U.S. trade gap widens to 3-month high

In December, the U.S. trade gap widened to a 3-month high. A large portion of imports is attributed to the rising oil prices while the largest export was seen in weapons. One of the more encouraging signs was the fact that exports grew at a faster rate than imports. The article makes note of president Obama's goal to double exports by the year 2015, which at the moment seems to be a reach for the U.S. This appears to be a reach primarily due to the undervalued yuan. Obama's goal would be a lot more realistic if the Chinese allowed their currency to appreciate, which would decrease their exports/trade surplus. This might not tremendously increase the demand for U.S. exports but this action would definitely create a more level playing field.

Eye-wateringly expensive

This is a great article on the ethical problems that other countries face. Government officials have basically made it impossible for new companies to sell their products in Angola through bribes and what not. The author talks about how incredibly expensive everything was in the city because the government and their connected firms are holding onto extremely large profits. The last little story about a watermelon was kind of humorous but also sad that an economy can be so corrupt.

China raises interest rates. Markets yawn. Why?

NEW YORK (CNNMoney) -- China's central bank raised interest rates Tuesday morning. And the market responded with a collective yawn. At first, stocks barely budged. Ditto for bond yields, oil and the dollar.

As the day progressed, stocks actually marched even higher.

So much for fears of global inflation running amok and worries about how emerging markets would be forced to tighten monetary policy.

Yes, I'm being a bit glib. Investors would be unwise to ignore what's going on in China. The fact that the People's Bank of China raised rates by a quarter of a percentage point to just over 6% is of course interesting.

It is the third such move in four months and comes at a time where Ben Bernanke's Federal Reserve is still keeping its benchmark rate near zero and the European Central Bank is leaving rates at 1%.

China is experiencing inflation in its currency, so China responded by increasing the interest rates to curb the spending and increase savings in an effort to reduce the inflation. People say that China is not being aggressive in fighting the inflation; on the other hand, China wants to take a slow gradual to increasing the interest rates because being aggressive may result in slowing the lending and economic growth.

Lets make a deal! Mergers are back.

There has been a lot of intense activity with companies deciding to merge in the start of 2011. It is up 78% since the beginning of last year. A large $7 billion deal made by Ensco and Pride International was revealed. Every sector seems to be taking part in this exciting process, from coal companies to banks.

This activity has been thriving due to the combination of extremely low interest rates and a rising stock market, which make it easier for firms to do more deals. “Companies have the option of borrowing money at attractive rates to finance deals or using their stock/cash as acquisition currency."

I think this is great to hear our economy getting back on its feet. It is also seen that when companies are merging stocks seem to do very well, which is a plus. However, there can be a downside to mergers because it is not easy bringing together two different corporate cultures, so it doesn’t always work out. Is it a good thing that merging is going on right now with our economy starting up again?

Corporate Taxes

This article deals with corporate taxes, and explains that though the United States has one of the highest corporate tax rates, companies rarely pay that amount. With such a high rate (35%), companies have the incentive to devote mass amounts of time to finding loopholes. The government raises less revenue with this inefficient system. Of course, some companies aren't as ingenious as General Electric and do in fact pay the stated rate, or close to it. Either way, decisions by companies are almost always made with the tax consequences in mind. For instance, airlines buy more planes than they actually need. When companies do things they would not normally do, it slows economic growth.

China Raises Interest Rates to Quell Inflation

Today Beijing raised the interest rate for the third time since October to try to help inflation worries. They raised the one year deposit rate up to 3 percent and its one year lending rate to 6.06 percent, both by rising by a quarter of a percentage point.
Growth rate last year was at 10.3 percent, up from 9.2% in 2009 but inflation is 4.6%.
Inflows of cash from overseas and easy credit have caused the rates to rise all year.

The Economist: How does inequality matter? (blog)

This is something I came across which is very relevant to our Econ systems course work.

The question posted is regarding the impact of increasing inequality in the current economic crisis. A few reputable members of the American Economic Association have contributed to this debate.

Global inequality between nations and domestic inequality within nations are both sub topics that came out of this debate.

The socio-political dynamics seem to be a key concern for economists. However the reasons behind inequality, such as rapidly changing technology and possible solutions to inequality have also been discussed.

It was interesting to find what these economists had to say. Challenging views to mainstream ideas were delivered, which were backed with examples. Serious economists do not consider inequality to be an outcome of 'market failure', rather that it is a result of institutional failure. This idea was important in the podcast with guest speaker, Don Boudreaux. I noticed that these economists reflected that in what they wrote.

This blog is less academic then the podcast, however the many point of views thrown out in the debate help shape a better rounded understanding of unemployment and why it's continuing to exist and grow.

Troops held over DR Congo mass rape

Rape in DR Congo is a frequent unfortunate thing that has been happening since the beginning of the war. It was previously done by the rebels but recently, as talked about in this article, it is done by the army. The very people that were put in place to protect the population are the same that turned around and arm them.

What happened was an army officer got drunk and fired his arm and shot a civilian. It is unacceptable that an officer on duty with a loaded fire arm drinks. The villagers were upset because they thought the civilian was dead and attack the officer and killed him. When other officer heard about their colleague been killed, they attacked the village and raped about 50 women. And some of these women were tied by ropes and other beaten with a rifle before been raped in front of their children.

What I am trying to understand is that what do the women of that village have to do with the death of their colleagues? I strongly believe that the people that attack their colleagues are men, because in their culture the woman is suppose to at home cooking and taking care of the kids, so it is less likely that she would be where the officer was attacked.

Another point I want to make is that, this action are the cause of the miss management of the government. Because with the current shaky government in RDC it almost impossible for them to actually make a good selection of who can get into the army and who can’t.

As Germany Booms, It Faces a Shortage of Workers

Data was released this past week indicating that the unemployment rate in Germany is the lowest it has been in 18 years. For many countries, such as our own, this would be a great accomplishment but for Germany it is a clear sign of their severe lack of workers. When other Western European countries were opening up their borders to Eastern European workers, Germany as well as Austria enacted strict legislation making it very difficult for immigrants to come and find a job. Thus, these people, coming from countries such as Poland, Slovakia, and the Czech Republic moved elsewhere to find employment. Unfortunately for Germany, they were successful. Now they are settled in their new jobs and homes and it is unlikely that they will leave anytime soon. Industries including manufacturing, telecommunications, and health care are suffering because of this problem. The issue is further compounded by the low birth rate; the average number of children born to each woman is only 1.38. I found this article really interesting after reading and hearing so much lately about unemployment in the US, it was quite shocking to learn about this issue Germany is facing.

Euro Bailout Fund is Enough to Protect Against Future Crises

Last week, Germany and France proposed a new plan to deepen integration among the 17 countries that use the Euro as their national currency. The proposal is meant to strengthen the economic rescue fund, which amounts to 440 billion euros. It also could lead to the euro nations agreeing to more of their economic policies in a unified bloc.

I think it's pretty relevant to the article we had on France because that article discussed how the economic policies of France potentially led to them not taking as hard a hit with the recession. Perhaps their involvement in leading this new proposal is a function of their luck, or rather planning, with their economic policies. Obviously based on what has happened recently all nations want their economic systems to be better protected against another crisis similar to the one we've just had, and this proposal is supposed to be a big step towards safeguarding against history repeating itself.

Recovery Progressing, But Don't Heighten Expectations

In this article, the author talks about American recovery from the recession, noting the recent reports of 3.2% GDP growth in Q4, up from 2.6% in Q3. Yet this is still relatively small growth, disappointing, as the US is not falling 5.7% short of its potential. Despite this, real demand (GDP minus inventory sales) grew at an annual rate of 7.1%, the highest quarterly rate since 1984. The falling value of the dollar, while somewhat demoralizing, allows for cheaper exportation and thus increases for the US. Increasing exports would help our economy become slightly more balanced between imports and exports, decreasing our trade deficit (if only a little). The article suggests we be cautious, however. High commodity prices threaten to unseat current growth patterns, and potential economic shocks worldwide and in the US could hinder progress.

I find the article to be encouraging overall. It is more balanced in its approach to US recovery, as one might expect from an outside party. I think the idea of discussing real demand instead of simple quarterly percent GDP growth is a smart move. If this kind of demand continues and producers are able to increase the supply, we may see increased growth in our near future. Yet we must be wary of the rising commodity prices--especially food and petroleum. Possible oil spills or natural gas explosions, both sources of economic shock, should be taken into account as well. Seeing as employment is only a meager 1% above post-recession lows, growth in the face of American pessimism will be difficult, but it is certainly not out of reach.

Disney Looking Into Cradle for Customers

Disney is taking on a new approach to widen its childhood market- newborns. It is a risky new approach where representatives of Disney Baby will visit a new mother and offer a free Disney Cuddly Bodysuit in 580 maternity hospitals in the United States. Disney estimates the North American baby market to be worth $36.3 billion annually.

There are some parents and critics who already believe Disney is already a large powerful force in the lives of parents and its a strategy that is taking advantage of families at a very vulnerable time.

I believe it is a great market for Disney to expand to as well as develop new strategies and products to full fill the needs and demands of the market. But I believe that this new promotional strategy is too aggressive during a very special moment in a family, that should be free of business promotions. I know I would hate for someone to promote baby wear after the birth of my child.

What is everyone else's thoughts?

Egypt’s Transition

In this article, Obama comments that Egypt still has many options as to how the government will be restructured now that former President Hosni Mubarak has stepped down. Obama illustrates that it will be up to the people of Egypt as to how this will be done. Specific organizations such as the Muslim Brotherhood will not have the authority to shape the government as they see fit. Egypt’s revolution was started by the people, for the people. The people will ultimately redefine the governmental hierarchy and what type of economic system will represent Egypt. Interestingly, the type of change going on in Egypt can be characterized as a Marx inspired revolutionary change. A Marxist revolutionary change consists of building up to a crisis and resolving itself by systematic change. This is exactly what has happened in Egypt. The public outcry and protests against Mubarak’s reign eventually led to a change in government structure and power. President Obama remains hopeful that Egypt will cooperate with the United States and accept a partnership with the U.S. in the near future.

Leviathan Oil Field in Israel

The Leviathan Oil Field is a huge strategic find for Israel. Already having problems with their oil-rich neighbors and relying on them for oil, this newly found field could make Israel self sustaining for an estimated 50 years. The field is believed to hold 16 trillion cubic feet of natural gas. Two companies own the field, Delek located in Israel and Noble located in the United States.

China's property market: Protecting the Middle Class

In this article, it is explaining the difficulties that China is facing with its continued increasing middle class. China has such a large population, in addition to a fast growing economy that it is starting to affect the middle class and the tax system.

Housing prices have been on the rise since the start of the fast growing economy. China's cities such as Shanghai and Chongqing have implemented new property tax for those who are putting down payments on second homes. Also, the government has made owners of two houses unable to purchase any more houses. In Chongqing, they specifically are introducing a luxury tax on luxury homes, where as in Shanghai, it only applies to those who own more than one property. In the future, the Chinese government plans on increasing the construction of government subsidized housing.

These kinds of taxes will help continue to grow the middle class and allow them to live comfortably in the one of the largest economies in the world.

Is Serbia the next?

This article talks about mass anti-government protests held in Serbia’s capital, Belgrade. The mass demanded early election from the government and accused the government of corruption and current economic problems. Serbian Progressive Party leader, who organized the protest, said "For 10 years, Serbia has lived under a corrupt government” and called for “more responsible and capable government”. This article once again shows that corruption is like a cancer, it is deeply in the system and the only cure for it, are radical methods like the ones discussed in the article.

France's lost decade

This is a great followup article to the one we had to read for class on friday. Talks about france's more current economic situation and how they are doing through the recovery.

Sarkozy vows to protect the euro

In a brief but poignant article, the future of the Euro is discussed. The economic collapses of Greece, Spain, and Ireland have led many to say that the Euro is in danger of being dissolved. The stronger economic European countries like Germany and France have had to pool their money together to prop up these struggling countries. But is this a sustainable way to operate? French President Nicolas Sarkozy, at the recent Davos World Economic Forum, has said the stability and lasting influence of the Euro is a main priority.

The article highlights Sarkozy's commitment to aiding European countries that have found themselves in near economic ruin. He says the danger of not doing so would lead to the collapse of the Euro, the consequences of which would be devastating.

Should countries like Ireland be able to operate by pinning their success on unstable sources of revenue and unsustainable tax systems because they know they will be bailed out by the EU? While stability in the region may be achieved by the recent 'prop-up' of Ireland, Greece, and Spain, it may come at a price. It may create the precedent that going bankrupt is not as disastrous as previously thought. That's why it's of the utmost importance that 'good individual behavior and surveillance' need to be improved, as the article points out. Sarkozy says that countries need to focus on their individual debts and the imbalance this creates for the EU. If these issues aren't addressed, we may see further imbalance and more bailouts to come.

Buying Facebook's Private Stocks

This article touches on the subject of buying "stock" in volatile private Internet companies such as Facebook. The article talks about the risks and rewards involved with such a purchase. Additionally the exclusivity and difficulty of actually purchasing these types of offerings hinders the process. The most important risk that the article notes is that the financial health of a private firm does not need to be revealed to the general public since they aren't a "publicly traded" company. But on the other hand its quite possible to make large sums of money in such purchases in private firm's shares. If you were to buy Facebook shares early in their time at some secondary trading market, when the company goes private there is a great chance it's IPO will be offered at a price much higher than the price you paid for the shares. Overall these types of investments are hard to come by, risky, and sometimes very reward able. These conditions fit the mold of venture capitalist investors, likewise VC's seem to be the people involved in this type of investing.

The rich and the rest

The article talks about what to do and what not to do about inequality. Yes, reforms would help with the problem. But would they solve it? The skilled and intellectual would still be rewarded and in some instances perform very well. A reform wouldn't particularly solve the issue of income disparity, but it would help the unfair people of the world. It would allow more people to move upwards. It would also boost growth and leave the economy more stable.

I believe that this is the right route to take in improving the economy. yes, a few people wouldn't like it, namely the rich, but the vast majority would and it is what is best for the economy to grow and stabilize. The reform, in my opinion, would do great things for this economy.

Socialism through football

Caught up with Bill Maher on HBO and he had a witty comparison between the NFL and socialism in his New Rules section last Friday. Warning, some explicit language is used.

Egypt's Economy is Near Paralysis

All of the chaos involving the Government in Egypt seems to overshadowing the economic concerns growing in the country. Foreign commerce, tourism, and banking have all stopped leaving businesses and individuals without work, money or food. Individuals are not able to receive their paychecks or use A.T.M.'s and in many cases are not able to put gas in their car because the fuel deliveries are not going into the country. The feeling of the general public is that they will be able to live like this for up to another week but any longer than that and the chaos will quickly escalate.

Spain's unemployment rate grows to 20%

It's fair to say that Spain and its people have enjoyed their fair share of international victories (Nadal, Real Madrid, 2010 World Cup) in recent years. The country earned yet another first place title; but this time Spaniards aren't celebrating. On Friday, the unemployment rate in Spain climbed to a 13-year record of 20.33%, the highest level in the industrialized world. With roughly 4.7 million citizens without jobs now, Spain's economic plight of the past two years only seem to be worsening. As I see it, the Spanish economy looks to be on the final cusp of collapse as it struggles against the quicksand-effects of unemployment, debt, and a banking meltdown. I believe an emergency bailout by the European Union is imminent for Spain, toppling a new domino of the European debt crisis.

Recession and homelessness

This article talks about homelessness hitting not only big cities like Detroit and Newark but the Sarasota-Bradenton area. This area has seen the portion of people living below the poverty line from 2007 to 2009 rise from 9.2% to 13.7%, the largest of any American city, reports the Census Bureau. The article discusses other metropolitan cities seeing an increase in poverty as well. The declining housing situation ended the rapid growth of many of these sunbelt cities were seeing. Although inner cities have higher overall poverty rates, poverty has grown fastest in suburbs. The Urban Institute says that suburban areas are facing “double-trouble” seeing a fall in poverty values and employment , which are connected to poverty. 

Sarasota’s population grew by about 5% for decades, where in 2006 construction, property finance were about 1/3 of the local economy. When property prices dropped the effects were felt and unemployment raised from 3.1% in 2006 to 13.4%% in January of 2010. These combined show the trend found by the Urban Institute.

The article goes on to give accounts of people living in the area and how their lives have been affected over the past years. 

Because Sarasota is a tourist destination, there has been issues with where the homeless sleep, because the city saved little money for social programs. 

I think this article take an interesting look at how poverty isn’t just in inner cities, it is affecting suburbs, and these cities who were prosperous before but decided not to invest in social programs, are now they are struggling to handle the issues. 

Inflation in China

Prices are going up in China, which has caused retailers and manufacturers who rely on Chinese goods and supplies to delay or cancel shipments. This will have an effect on the United States' trade deficit, but will also make prices rise on these goods for U.S. consumers. Another side effect from the inflation is political. There has been pressure building for China to revalue its currency, but with inflation, the problem may be gradually curing itself.

Innovation Is Doing Little for Incomes

Americans' income reflect this slowdown in growth. From 1947 to 1973 — a period of just 26 years — inflation-adjusted median income in the United States more than doubled. But in the 31 years from 1973 to 2004, it rose only 22 percent. And, over the last decade, it actually declined.

Since the early 1970s, most well-off countries have experienced income growth slowdowns like US due to the reaching of a technological plateau. For almost 40 years, we’ve had near-universal dissemination of the major innovations stemming from the Industrial Revolution, many of which combined efficient machines with potent fossil fuels. Today, no huge improvement for the automobile or airplane is in sight, and the major struggle is to limit their pollution, not to vastly improve their capabilities.

Although America produces plenty of innovations, most are not geared toward significantly raising the average standard of living. It seems that we are coming up with ideas that benefit relatively small numbers of people, compared with the broad-based advances of earlier decades, when the modern world was put into place. If pre-1973 growth rates had continued, for example, median family income in the United States would now be more than $90,000, as opposed to its current range of around $50,000.

Will the Internet usher in a new economic growth explosion? Quite possibly, but it hasn’t delivered very good macroeconomic performance over the last decade. Many of the Internet’s gains are fun — games, chat rooms, Twitter streams — rather than vast sources of revenue, and when there have been measurable monetary gains, they often have been concentrated among a small number of company founders, as with, say, Facebook. As for users, the Internet has benefited the well-educated and the curious to a disproportionate degree, but apparently not enough to bolster median income.

Science should be encouraged with subsidies for basic research, as well as private charity, educational reform, a business culture geared toward commercializing inventions, and greater public appreciation for the scientific endeavor. A lighter legal and regulatory hand could ease the path of future innovations.

Never Again?

This article discusses possible causes for the 2008 financial crisis, as well as the reforms and steps the government has taken in the attempt to prevent a future crisis. It discusses the usual "Wall Street" issues as well as the "banks being to big to fail". All the usual criticisms of the 2008 failure, but also discusses the past Senate hearings from 1932 to 1934, investigating the "Great Crash". Which in Perino's opinion, the fundamental reforms to the structure of financial regulation invariably come in the wake of a crisis or scandal. It goes on to discuss the possible solutions, regulations, etc. that could possibly help prevent further crisis. However, they look to be inevitable in a capitalist economy. That ship (crisis of 2008) may have sailed but could things like Illinois debt, chinese economy bubbles, and the current instability of the euro bring the ship back? Its quite a debate.

Made in America. Staying in America.

US company Caterpillar reported on Thursday that sales of machinery in North America in the fourth quarter were up 49% from a year ago. Total North American sales for Caterpillar rose 30%. Also, Sales of electrical components in the U.S. in the fourth quarter rose 22% from the same period last year. Another US company Eaton is forecasting growth of 40% from its U.S. trucking business this year compared to 7% outside the U.S. For autos, domestic production is also expected to outpace foreign demand, but not by as much.

That's great news obviously. It appears to be a sign that many businesses finally realize that they have to ramp up investment on industrial goods to be used in the U.S. As a reult, it might create jobs for Americans, and pull up the consumption domestically.

Federal Reserve toes the line

Entering the New Year, the Federal Reserve shows fews signs of any significant changes to their plans. The federal funds rate is still near zero and there have been no signs that the fed is reevaluating the second round of quantitative easing, despite promises to do so. The fed's bond buying policy creates a great fear of rising inflation. The goal of the bond buying policy is to create jobs and stimulate the economy by putting more money into it. High prices are the risk that many fear will come when the economy absorbs more money. Inflation pressures are low at the moment and the fed does not see any danger in their pursuit of monetary stimulus.

Egyptian Markets Fall as Protests Gather Support

The benchmark for Egyptian index fell today to its lowest level in two years.
The ten percentage point drop forced a halt in trading.
Brokers were quoted saying the drop will continue because of 'panicking investors'.

The article goes on to talk more about the riots in general, I haven't found much more on the economic consequences for Egypt or the area (although it would be assumed to agree with this article - instability always hurts the economy).

New-home sales rise

this article talks about how the housing market has shown some signs of improvement lately. some economists believe that this jolt is only because of the california tax credits that expired at the end of the year. this article also mentions that there are high expectations for the housing market in 2011. I still believe that it will be several years before we see a full recovery in the housing sector.

British Output downhill

The GDP of Britain faced a 0.5% decline in the 4th quarter of this year. Even though forecasters were not predicting drops in the British output, this drop in the 4th quarter is the last component of a 2% drop in the GDP the year of 2010. Construction is a very significant sector of the British economy and the harsh weather of the last quarter is said to have affected that sector significantly. The Business service and finance industries were also participants in the drop in output in this last quarter which reminds us of the intensity of the reliance of the British economy on these industries. The British economy could be about to face a slow year in 2011.

The Recovery: Still Patchy

The recovery seems to be long-lasting and strengthening, leading to hopes that American firms are hiring again, but hold the cheers. America remains over 7m jobs short of the previous employment peak, and figures published on January 7th showed that the economy added just 103,000 jobs in December—scarcely enough to keep up with population growth. The unemployment rate fell in that month by nearly half a point, to 9.4%, but that was mainly because so many jobless workers gave up and stopped looking.

Even though some labor markets are experiencing a strong rebound, this may be mainly due to geographic variations. More than ten percentage points separate the nation’s highest unemployment rate, in Nevada, from its lowest, in North Dakota. Growth has been seen, but it's highly concentrated. Of the million or so jobs added in 2010, two-thirds were created in just 11 states, and one—Texas—accounted for 20% of the country’s net job gains. And even within the fastest-growing states, hiring has been tightly packed in just a few cities, leaving most residents feeling glum. Firms in Professional and business services are expanding through contracts with outsourcing firms rather than permanent recruitment. This reflects the uncertain nature of recovery, but it also indicates a move towards leaner business models.

For now, too much of America does not feel that the recovery is real.

Cocoa prices soar on Ivorian ban

I personally find this article interesting because, it raises an important question which is “to what extend should the politic of country be intertwine with his economy”? I believe that it is unacceptable for Alassane Ouattara to stop all export of cocoa just to arm ONE man. This as seen the article affect people globally, people that have nothing to do with the political conflict in Ivory Coast. This increases the price of cocoa and will increase the price of other cocoa based product such as chocolate.

The economy should not be used for political influence.