Greece has a habit of bringing down Monetary Unions

This article covers the brief history of Monetary Unions, apparently the earliest attempt was recorded in 400 BC between the Greek city-states. This features different Monetary Unions, but I found the Latin Monetary Union interesting. It was a union that was started 1866 with France, Belgium, Italy, and Switzerland. Now remember, the domestic gold standard was still a policy within these countries. Instead of sharing one legal tender, the currencies were pegged to each other.

Once Greece gained it's independence from the Ottoman Empire, it's fragile economy joined the union. Needless to say, they didn't contribute much to the union and the union eventually failed with the beginning of World War I.

Fed-watching gives Asian central banks cause to pause

The following article details how the Central Banks in several Asian nations have lowered their interest rates recently to try to continue growth that is expected to slow down in the future.  However, the Asian nations are watching the US fed as well.  Many of these nations are exporters, and a strong dollar with US economic growth would bode well for their economies.  Therefore the Asian nations will try to implement monetary policy to make sure that their currency's value stays at an exchange rate that is favorable for the US to buy goods and services from them.

http://www.reuters.com/article/2012/01/30/us-asia-policy-fed-idUSTRE80T0XK20120130

Protest in Russia

http://www.economist.com/blogs/easternapproaches/2012/02/protest-russia

In Moscow on February 4th 2012, middle-class Russians began a protest march against Vladimir Putin. Tens of thousands of Muscovites carried creative signs and white balloons, strolled, unfazed by a temperature of -20°C, towards the Kremlin. Politically-affiliated columns of Communists, nationalists, anarchists and monarchists were overtaken and outnumbered by middle-class citizens who valued their private space too much to form columns. This was no revolutionary crowd—they came to display their dignity and demand honest elections, not to storm the Kremlin. They reject Mr Putin not as some ruthless tyrant (he is not) but as the lynchpin of a corrupt system of governance based on the supremacy of the bureaucrat over the private citizen.

The official name of the crowd was for fair elections and for a less corrupt government. Putins has been seen as a strong politician however Russian citizen have been expressing their demands in a strong vocal and organized way.  It will be interesting to see if Putin gets re-elected this March.

Time for action: Another set of measures to tackle deflation

http://www.economist.com/node/21547808

This article talks about how the (central) Bank of Japan is trying to boost Japan's economy. Out of the recent five quarters, the Japanese economy has shrank in four of them. The Bank of Japan has increased its credit-easing program and is aiming for a 1% inflation in order to avoid deflation.

US Postal Service to Cut 35,000 Jobs Amid Processing Plant ClosuresUS Postal Service to Cut 35,000 Jobs Amid Processing Plant Closures

The financial issues faced by the United States Postal Service are mainly due to the changing fashion in which people send mail. By 2015, the USPS will face an annual loss $18.2. With losses like that, changes need to occur within the USPS in order to stay viable. They have closed 214 mail-processing facilities since 2005, and close 226 more before February 2013. Unfortunately, this means many job losses, but a government institution cannot lose that kind of money each year and expect not to be privatized. Some other ways the USPS is trying to lower costs is asking for legislation to cut employee pensions and stop delivery service on Saturdays.

Dow 13,000 is a big number, but it's just a number

The Dow hit 13,000 this week, the highest it has been since the start of the financial crisis. This event has definitely caused people to start talking, but is 13,000 just a number? Many people think so. After all, the Dow only follows 30 companies, with the most expensive stocks carrying the most weight. The Dow can also rise even when the economy is shrinking and the number of jobs falling. But then again, seeing the number 13,000 can play games with people's minds, and different groups of people will react differently. Market investors will see this mark as a time to get out. Even though the Dow is far from being an accurate measure of the economy, it still manages to create a stir.

Shareholders vs. Stakeholder capitalism

Shareholders vs Stakeholder capitalism

As I did some research about Stakeholder capitalism, I found an interesting article from The Economist about the debate revolving around this issue. This topic is raised again due to the recent crisis. Even though the article was posted in mid 2010, I feel that it still raises quite relevant arguments that we should be aware of.

Nelson Mandela stable after surgery

Nobel Peace Prize winner and former president of South Africa recently underwent surgery for abdominal pain. The whereabouts and specific reason for the surgery are unknown, but it has been reported that the 94 year old is currently in good shape and faces no immediate health risks. Although Mr. Mandela no longer plays a physical role in the South African government, he symbolizes change and equality in a country that unfortunately has not changed much economically since apartheid. Some fear that civil unrest and a fight for a change of government will come with the death of Madiba. Lets hope that this country, that has already suffered, will find a peaceful solution to these economic and social problems.

http://www.bbc.co.uk/news/world-africa-17163576

Why the Federal Reserve can't fix housing

http://money.cnn.com/2012/02/23/news/economy/federal_reserve_housing/index.htm 

As it says in the article, the Federal Reserve cannot fix the housing problem anymore. This news is a reflection on the U.S. Monetary Policy Forum, which is a one-day meeting presented by the University of Chicago Booth School of Business. Attendance includes Federal Reserve officials, members of foreign central banks and economists from some of the world’s largest banks and top universities. The U.S. Monetary Policy was held last Friday, February 24, 2012. This forum focused heavily on weaknesses in the housing market and was not very optimistic. Traditionally, the Fed aided the housing market by lowering its key interest rate and thereby owning mortgage rates. The main problem is that the current Fed’s interest rate is already near zero. Moreover, the mortgage rates are already at record lows. However, even through the rates are approaching to a historic low, the housing market remains in a slump. There are some arguments saying that the Federal Reserve can continue to lower the interest rates with unconventional moves; an example is the asset purchases that is called quantitative easing. However, it states (in this article) that such policies are unlikely to have a meaningful impact on housing for now. The main reason for this is that more of the homeowners who might qualify for refinancing at lower interest rates have already done so. Furthermore as Fed president Charles Plosser stated that the Fed’s policies—buying assets that target housing specifically like mortgage-backed securities—has already overstepped its bounds in 2008, when it started buying mertgage-backed securities. He believes those actions have blurred the lines between fiscal and monetary policy, which is a growing problem in the wake of the financial crisis that Plosser calls “dangerous.”As says in the article, according to the purview of Congress, the Fed Reserve officials have recently become more outspoken about problems concerning the housing market. According to St. Louis Fed President James Bullard’s opinion, the housing market is largely out of the Fed’s hands now.

As shown in this article, government intervention is a means to control or alleviate the problems existing in the economy. Nevertheless, policies are not always as effective as they may seem. Therefore, the people and policy tools that should be involved are tough issues that the governments and economists are facing today.

Google to Sell Heads-Up Display Glasses by Year’s End

By the end of 2012 Google is planning to launch a new breed of smart-phone. Android based, these Google Glasses are expected to stream and retrieve data about their surroundings through 3G or 4G data collection, GSP, bluetooth, motion sensors, and more. Costing about the same as current smart-phones, consumers will be able to connect and share with those around them just by looking.
Although the article doesn't directly talk about the economic effects, it does generates some questions about where our country is headed in terms of regulation and privacy rights. where are Google's boundaries in relation to privacy tracking their consumers and recording on the front built-in camera? How is this going to affect driving laws?

http://mashable.com/2012/02/22/google-glasses-2012/
http://bits.blogs.nytimes.com/2012/02/21/google-to-sell-terminator-style-glasses-by-years-end/

Shaun Donovan: Why the mortgage settlement is a fair deal

http://money.cnn.com/2012/02/24/real_estate/donovan_mortgage_settlement/index.htm?iid=HP_LN

As an effort to "stop the neighborhood from burning down" President Obama and Secretary of Housing and Urban Development Shaun Donovan have engineered another plan to help homeowners who have either been foreclosed upon or are currently living in an "underwater" home.  The settlement is $25 billion in relief for homeowners.  $2,000 will go to homeowners who were unjustly removed from their homes. 
Among other things included in the deal were a "bill of rights" for homeowners.  They would be entitled to receiving help from their lenders among other things.  This is a response to the way banks often treated borrows while the borrowers were in trouble.  It was often found that banks did not help their borrowers or even inform the borrowers that they were in trouble. 
This move is in a lot of ways symbolic.  $2000 dollars will not help families without homes.  The move is there to create a legal base to show the Federal Government will help families struggling and how the Federal Government will no longer tolerate the actions of banks who treat their borrowers poorly.  
Something of a move away from Laissez-faire Capitalism.

Europe's Banker Talks Tough

This article focuses on the tough realities that many of Europe Zone countries are facing do to unsustainable government spending and social contracts that have hinder growth. With the Euro Zone on the threat of a recession and many countries nearly on default there have been many different calls for limiting cuts in government in favor for higher taxes to drive revenue and keep debt market stable, but the ECB leader Mario Draghi threaten the latter might have real effects on the growth of the economy. He hopes that euro zone countries will be to able grow there way out of the challenges they face. He also talks about the challenges the Euro will face as there is no way to shift wealth between the different countries that make up the Euro currency.

White House privacy push seeks cooperation

http://www.reuters.com/article/2012/02/23/us-privacy-online-idUSTRE81M0AM20120223

By Jasmin Melvin

WASHINGTON | Thu Feb 23, 2012 5:09pm EST

(Reuters) - The White House proposed on Thursday a "privacy bill of rights" that would give consumers more control over their data but relies heavily for now on voluntary commitments by Internet companies like Google Inc and Facebook.

The White House on February 23 proposed a “bill of rights” that would give online consumers a greater privacy protection and government a greater power to police Internet firms.

Obama claimed that as the Internet grows, consumer trust is essential for the growth of the digital economy.  Therefore an online privacy Bill of Rights is so important.  internet companies such as Facebook and Google have been accused for tracking customer’s online activities and then used to generate advertising revenue. 

36 state attorneys sent letter to Google on wed expressing the concern about Google’s plan to share user’s information across their products without giving consumers an opt-in-option. 

Many internet companies agreed to give consumers a more privacy.  Although, there are doubts about implementation and enforcement. 

As most of us conceive that the digital economy is growing, it is still in an immature stage.  There haven’t been much regulatory on it and there is a risk of system failing, due to how the information online is handled.  We learned in class that there is a market failure if there is a lack of information.  Thankfully, Internet provides information and made our life more efficient.  If internet companies are upfront with people about how they handle the information they collected, advertising revenue wouldn’t be hurt and people won’t feel uncomfortable, but it is an impossible scenario.  Like the article says, the implementation and enforcement of “online bill of rights” is doubtable.    

                

Home Resales Climb Higher

Home Resales Climb Higher

The housing market has been one of the weakest parts of the U.S. economy, but there are signs it is starting to recover after a price collapse that began 5.5 years ago. In 2011, about 4.26 million homes were sold, up 1.7% from 4.19 million in 2010. Seeing an increase in home sales is very encouraging to me because you have to have pretty high consumer confidence to buy a home, possibly the biggest purchase of your life. Hopefully this is a sign that the economy is on the up and we will see continued growth in the economy for the months to come.

Japan's Economy Contracting

With our review of the Japanese economic system this past week, this article seemed relevant.  Japan is experiencing a contraction in it's economy.  There are multiple factors influencing the shrink, but part of it is obviously due to the current economic situation.  High unemployment in countries such as the US can result in problems for Japan which is a largely export-driven economy.  Japan has also been affected similarly by the debt crisis in the eurozone as well as floods in Thailand hurting the regional economy.  Despite the government intervention that exists in the country, Japan is still very much feeling the effects of a global recession.

http://www.bbc.co.uk/news/business-17008164

Postal Service seeks 50-cent stamps

http://money.cnn.com/2012/02/17/news/economy/stamp_price_hike/index.htm?iid=SF_E_River

The US Postal Service is currently in financial troubles and presented their 5-year business plan to Congress last week. One part of the plan was to raise first-class stamp prices to 50 cents (currently it is at 45 cents). The Postal Service said if nothing is done they could lose up to $18 billion in the next five years if nothing is done.

The rise in stamp price could "yield $1 billion a year in new revenue." Also in the plan, they have suggested closing down some mail processing plants and cut the delivery of first class mail from six days to five days. The Postal Service would also cut jobs and force employees who are eligible to retire to retire.  The plan has received opposition from employee unions and Congress. The unions wants Congress to act. The plan of the cuts were introduced in December of last year but were delayed until May 15th, if Congress does not act by then the Postal Service will go through with these cuts.

I thought this article was interesting because we were talking about the government's role in providing certain goods if there are market failures. Do you think the government should run the Postal Service or should a private firm do it?  

The Bank of Japan, Time for action

The Bank of Japan has been criticizing as too conservative for a long time. There is complaint says that the central bank could have boosted Japan’s economy if it had increased its balance-sheet more rapidly during the financial crisis. On February 14th the BOJ finally tried to disprove its critics.

First, it changed its wording on price stability. Instead of calling it an “understanding” among the nine individual policy-board members, it now refers to price stability as a “goal” of the institution.

Second, the BOJ increased its ongoing credit-easing programme by agreeing to purchase an additional ¥10 trillion ($130 billion) in long-term Japanese government bonds by the end of 2012. That triples the amount of its monthly purchases and brings the overall amount of credit easing to ¥65 trillion.

Yet as we read in our class materials, the economy still faces some severe problems: a declining and aging population, sluggish global growth and a still-strong yen that eats into corporate profits. Plus the reconstruction needs after the disaster last year, I would anticipate the recovery of Japanese economy still has a long way to go, and BOJ obviously needs to do more.

The Emergence of Social Capitalism

http://www.forbes.com/sites/haydnshaughnessy/2012/01/23/the-emergence-of-social-capitalism-adaptation-or-threat/

This article presents the interesting concept of social capitalism, which either serves as an adaptation to capitalism or even threatening to be its replacement.  The idea of social capitalism is "socialization", which is basically socializing problems and challenges and even the socialization of data, as the article mentions.  Social capitalization is driven by collaboration and sharing, through the help of technology and crowdsourcing. The idea still has time to develop as we learn more about this trend, but it was an interesting article by the author to consider the potential that the emergence of this type of system has for the future of our economy, whether it is beneficial or harmful.

Obama Offers to Cut Corporate Tax Rate to 28%

http://www.nytimes.com/2012/02/22/business/economy/obama-offers-to-cut-corporate-tax-rate-to-28.html

This article is about Obama and Geithner's plan to lower the corporate tax rate in the United States.  Aside from this being a blatant political move to preemptively counter Republican rhetoric on Obama being a socialist who raises taxes, I think this move could yield positive results.  The idea is to lower manufacturing corporations tax rates from 35% to 25% and non-manufacturing corporations down to 28%.  The idea is to simplify the code and fill in existing loop holes in the system.  Studies have found that over 20% of S&P index companies paid 20% tax rates because of loop holes and claiming profits outside of the U.S.  The changes should increase competitiveness of the current and potential future manufacturers in the U.S. as we already have the highest corporate tax rate in the developed world.

I am not sure if this move will bring in more revenue (if that is the goal) as it claims.  The thing about these corporations is they hire the best accountants to find the tax holes.  That's why we are addressing this issue today.  Hopefully corporations (especially the extremely profitable ones) will take a morality high ground and pay their legal part.

http://www.nytimes.com/2012/02/21/business/global/european-ministers-are-poised-to-approve-greek-rescue.html?_r=1&hp

European Ministers Are Poised to Approve Greek Rescue

After months of tense negotiations, euro zone finance ministers were poised Monday to bring Greece back from the brink of default through an agreement to a second giant bailout in exchange for severe austerity measures — and subject to strict conditions. The Euro Zone is going to watch carefully over the Greek economy to ensure they are taking proper measures to get out of debt along an appropriate time line. They have also established various regulations for the Euro Zone in case of future like events. The Dutch have also recommended permanent lenders' representatives monitor Athens to ensure the austerity of implementation measures.

Jobless claims plunge to nearly four-year low

Jobless claims has dropped to a four-year low, last week. unemployment claims totaled 348,000 in the week ended feb. 11, which is significantly less than predicted forecast of 365,000. Economists say that an improving job market could be the beginning of a new trend. But, despite a seeming improvement, recovery is still threatened by economic instability overseas, like European fiscal turmoil and unrest in an oil-rich middle-east region.

Is China Faking its Economc Growth

http://money.cnn.com/2012/02/16/news/economy/china_chanos/index.htm?iid=SF_E_River

For quite some time, China has been known for its rapid growth and size in the market.They have adopted a "do whatever it takes" attitude as they continue to dominate the market and expand as a country. But has their push for growth occurred too fast? In the past year China reported a 4.5% inflation rate and had a growth rate of 8.9% in the fourth quarter. Some are saying however, that China has understated their inflation by as much as 5% and a recession could be in the future. This high inflation would explain the increase in China's prices. Instead of slowing the inflation, China has focused on increasing spending. Other signs of high inflation are the slow in demand for housing and construction resources. Is China covering up high inflation so they don't discourage investors?

Pietro Ichino and Italy's Labor Laws

Through the experience and works of Pietro Ichino, professor of labor law and author of Inquiry into Labor, Faris provides us some insight on the failures of the Italian system, which is currently one of the debt-laden Eurozone nations forcing the E.U. into crisis.

Ichino argues that the institutions surrounding the transfer of labor are far too restrictive to private companies and unrealistic that they are preventing Italian-based companies from becoming globally competitive. In particular, Ichino takes a shot at a law that protects workers from being fired for except for the most exceptional of offenses perpetrated by the worker. This law discourages private companies from hiring labor in times of question, since the hiring of labor is not an easily reversible cost. In addition, it prevents downsizing by companies, since they are unable to unload labor costs. Another economic downside that I see in this is a reduction of the incentive structure. If someone's job is essentially guaranteed, they have no incentive to improve their skills, job performance, or to work harder.

It seems that in recent, Italian labor laws have changed to become less restrictive, but while the law protecting workers from being fired remains relevant, Italy will still lag behind other nations in terms of business environment. It is disturbing that so many death threats have been made against Ichino and his peers, and may signal how difficult it will be, politically, to change that law and other so-called 'workers protection' laws.

The Stockholm Syndrome

Since we are talking about Sweden in class, here is an clip on Sweden from the Daily Show.

part 1

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
The Stockholm Syndrome Pt. 1
www.thedailyshow.com
Daily Show Full Episodes Political Humor Health Care Crisis

and part 2

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
The Stockholm Syndrome Pt. 2
www.thedailyshow.com
Daily Show Full Episodes Political Humor Health Care Crisis

Regulation: How Much Is Too Much?

http://www.economist.com/node/21547789

This article points out that though America claims to be a lassiez-faire economy, there are tons of regulations on the books, some of which that apply to only extremely strange and rare occurrences.  Many Americans poke fun at these regulations, but they are no laughing matter.  These regulations create seas of red tape for businesses to work their way through haphazardly.  And most of these regulations are never taken off the books, even if they are realized to have little value, which is scary.

The author also points out how this has infiltrated American life in general, with the numerous regulations on flying caused by Republicans to the health care bill passed by Obama that did little about reducing the complexity of the American health care system.  He also brings up the point about legislation like this catering to special interest groups, something that we have talked about in class as a weakness of government.

Q&A: Will China come to the EU's rescue?

It's becoming a familiar scenario in the wake of the eurozone crisis. Indebted nations have made repeated entreaties to Chinese leaders for bail out help in the form of buying government debt bonds or direct investment. And, indeed, Beijing has pledged to help, and Chinese investment in European companies has skyrocketed.

Germany's Hidden Weaknesses

http://www.nytimes.com/2012/02/09/opinion/germanys-hidden-economic-weaknesses.html?scp=2&sq=germany&st=cse

Europe’s strongest economy, Germany, has plans to potentially step in to bail out their careless neighbor, Greece, due to their obligation to bring distortion back into balance and to their better performing qualties over other European countries . Germany’s unemployment has been cut by almost half and they grew by 3.5% in 2010 and 2011. Additionally, they increased their market share in world exports, which exceeded their imports. Although many positive things have recently occurred, there are many reasons why they should resist demands to intervene with this plan. One issue is that Germany’s position is hardly permanent and their economic growth is estimated to slow down. With a decrease in economic growth, their debt would be dangerously high. Additionally, it would make it harder in the long run with their plan to create a fiscal union or a United States of Europe. The question asked is whether Germany really is the star performer or if lucky coincidences just occurred on their behalf. The article explains that the coincidental occurrences of improvements to their structure are more believable and that Germany should not waste their recent gains on Greece. The final advice to Germany is to promote sustainable reforms in Greece, to avoid short-term bailouts, and to lead the way to a true fiscal union for all of Europe.       

Building competitiveness A fare fight Taxi markets are a perfect test of Europe’s willingness to change. The first in an occasional series on structur

MANY a journey starts in a taxi. So it is with the road to deregulation in the euro zone’s economies. Mario Monti, Italy’s prime minister, has prioritised liberalisation of taxi licences; Italy’s cabbies are striking as a result. Greek taxi-drivers have blockaded streets several times in protest against deregulation. Why have taxis become emblematic of the battle to free hidebound economies?

The superficial answer is that taxis are iconic: think of the badges, the bold colours and the recognisable models. The complex answer is that these features are themselves the result of regulation, and not just in the euro zone. From the turning-circle of a London taxi to the medallions on the hood of a New York cab, this industry picks up rules as easily as fares.

Taxi markets should be simple. Costs of entry are low. There are rarely large incumbent firms. On paper, competition should flourish. But low barriers to entry create a risk of having too many taxis on the roads. The number of taxi drivers in New York and Washington, DC, shot up between 1930 and 1932, as the unemployed sought work during the Depression. Such surges lead to rules to reduce congestion. America started to set up new regulatory authorities in the early 1930s; Britain established binding numerical limits on horse-drawn coaches way back in 1635.

Cab fares can be problematic, too. Unregulated competition means that fares fall to little more than a driver’s expenses. These expenses are influenced by distance (fuel costs), duration (the cost of time) and destination. The end-point for a trip is vital: some destinations (airports, say) will pretty much guarantee a return fare; others will not. This means journeys of a similar distance can have very different costs, so working out a fair price is tricky. In an unregulated market passengers would have to search out a competitive price, a time-consuming process of hailing or calling a number of cabs. That allows taxi operators to run an opaque pricing structure.

The response to this problem in many jurisdictions has been regulation to establish a uniform price, giving customers certainty over what they will pay. But as a result journeys that are the same distance end up varying hugely in value for drivers. Short trips around tourist destinations are lucrative; trips to more remote areas, or on congested commuter routes, are much less profitable. Since full-time cabbies cannot raise prices, they may refuse to operate at less popular times or to carry passengers who live at the wrong end of town.

Lessons of the 1930s -- There could be trouble ahead

This article cited the great depression in the 1930s as an example to learn lessons from. It also talked about whether the current recession will lead to a doubt of the value of liberal capitalism.

http://www.economist.com/node/21541388

"On the present course, conditions in developed economies look like getting worse before they get better. Growth in America and Britain will probably be less than 2% in 2012 on current policy, and in both recession is quite possible. A euro-zone recession is likely. The ECB could improve the euro zone’s economic outlook by loosening its monetary policy, but widespread austerity and uncertainty will be difficult to overcome. As in 1931 and 2008, a grave financial crisis may cause a large drop in output. That, in turn, would place more pressure on euro-zone economies struggling to avoid default."

"Even so, prolonged economic weakness is contributing to a broad rethinking of the value of liberal capitalism. Countries scrapping for scarce demand are now intervening in currency markets—the Swiss are fed up with their franc appreciating against the euro. America’s Senate has sought to punish China for currency manipulation with tariffs. Within Europe the turmoil of the euro crisis is encouraging ugly nationalists, some of them racist. Their extremism is mild when compared with the continent-wrecking horrors of Nazism, but that hardly makes it welcome.
The situation is not yet beyond repair. But the task of repairing it grows harder the longer it is delayed. The lessons of the 1930s spared the world a lot of economic pain after the shock of the 2008 financial crisis. It is not too late to recall other critical lessons of the Depression. Ignore them, and history may well repeat itself."

Volcker to Push Back on Banks' Trading

This article talks about the role of the Volcker Rule which limits proprietary trading of Banks and how comment letters are being submitted on each side of the proposed new regulation. Regulation of financial markets have over the last thirty years been trending more towards deregulation but after the crisis of 2008 the Dodd-Frank bill is the frist step to add relegation back into the market. Nearly four years later many regulations have not been implemented this shows how difficult the regulatory climate is and how it is very tough for the government to be effective.

The Most Important Man in Europe

Here is a very interesting article from TIME magazine I really want to share with you guys. The photo of Mario Monti is the cover of Time magazine in Europe and asian edition.


At first glance, it seems impossible that the fate of the world economy rests in Mario Monti's hands. The Prime Minister of Italy has the aura of a gentlemanly grandfather--the polite demeanor, the soft voice, the smiling eyes--not the tough taskmaster Italy so desperately needs to escape its dangerous and protracted debt crisis. Monti, 68, speaks in the long, precise, jargon-laden sentences of an academic economist, which he was only four months ago. He does not employ the rousing rhetoric of a typical politician. He seems like the sort who'd get chewed up by Italy's political machine, not reform it.
Listen to what he says, though, and the real Monti emerges. His words are edged with steel. He talks not merely of ending Italy's economic crisis but also of pursuing a sweeping agenda to set free the energies of a moribund economy, fixing a deadlocked democracy and charging forward with greater European integration. Listen carefully and you realize Monti is not hoping for quick fixes. He's aiming at nothing less than a wholesale overhaul of Italian society. As he recently told TIME during an interview in the Prime Minister's stately office in Rome, "I believe that reforms will not really take hold if they do not gradually come into the culture of the people."
Monti's mission matters to everybody--from Wall Street financiers to Chinese factory workers. That's because Italy's problems have become the world's problems, and Monti must fix Italy to prevent another global financial crisis. His most pressing issue is the precarious state of Italy's national finances, including a mountain of government debt equivalent to more than 120% of GDP--the second highest level in the euro zone, after that of troubled Greece.
But Italy's difficulties run even deeper. From 2000 to 2007, Italy's GDP grew at an average annual rate of 1.5%, compared with nearly 2.2% for the euro zone overall. Though Italy's economic woes are nothing new, when the contagion from the European debt crisis struck, it focused investors on Italy's enfeebled condition. In mid-2011, they began fleeing Italian government bonds, sending 10-year yields past 7%--a level that would eventually become too expensive to bear. The terrifying possibility emerged that Italy--the euro zone's third largest economy--could default or require a large-scale bailout.
And as Italy goes, so goes the euro. Italy looms as the biggest threat to the embattled currency's survival, because Italy is paradoxically both too big to fail and too big to save. While Europe rescued Greece, Ireland and Portugal, a bailout of Italy would require such huge sums--by one estimate, $900 billion--that its neighbors, including giant Germany, would likely be unable, financially or politically, to ante up the cash. Yet if Italy tumbles into insolvency, it could set off a chain of events that unravels the monetary union and puts Europe's even grander half-century experiment in democratic integration in peril.
The consequences of an Italian default--and even worse, a collapse of the euro--are almost unimaginable. Shock waves would ripple through global financial markets to every corner of the world, sinking banks and economies along the way. The fates of Monti, Europe and the worldwide recovery have thus become inexorably entwined.
Monti ended up in this position through one of the more unusual twists in modern European governance. His predecessor, the colorful Silvio Berlusconi, had dominated Italian politics for a decade, but as the crisis spiraled in late 2011, he proved unable to rally the country's politicians to tackle it. Discredited, Berlusconi resigned in November. The failure, though, was not his alone. Italy's political establishment woke to the reality that partisan politics had failed the nation. The left and right "are both incapable of doing the reforms," says Pier Ferdinando Casini, leader of the Union of the Center political party. "We are afraid of losing votes."
The solution was Monti. Italy's President, Giorgio Napolitano, called on him to step in and run the government. The Yale-educated economist was president of Milan's Bocconi University, and he had studiously avoided the corrupting influence of Italian domestic politics throughout his career. But, he says, the request to serve came "at such a severe time of crisis for Italy that I could not refuse."
Today he reigns over Rome like a new Caesar. In effect, the democratic process has been suspended to allow an unelected technocrat to implement policies that elected politicians could not. Monti calls it a "temporary mutual disarmament" of the left and right. Nearly all the major political parties set aside their differences and threw their support behind him, and that has given Monti almost uncontested control of the nation's decisionmaking.
He has used his mandate to the fullest. In December he implemented a biting austerity program of tax hikes and spending cuts, aiming to balance the budget by 2013, and a reform of the country's pension system with phased increases in the retirement age. In January he announced a sweeping liberalization of professions that are regulated and protected from open competition, like pharmacists, taxi drivers and lawyers. Next on the agenda is a major overhaul of the distorted labor market to make it more flexible and create jobs for the nation's army of unemployed youth. His efforts have already had an impact. Bond yields have fallen by about 1.5 percentage points since Monti took charge, to (a still elevated) 5.6%, easing fears of an imminent European meltdown.
Conflicts with Interest
Not everyone is enthralled, of course. Monti is taking on entrenched interest groups that have repeatedly defended their privileges, and they're not going down without a fight. Taxi drivers staged strikes in Rome and other major cities. Pharmacists are threatening to do the same. Truckers blocked roadways to protest a fuel-tax hike. To these constituencies, Monti's reform agenda is radical, even dangerous. "In Italy, the economy was more based on rules that used to be applied to create wealth for the general public," says Loreno Bittarelli, president of Uritaxi, a national taxi union, which is opposed to Monti's program. "I don't understand why suddenly the only solution [to the crisis] is to get rid of the rules." His enemies see him as an elitist who is unsympathetic to the struggles of middle-class Italians. "Monti has always lived in the salons," says Bittarelli. "He really doesn't know the problems of ordinary people."
Monti's response might surprise. "Maybe they're right," he says. Though Monti has attempted to appeal to the masses--he refused to accept his Prime Minister's salary out of a spirit of shared sacrifice--he cannot honestly claim to be a man of the people. His father was a banker, and Monti was once an adviser to what some see as the quintessence of rapacious capitalism: Goldman Sachs. He has not run in any election for any office, and his friends think he never will.
Monti believes his detachment gives him an edge. The cozy relationship between politicians and their constituents, he argues, is the exact source of the nation's woes. "Italy has piled up huge public debt because the successive governments were too close to the life of ordinary citizens, too willing to please the requests of everybody, thereby acting against the interests of future generations," he says.
And don't expect him to bend. While he was commissioner for competition at the executive body of the European Union from 1999 to 2004, he earned the nickname Super Mario for butting heads with some of the world's most influential businessmen, from Microsoft CEO Steve Ballmer to former General Electric CEO Jack Welch. In 2001, Monti squelched a merger of GE and Honeywell, charging that the combination would smother competition in the aviation-equipment industry. Monti came under intense pressure from the U.S. to change his mind--Paul O'Neill, then U.S. Treasury Secretary, labeled his stance "off the wall"--but Monti refused to blink. Welch describes him as "cold-blooded."
The Danger of Success
Ironically, the more successful Monti becomes, the more trouble he might face. The country's politicians have backed him only because of the economic crisis, so the more reforms he implements and the further Italy pulls back from the brink, the less incentive they have to support him. As austerity measures begin to hurt, his popularity could also begin to evaporate. That potentially leaves Monti with a very narrow window of opportunity to implement change. In theory, he will remain Prime Minister until the next election, in the spring of 2013--barely enough time to realize his agenda--but he could find that window closing long before then. "The point is how to keep this pressure [to reform] even once the most visible elements of emergency hopefully are over," Monti says.
For Monti, the future of Italy and the future of Europe are intrinsically connected. He has always been a passionate advocate of European integration and has consistently pressed for more of it. In his TIME interview, Monti expressed gratitude for the support given to him by the rest of Europe but lamented that faster euro-zone reform might have blunted some of the worst effects of the crisis. An unwillingness to devote sufficient resources to expand the zone's bailout fund, for example, has hampered the creation of a so-called firewall to protect Italy and other struggling countries from contagion. He also favors the introduction of eurobonds, which would be backed by all euro-zone governments, though other European leaders have fiercely opposed the idea. However, the bickering that has stymied such action, he believes, may finally be coming to a close. "I think there is a genuine wish on the part of the E.U. and Germany and France to again play an active game with Italy for a relaunch of European integration," he says. "I think we will be seeing an acceleration of the good news."
He's seeking more good news in the U.S. On Feb. 9, Monti has a high-profile summit with President Obama, and then he is off to New York City for meetings with the U.S. financial community. If he can convince global investors that Italy is truly reforming and is a safe place for their money, he will alleviate any fears of an Italian default. That alone would help further Monti's status as the man who's saving Europe. Italy's problems, though, run so deep that reform will need to continue long after he exits the scene. Monti hopes his administration can act as an example for his successors--of the benefits of the spirit of compromise. "Others will come," Monti says, and they will sense that public opinion no longer tolerates daily political conflicts whose objective is "to destroy your adversary and not to save the country." Italy and the entire global economy can only hope that is true.

War on American Manufacturing?

http://www.bloomberg.com/news/2012-01-18/america-s-dirty-war-against-manufacturing-part-1-carl-pope.html?sXFc&cmpid=spn.evrgrnuv.leaders.dirtywar.autotarg&sQZc 

This fascinating article about the state of manufacturing in America starts with a surprising premise: manufacturing jobs are not going overseas because of lower wages. In fact, Germany and Japan have higher wages than the US, yet they are both strong manufacturing nations. So what's going on? This article argues that the US has set up a serious of policies that take away the incentive for businesses to create American factories. These range from unions to high taxes to other regulatory pressures. One example is a man who wanted to build a plant on Long Island, until he was told that in case of an emergency, the golf courses would receive water before the factory did. Regardless of whether or not manufacturing is an area that America wants to revive, this kind of anti-business attitude will only hurt the economy.

U.S. Trade Gap Widened in 2011

This article talks about the widened deficit of U.S. trade deficit as rising consumer spending and restocking by U.S. businesses led imports to grow faster than exports. Domestic economy is pulling in more foreign goods to feed reviving demand. Export growth is continuing but has eased from high levels seen early last year. Exports have been a driver of the U.S. recovery. U.S. trade deficit with China grew sharply in 2011, rising 8.2% from the year before to $295.7 billion. Trade with China is a hot-button issue in this election year and is likely to gain more attention with the visit to Washington by Chinese Vice President Xi Jinping.

We Can't Keep Growing Like This

http://www.businessinsider.com/we-cant-keep-growing-like-this-2012-2

This article, although debatable, suggests that our world population cannot sustain itself in the future, in that that we cannot sustain ourself if our population continues to grow or if our economies continue to expand. The author of this article, Henry Blodget, further suggests that we are content with the fact that we will survive in the short run using up our finite natural resources, and that our brainpower and innovation will find a way to tide us over and support ourselves. It is controversial to say this, but as selfish humans, maybe we don't seem to care about the future of humans enough to change anything about how we live today as we are all fueled by our own selfish intentions and have finite lives. I don't necessarily agree or disagree with this article, but it is something to think about.

The rising cost of catastrophes

This article is about the rising costs that are associated with natural disasters. The article states that there is little evidence that more hurricanes come ashore than a century (so we cannot blame these disasters entirely on global warming). However, these natural disasters like "earthquakes in Japan and New Zealand, floods in Thailand and Australia and tornadoes in America" last year are making real economic problems for companies and citizens. The reason for this is that people and companies are inhabiting areas that are of high risk for natural disasters, therefore if disaster is to strike the "clean up" will be much more costly than if it was just farm land for example. This article also aims to help prevent some of these costs. Because, as we've discussed in class even planned economic systems cannot account for things such as natural distasters. Firstly the article suggests that buildings are built soundly and maintained, also suggesting that building (like schools) should be designed for dual purpose. Secondly, the article suggests that the government regulates  companies and individuals so that they will not only develop for their own interest and build without the proper planning and rationale. Thirdly, governments should encourage people not to live in places that are prone to natural disasters. As the article states, disasters are inevitable and cannot be planned for, but it is possible to plan for the probable. 


http://www.economist.com/node/21542771

Payments in the E-Market

This article is relevant to the future of the monetary market and why consumers and businesses will eventually convert to e-currency.

It should be stated that your debt card, gift cards, credit cards are example of e-money. In a cashless society, you can no longer bribe anyone with a Mr. Lincoln. The Federal Government is the largest user of e-currency as it uses Fedwire to transfer any funds between foreign governments and U.S. government agencies. This is primarily due to the large amount money within the transfer, increasing the convenience for the government.

The goal of e-currency is to get corporations and consumers to jump on board and this will be solving problems with the current payment system. Currently, only 1% of corporations use trade payments electronically. 90% of consumers still rely on checks and cash for their payments. In order to have consumers and corporations jump on board and increase electronic transfer payments, the market will need standardization, economic incentives such as frequent filer miles, and education as many may be too scared about the programs.

What are everyone's thoughts on cashless society?

Income inequality: who exactly are the 1%

The article talks about the fact that Mitt Romney is the first US presidential candidate from the area of high-level finance. He serves as an example of the changing perception of the "rich" in America. Nowadays they are mostly people of finance. Chicago university's Dr. Kaplan thinks that finance is the reason of a rise in inequality. Finance professionals have already replaced top businessmen and corporate executives at the top of an income ladder. The percentage of people involved in finance among the top 1% of the richest is noticeably higher in english-speaking countries. Politically, the rich voters also have eclectic views supporting both liberals and conservative. It is interesting to note that many of the top 1% stated their support of the "Occupy Wall street" movement. This is because many of them have build their businesses themselves and consider Wall street as the place where businesses are "taken apart and controlled by someone else". Overall, the article gives us a pretty good idea about the demographics of the rich percentile, their political, economic and social preferences.

Trouble in the air, double on the ground

http://www.economist.com/node/21547283

This article is about the European Union trying to put tighter emission regulations on airplanes and China's anger towards them.  Many countries have displayed disdain over the regulation changes, however China is the only country to officially ban their airplanes from complying.

This article really speaks to how governments rank priorities differently and weigh externalities differently depending on morals.  Should private enterprise be accountable for every negative externality they cause? Will these costs be fed directly to consumers, I would say so, especially in a strained and competitive industry like commercial airlines.  To digress, should air lines be given back money for positive externalities associated with frequently air travel?  I am indecisive.

The Investment You Think Is 'Safe' Is Actually The Riskiest In The World

http://www.businessinsider.com/warren-buffett-the-investment-everyone-thinks-is-safe-is-actually-the-riskiest-in-the-world-2012-2

This is an interesting article about the comparative risks of investment and cash. According to Warren Buffett, cash, which many consider to be the safest investment, is actually the riskiest. The reason for this seemingly counterintuitive observation is inflation. Any cash saved is virtually guaranteed to continuously lose a great deal of its value due to constant inflation. To illustrate just how major a factor inflation is, a dollar today has about the same value as 3.8 cents in 1900.

Buffett does not, however, recommend having no cash. The depreciation of cash can be made up by its flexibility in some circumstances, such as when one would otherwise need to sell long term investment when their value is low to raise money. Still, money is generally safer when invested than left to gradually lose its value.