'US Appeals Court Rejects DOJ AT&T - Time Warner Anti Trust Challenge'

"Appeals court unanimously affirms trial judge ruling last year that allowed merger." - In Brent Kendall's article in the WSJ, the AT&T - Time Warner merger is back on track again. The merger is estimated to be around $80MM, and the overturned decision is one of the biggest losses for the DOJ's anti trust division in nearly a "generation." For some brief background, in November 2017, the Department of Justice filed a lawsuit and challenged the case that claimed the "vertical merger" combined two companies that didn't compete "head - to - head." Spectators wonder if this ruling by the appeals court will affect the probability that the government will intervene in the proposed T-Mobile - Sprint horizontal merger that is currently under review.

Relating to class, this is an interesting and relevant example of the role of the government in the market economy. Under the notion of competitive markets, mergers often times lead to higher government scrutiny in order to avoid monopolies and protect the interests of the consumers and prevent price gouging. Interestingly, this merger is supposed to yield significant consumer benefits for a 'prolonged period of time', as stated by AT&T's counsel. Perhaps synergies between the two companies will lower transaction costs and improve efficiency to benefit consumers. Depending on the administration, I am curious to see how this decision by the appeals court implicates further regulation and government intervention in the M&A space in years to come.

Link:https://www.wsj.com/articles/u-s-appeals-court-rejects-justice-department-antitrust-challenge-to-at-t-time-warner-deal-11551194524

US Consumer Cofidence Rebounds in February

After a rally in the stock market and an end to the government shutdown, consumers are starting to feel more confident. According to CNBC, consumer confidence index has risen to 131.4 from 121.7 in January.

There were many worries after the shutdown ended with a lot of volatility in the stock market, which reflected high interest rates. There was also a lot of tension with the issues surrounding trade talks with China. But the stock market has seemed to have rebounded towards the end of February and in turn has increased the overall consumer confidence. This is a very good sign with a lot of tension between the Fed and President Trump starting to arise within the media. It will be interesting to see if the consumer confidence continues to increase or if it will decrease with the pending decisions coming from the Fed.


Source: https://www.cnbc.com/2019/02/26/consumer-sentiment-hits-131point4-in-february-vs-124-expected.html

Jerome Powell Affirms Fed’s Patient Approach to Interest-Rate Changes

This week the Fed chairman, Jerome Powell addressed congress. One topic that was discussed is the Fed's decision to  stop interest rates hikes and wait for more data. Powell stated he believed this is the correct move because of recent slow down in global growth and turbulence in financial markets. Rates are near what the Fed would consider neutral, so he thinks it is smart to wait for more data to confirm the economies strength before raising rates further. The fed will be patient with any policy changes. The overall economy appears to be healthy but it is facing headwinds from abroad, which is why it is important for the fed to be patient.

The Fed also is discussing ending the shrinking of its balance sheet through QT. They have indicated that they are close to being finished. The Feds goal is to only have treasury's left on its balance sheet.

Powell also discusses how unemployment is not as low as the Fed predicted due to higher participation rates. this is an overall good sign and signals the economy has more room to grow. However, this also means that the baby boomers are working later into their lives most likely due to them having not been able to save for retirement.

Powell also touched on the current level of debt for the US government. He believes that the Gov needs to be more fiscally responsible and better manage its debt level. The current path is unsustainable and the government needs to make changes to balance the debt. I agree with Powell here and think the country needs to work to balance the budget. This can be accomplished through raising taxes or cutting spending. I believe some combination of both is the best solution

https://www.wsj.com/articles/jerome-powell-affirms-feds-patient-approach-to-future-interest-rate-changes-11551192300

Fed's Clarida Says U.S. Economy in a Good Place

With full employment, inflation near the 2% goal and no immediate threat of it rising; the Federal Reserve Vice Chair, Richard Clarida, says the US economy is in a good place. However, there are some pending risks on our economy. The economic growth slowdown that is occurring in Asia and Europe could negatively affect our economy and is resulting in a fragile global economy. The Fed is going to continue to be patient while looking at data reports and wants to do whatever it can to support the economy. Clarida also said that he will take signals from the financial markets into consideration when determining monetary policies but he will not be tied to them. Lastly, Clarida brushed off that the US has a flat yield curve saying that there are many factors that are pushing long-run rates down, despite this being a signal for a recession.

I thought that Clarida’s optimism for the US economy was refreshing; however, I am not sure how long the economy will stay in good standings. With Asia and Europe’s economies slowing, it will certainly have a negative effect for the US and I am not sure we are fully prepared for that. It will be interesting to see how this all plays out and when we will finally go into a much overdue recession.

Link: https://www.reuters.com/article/us-usa-fed-clarida/feds-clarida-says-us-economy-in-a-good-place-idUSKCN1QE2PQ

U.S. Is a Rich Country With Symptoms of a Developing Nation

Here is an interesting opinion piece on how the US exhibits traits of a developing economy. The article reports several economic outcomes that we have not specifically addressed in class, but are important nonetheless.

Yellen says Trump has a "lack of economic understanding"

The previous chairwoman of the Federal Reserve Janet Yellen was recently interviewed by the Marketplace and questioned President Trumps basic economic understanding and overall understanding of monetary policy. Trump recently made comments about the Fed having an "exchange rate objective" which, Yellen explains, shows his lack of understanding.

During his 2016 campaign President Trump said that Yellen should be ashamed of her work as the Fed chair, but now he criticizes Jerome Powell for raising interest rates and thinks that is to blame for market slow down at the end of 2018. Janet Yellen is very nervous that President Trump will undermine the importance of the Fed and cause confidence in the Fed to drop drastically which could be very bad.

It is very interesting that President Trump is criticizing the Fed considering he considers economic growth to be one of, if not the most important part of his job. You'd think they would work together to achieve that. I hope I do not see Trump continue to undermine the Fed as they are extremely important to the economy, especially as we approach what people think will be a slow down.


https://www.cnbc.com/2019/02/25/janet-yellen-says-trump-has-a-lack-of-understanding-of-fed-policies-and-the-economy.html

Trump Delays a Tariff Deadline, Citing Progress in China Trade Talks

https://www.nytimes.com/2019/02/24/us/politics/us-china-trade-truce.html

There has not been an official agreement between China and the States as of yet, but Trump is delaying the tariff deadline. The meeting will take place elsewhere in the near future. The impact of the tariff would definitely affect many industries that require materials and manufactured goods, hence this could give some time for firms to be prepared for the price fluctuations.

However most are skeptical of the tariff being cancelled, because the agenda of China and the States are bound to clash. The communist party of China is fortifying their authorities by imposing policies that are very much socialistic. It is not only economic but towards the internet, foreign policies, etc. They have been undercutting the American workers and the restrictions towards foreign firms were strengthened recently. What Trump wants is to catch up to the Chinese economy, by adjusting the currency values. Hopefully the treatment becomes more equal towards foreign companies in China, but if Trump uses tariff as leverage, American imports and its consumers might get hurt. Also his black & white approach towards trade deficit may bring more loss than gains. Tariffs would help to tip the scale towards America, and hopefully the agreement is met with minimum amount of clashing ideas.

Italy Suffers Recession Alone

Article link: https://www.bloomberg.com/news/articles/2019-02-22/italy-suffers-recession-alone-in-economic-political-isolation


In my previous blog, I discussed the narrow miss Germany had with a recession. Italy, on the other hand, was not as lucky. In fact, Italy was the only country in the EU to have two straight quarters of contraction. As the economy of each nation in the EU tend to fluctuate with one another, Italy's lone recession signals a self-inflicted problem.

Economic turmoil isn't the only difficulty Italy is facing. Italy is also facing political challenges as tensions with France have grown and some nations have shown distaste towards their budget. This could cause further economic headwinds for Italy as political actions could be taken.

Although growth in the EU has declined overall, Italy is predicted to remain behind the other 18 nations, growing only 0.2%, This is most likely attributed to Italy's debt, high unemployment, and domestic policies.

No Recession this Year

According to fund manager Janus Henderson the risk for a recession in 2019 is small. However, he believes that global growth will be very low. This slowdown can be seen in some of the global growth numbers that are already coming out.  Europe which has been growing slowly is expected to grow at only 1.3% in 2019, which is a decrease in previous estimates. China's growth also slowed dramatically in the second half of 2018 and there have been no signs of a turnaround.

In the USA the fed had stated that they are holding interest rates steady for the time being. this is a change from their early statements. Indicating that they might be seeing some softness in the economy as well. The fed will release the minutes form their meeting on Wednesday and the markets will be monitoring them closely.

https://www.cnbc.com/2019/02/18/no-recession-but-global-growth-will-slow-down-janus-henderson-says.html

world economy

The long running trade war between usa and china as well as UK leaving Brexit has made consumers and business doubt the future of the economy. These two parts are major reasons why world growth will be very low in this coming year. The macro economic indicators though seem to show a soft landing not a huge recession like some feared at the end of 2018.




https://www.cnbc.com/2019/02/18/no-recession-but-global-growth-will-slow-down-janus-henderson-says.html

Bill Gates in favor of raising the capital gains tax

With budget deficits running high in the US and the national debt reaching a staggering $22 million last week, the outspoken billionaire Bill Gates has recommended looking towards capital gains to get the wealthy to pay higher taxes. Increase of tax burdens on the rich has become a fascinating debate in recent times, with proposals ranging from Congresswoman Alexandria Ocasio-Cortez' (D-NY) call for a top marginal tax rate of 70%, to Senator Elizabeth Warren's (D-MA) 2% wealth tax plan, to Senator Bernie Sanders (I-VT) vocal support of raising the estate tax. Gates' proposal for the capital gains tax hence joins the rest in what will likely be a hot topic in the next election cycle.

Gates argues that if we want to see the top 1 percent paying a larger chunk of the taxes as in a progressive system, the goal should be to raise the capital gains tax which is at 20% right now. By ending the divide between capitals gains income and ordinary income, i.e. that former being taxed at the rate of the latter, the tax system will not just become simpler but also raise greater amounts to help lower the budget deficit. This will happen because as of now, tax liabilities tend to get shifted to the capital gains column by hedge funds. While this is an interesting take on taxing the rich, it can be argued (in an overgeneralized manner) that this will only discourage savings and investments in the US. However, it might just garner support for equalizing the rates of income and capital gains taxes, and not just simplifying the tax system but also getting more taxes from those at the top. In any case, the debate on these various tax proposals in the coming months is certainly something that needs to be followed.

Article link: https://www.bloomberg.com/news/articles/2019-02-17/gates-says-capital-gain-taxes-best-way-to-tap-big-fortunes

Jack Ewing, a writer for the New York Times, describes the impact of the American China trade war on the German economy.  The 4th quarter seems to show the first impacts of  Trumps trade tariffs.  Growing near the slowest rate in the EU only just beating out Italy.  With completely stagnant growth in the 4th quarter Germany the economic data coming out of German steel manufacturing was bad news for all of Europe. As the largest economy in Europe, Germany has historically picked up the slack of the struggling nations in the union, however as they are adversely affected by tariffs placed on Chinese goods. German auto manufacturers saw a noticeable demand drop in the Chinese market.  The numbers for quarter 4 were just barley above the threshold to classify the economy as in recession but the base of the German economy is very sound.  There has been little impact on investing and unemployment rates which remain some of the lowest in the EU. Part of the fear in the German market is the uncertainty in the future effect and actions taken by either side in Trumps trade war with China. 

https://www.nytimes.com/2019/02/14/business/germany-economy.html

Poland Is Europe's Growth Champion. Can This Continue?

An article written by Marcin Piatkowski discuss Poland's economic and social success and how over the past 30 years, they have not been receiving the attention they deserve. The author argues the Polish economy has been key to the European success story. This has not always been the case and in 1989, Poles earned less than citizens in Gabon, Ukraine, and Suriname. But since that year, the country has increased its GDP per capita by almost 150%. Looking at 2018, the average level of income in Poland exceeded two-thirds of those in the Eurozone.

Despite having almost no natural resources, Poland was able to grow and flourish through egalitarian, well-educated and socially mobile population. Poland caught up to the robust democratic West and has transitioned through many different governments since 1990. The country adopted economic policies for building infrastructure, foreign debt restructuring, and an increased focus in education and open privatization process. After abandoning planned economic practices from the end of WWII, high-quality policy makers like finance ministers and central bankers led the economic revival. Poland's investment in infrastructure such as broadband and adoption of the market system has contributed to their success.

Poland might have issues continuing their success given their aging population and low level of innovation. Furthermore, the EU is key to their success and without the union, Poland risks reverting to dark periods of economic history.

https://www.theglobalist.com/poland-economy-gdp-european-union/

China considering measures to adjust lending rates for companies: central bank official

China is considering measures to drive adjustments in financial institutions’ lending rates for companies to improve credit flow into the economy.The head of the People’s Bank of China’s monetary policy department, said that despite rising expectations of a central bank interest rate cut, it is “more urgent” to allow financial markets, rather than the PBOC, to determine lending rates.Chinese authorities have struggled to increase lending to try to boost China’s slowing economy, which has been hit by weak domestic demand and the trade war with the United States. But they have shied away from aggressive easing, including benchmark interest rate cuts, amid concern that doing so could put pressure on China’s yuan.In 2018, China’s economy grew 6.6 percent, its slowest pace in 28 years, weighed down by weak investment and faltering consumer confidence. Growth is expected to slow further to 6.3 percent this year.

https://www.reuters.com/article/us-china-economy-lending/china-considering-measures-to-adjust-lending-rates-for-companies-central-bank-official-idUSKCN1Q305W

Amazon Hasn't Paid Any Federal Income Tax in 2017 or 2018

Amazon hasn't paid any income tax within the last two years, even though they have received federal tax credits in the past two years. Not only is Amazon the third-most valuable company in the world, but they also earned an estimate of $10 Billion dollars last year. Amazon is clearly a successful company and its earnings, despite losing $241 million in 2014, has topped their losses. However, some of Amazon's earnings have come from outside the U.S, where they paid little to no taxes. The U.S. tax code does allow companies that have lost money to reduce future taxable income, but Amazon's most recent financial statement says that they have $1.4 billion left in tax credit to offset any tax bill that they might have in the future. They are planning to add more job opportunities to offset for not paying taxes.

Even though they still have money for tax credits and have not paid income tax in the last two years, they are avoiding paying taxes. Should Amazon be held to the same standard as any other U.S citizen when it comes to paying taxes? Are they subject to tax evasion? Any other U.S citizen would be, why not Amazon?

https://www.cnn.com/2019/02/15/tech/amazon-federal-income-tax/index.html

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