australian Competition and Consumer Commission, Rod Sims, announced on Monday that more competition is needed in the banking industry in Australia. Currently, 75% of the domestic market is controlled by the four biggest banks -- ANZ Bank, Westpac, National Australia Bank, and Commonwealth Bank of Australia.

Sims believes that the issue stems from the lower funding costs that these banks receive due to a government guarantee to save the banks if they get into trouble as well as some bank mergers that were approved prior to him serving as Chief. Another issue is the "cartel-like" attitude of these four banks. They copy each other, don't compete on price and don't chase market share.

The ACCC will release a final report later in the year where they are expected to make recommendations to decrease regulatory barriers on smaller banks and promote new banking rules that would enable consumers to more easily switch banks.

Article: https://www.ft.com/content/d940092a-25f2-11e9-8ce6-5db4543da632

The state of a minimum-wage worker's housing situation in the US

The rich-poor gap in the US has statistically been shown to be growing over the past few decades, and this article helps to provide a picture of this situation in the house renting context. Talking specifically about the minimum-wage workers, Hoffower and Kiersz set out to show that a minimum-wage worker in the US has to work 2.5 jobs to afford a one-bedroom apartment. Even more problematic, they would have to work 3 full-time jobs to afford a two-bedroom rental apartment in most of the US. The national housing wage to rent a two-bedroom apartment is shockingly high at $22.10, which is three times the federal minimum wage of $7.25. Certainly most states may have a higher minimum wage, but the research results in this article maintain that no minimum-wage worker in any state can afford a two-bedroom rental apartment by working the standard 40 hours per week.

While the article itself does not outright propagate any discussion regarding the economic outcomes of economic systems, it may be have provided helpful statistics to the arsenal of those who would prefer the economic system in the US to prioritize equity over, for example, economic growth or efficiency.

Article link: A minimum-wage worker needs 1.5 jobs just to afford half the rent for a 2-bedroom apartment in most of the US

Italy Slides into Recession as Europe Stalls

Italy Slides Into Recession as Europe Stalls, Stoking Global Fears

Italy's economy is experiencing a significant slowdown as GDP decreased for the second quarter in a row. The government carries one of the highest debt loads in the world and is at risk of default. China's woes are hurting their economy and Italy has now entered a recession for the third time since 2008. Consumer spending is the leading factor for the economy's slowdown. The populist government in Italy has come under criticism for their economic policies at home. The government increased spending on boarder welfare and pension programs and assured much higher growth. In addition to struggling with growth, Italy's economic system is having issues with stability. The economy has entered into recessions three times since 2008 and major political divides are having a negative impact on Italy's economic outcomes.

https://www.nytimes.com/2019/01/31/business/italy-recession-europe-slowdown.html

White House Adviser Larry Kudlow says taxing rich never works

The White House advisor implied that the Democratic proposals to increase taxes on the wealthiest Americans could lead to economic troubles. He compared the proposal to Venezuela and stated that the country is an absolute catastrophe. They taxed rich people, they taxed everybody and they have equality of sorts - everybody's poor.

Freshman N.Y Rep. Alexandrea Ocasio-Cortez- proposed a 70 percent marginal on rate with incomes above $10 million. Senator Elizabeth Warren also joined in on the proposal for a "wealth tax" on some of the richest Americans. Warrens Proposal is expected to apply to less than 0.1 percent of U.S Households and would raise 2.75 trillion over 10 years.

Kudlow stated that taxing the wealthy never works and would depress the nations gross domestic product. He continues to explain that the most successful are not only paying their fair share, they're paying the most, by far. 

https://www.cnbc.com/2019/02/01/white-house-advisor-kudlow-compares-democratic-wealth-tax-to-venezuela.html?recirc=taboolainternal

United States Economy

                                                                   
Despite the uncertainty of the economy at the end of 2018, with the markets dropping and consumer
confidence taking a hit it does not seem as we are heading into a recession. Around the world we
have seen a decline in growth. For example China equity market had a tough 2018, as well as continuous decline in growth over the past couple of years. Its not  just china, throughout Europe the macroeconomic indicators have weaken which is a sign of a slower economy. With a slowing global economy it will most likely have an effect on our own economy. While slower growth might be on the table our macroeconomic indicators still look okay and an immediate recession does not seem to be on the table.


Article : https://www.cnbc.com/2019/01/31/michelle-meyer-on-economy-risks-are-higher-including-china.html

Italy's Slump Reflects Trouble both at Home and Abroad

The Italian economy has again been doing less than stellar. Partly due to the fact that they cannot agree on a government for more than about two years, but also due to the deep connections between Italy's economy and that of Germany. The most recent government's budget failed to meet the requirements set forth by the EU, and increased enmity towards Brussels ended up causing government borrowing costs to rise.

Both the internal and external problems tend to have the same result, delayed spending, a decrease in investment, and shaky household confidence in the economy. With a public debt currently representing 132% of the GDP, all Italy can do, according to The Economist, is convince Brussels that more spending is necessary to help the economy grow.

https://www.economist.com/finance-and-economics/2019/02/02/italys-slump-reflects-trouble-both-at-home-and-abroad

Schultz Medicare for All

Former Starbucks CEO Howard Schultz has recently been raising rumors of running for President.  One point that he has repeatedly raised is that the "Medicare for All" proposal that some members of the progressive wing of the Democratic party want to enact.  Schultz stated that the proposal is unaffordable and that the Affordable Care Act is a good starting point but tweaks have to be made to bring premiums under control.

https://www.cnn.com/2019/01/29/politics/howard-schultz-medicare-for-all-cnntv/index.html

AI a.k.a Authoritarian Intelligence

In the People’s Republic of China artificial intelligence is allowing the communist party to stay in total control of its population. For China, AI might be the solution to effectively ruling a country made up of almost 20% of the world’s population. As President Xi Jinping intends to spend 150 billion dollars in high-tech to gain global leadership by 2030. 

In China Big Data and artificial intelligence are behind insane police surveillance. National-ID checkpoints by trains, shopping malls, mosques etc. can prevent anyone from entering or using a service. These IDs contain your personal information, bank information, legal history, family planning and more. When trying to get on a train, you could be denied, because AI has determined from data on your personal ID that you might be a human rights activist or that you haven't paid your parking fines. Artificial intelligence allows the Chinese regime to know what is going on at the lowest levels and across society. Instead of allowing citizens to demonstrate Xi uses the national IDs to prevent potential troublemakers from ever making it to the capital. Instead he hears about concerns and disturbances from daily social media briefings. China has also been working on a Social Credit System, which is based on their system of national IDs but is supposed to take it even further by giving or subtracting points for every single good or wrong act you do. Basically, China is trying to create a systems of incentives and punishment to slowly control people’s behavior. 

Additionally, China is also focusing on applied research in AI technologies to improve its military. To develop unmanned weapons systems and swarm technology, whereby hundreds of individual unmanned drones attack together. 

As AI is increasingly becoming a part of China’s authoritarian regime, the country appears to be more centralized than ever. Leaving little hope for its citizens to change the political system. 

https://www.technologyreview.com/s/611815/who-needs-democracy-when-you-have-data/

U.S. Job Gains Show Employers Shrugged Off Government Shutdown

Despite the government shutdown, the United States job market remained unfazed. Throughout the month-long shut-down U.S. firm continued to hire new employees. Over the month of January 304,000 jobs were added to the economy beating the estimates. While the Fed decided to not raise interests rates fears of an economic slow down were worsened, but the recent jobs report gives an optimistic view of the economic outlook.

“This jobs report is showing no evidence of an economy slowing, certainly not falling into recession. It’s still a tight labor market. Employers are still actively looking for jobs, and with wages ticking up, it looks like workers are getting some more bargaining power” Michelle Meyer, chief United States economist for Bank of America Merrill Lynch.

Furthermore, last month was the 100th consecutive month that the U.S. has seen job growth. So far the job market has weathered the trade war and government shutdown. It has remained strong and resilient and shows no signs of weakness.

Article: U.S. Job Gains Show Employers Shrugged Off Government Shutdown

Trump Optimistic on Trade Deal With China, but May Keep Tariffs Anyway

This article discussed President Trump’s potential trade deal with the President of China, Xi Jinping. The Chinese delegation visited this past Thursday and Mr. Xi is scheduled to come next month to discuss the agreement himself. Trump believes China’s President is willing to have Beijing purchase more products as well as open more of its market to American companies. This was emphasized in the letter Mr. Xi sent to Trump, with promises of buying American agricultural products. The main product of discussion was soybeans, and according to China’s Vice Premier and Beijing’s trade negotiator Liu He, Mr. Xi “was committed to buying five million tons of soybeans.”

Within 90-days, the trade truce will end and bring an increase of 25% on Chinese import tariffs. The article brought to light that with this heavy pact on the two nations shoulders, economic growth and profits are being affected negatively on both sides. The article stated the reason for the U.S. wanting China to buy large amounts of American goods and services is to help decrease the American trade deficit along with helping change the fact that to do business in China, they require American companies to impart trade secrets. There appears to be desire for ending the trade war as prices increase on Chinese imports, and tariffs trouble American companies and manufacturers. However, China also appears to be disinclined to negotiate “technology transfer and subsidies of state-owned enterprises.”

Although this deal appears to be something with promise, we do have to take into consideration what Robert Lighthizer, President Trumps chief trade negotiator, has to say on the matter. He believes that because the two leaders had not even come to an agreement over a draft framework for the deal they seek to accomplish in the period before March 1^st, along with there being no discussion on American tariffs on Chinese goods, that maybe it is too early to celebrate the deal despite the “main achievement” that the talks were even taking place. He also believes that the main issue lies with making sure that the Chinese commitment is guaranteed and that there need to be mechanisms to make certain of this. Also, the article mentioned the American Farm Bureaus economist’s knowledge that the U.S. exports 35 million tons of soybeans to China yearly, so offering to buy 5 million more, does not seem as impressive as before. I am curious as to what the true trade deal will look like after Mr. Xi visits next month, but until then we will just have to wait.

https://www.nytimes.com/2019/01/31/business/trump-china-trade-tariffs.html

"Government Shutdown Cost U.S. Economy $11 Billion, C.B.O. Says"

In this article by Alan Rappeport and Binyamin Appelbaum from The New York Times, they describe the more insidious effects of the longest shutdown in the U.S. government’s history. The government shutdown has been to cost the U.S. economy $11 billion with a quarter of the total permanently lost. The Congressional Budget Office (CBO) released these estimates along with the statement that the economy will suffer from “more indirect negative effects.” More specifically, businesses were unable to receive federal permits and licenses required for any improvements or investments, thus postponing any future growth that might have occurred otherwise. The notion that we will regain the economic loss as workers receive their back pay (if applicable) will most likely be negated by the nosedive in younger generations’ consumer confidence, thus having an even further negative effect on the U.S. economy. While the actual indices for consumer confidence are relatively high compared to previous years, the fears and insecurities of affected federal workers throughout this article are ubiquitous.

The fear of ever-looming shutdowns is two-pronged: there is a fear of it happening soon and the fear of it lasting for even longer next time. Due to these concerns, many federal workers affected reported to be planning on reducing their spending below pre-shutdown levels. Many are postponing major and minor purchases from eating at fast food restaurants to buying homes. This decline in consumer confidence is bound to have lasting generational cultural effects, even if the economic growth eventually returns to an expected value.

Source: https://www.nytimes.com/2019/01/28/us/politics/shutdown-cost-us-economy-11-billion-cbo-says.html

Foxconn backtracks over promised factory jobs at $10bn Wisconsin site

To prove that he could revive manufacturing in the United States, President Trump welcomed the $10 billion dollar invest by the manufacturing giant Foxconn. First announced in 2017, the company has now backtracked over its promise to bring manufacturing jobs to Wisconsin. The investment will be considerably less, and will consist of mostly engineers and researchers. The initial deal relied on a $4.8 billion dollar subsidy with the intent that they would manufacture LCD TV screens, employing thousands of blue-collar workers. The plans are being mostly scrapped as Foxconn may have realized that their idea may have been overzealous.
The cost of manufacturing in the US, regardless of the state, is much more costly than some of its overseas competitiors. Louis Woo, the special assistant to the chief executive offer said, "In terms of TV, we have no place in the US...We can’t compete.” This example highlights a problem that has become more present in the past decade. Companies are forced to use cheaper labor outside of the US. Many opponents of the subsidy saw this as a corporate giveaway and feel justified with that belief, especially with the deal being scaled back significantly.

https://www.theguardian.com/technology/2019/jan/30/foxconn-wisconsin-factory-plans-reconsidering-latest

VanEck Bitcoin ETF Proposal

Over the past year, several companies, including VanEck, have proposed a Bitcoin ETF to the SEC. VanEck created the first ever international equity fund in 1955 and is now pushing to publish the first Bitcoin ETF. Bitcoin was created in 2009 after the financial crisis and is a type of digital currency in which a record of transactions is maintained and new units of currency are generated by the computational solution of mathematical problems, and which operates independently of a central bank. 

Bitcoin is the best performing asset class in the last 10 years, and many well-established institutions are entering this market space behind the scenes. They are waiting for the ETF approval, proper regulation from the SEC and CFTC and proper custodianship, however, when this pans out, will institutional and retail investors flee to this market? 

Let's face it, the US economy is due for a correction within the next two years or so. When this recession occurs, will we see people place their money elsewhere? Traditionally, when the stock market has a correction, people tend to deploy their capital into other asset classes, such as gold or real estate. However, Bitcoin has little to no correlation to the traditional equities market, 0.1 to be exact. 

Throughout 2018, Bitcoin and the crypto market has been in a bear market. In the past, Bitcoin has had four, ~80% pullbacks, from reaching all-time highs, and still continues to get back to the all-time high level. People often say Bitcoin is dead, however, in my opinion, it is not. It is only starting to rally. It has been around for 10 years, and it has reached the $20,000 per Bitcoin level, just with retail money. Imagine when institutional money, endowment fund money, sovereign wealth funds, and pensions funds deploy capital into the market. My hypothesis is that Bitcoin will reach $140,000 per Bitcoin by 2023, and if you'd like to see the model that I built to back my hypothesis, I'd be happy to share. 


Please let me know your thoughts and opinions on the Bitcoin ETF approval, and how this may impact the US and global economy.





https://www.coindesk.com/cboe-re-files-vaneck-solidx-bitcoin-etf-proposal

Warren stakes out 2020 ground with wealth-tax proposal

     Senator Elizabeth Warren is proposing that an establishment of a “2% tax on net worth between $50 million and $1 billion, and a 3% tax above $1 billion” the revenue from which she would direct to help with wealth inequality. She explains that this tax could help increase revenue, estimated at $2.75trillion, which in turn could help, as she would direct it, give more equal opportunity for everyone else in America. She asserts that this extra money could help decrease the costs of healthcare and help with student loans.

    

     This new wealth tax would help address the fact that many people with high net worth are able to avoid paying high amounts of tax by using loopholes. Given US income inequality, not everyone is given the same opportunities. Those who don’t have high incomes or high net worth might not be able to afford to get a college education leading to more uneducated people affecting productivity in our economy. Middle-income families are already taxed on their wealth because it comes out as property taxes they have to pay for their homes, where the rich have a smaller percent of financial assets in real estate subject to property taxes. Senator Warren’s new proposed wealth tax would make sure that both the high- and middle-income families would be treated more equally. However, they stated that other countries have tried to create a tax that will help with wealth inequality but found that it was hard to administer so the countries did not get the expected revenue.

    

     This wealth tax could be used to redistribute more money from the rich to the poor. More financial resources provided to the poor could help with more equal opportunities as well as a more educated workers and better community connections leading to more economic growth. However, this wealth tax is new, and it will be interesting to see if it works and if others will agree and support this wealth tax.  

Link: https://thehill.com/policy/finance/427075-warren-courts-progressives-with-wealth-tax-proposal

Plain-Spoken Fed Chairman Sometimes Leaves Markets Confused

All through last year The Fed and Jerome Powell made it very clear that they would be raising rates.
The message was consistently that the Fed expect to continue to raise rates through 2019. The plan is not as clear as it once was due to the high volatility that has been seen in financial markets over the past several months. Powell has stated previously that the Fed is more concerned with economic data the how the financial markets are doing. However, the financial markets care a lot about what he has to say.

The last time the Fed raised the stock market dropped 8% because markets were surprised that the Fed raised rates. This is just one recent example in how disconnected markets and the Fed have been at times. During, the meeting after Powell change his tone saying that the fed will watch markets and slow rates raises down due to fear of slower growth.

Powell has also change the Feds policy and will now talk after every Fed meeting. I think Powell has made it clear that he wants to address the issue of creating confusion. It seems the his goal is to ensure markets and the Fed are on the same page.

https://www.wsj.com/articles/plain-spoken-fed-chairman-sometimes-leaves-markets-confused-11548757801

Government Shutdown is Over, So Where is the Economic Data?

According to New York Times, the government shutdown is officially over. Unfortunately, a lot of the economic data will have to wait. This comes at a very poor time as many analysts and policy makers were just starting to grow concerned about the economic expansion finally ending after a decade. With so much uncertainty surrounding the economy, the Fed are going to be paying very close attention these next couple weeks to the data that is coming out in order to make the best decisions regarding the interest rates and other related matters.

As a result of the government shutdown, the economy lost close to $11 billion, most of which should be should be recovered as more federal workers return to their jobs. Although some data still has yet to be released following the shutdown, the Bureau of Labor Statistics were still able to collect and release inflation rates, unemployment and hiring estimates like usual. Other pieces of data that require a number of different indicators, such as GDP, cannot be released until the rest of the data has been found. Analysts still do not know how the government plans to get back on schedule regarding the releasing of quarterly data, but the answer will probably vary. Luckily, many economists have stated that the government shutdown was lifted before more serious damage could have been done.

Overall, this seems to be a very uneasy time for the Fed and the government. With the economy seeming to be on its way to a downturn, this data is very important to figure out how to deal with the interest rates, and other ways the Fed could help prevent the upcoming recession, which is looking to be inevitable. It will be interesting to see what happens within the economy the next few weeks to see if more data is released regarding both the economy and the Fed.

Source: https://www.nytimes.com/2019/01/28/business/economy/economy-government-shutdown.html

German Ifo Business Confidence Lowest In Nearly 3 Years Amid Rising Worries

Link: http://www.rttnews.com/story.aspx?Id=2972715

While many rumors spread about a possible upcoming recession in the US, Germany is experiencing warning signs of its own. In the above article, the author discusses how certain economic indicators have dropped more quickly than anticipated in Germany. Their Business Climate Index fell to its lowest level (99.1) since 2016 and many are stating that this is the first time business expectations have turned pessimistic since 2012. This is also the first time that the German economy has shrunk since 2015 and is falling at a rapid rate.

There are many factors putting pressure on the German economy; one of the largest being Brexit. The result of Brexit will most likely determine how long Germany stays in this downturn. As of right now, The Economy Ministry is expecting the German economy to pick up fairly quickly again and grow in 2019 as the construction industry sees large growth and tax cuts are put in place to increase consumer spending.

With much of the news focused on the US at the moment, it is interesting to see what is going on in other countries and how other economies are holding up. The German economy is very important for the EU and it is concerning that they might be going into a recession. I think it will be very interesting to see the effects of Brexit as well as a possible US recession on other economies.

McDonald's and KFC warn of shortages and price hikes if there's no Brexit deal

https://www.cnn.com/2019/01/28/business/brexit-impact-food-prices/index.html


In consequences of Brexit, the companies in the food industry are anticipating significant problems that would negatively affect their supply chains.
The terms of Brexit will be valid after 60 days, and the British government still has not devised plans to regulate their economy. Two sides are still arguing on whether Britain should do a hard or soft Brexit, and if there is no specific agreement on what should be done until the terms take effect.
The biggest concern of these companies are basically the shortage of employees and the import costs that are estimated to rise. This would affect not just the UK farmers but everybody, because we need food to survive. The overall cost will increase and the consumers would have to pay more for food. Companies are saying they are stockpiling the supplies as much as they could, but there is a limit to how much one could accumulate them for so long. The storage cost will also be a painful loss to the companies.
Considering that quite a lot of the British people did not even know what EU was, and what kind of benefits England was gaining from being in the union, Brexit may conjure many more problems. Partiality towards immigrants is of course, a valid reason to vote yes for Brexit. There are more reasons why, but it seems that the whole event was rushed and irrationally done. If the British government cannot come up with an amending policy, the citizens would be the ones that may be paying the price for their irresponsible decisions.
There were definitely downsides of being in the EU. The gains that Britain earned by being a member of the EU were significant as well. Hence their plan must be made before due date. Otherwise people would have to lose more than they thought.

Slow Growth Plagues the World Economy

In a recent New York Times article, Neil Irwin examines the state of the world economy and the rut it has found its way into. Throughout 2018, it appeared as if the global economy was finally recovered from the financial crisis that occurred in 2008 and making positive gains. However, indicators from around the world have made it clear that the issues that have started to plague the economy are not going anywhere anytime soon. It is becoming apparent that low growth and low inflation are becoming the new economic norm around the world. The contributing factors to this are things such as an aging workforce, a large international savings glut, and shortage of demand. Irwin goes on to explain how in the future, low growth means the economy can easier slip into a recession, and low-interest rates will make it harder for the financial sector to pull the economy out of it.

In fact, things have slowed down so much that following the Federal Reserves most recent rise in interest rates, former Chair Janet Yellen said its very possible that the end of the cycle could be near, and that could be the last raise in interest rates we see before we shift towards another recession. The article goes on to explain that the current world economy could not handle a negative shock, as there is not enough growth providing a cushion to absorb one. Irwin also notes that the United States is in a particularly vulnerable spot, given the trade wars and the government shutdown that has recently occurred.

Moving forward, I am concerned about an oncoming downturn in the economy given its stagnant pattern. I am interested to see how the United States responds to the current state of the economy and how other large economies such as China make decisions moving forward as the decade-long pattern of low growth is here to stay.

https://www.nytimes.com/2019/01/27/upshot/world-economy-low-growth-low-interest-deflation.html

Global shipping rates slump

https://www.reuters.com/article/us-shipping-economy/global-shipping-rates-slump-in-latest-sign-of-economic-slowdown-idUSKCN1PJ0BQ


Many are worried where the global economy is heading with the current slowdown of trade and growth seen throughout world. The Baltic Dry Index, a shipping cost measurement tool for items such as iron ore and coal, has fallen by 47% since mid-2018. Additionally, the Harpex Shipping Index, a container rate tracker, has dropped around 30% since June of 2018.

These numbers may seem frightening, however, how do they compare to measurements for the rest of the economy? If these decreases fall in line with what we believe we should have observed, then perhaps this slump is attributed to the downward fall of a business cycle. After all, the global economy as a whole has had impressive growth over the years, perhaps it is catching up with itself.

That is not to say, however, that recent trade wars are not attributable to this fall. These conflicts certainly play a role in the performance of shipping rates. With that said, if these trade wars were not to have happened, would we still be seeing a similar decline in rates? Perhaps things are inflated slightly due to these conflicts, and once they are resolved, we may notice a sizable change.