How can the U.S. Banking system lower its level of risk and uncertainty?

https://www.cnbc.com/2023/03/31/its-the-us-not-europes-banking-system-thats-a-concern-top-economists-say.html 

Over the years, Europe has faced significant financial struggle and problems within their banking systems. However, as of today, they are in a very strong place to avoid further stress on its banking system after learning many lessons from its financial crises over the years. The United States on the other hand are still learning very crucial lessons about how to endure stress on their banking systems. In early March of 2023, there was a large collapse of the U.S. based Silicon Valley Bank, and several other regional lenders of these banks. This is causing a large amount of uncertainty and anxiety for the rest of the fiscal year, and in future years. However, the European Central Bank does not have this same worry factor. This is where central planning can be an effective tool in order to ease the uncertainty and anxiety that comes with the downfall of the central banking systems. If central planning were to be utilized in the united states, it might help them reach the level of European banking systems in their security.

In Ohio, Electric Cars are Starting to Reshape Jobs and Companies

    Electric cars are a step in reducing our carbon footprint by eliminating the use of gas for automobiles. However, the new EVs could also mean bad things for those employed in the auto industry. Ohio is the biggest producer of internal combustion engines (gas-consuming engines) in the country. 90,000 people in Ohio work in some form of automobile manufacturing. The increase in electric cars means that the factories that create internal combustion engines will not have to produce as many engines, forcing them to lay off workers until the internal combustion engine is deemed archaic in which case the factories will shut down all together. In other words, the days are numbered on the thousands of jobs supplied by the production of internal combustion engines. Sure electric cars also require labor, but they require much less work-hours than the production of combustion engines by a long shot. The big question is will the benefit of switching to electric cars outweigh the costs of the lost jobs? We're talking about two different areas of value, jobs and the environment, yet it would still be an important cost-benefit analysis scenario to consider.

Source: https://www.nytimes.com/2023/04/05/business/energy-environment/ohio-electric-vehicles-jobs.html

How inflation has been disproportionately hurting women

As a woman who studies economics, this article by Hakyung Kim entitled Paying more and earning less: How inflation disproportionately hurts women caught my attention. Personally, I feel as though there aren't a lot of articles in the media that focus on the issue of women in the economy and how we are affected differently by economic hardship than men are. 

In the article, Kim says that this issue mainly stems from the rising cost of childcare. As it is pretty much universally known, women tend to take the brunt of healthcare costs compared to men. This, combined with the rising costs of childcare and with wage growth currently being stagnant, has led many women to either have to reduce consumption in other facets of their personal consumption or to have to leave the workforce altogether to have childcare.  

With inflation still steadily rising, there is no relief in sight for women, especially single mothers. Kim suggests that there is a solution to this issue. This could be done in the form of a bill that would set a price ceiling on the cost of childcare. This would provide relief to the women currently struggling to afford childcare due to inflation. 

https://www.cnbc.com/2023/03/31/paying-more-and-earning-less-how-inflation-disproportionately-hurts-women.html

Growth of the US in the last quarter

An article that I find talks about the growth of the US economy in the fourth quarter. The growth and consumer spending both trended down in the fourth quarter. The article states, “In the Commerce Department’s first two reads of fourth-quarter GDP, the growth was initially estimated at 2.9%, then revised down last month to 2.7%. Concurrently, consumer spending trended down as well, decreasing from 2.1% in the first read to 1.4% in the second revision and landing at 1% in the final print, released Thursday morning.”(CNN). This decrease in consumer spending and growth mainly had to do with local government spending, and improvements in non-residential areas. Overall, this article talks about the drop in consumer spending and growth compared to other years and what that looks like for the future of the US economy.   

Article: https://www.cnn.com/2023/03/30/economy/us-gdp-4q-final/index.html 

U.S. economy adds 236,000 jobs in March as labor market stays strong

 The U.S. labor market has continued to add jobs at a pace that seems to have the market going in the right direction upwards. The unemployment rate has gone down to 3.5% which is a record low in over half a century. The department of labor reported that almost half a million jobs were added in January. With the nearly half a million jobs added the average hourly earnings have risen almost .5% since January. With these statistics going up the labor force participation rate has increased .1% since february which shows that the job market has not cooled down at all.  This is positive news for our economy after Silicon Valley Bank was taken over by the government. The labor force continues to stay strong which shows promise for our economy which people were certain was doom to fail at this point. With the wages going up though we can expect to see a markup in many products and services. Gasoline prices are still going up and down at an unpredictable rate.

https://www.axios.com/2023/04/07/jobs-report-march-economy-federal-reserve

Stocks have shrugged off the banking turmoil. Haven’t they?

We all know the historical effects of a bank collapsing and how it impacts the economy. In March, we saw three banks fail. Bank failures directly impact businesses, as the banks tend to lend less and at a higher rate during times of uncertainty. This has a direct impact on economic growth and profits. 

In the past, we have seen huge stock dumps when banks have failed. Continental Illinois failed in May 1984, and the DOW took a substantial blow dropping nearly 6% during the month. Again, in September 2008, Lehman Brothers collapsed and stocks declined nearly 10%. The most severe case we have seen was during the Great Depression when numerous banks failed, resulting in a decline of nearly 89% between 1929 and 1932. 

We have seen three banks fail in March alone in our current economy. Historical trends would suggest that stock prices would decline drastically as a result. However, this has not been the case as the S&P 500 has increased by 4% and European stocks have increased by 3%. It is interesting to see this and it leads many to question why? 

There are various assumptions as to why investors and the market have responded the way they have. There is a belief that investors are betting on interest rate cuts. We have seen gains in stock prices for tech companies that are sensitive to higher rates, such as Apple and Microsoft. Overall, the Nasdaq rallied nearly 7% during March. Another significant factor in the current economy has been interest-rate derivatives. These investments allow investors to hedge risk and essential bet on where interest rates will go. These "swaptions" have allowed investors to protect themselves against expected interest rate changes. 

It will be interesting to see how the economy responds in the coming months and how investors respond.  Additionally, there is still uncertainty with interest rates as the Fed is still attempting its "soft landing" through incremental interest rate hikes. However, if market conditions worsen then we may see the Fed back off from their increases. Currently, we see that investors still have high hopes as overall stock prices and indices have increased over the past month. 

Source: Stocks have shrugged off the banking turmoil. Haven’t they?

The case for an environmentalism that builds

 The Economist article "The case for an environmentalism that builds" describes the need for the world to greatly increase its production of electricity, while also limiting the high amounts of fossil fuel derived emissions in order to slow down the current climate change crisis.  Similarly to what we described in class with Kuznet's curve, the article argues that economic growth can lead to a heightened concern for the environment, but that we cannot wait for the global economy to expand to an undetermined level before taking action to improve infrastructure related to the production of electricity.  The article describes that building improved and cleaner solutions to electricity production could cost upwards of $1.1 trillion dollars, but by describing to the people the environmental value of taking on these new technologies and tools, the people are more willing to support the government's decision to invest in green technology.

https://www.economist.com/leaders/2023/04/05/the-case-for-an-environmentalism-that-builds 

IMF head expects less than 3% global economic growth in 2023

The International Monetary Fund (IMF) has warned that the world economy is expected to grow less than 3% this year, down from 3.4% last year, increasing the risk of hunger and poverty globally. IMF chief Kristalina Georgieva said the period of slower economic activity will be prolonged, with the next five years of growth remaining around 3%, and called it “our lowest medium-term growth forecast since 1990, and well below the average of 3.8% from the past two decades.” She also said that slower growth would be a “severe blow," making it even harder for low-income nations to catch up. Given the economic projections, non-governmental organizations are calling for the IMF to allocate more funds to low-income countries through Special Drawing Rights, which are an IMF international reserve asset that can be exchanged for hard currency. Georgieva also warned that high-interest rates, a series of bank failures in the U.S. and Europe, and deepening geopolitical divisions are threatening global financial stability.



https://abcnews.go.com/Politics/wireStory/imf-head-expects-3-global-economic-growth-2023-98404025

Denouncing the Dollar

    There has been a rise in interest between countries to abandon the US dollar as the world's reserve currency. I think the war in Ukraine has definitely exacerbated these efforts because the US currency has only appreciated 10% more since the start of the invasion. The article goes as far to say that the dollar's status as the world's reserve currency is enforcing its hegemonic power. While the appreciation of the dollar,  is great for the US economy, it makes trade more expensive for other countries. Nations with US debt will also end up owing a lot more. So a bunch of other countries will benefit from the depreciation of the dollar.   If the world begins to shift from the using the dollar as the main form of trade, the dollar will depreciate and will begin the rise of other hegemonic powers. This shift will of course happen gradually and not all at once. 

https://www.aljazeera.com/amp/features/2023/3/7/will-russia-sanctions-dethrone-king-dollar

  

Disney CEO Announces Plan to Invest $17 Billion in Disney World

On Monday April 3, The Walt Disney Company's CEO Bob Iger announced the media and entertainment conglomerate plans to invest over $17 billion in its Disney World Park, in Florida, over the next ten years. Disney's domestic parks generated $6.07 billion of revenue in the first quarter of 2023, a 21% increase year-over-year. During the Walt Disney Company's recent shareholder meeting, Iger stated this investment will lead to the creation of roughly 13,000 new jobs as well as "attract more people to the state and generate more taxes". This announcement comes at a critical time for Disney, as earlier this year Florida State Legislature passed legislation that individuals on the board of the tax district which Disney World is located must now be appointed by Florida Governor Ron DeSantis, the latest development in a roughly yearlong back and forth between Disney and the state of Florida, which began after former Disney CEO Bob Chapek publicly opposed the new Parental Rights in Education Law signed by DeSantis. Current CEO, Bob Iger, believes this new legislation passed by the state of Florida is Governor DeSantis's way of punishing Disney for their stance on the Parental Rights and Education Law. "Our point on this is, any action that thwarts those efforts simply to retaliate for a position the company took sounds not just anti-business but anti-Florida", said Iger at the company's most recent shareholder meeting. 

https://www.foxbusiness.com/markets/iger-reveals-disney-planning-17-billion-investment-walt-disney-world

Ukraine Farms Attract Money and Help From Allies, Top Food Companies

 In spite of the country's ongoing conflict with Russia, Ukraine's agricultural sector is attracting investment and support from global international food corporations. Due to its rich soil and agricultural resources, Ukraine has long been referred to as the "breadbasket of Europe," and now, some of the top food companies worldwide are investing in Ukrainian farms and processing facilities in order to secure their supply chains. For example, Cargill, the largest privately held company in the US, recently invested $100 million in a grain processing facility in Ukraine. Bunge, another prominent food firm, has also made major investments in the country's agricultural sector. Along with the private sector, Ukraine's allies, the US and Canada have contributed financial and technical support to help the nation modernize its agricultural methods and boost exports. Ukraine's agricultural industry has survived in the face of the conflict with Russia and ongoing political unrest, and it is anticipated that this growth will continue in the years to come. The nation, which is already among the top grain exporters in the world, is currently attempting to increase the production of other crops like soybeans and sunflowers. However, corruption and inefficient land use remain issues in Ukraine's agriculture sector.

https://www.wsj.com/articles/ukraine-farms-attract-money-and-help-from-allies-top-food-companies-61c65dd2?mod=economy_lead_pos2 

Oil prices surge after OPEC+ producers announce surprise cuts

On Monday, April 3rd,  OPEC+ announced that they were cutting oil production and output. This immediately caused the global cost of a barrel of oil to go up 5.31% to $84.13 while also driving up the U.S. barrel cost by 5.48% leaving the price at $79.83. Earlier this year oil prices sunk as low as $73 and $67 a barrel due to the collapse of the Silicon Valley Bank (SVB) on March 10th. 

Many Economists are now concerned with how this might affect inflation in the long run. After all, now that we are seeing continuous inflation reflected in the value of oil we can expect overall consumption to decrease. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown states, “The development comes as a blow for inflation,” and.“Markets are aware that if the pressure continues, central banks will need to extend or strengthen their interest rate hiking cycles.”

OPEC+ plans to continue these voluntary oil cuts from May 2023 to the end of the year in January. In October OPEC voluntarily cut out oil production by almost 2 million barrels a day and plans to cut production by another half a million barrels per day. 

However, they are not the only country to participate in a voluntary cut in oil production.  Iraq plans to cut 211,000 barrels per day, and UAE plans to cut 144,000 barrels per day. Countries such as Kuwait, Algeria, and Oman will also reduce oil output by 128,000, 48,000, and 40,000 barrels per day. In conclusion, the United States can surely expect a surge in price, even larger than the current surge. This now seems to be a global trend, and I am curious to see how the federal reserve will respond in terms of Interest Rates and other monetary policies to slow certain inflation.

https://www.cnn.com/2023/04/02/business/opec-production-cuts 

Supply shortages threaten U.S. infrastructure and war efforts

Link to the article: https://www.reuters.com/business/ongoing-supply-shortages-threaten-us-infrastructure-

war-efforts-2023-03-29/

Tight supplies of microchips and cement are causing difficulty for manufacturers of everything, from pickup

trucks to homes and this can also translate into higher costs and delays for the US government's effort

to help the Ukraine's war and to rebuild its own infrastructure

It is reported that supply shortages are easing for retail-focused industries but are still ongoing for growth

sectors like autos, machinery, defense and non-residential construction where demand is seen as strong.

The shortage of semiconductors also affects the defense industry as well as war-weapon makers

experience disruption in production not just for the US defense system but also for Ukraine.

However, the shortage also dissipated for personal computers after kids returned to school and parents to

their office, recorded by high sales of new computers.

French Prosecutors Raid Paris Big Banks In Tax Fraud Sweep

    If you thought the current unrest in France couldn't get worse, well, it has! Five French banks have been raided by authorities with the suspicion that they participated in a tax fraud scheme. The banks that were named were Societe Generale, BNP Parabis, HSBC's Paris office, Natixis, and BNP's Exane unit. More than 150 investigators were on the scene at the headquarters' and searched for evidence that the banks were in a "with-with trading" scheme in which suspects are accused of misappropriating hundreds of millions of euros by bilking the payment of French dividend taxes. 

    Investigators said that this case was opened up for investigation in 2021 and they were focused on looking at tax fraud and money laundering that ocurred in the form of dividend payouts. The strategy involved shareholders transferring stocks for a short period of time to investors abroad to avoid paying taxes on the dividends. Sometimes shareholders were able to get a tax refund. Investors then sold the shares back to the original owner, and both parties pocketed the savings. The rumored amount that was being laundered out was 1B euros and the French government wants to take that money back.

    German investigators from Cologne were also helping out the French and we can only suspect that these foreign parties may have been Germans. In the past there have been similar money laundering schemes made by bankers out of Germany. Past scams have defrauded citizens of billions of euros. Overall, this has occurred in many countries and it is not limited to France and Germany. 

    The timing of this conflict cannot be in any worse for the French as the citizens are already in riots and protests after Macron's draconian rule has seen the lives of millions of French people be a lot more miserable. The French are really upset right now about the retirement age rising from 62 to 64 which has gained a lot of resentment globally. These bank frauds have hurt the European economy too as we are entering a recession that sees the cost of living rise, and GDP slowing down. To add to this, we have seen 2 huge banks fall recently in SVB and Credit Suisse. I am curious to see how this all plays out and I wonder what else will break public news in the U.S. economy.

    

Link: https://www.foxnews.com/world/france-prosecutors-raid-paris-big-banks-tax-fraud-sweep

Germany at a standstill as huge strike halts planes and trains

Link to the article: https://www.reuters.com/world/europe/largest-strike-decades-leaves-germany-standstill-2023-03-27/

The 24-hour warning strike called by the Verdi union and railway and transport union EVG is the biggest one since 1992, bringing ground and air transportation to a halt on Monday, causing major disruption for millions of people.

This was followed by a 3-day wage talk as Verdi and the EVG union demanded double-digit wage increases (10.5% and 12% respectively). The action was believed to be the aftermath of higher prices, caused by Germany's being heavily dependent on Russia for its gas. 

According to the Airport Transportation ADV, around 380,000 passengers were affected by the flight suspension including those at two of German biggest airports in Frankfurt and Munich. Rail services were also cancelled by railway operator Deutsche Bahn.

While employers warned that higher wages could, in turn, lead to higher fares, the EVG chairman also warned that there would be further strikes in the future. 

Spring break is an economic nightmare for the hottest host cities

 College students are creating problems for cities and coastal towns that are dependent on tourism. 2.6 million Americans are expected to fly each day in March and April. Tourist towns dread these arrivals. This year, after 2 deadly shootings in Miami, the Mayor called for an emergency midnight curfew and no sales of takeaway liquor after 6 pm in Miami. The problem is that Spring Breakers are spending no money. They go to the cheapest accommodations and eat as cheap as possible to save money for booze. 

With these Spring Breakers comes some other non-college partiers (townies, as OWU likes to call it) who commit the most serious crimes in these parties. Over half of the people arrested in last year's Miami spring break were locals of Miami-Dade County. Although Miami would like to just boot the college kids, they cannot set limits because it is unfair to the businesses like bars and hotels and people who own Airbnbs. 

Although most of Florida would rather not have spring breakers, it is not like this everywhere. South Padre Island in Texas actually spent over $15,000 this year on college campuses to get students to travel there and spend their parents' money on spring break. 

https://www.economist.com/united-states/2023/03/23/spring-break-is-an-economic-nightmare-for-the-hottest-host-cities

Cuban Economy

Cuban Economy

Between 1989 and 1994, Cuba's trade with the Soviet Union fell by 89%, which led to a lack of domestic production and increased government control over the economy. The Cuban economy is still undiversified and relies heavily on commodities such as tobacco, sugar, and healthcare services. However, tourism is also a significant source of revenue, and the COVID-19 pandemic has hit the industry hard, causing a significant decline in foreign currency inflows. To deal with the loss of international reserves, the government was forced to unify Cuba's dual exchange rate system and devalue the Cuban peso, causing inflation and a scarcity of goods. This, along with the pandemic, led to social unrest and protests in 2021. The government introduced a second exchange rate for personal transactions in 2022, which eased import price pressures and decreased the demand for dollars. Cuba has also faced climate change-related shocks, including a lightning strike that caused a nationwide blackout and a hurricane that damaged infrastructure and agriculture. The government has attempted to expand private sector activity to boost output and relieve goods shortages. However, many Cubans are still leaving the country, with a record 220,000 caught at the US-Mexico border in 2022. The government is expected to maintain its policies while gradually opening up the economy in the future.

https://www.aljazeera.com/economy/2023/3/24/cubas-new-parliament-will-face-a-familiar-economic-hangover

China’s debt-heavy local governments look for new ways to raise cash

link: https://www.cnbc.com/2023/03/27/chinas-local-governments-finding-new-ways-to-raise-money-amid-debt-concerns.html

According to S&P Global Ratings analysts, Chinese Local governments' direct debt exceeding 120% of their revenue in 2022, a value greater than the unofficial debt level set by Chinese Authorities. The analysts further said that “The country’s provinces and municipalities have relied heavily on expanded bond issuance to carry them through a COVID-triggered economic slowdown and collapsed land-sale revenues.” 

IMF data paints a similar story, showing that China's explicit local government debt almost doubled over the last five years to 35.34 trillion yuan ($5.14 trillion), without including other categories of debt such as "local government financing vehicles (LGFVs), which allowed regional governments to tap into bank loans to complete infrastructure projects, which are also rapidly growing. This phenomenon may have been brought about by the real estate slump in China, along with the Covid-19 pandemic, which cut into local government revenue. 

The response from Beijing to this worrying growth in local government debt came in the form of an entire section in the annual work report dedicated to preventing and defusing major risks in real estate and local government debt, stating that "We (the government) should… prevent a build-up of new debts while working to reducing existing ones." This, coupled with the conservative 5% growth target set forth by Beijing may signal a shift in focus from high growth to tackling financial risk and hidden debt in local governments, an assumption further validated by recent key speeches from the Chinese president, Xi Jinping, calling on officials to address systemic risks in the Chinese economic system, along with tackling corruption at all levels of the government. The country's health spending increased by almost 18% in 2022, with revenue from land sales dropping by 23.3%, and all land is state-owned in the PRC.

Local governments will most likely turn to three channels to boost revenue, with them being taxes, asset sales, and transfers of funds from the central government. We can already see this phenomenon, with central government asset transfers increasing by 17.1% in 2021, with an additional 3.6% (10.06 trillion yuan) pm the way, according to the Chinese Ministry of Finance. Transfers to local governments accounted for about 60% of the increase in central government fiscal deficits, the S&P analysts said. 

A few local governments have resorted to other means of raising funds, by means of selling quotas for China's rapidly expanding bike-sharing industry for more than 45 million yuan in Zhangjiajie city, and 189 million yuan in Shijiazhuang.

Are We About to Feel the Economic Pain Powell Warned Would Be Coming?

     In August, while the Fed was hiking up interest rates to help combat the wildly high inflation, Jerome Powell said that these moves by the Fed would lead to some future pain. No one knew when this pain would hit the economy, but people are starting to suspect now is the time. Sine the Fed had to yet again raise the interest rates up .25 to around 4.75%-5%, banks are failing doe to bad business moves and customer mistrust, and less spending as a whole in the economy, there is much economic pain to go around.

    The Feds goal is to get the rate of inflation back down to 2%, which is a very plausible target. The problem is with the struggling banks creating more unrest in the economy. Predictions for the end of the year inflation rate have it being a little over 5%, which granted isn't much higher than where it is now but is a step in the wrong direction. Powell notes that less interest rate increases will be needed until the banking crisis is fixed because that problem will lead to the rate hike. 

    The big question for all of these things happening is if we are now entering a recession? Powell gives the politically correct answer of we will see. He was hoping for a soft landing from the economy by slowly bring the rates and economic actions back to normal, but one the economy gets close something like the banking crisis happens. He says it's too early to tell if the economy can still use a soft landing, but he isn't giving up hope. The possibility of a recession is definitely higher because of what has happened recently, but like Powell I have confidence that the economy will land on our feet eventually. 

https://www.morningstar.com/articles/1145583/are-we-about-to-feel-the-economic-pain-powell-warned-would-be-coming

Tiktok lobbying

With Tiktok coming under fire in the capital, the company has started to ramp up its lobbying efforts. They have hired over 20 influencers to come to the capital to persuade lawmakers to be in favor of supporting Tiktok and that it is safe and not selling information to China. At the same time the chief executive in being questioned in Congress on the safety of the app.  Their argument is that the app is safe and is also a job for many Americans. There are currently 150 million American users and many of them us the app for either an income or a way of connecting with other. It is more than just a dance app in their opinion but a tool for a generation. The question that arises for me is what will be the next app to take over Tiktok. It won't be on top forever and what happens when that app is not American made. Will they also try to regulate it as well? It will be interesting to see how this hearing turns out and the impact it has on current and future social media apps.

https://www.nytimes.com/2023/03/23/style/tiktok-stars-capitol-hill.html

Amazon Union Gets Favorable Finding on Warehouse Access for Organizing

    In recent history, Amazon has barred the use of work sites for off-duty workers. They had made a rule that no employee was allowed to remain on the work site beyond 15 minutes within their shifts. This posed an issue for the Amazon Labor Union. The Amazon Labor Union claimed that this rule interfered with their rights to reach out to coworkers about their own labor union, whether it be supporting their own union or to consider joining another. Amazon argued that the rule wasn't meant to directly affect the activities of the labor union. They meant for the rule to be an act towards security and employee safety. However, recently the National Labor Relations Board has found this rule put forth by Amazon to be illegal as it infringes upon Amazon workers' union rights.

    I believe it was a podcast we had listened to about markets a few months ago that had talked about how markets seem to weed out these seemingly unstoppable companies. Perhaps we're starting to see this in action. I don't think actions like these will bring down Amazon, however I do think that things are like this are going to put a stop to the idea that Amazon is untouchable. I remember during the pandemic everyone was so afraid of Amazon because that's what everyone relied on. Things like this along with their layoffs as of late just go to show that companies can't be truly all powerful in a market economy. Sure Amazon was the ultimate powerhouse for a while, when everyone is stuck at home and can't leave without a mask of course they're going to order stuff online. Amazon had a boom and now I believe we're starting to see it settle.

 

Source:  https://www.nytimes.com/2023/03/23/business/economy/amazon-labor-union-nlrb.html

Payroll Rose More Than Expected In February.

Despite the FED's efforts to bring down inflation and slow the economy, nonfarm payrolls rose by 311,000 for the month.  This is larger than the expected 225,000, with leisure and hospitality having the largest gain of the sectors.  Although it is a drop from the previous month, the unemployment market is still hot.  The unemployment rate rose to 3.6 from the expected 3.4, partially due to the increase in labor force participation.  The labor force participation is now at 62.5 percent which is the highest it has been since March 2020.  

There was also some good news on the inflation side, as average hourly earnings increased 4.6 percent from last year, below the estimate of 4.8 percent.  The monthly increase was also 0.2 percent lower than expected.

John Lynch, the chief investment officer at Comerica Wealth Management, said that easing of the wage pressure is the best news to come out of this report.  He also said "A drop in the largest costs for businesses is a welcome development. Nonetheless, 50 basis points is still on the table for the March policy meeting, given recent economic strength and dependent on next week's report.

UK inflation rises to 10.4% as food prices soar

 Across the world, and specifically in the UK. Consumer prices have jumped 10.4% as a result of the largest food inflation in over 45 years. Cost of living is also increasing at a rapid rate. Food prices have risen 18.2% in February as a result of severe shortages and rationing. There is also a severe rate of inflation in the UK at 11.1%. In addition, interest rates are rising to 4.25%, and continue to increase. But why is this occurring? This can be attributed to Brexit related labor shortages, trade barriers, high energy costs, and poor weather conditions in nations such as Spain and Morocco. This is a real world example of how prices can be such a significant signal for all of the other factors that are going wrong in the economy at the moment. As Britain now stands on its own, away from the EU, it is more difficult to resolve fluctuations in the market without the assistance from other nations within the EU. Inflation rises, prices increase, and shortages continue as continuous struggle to gain access to the proper resources and energy that they need in order to decrease prices nationally. 

https://www.cnn.com/2023/03/22/economy/inflation-uk-surprise-rise-february 

United States Workforce Fluctuation

An article that I found talks about how in the United States many workers are changing their jobs in order to have wage increases to be better off financially. A quote from the article states, “ roughly one-in-five workers say they are very or somewhat likely to look for a new job in the next six months, but only about a third of these workers think it would be easy to find one”. With the large amount of people seeking new jobs and higher wages it results in less job opportunities that are available at a higher level. Because of this there is a broken structure that could result from having too many higher positions and not enough supporting positions in companies. From the gender standpoint there are more women looking to quit their jobs than men. This will cause even more fluctuation in the gender pay gap and the way women are seen in the workforce. Overall, this article pinpoints many different aspects of why people are planning to quit their jobs more and the impact that it will have on the economy and workforces as a whole. 

Article: 

https://www.pewresearch.org/social-trends/2022/07/28/majority-of-u-s-workers-changing-jobs-are-seeing-real-wage-gains/ 

IMF chief warns global financial stability at risk from banking turmoil

The International Monetary Fund's (IMF) Managing Director, Kristalina Georgieva, warned that turbulence in the banking sector poses a risk to the global economy's financial stability. Rising interest rates have led to stress in leading economies, including among lenders, putting pressure on debts. She also highlighted the war in Ukraine and scarring from the COVID-19 pandemic as factors that could suffocate growth. The IMF chief predicts that the world economy will expand by just 3% this year and this warning comes as the European Central Bank (ECB) also expressed concerns over the impact of recent banking turmoil on business and growth.

The outlook for the UK, after Brexit, presents a challenging trade-off between low growth and high inflation, putting central bankers in a tricky position when it comes to increasing interest rates. Richard Hughes, the Chair of the UK's Office for Budget Responsibility, said Brexit would cause economic scars even deeper than the pandemic. As economic stress increases in the UK, EU, and the US, so-called shadow banks, could expose cracks in the financial system. Regulators in Switzerland continue to grapple with the fallout from the collapse of Credit Suisse, and public pressure has mounted on regulators after the vast package of support for the bank before its emergency merger with fellow Swiss bank UBS.



https://www.theguardian.com/business/2023/mar/26/imf-chief-kristalina-georgieva-global-economy-at-risk-turmoil-banking-financial-stability

Shrinking savings and rising debt leave consumers on shaky financial footing

 U.S. households have been winding down their savings and adding to their debts. This has put many households in a weaker position than the start of the year. Many have feared that the economy has slowed down and just recently those fears were brought back into the spotlight after Silicon Valley Bank was taken over by regulators just last week. The events have been compared to the 2008 financial crisis as this has been the largest US bank failure since 2008. This will likely cause banks to tighten up on lending which will put strain on consumers which will trickle down to people spending less and saving more. This will cause a decline in sales for firms. Those surveyed by Bloomberg put the odds of a recession happening at 60%. Many factors play into this percentage like inflation has hit its highest levels in decades, this has been able to be masked because consumers have been mostly able to keep up with spending.

This month has been an eye opening time for the U.S. After Silicon Bank was taken over many began to realize that the chances of a recession is more possible than what was thought. When labor markets start to show signs of cooling that will be a signal that household incomes have weakened.

https://www.nbcnews.com/politics/economics/shrinking-savings-rising-debt-leave-consumers-shaky-financial-footing-rcna75389

After Credit Suisse's Demise, Attention Turns to Deutsche Bank

Over the past few weeks, we have seen significant struggles from various investment banks, such as Silicon Valley Bank and Credit Suisse. After the recent struggles in America and Switzerland, attention is now turning to the German lender, Deutsche Bank. 

Disbelief has been on the minds of many euro-zone investors as banking turmoil is shifting toward European investment banks. The president of the European Central Bank, Christine Lagarde, has recently made comments ensuring that European banks were safe and had enough liquidity to withstand current market uncertainty. 

Recent market conditions have not benefited the German bank as investors have started selling the bank's stock at high rates, resulting in a decline of 14% in value. Additionally, the Euro Stoxx 600 has declined by 5%. The biggest difference between Credit Suisse and Deutsche was the insurance on deposits. Credit Suisse had no insurance on almost all deposits, resulting in a "lightning-fast" bank run. In comparison, Deutsche bank has insurance on roughly 70% of retail deposits. This is beneficial as the bank has access to highly liquid assets if needed. 

A big concern for Deutsche Bank comes from its significantly high holdings of commercial property. Currently, they own nearly $17 billion in assets, making them one of the most exposed banks in Europe. The bank has a lot of factors to consider moving forward. European banker, Corrado Passera, describes current market attitudes as "uncertainty that produces overreactions to weak signals". It will be very interesting to see how Deutsche Bank will move forward in an effort to not become another "Credit Suisse".

Source: After Credit Suisse's Demise, Attention Turns to Deutsche Bank

Concerns over Global Banking System decrease Treasury Yields

    Over the past month, U.S. treasury yields have been continuing to fall as the FED continues to worry many investors about the state of the U.S. economy and banking system. While this is a major issue in the U.S. it also has been effecting the rest of the world as places like the Deutsche Bank in Germany have been experiencing a reduction in its shares as well due to the same banking system concerns. The impact of these reduced treasury yields has caused prices in economies to fluctuate as they go hand in hand or in other words, are directly correlated with each other. To put it in perspective one basis point of a treasury yield is equal to a 0.01 percent change in prices of the yields and 10 year yields lowered 5 points and 2 year ones lowered 3 points. These are pretty substantial drops in hindsight even though they sound somewhat minimal at only a couple of a hundredth percents.

    Europeans don't seem to be as concerned about the issue as they believe to have a very liquid and strong economy that can correct the issues if need be by liquidating. The U.S. on the other hand is directly confronting the FED as they have been holding meetings about how to correct this yield problem. In their most recent meeting on 3/22/2023 they raised interest rates 25 basis points. While this could have an overall negative impact on the economy it is currently the best possible solution according to the FED. Hopefully, these basis point changes across the economy will slow down and the economy will be able to fully level out soon.

Article - https://www.msn.com/en-us/money/markets/treasury-yields-decline-as-investors-assess-economic-outlook-fed-policy-path/ar-AA191aum

Unexpected Decline in the Producer Price Index

    The PPI saw a 0.1% decrease for the month, which was unexpected, as compared to the 0.3% predicted increase in the Index. The PPI is simply an aggregate of all of the goods and services and the relative change in prices from the consumer's perspective. So, with the current pricing environment, it was quite a surprise that the PPI decreased. The article theorized that the cause of this drop is due to the 36% decrease in the price of eggs and chicken products. If this is the case, I am curious as to why the cost of poultry dropped so drastically 

    As a result, retail sales dropped by 0.4 percent. Some of that decrease is explained by the PPI drop but not all of it. There could be other factors involved like people saving more money because of the current economic fears due to pricing and banking issues. 

    This could signal a shift in the economy from the high pricing environment to decreasing inflation rates down the road. But, this might be too great of an assumption to make simply based on a slight decrease in the PPI. It was most likely a one-off due to extenuating circumstances.

   Regardless of the PPI shift, the FED will most likely be increasing interest rates this go around due to the silicon valley banking crisis. The banking crisis in silicon valley has caused much concern and is of higher importance than the PPI shift when weighing these events to determine the new interest rates.

 https://www.cnbc.com/2023/03/15/ppi-february-2023-.html

The Effects of a Year Long Fight to Curb Inflation

It’s been a year since the Fed began Open Market Operations to deal with high inflation. Through contractionary monetary policy, the  Fed has gotten inflation to decrease by 2.5% from 8.5% to 6%. This shows progress, but also indicates that inflation is still a problem because it’s still well above the target of 2%. It’s expected that the Fed will continue raising interest rates in an effort to continue curbing inflation. 

I wonder how the Fed’s response will change as a result of the SVB crisis. Will they still continue to increase interest rates, even though this is one of the main reasons the bank collapsed to begin with? Since inflation is still an issue, I think the Fed will just increase interest rates in smaller increments. The Fed should make sure that the hikes don’t cause prices to fall extremely low because that will affect the value of stocks and cause another panic in which people begin to sell and withdraw their money from the banks. I think that restoring consumer confidence will be beneficial in dealing with the aftermath of this banking crisis because that'll help along with whatever monetary policy the Fed decides to enact.

https://www.cnbc.com/2023/03/16/one-year-after-the-first-rate-hike-the-fed-stands-at-policy-crossroads.html

Russia and China working together - what could this mean for the global economy?

    This week, journalist Holly Ellyat wrote an article for CNBC entitled Nothing comes for free: What China hopes to gain in return for helping Russia. In this article, Ellyat discussed the meeting that is currently taking place between China's President  Xi Jinping and Russian president Vladimir Putin. 

    President Xi traveled to Moscow to President Putin this week. The two leaders are expected to come to some sort of agreement by the end of the week in terms of if they will work together moving forward. If they do create an alliance, that could send shockwaves throughout a multitude of global economies. 

    One of the most impactful ways would be in the war that Russia has begun against Ukraine. Currently, Russia is beginning to experience the economic repercussions of these actions and it is reported that the Russian government hopes to receive support in the form of military and economic assistance. 

    If this agreement does go through then China extend its dependency on Russia by receiving energy at a cheaper price. There is also the pressing issue that China may request Russia's help in the future with over-throwing Taiwan, which China does not recognize as a county. This similarity in this situation to what happened in Ukraine has many global leaders watching how the events of this meeting unfold with a watchful eye. 

https://www.cnbc.com/2023/03/21/what-does-china-want-from-russia-if-it-helps-it-with-ukraine.html

Mortgage Rates Fall as Uncertainty over Bank Failures Mounts

 In wake of several recent bank failures, mortgage rates have dropped this past week. However, continued uncertainty will likely dishearten many potential homebuyers and keep housing prices high. The current 30-year fixed-rate mortgage averaged 6.60% this past week, up 2.44% from one year ago. Rates had slowly begun to increase again since February, that is until the collapse of several banks over the past week, which has caused investors to place their bond in treasury bonds, generating lower yields, which mortgage rates have followed. Investors' recent turn to treasury bonds has led to a decline in its yields from 4% at the beginning of last week to 3.4% this week., which directly aligns with the drop in mortgage rates. While the Fed does not set rates that borrowers pay on mortgages directly, these rates act in accordance with yield on 10-year treasury bonds, which adjust in anticipation of the Fed's actions. 

    This slight drop in mortgage rates has caused some prospective homebuyers to act fast, leading to an increase in mortgage applications for the second week in a row. "Both home-purchase and refinance activity saw gains last week but remain below year-ago levels," said Bob Broeksmit, CEO of the Mortgage Bankers Association. "Anticipated further rate declines may spur additional application gains as the spring home buying season begins." A similar situation to what is currently transpiring happened back in December of 2022 and January of 2023, where lower mortgage rates spurred those quick on their feet to act fast and lock in lower mortgage rates. However, for a majority of prospective homebuyers, ongoing economic uncertainty stifles many from moving forward in the home buying process. 

https://www.cnn.com/2023/03/16/homes/mortgage-rates-march-16/index.html

The Fed Announces Its New Payment System "FedNow"

The Federal Reserve has recently announced the much-anticipated FedNow payment system is scheduled to launch July 2023. FedNow is a real-time payment and settlement service developed by the Federal Reserve System. It is designed to enable instant fund transfers between banks across the United States, operating continuously year-round.

Features of FedNow:

• Instant Payments: Probably the most significant advantage of the FedNow is the ability to process transactions in real-time. The system allows funds to be transferred between banks instantly, removing the need to wait for business days or delays due to weekends and holidays.
• Continuous Uninterrupted Availability: FedNow operates 24/7 year-round, ensuring that payments can be made or received at any time. This thereby provides greater flexibility/convenience for both businesses and consumers.
• Enhanced Security: FedNow incorporates advanced security measures to protect transactions, ensuring the highest level of safety and reliability.
• integrability: The system is designed to be compatible with existing payment platforms, facilitating seamless integration with other payment systems and services.
• Accessibility: FedNow aims to be accessible to all financial institutions, regardless of their size, enabling even small banks and credit unions to offer real-time payment services to their customers.

Overall, the FedNow system is expected to significantly benefit U.S. financial institutions. Specifically, it will help increase economic efficiency by allowing the easier flow of money, which will lead to greater productivity. Additionally, FedNow was designed with the aim of encouraging innovation by allowing financial institutions to build on the systems capabilities. What are your thoughts on the new payment system, do you think it’s as revolutionary as the Fed says? 

Article: https://www.federalreserve.gov/newsevents/pressreleases/other20230315a.htm

Reference: https://www.federalreserve.gov/paymentsystems/fednow_about.htm 

Home Sales Spike in February on a Dip in Mortgage Rates

 For the first time in 11 years, the median price of a home has dropped, according to the National Association of Realtors. On top of that the sale of existing homes has increased by 14.5% in the month of February, which is the largest monthly increase since July 2020. However, sales are still off by roughly 23% from 365 days ago.

In 2021, the median price of a home fell roughly 0.2%, which levels out to $363,000. Lawrence Yun, NAR Chief Economist states, "Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines. Lawrence also believes that the housing market is seeing the strongest sale gains in areas where home prices are decreasing and the local economy is adding jobs. 

It is important to note that the inventory of homes on the market for sale remains low, with less than a 3 month supply. Homeowners continue to sit on the low rate mortgages which is why they are not encouraged to sell their homes. This is because if they sell their home with an existing low-interest rate then the next home they purchase will be in line with current interest rates which are higher than they were 1-2 years ago. Any further drop in Interest rates will likely bring more buyers into the housing market.

Analyst Hannah Jones believes that there are two unknowns when coming into this spring housing market. One is the debate on what the Federal Reserve will do with IR (either increase or decrease). With an increase in the IR, homeowners are likely to keep their existing houses and people looking to enter the housing market will be hesitant. The second unknown is whether or not the job market will enter a period of slowdown. In this case, a decrease in the job market would also decrease the purchase of big-ticket items, including houses, cars, and college education. 

At this point in time, there are many things riding on the success of the economy, one of them being interest rates. The Federal Reserve must find a happy medium that continues its journey to 2% inflation but also take into consideration the many other factors that high-interest rates have on the economy.

https://www.usnews.com/news/economy/articles/2023-03-21/home-sales-spike-in-february-on-a-dip-in-mortgage-rates-though-prices-fall-for-first-time-in-11-years 

Senator Elizabeth Warren says she favors increasing FDIC’s deposit insurance cap

 With the recent crisis involving regional banks, there has been some discussion over the $250,000 coverage by the FDIC and if it is enough. Senator Elizabeth Warren is at the forefront of this discussion and believes we should look to increase the coverage provided by the FDIC. Warren is blaming the Federal Reserve, the Trump administration, and financial regulators for the crisis as she believes they laid the groundwork which made the situation possible. She specifically said that Jerome Powell "took a flamethrower" to banking regulations. 

       The government created this situation by coming out and saying that everybody who is a client of Silicon Valley Bank will be made whole, even if they are above the $250,000 threshold. By doing this, for every bank that fails from now on clients of said bank would point to SVB and say "If they were all made whole we should be too." Another conversation that ensues from limiting the coverage is how much will the level be raised, and also where would this money come from. 

    Wealthy people or companies who have more than $250,000 in a bank would try their best to make sure the bank they choose is safe so that they wouldn't lose their excess money. This in turn may make banks take on less risk so that wealthier people will bank with them, thus resulting in more deposits and ways to make the bank money. If the FDIC increases their insurance level, the risk banks take may increase as more people have over $250,000 than people who have $5 million for example. This may have an inverse effect where the FDIC will have to bail out more banks than they do currently.

https://www.bostonglobe.com/2023/03/20/business/senator-warren-says-she-favors-increasing-fdics-deposit-insurance-cap/ 

The $3B UBS & Credit Suisse Deal

 UBS has agreed to acquire its rival Credit Suisse for over $3 billion. This deal would dramatically change the global banking landscape and create one of the most powerful banks in the world. The combined market cap of these two companies would be over $60B. 

This UBS-Credit Suisse deal is seen as a move to restore confidence in the global banking system, which has been shaken by a number of recent scandals and crises (ex: Silicon Valley Bank). By creating a larger and more powerful institution, the acquisition could provide stability and reassurance to investors and customers. The deal is also expected to create efficiencies and cost savings that could improve profitability and strengthen the banks' financial position. 

This deal will almost certainly face regulatory hurdles as many people are concerned that the acquisition could lead to reduced competition and higher prices for consumers, particularly in the areas of wealth management and investment banking. 

Global banking crisis: What just happened?

 

    On March 10th, Silicon Valley Bank (SVB) collapsed and shut its doors. SVB falling makes it the largest US bank to collapse since Washington Mutual did in 2008. SVB had a liquidity crisis and was over-leveraged. To free up cash they decided to try and sell shares, but that ended up failing which then triggered a panic and customers were not able to get their deposits. The FDIC now has control of the bank and has ultimately considered it insolvent. 

    First Republic Bank has been struggling too over the last week and there have been aggressive efforts by other lenders and the U.S. government to avoid another bank run. So far other banks have lended out over $200 Billion to this cause. Jamie Diamond noted that banks still need a lot of money to solve their liquidity issues and that big banks like JPMorgan, Citi, and Bank of America will continue to lend money out to hopefully stop this issue.

    SVB got into this crisis by investing into a lot of long-term bonds when interest rates were super low. When inflation rose, the value of the bonds dropped and depositors wanted higher rates, so the bank was forced to sell off some bonds at a loss which caused them to lose liquidity. When this hit mainstream media, people panicked and SVB could not maintain the withdraws and a bank run occurred. Another part of it was that SVB also invested in risky Tech Venture Capital and the technology sector got crushed in 2022 which caused the bank to along with VC to get crushed. The bank managed the risks they had made poorly and their heavy involvement with technology ultimately hurt them in 2022 which caused SVB to collapse.

    In terms of the whole economy, this increases the odds of a recession because banks are supposed to have cash on hand and maintain a financial system. Customers are also afraid now due to them believing that they may not be able to collect their deposits. Most banks are over-leveraged with debt and GDP has gone down which can indicate a possible recession. Also the yield curve is inverted where short-term interest rates are significantly higher than the long-term interest rates. Contractionary policy and an illiquid economy make for a fearful situation. I think that we are guaranteed to enter a painful recession that will cause the banking system to rapidly change to avoid this issue again.  

Link: https://www.cnn.com/2023/03/17/business/global-banking-crisis-explained/index.html

Meta on the second route of massive layoffs

Meta, the parent company of Facebook and Instagram, is set to lay off around 10,000 employees, representing approximately 13% of its workforce. The job cuts will affect the company's recruiting team this week, with further restructuring to follow in April and May. In addition to cutting staff, the company is closing approximately 5,000 job postings that have yet to be filled. This marks Meta's second round of layoffs in six months, following a November 2022 announcement that saw 11,000 jobs lost. The company has been reducing unchecked growth and trimming employee perks since a global digital advertising slowdown. The move is part of the company's plan to streamline its operations and focus on efficiency, with CEO Mark Zuckerberg saying that he wants to reduce the number of middle managers.  Meta has struggled with the privacy changes to Apple's mobile operating system and increased competition from TikTok and is in the midst of a difficult transition to a "metaverse" company.

https://www.nytimes.com/2023/03/14/technology/meta-facebook-layoffs.html

Job openings declined in January but still far outnumber available workers

https://www.cnbc.com/2023/03/08/job-openings-declined-in-january-but-still-far-outnumber-available-workers.html 

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS) has shown that there exist 10.824 million job openings, down by about 410,000 from December of 2022, with 1.9 job openings per available worker, with a total gap of 5.13 million between workers and job openings.

The JOLTS report further stated that hiring was brisk for the month, with employers bringing on 6.37 million workers, the highest total since August. The payroll processing form ADP reported that companies added 244,000 workers for February, despite Fed rate hikes.

Federal reserve officials take the JOLTS report closely as they formulate monetary policy, with Jerome Powell calling the jobs market "extremely tight," and cautioned that recent data showing resurgent inflationary pressures could push interest rates higher. 

Total separations didn't experience much change, but quits, a signal of worker confidence in mobility fell to 3.88 million, which is the lowest since May 2021. layoffs rose up sharply, up 241,000, or 16%

There existed some other signs of softness in the job market, however, with construction openings falling by 49% (240,000), with an additional 16000 jobs being lost in February. The Leisure and Hospitality sector also saw a decline of 194,000 in January. 

According to the article, the markets will gain a more comprehensive overview of the jobs market with the Labor department's nonfarm payroll report released on Friday, but economists surveyed by Dow Jones expect payrolls to increase by 225,000, with unemployment remaining constant at 3.4%

People Of Color See Higher And Rising Unemployment In Possible Signs Of Softening Economy

    Despite the labor market showing overall strength, communities of color are still struggling with higher unemployment rates, which could be a possible sign of a softening economy, according to this article in Forbes. For instance, the unemployment rate for Black workers was 5.7%, and for Latino workers was 5.3%, compared to 3.4% for Asian workers and 3.2% for white workers. These gaps have persisted even as the labor market recovered from the pandemic-induced recession, and in recent months, the gap in unemployment has even increased for some communities of color. The unemployment rate for Latinos rose from a recent low of 3.9% in September 2022 to 5.3% in February, and for Asian workers, it increased from 2.5% to 3.4% during those months. Digging deeper into the data for Latino workers, the rise in unemployment is especially pronounced among Latino men, whose seasonally unadjusted unemployment rate increased from 4.6% in February 2022 to 6.4% a year later, while the unemployment rate for Latina women barely increased from 5.1% to 5.4% during that year. The article also highlights the risks of a slowdown or even a recession, as Republicans are refusing to give the federal government the ability to pay its bills, while the Federal Reserve seems poised to raise its key interest rates further. When economic growth falls, many more people of color are likely to feel the economic pain of unemployment and financial distress before white people will.


https://www.forbes.com/sites/christianweller/2023/03/11/people-of-color-see-higher-and-rising-unemployment-in-possible-signs-of-softening-economy/?sh=42af98e841cb