Will growth keep the stock rally going?

In the first quarter of 2012 the Dow Jones industrial average, the S&P 500, and the Nasdaq all increased substantially.  The question is will the stock market continue to grow? In the past 5 years the S&P 500 has risen every year and had an average growth of 4.5%.  Some say growth is due to The Fed's support of the economy.
http://money.cnn.com/2012/03/31/markets/lookahead/index.htm?source=cnn_bin

Consumer spending jump highest since July

http://money.cnn.com/2012/03/30/news/economy/income-spending/index.htm?iid=SF_BN_River

 

It is reported that the consumer spending rose 0.8% compared to January, which is the biggest one-month jump since July of last year; after adjusting for inflation, spending increased by 0.5%. Compared to a 0.2% increase in income in the same period, it indicates that consumers are/were more willing to spend and it is a good sign for economic recovery. According to this article, spending on durable goods rose 1.6% in February, which was driven by strong auto sales as automakers reported the best new-car sales in four years. Moreover, spending on nondurable goods, such as food and gasoline, rose 0.9%. This increase is virtually due to the higher prices of commodities. However, spending on services, such as airfare and cable TV, grew only at a moderate rate at 0.4%. The overall increase in consumer spending is 0.8%.

Furthermore, as reported in this article, the job markets have created more than 200,000 jobs in February, and this improvement has helped lift overall income. Stuart Hoffman, chief economist with PNC Financial, believed that the estimated rise in income is likely to be higher in coming months, as more people now have jobs. Additionally, as mentioned above, the increase in spending on nondurable goods is virtually due to higher prices of commodities such as a higher price of the gasoline. Hoffman believed/said that “at least in the February numbers, it does not appear that higher gasoline prices are deterring consumers. Instead, they [consumers] appear to be lowering their saving in order to finance their spending. As the labor market continues to improve, income growth will allow consumers to boost spending” To conclude, the aggregated effects/phenomena as mentioned above are a good sign for the economic growth.

Cities get desperate when it comes to their debt

The federal debt is constantly covered in news, especially with policymakers starting to preliminary introducing budgets for the next fiscal year. However, how about municipal debt? Cities such as Detroit are considered in critical condition when it comes to the amount of debt they owe. Remedies include declaring bankruptcy, an oversight problem monitored by the state, or avoiding bankruptcy as all costs due to the negative stigma attached to the concept.

Fed's Low Interest Rates 'Toxic' for Economy: Pro

While the U.S. Federal Reserve has reiterated it would keep interest rates near zero until late 2014, Sam Chandan, Chief Economist at Chandan Economics, says that low interest rates distort asset prices and are "toxic" for the economy.

"An extraordinarily low interest rate environment has become our drug of choice in this country. But the potential impact on the economy over the long run, in terms of how it distorts the markets, is potentially quite toxic. Its something we got to back away from," Chandan told CNBC.

The U.S. has not had an "interest rate environment that looks anything close to normal for a long time" and when that happens it will be difficult to handle. He gives the example of the housing market, which is struggling to recover despite low mortgage rates.

http://www.cnbc.com/id/46901256

Senate Upholds Big Oil Tax Breaks

Though I see where President Obama is coming from when he says that billions of dollars are going to the oil companies, but what would happen to gas prices if all these tax breaks were to be eliminated. We would see $5/gallon gas prices. I like the idea of going green and finding new renewable resources to power our nation, but that is not going to happen for a while and we should support oil companies as long as oil is such a huge component of the economy.

Jobless claims fall to four-year low

The number of people filing for unemployment fell to a 4-year low last week. The four-week moving average (considered to be a measure of health of the overall market by economists) also fell to a four-year low. The Labor Department has estimated a net gain of almost 250,000 jobs over the past three months, while the unemployment rate has fallen to 8.3%. Even 42% of the CEOs from the Business Roundtable said they expect to hire workers in the next six months. Ben Bernanke still cautions that while there has been improvement in the labor market, it hasn't been matched by growth in the overall economy.

Sun Hung Kai Chairmen Arrested in Hong Kong

This article describes two good examples of corruption within an economy. The first example is bribery and the second is terrorism.
The Kwok brothers are two of the most powerful property business men in China, and are both billionaires. Both brothers along with Rafael Hui, a former city official, were all arrested in Hong Kong recently on suspicion of corruption in the form of bribery and misconduct in public office.
Hong Kong's laws are modeled after the British Legal System, which states that law enforcement agencies must offer bail to the suspects before they can decide whether or not to press criminal charges. So after the men were arrested, they left the ICAC law enforcement office.
Unfortunately this is not the first experience with corruption for the Kwok family. In 1997 former CEO of the family business, Walter Kwok was kidnapped and held for a ransom of $77.3 million. After his release he was able to re-enter back into the business and operate successfully for a number of years until 2008. In 2008 Walter was caught committing infidelity, which later caused his brothers to remove him from the executive board of the company.

3.1 Million "Green Jobs"

http://money.cnn.com/2012/03/29/news/economy/green_jobs/index.htm?iid=HP_LN

The Federal Government has reported 3.1 million U.S. are "Green Jobs."  Contrary to popular belief, green jobs are not only jobs involving green technology.  Some of the jobs listed include thrift stores and school buses.  These jobs are subsidized by the government and are considered "Green" in President Obama's plan to create 5 million green jobs.
The Federal Government's subsidizing of green jobs (the real ones, like building solar panels, not the thrift stores.  That sounds like political maneuvering.) is an example of the government acting to reduce externalities.  It also shows some slight socialism in the markets.  By subsidizing "green industries" the government is allowing the businesses to survive where the market might otherwise dictate that the businesses fail.  It is not directly dictating what should be produced, but it is making it easier for some companies to do so.

Do the Rich Work Less as Their Taxes Increase?

Do the Rich Work Less as Their Taxes Increase?
The wealthy, according to the argument, are just like everyone else when it comes to incentives. If you tax their income above a certain rate, they will stop working, stop creating jobs and stop creating wealth that gets spread around the economy. (The term “going Galt” comes from Ayn Rand’s hero in “Atlas Shrugged,” John Galt).  Jeffrey Thompson at the University of Massachusetts Amherst Political Economy Research Institute says the “going Galt” argument doesn’t hold up to close research. According to the data, “affluent households are unlikely to make substantial changes in their ‘real’ economic behavior in response to modest tax increases.”


So who do you believe? How much do you think taxes affect the rich behavior in America?

What if the health reform dies?

http://money.cnn.com/2012/03/26/news/economy/health-reform-mandate/index.htm?iid=SF_E_River

The main topic discussed in the article is whether or not the Affordable Health Care Act will be ruled constitutional by the Supreme Court this week. The act would allow people to get affordable health care insurance. The argument for the mandate is that a majority of Americans will be insured and it would reduce the costs imposed by the uninsured on everyone else. This is the argument because when uninsured individuals go to the emergency room to seek treatment they most likely will not pay for the care they received. This cost is taken on by the hospital which the hospital passes on to the insured by raising the cost of services that they use. If the court finds it unconstitutional then the whole law could be struck down or the just the mandate could be repealed on its own. Should the government play a role in health care like other countries like Canada and Great Britain or should the market decide who is going to be able to pay for health care services?

Economic Recovery Will Fail Without Our Trust

Behavioral economist, Jeremy Riftkin, hypothesizes that modern economists fail to recognize a second "invisible hand" in today's market, social trust. He claims that commerce and trade are an extension of cultural relations, and without social trust markets would collapse. Current economic problems are at large due to a lack of trust domestically and globally. There is a lack of consumption because there is a fear that other's won't reciprocate.  While developments in technology has enabled the integration of markets, causing interdependence between economies, the concept of the nation state is hindering the expansion of our empathy to the human species as a whole.

http://www.huffingtonpost.com/jeremy-rifkin/economic-recovery-will-fa_b_448353.html
http://www.newscientist.com/blogs/culturelab/2010/02/jeremy-rifkin-the-third-industrial-revolution.html

Bernanke Warns on Weak Job Market

In a recent speech, Bernanke claims that although there has been a recent decline in unemployment, this trend will not continue unless the economy grows more quickly. He shared rates giving evidence that a large share of the unemployed have not had jobs for six months or more. Roughly 40 percent of the unemployed fall into this category, according to government statistics, compared to 25 percent after other recent recessions. So unless our economy begins to strengthen more rapidly, the recent trends of lower unemployment will not continue.

www.nytimes.com/2012/03/27/business/bernanke-warns-on-weak-job-market.html

The Good, Bad, and Ugly of Capitalism

http://www.nytimes.com/2012/03/17/opinion/nocera-the-good-bad-and-ugly-of-capitalism.html?scp=2&sq=capitalism&st=cse

In this article, the chairman and chief executive of Starbucks, Howard Schultz, discusses the importance of moral capitalism in business today. He states that profitability is very important, but treating your customers, employees, and coffee growers should be just as important. Starbucks has embraced a large societal role and explains the importance of the value of your company. In this article, Starbucks' moral capitalism is compared to the “rip your eyeballs out” capitalism of Goldman Sachs. Goldman Sachs corporate culture value is more concerned with making as much money as possible, by whatever means necessary, than their own customers. Many Americans think this “amoral, eat-what-you-kill capitalism” is very repulsive. Also, that these practices don’t represent the values that Americans want to see in corporations. Finally, the article reveals that sometimes the best way to do well is to do good. It is interesting to me that even corporations have and need a system to be efficient and acceptable in the economy and that different corporations can learn from these other corporations with different values, such as Starbucks and Goldman Sachs.         

Chinese leaders ponder a stable economic future

It was not a huge surprise. As the world's largest exporter, China is being buffeted by a downturn in demand from its markets in Europe and elsewhere.
Continue reading the main story
“Start Quote

Every single country that has followed this model has ended up with a serious debt problem”

End Quote Michael Pettis Peking University

But the figure of 7.5% was also a clear sign that China's leaders want officials to focus on more sustainable economic growth.

Many economists are stressing that China needs to undertake fundamental reforms if it is to avoid serious economic problems in the future.

The oil industry's plan to lower gas prices

link: http://money.cnn.com/2012/03/23/news/economy/oil-industry-gas-prices/index.htm?iid=SF_BN_River

Oil is hands down one of the resources that Americans rely almost every single day.  Since it is relied upon so heavily there is constant debate on the prices of gas and the way in which we attain our gas.  Currently the oil industry is trying to reach out to people and say that they would like to lower the prices of the gas that we use so often. They are proposing that we drill more, tax less and cut regulation as well.  It is obvious that the oil industries point of view and the Republican party point of view go hand in hand.  Obama has been criticized for imposing heavier regulations for pollution and the reduction of global warming. The oil industry proposes that their ideas will increase oil production greatly, which in turn would lower the prices of gas. Especially if the production came domestically.  The issue is that while Obama has been in office oil production has increased roughly 15% and the prices certainly have not decreased.  One of the oil industries main ideas are to have Obama announce that there will be a plan to help decrease the price of oil simply to get consumers to expect the decline in price, and the price will then decline.  I feel that our continuing dependence on oil is a slippery slope and that although it may seem like the best thing to do right now, we need to continue to try and find cleaner, more efficient ways for energy.

The Castros, Cuba and America: On the Road Toward Capitalism

Here's the link:
http://www.economist.com/node/21551047

It has been known a while ago that underlying the Cuba's communist shell is the changing and reforming of the whole system into some form of capitalism. Even though Raul Castro might say that he doesn't want to dismantle the current system in Cuba, I think that's just mere words. And you know what - China and Vietnam also have to go through the same ruse - "no we're not trying to dismantle the (communist) system." It's just the way it has to be done.  Just like China or Vietnam, I think that the capitalistic form of Cuba (in the future when they totally transform out of socialism) will be not quite similar to the US's.

Of course, the transition's biggest obstacle would be mainly political and oppositions from those that benefit the most from the system (which usually is the minority). It will be interesting to see how Cuba get out of this.

Apple and the risks of trading 29,000 times per second

A mistake in the stock market on friday leads companies such as apple questioning software stability. On friday BATTS and APPL stocks dropped by $55 due to a software malfunction. These drops were quickly reported and erased. Unfortunately this is not the first time that there has been a software malfunction. There have been a few different instances of software malfunctions and companies are beginning to question why the results of these malfunctions are always a decrease in stock value.

Opening a Business in Brazil Just Got Easier

In Brazil, it is historically very difficult to start a business there. The World Bank ranks it 120th out of 183 countries in terms of how easy it is to set up a business there. It's difficult due to legal restrictions that you must have two partners to form a limited-liability company, and have someone you know bear the financial costs of the start-up-- no bank loans.

However, a new law was passed in Brazil, where a single person can start a single-holder limited liability firm, with a capital requirement of $35,250. There will be some challenges along the way, such as the implementation of the law and the transition period it may take; as well as potential hostility against foreigners who will try to enter the market.

Overall, I am curious to find out the implications this law will have on Brazil's economy, with more firms entering the market and perhaps raising overall GDP for their country. Only time will tell.

http://www.economist.com/node/21543210

An Interesting Perspective on the Failure of Incentives

In his new book, "Why Countries Fail", Daron Acemaglu argues that the economic success of a country is most closely correlated to the degree in which the average individual shares in the growth of the economy. This concept relates both to failures that have occurred in strictly (or primarily) capitalist economies as well as socialist economies.

If income inequality becomes too extreme, poorer workers have less incentive to work hard because any generated surplus will be taken by the elite. Adam Davidson gives the example of Haitian mango farmers, who had the expertise and resources to vastly expand their production, but did not because they also had the legitimate suspicion that a more powerful member of society would claim title to their land. This is a failure of the market, as property rights are not safely owned, rather than a failure of the perfect market system. However, corruption is an observable trait that frequently increasing when the balance of power shifts towards extreme inequality.

Although Davidson in his article does not address the relevance of Acemaglu's ideas to socialism, it is not hard to see that the lack of incentives that we have discussed in class relates to the individuals ability to share in the growth of the economy. Workers in socialist systems do not receive continual extra benefits for innovation or additional work, so their ability to create personal economic gain alongside the economic gain of the society as a whole is limited.

The gap widens, again

Quoting President Obama in his January state-of-the-union message, the struggle for a level economic playing field is the “the defining issue of our time”. This article states that the income gap in the United States is getting bigger, even worse than the Great Depression.

The data shows that income gaps reached extremes last experienced in the late 1920s. Currently, the top 10% of American earners brought in 46% of the nation’s salary income in 2007. "The top 0.1% alone earned over 12% of all salary income." Now in 2012, the condition could only be worse. These striking totals capped years of rising inequality. Between 1993 and 2010, over half of all real income gains in America flowed to the top 1%. Even worse, during the current recession since 2007, the income level of the bottom group has been decreasing, unemployment rate has been increasing, which cause the wealth gap augmented.

The tax action could be a way to solve this severe condition, but this piece of news thinks it is very unlikely, or highly depend on the presidential election result.

How farmer's helped transform China's economy

This story links up very well with the topics we have covered over the last two classes. The NPR story tells how a group of small Chinese villagers divide land and grant ownership rights within a community. By granting property rights farmers took a new pride in there work and productivity increased. These results where noticed by leaders and helped lay the ground work for a more free society that provided property rights for all of China. What do you find most interesting about this story

Caterpillar looks to fund growth in China

Many wouldn’t find a silver lining in the recent disasters that have left Japan crippled. How could anyone with all the casualties, buildings in ruins, and power plant crises! This isn’t the case for a rapidly growing construction equipment company. The caterpillar company has found successes in the aftermath. The construction and mining equipment manufacturer has had a stellar year with its stock up nearly 25% year-to-date after the company delivered record 2011.  The mess left behind, along with more developing areas, and China’s expansion plans have created a market segment perfect for the Caterpillar Company. Their growing market dominance in the US has caught the eye of Japan with the need for equipment not only needed for the clean up but also for the rebuilding. This along with the surrounding areas shifting from agriculture to a more developed city make-up has created a need for the company. This relevant no only due to the recentness of the earthquakes and the global effect but also this is a great example of foreign company being wanted to come in establishes dominance. The caterpillar probably would not have been as welcome if it wasn’t for the disasters.  

http://money.msn.com/top-stocks/post.aspx?post=fe7efdc6-3a95-4383-9ace-ef34aa21d9cc

British Government to Issue Tax Breaks for 20 Million

http://www.independent.ie/business/european/british-budget-2012-2bn-spending-cut-funds-tax-breaks-for-20-million-people-3057034.html

This article describes the recent British attempt at tax reform.  It describes two key changes being made to the British system: raising the tax-free allowance of income from £7,475 presently to £10,000 by 2015 and a reduction (from 50p to 45p) in the top tax rate.  The latter will probably be controversial, as many people, both in Britain and America, believe the government coddles to the rich.  The way to prevent this from happening, the British government says, is to reduce the loopholes that the rich use.  This sounds like a good idea but will it have any real effect?  And if so, could the United States try to reform its tax system along similar lines, specifically with making the rich more accountable?

The National and Regional Economic Outlook

This article, or rather speech by William C. Dudley, the President and Chief Executive Officer of the Federal Reserve Bank of New York details the current national economic conditions of the US economy. He explains that the economic recovery is looking more solid, and that we have had the most steady growth in the past year than we have seen in awhile. However, it is far too soon to conclude the actual condition of our economy, and how long it will take until we are "out of the woods." He goes on to discuss growth, employment and the current housing situation, three main topics of concern within the past few years.

http://www.newyorkfed.org/newsevents/speeches/2012/dud120319.html

Credit-rating agencies

Letters from India

India’s ratings agencies are thriving—without a CDO in sight

Mar 17th 2012 | MUMBAI | from the print edition

THERE’S a land far from Wall Street, where credit-rating agencies are not outcasts and can look in the mirror without feeling sick. This paradise is India, with six licensed ratings agencies, the biggest of which, CRISIL, has a market value that has just soared beyond $1.3 billion. (Moody’s, one of the three big Western agencies, is worth $8.9 billion.) These outfits use the same model—the issuer of debt pays for the rating—as their counterparts in rich countries, where the resulting conflict of interest helped devastate the economy. How exactly has India got things right?

Cynics might say the rot has just not had time to set in. Debt markets are still puny and the three big agencies, CRISIL, CARE and ICRA, were all set up between 1988 and 1993 and sponsored by worthy financial firms that were often state-controlled. But India’s financial supervisor, SEBI, has also been on the ball, passing rules on agencies in 1999, about a decade before the West got serious. If an agency wants to rate bank loans it also needs permission from India’s central bank, which takes a dim view of financial gymnastics.

The rupee debt market is ring-fenced from the outside world, which may have stopped sloppy habits immigrating. And those agencies with foreign shareholders seem to be fairly independent. Standard & Poor’s owns 52% of CRISIL, a position it took in 2005, and Moody’s owns 29% of ICRA. Both American outfits rate non-rupee debt issued by Indian firms separately.

Good regulation and distance from the rest of the industry have helped, but India’s agencies have also diversified cleverly. Rather than growing by rating structured products, most firms have stretched the business to small companies and beyond. ICRA rates local-currency debt in Indonesia (it leaves hard-currency stuff to Moody’s, its shareholder). Vivek Kulkarni of Brickwork, a newish agency, says it may offer quality ratings for hospitals.

Most firms are spreading beyond ratings altogether. CARE, which had been wary, wants to develop its consultancy business “as long as we can take care of conflicts of interest,” says D.R. Dogra, its chief. Naresh Takkar, the managing director of ICRA, reckons 35-40% of its sales come from services other than ratings. CRISIL, an impressive outfit, is furthest down this path with half its sales from abroad, mainly from helping banks with equity research and risk-management models, demand for which has soared thanks to more regulation in the rich world. Its boss, Roopa Kudva, says that in the mid-1990s it downgraded lots of its ratings and saw customers pull business from it as a result. The experience helped convince it that it needed to have other income streams to protect its independence.

What might threaten ratings’ integrity today? Some fear more new entrants that might offer softer ratings to win market share. Regulators will need to watch out for opportunists tempted to enter the industry given the frothy valuations agencies now enjoy. A deal between shareholders last year valued CARE at $300m-400m, and a listing seems likely.

The other worry is the economy, which is going through its worst patch for a decade. The local system of ratings notches isn’t directly comparable with international systems, but the ratio of upgrades to downgrades is now heading towards parity, from two or more a year ago. There must be doubt about the willingness of some local agencies to pull the rug from under one of India’s big banks or business houses if it got into trouble. Such firms can be as prickly as they are powerful. And as the bond and credit-default-swaps markets expand, the stakes will get higher. Agencies will be under pressure to react faster and issuers will be hit harder if they are downgraded. India’s agencies have passed the tests of the past decade. There will be more.

from the print edition | Finance and economics

Two Steps Back

This article talks about a recent agreement that between the United States and North Korea. The U.S. promised to give aid to North Korea in the way of food and supplies if North Korea would promise to allow UN officials access to the working or nuclear weapons within Korea. North Korea has already violated this in a way because they announced on March 16 that they will launch a new satellite called Kwangmyongsong-3.
While a satellite is not necessary a weapon or a missile, the UN says the technology of a satellite is so similar to a missile that the ban on nuclear weapons should include a ban on satellites. This article relates to our class because North Korea is one of the two countries who still uses a socialist system, and it is big news if they are willing even slightly to come make agreements with the U.S. or the United Nations.

JPMorgan Cracks the Mutual Fund Top 10

This article details the big move JPMorgan has made to be a major global competitor in the fund market.  They have taken advantage of a huge name brand recognition to seize an opportunity that many of their competitors have shied away from for the most part.  Their growth indicates that they likely will continue to move up the list with their assets and funds under management consistently increasing.  Many banks are unwilling to be this risky however, I think this focus on fund management will pay off in the form of cold hard cash.

http://www.businessweek.com/articles/2012-03-15/jpmorgan-cracks-the-mutual-fund-top-10

Cambodia Embracing Capitalism With First IPO Since Khmer Rouge

Cambodia is going IPO since the communist leader Khmer Rouge was captured in 1975. According to the Asian Development Bank, Cambodia is expected to grow at 6.5% rate this year.  The Cambodian government wants to stir up their economy by privatizing its state-owned companies and encourage private companies to list, so that later on, it could attract foreign investors.  People of Cambodia are welcoming the embrace of capitalism and eager to learn, although, there are some doubts because of their low saving rates and newcomer in financial market.

http://www.bloomberg.com/news/2012-03-18/cambodia-embracing-capitalism-with-first-ipo-since-khmer-rouge.html 

Private Health Insurance is Inefficient

http://globalpublicsquare.blogs.cnn.com/2012/03/16/zakaria-private-health-insurance-is-not-efficient/?hpt=wo_r1

Zakaria's article discusses health insurance and how health insurance should not be privatized because the public sector provides it in a more inefficient way. The article didn't discuss topics which are normally brought up in this argument including that the private market creates more competition which improves the quality of our health care and personnel in the field. It mainly focused on administration costs for health care which I have never looked into. The numbers are staggering showing that most private administration costs are about 30% of the money they charge you, while the public market administration costs are about 6%. It is because of these numbers that Zakaria claims the public sector is more efficient when it comes to health care.

Are Jobs Obsolete?

This article suggest that not everyone in a society today needs to have a job for all production needs to be filled. Instead, jobs are only necessary as a means of proving that one is worthy of consuming the things produced by others. The reason for this change from the past is primarily due to technological development. Just as mechanization during the Industrial Revolution eliminated the need for a great deal of employees, electronic automation and communication continue to do so. The example of this used in the article is that of the US postal service. People today send much less mail now due to alternatives like email and electronic billing which are more convenient. Because of this the postal service will likely have to largely scale back or shut down entirely up to 600,000 unemployed.

The writer of this article suggests that employment does not need to be "productive" in the sense that it used to be. Instead, more people can concentrate on creative endeavors like writing books. However, it does little to address those who are not needed in the production of necessities, but who are also not well suited to these kinds of pursuits.

http://edition.cnn.com/2011/OPINION/09/07/rushkoff.jobs.obsolete/

Is the world economy recovering?

http://www.economist.com/node/21550278

This article discusses the global economic situation, and whther or not the international market is recovering from the financial crises of the last several years. In particular, the article discusses the Greek debt developments, the potential of an oil-supply shock, and tensions with Iran over nuclear weapons. Signs of recovery are evident in the economies of many countries, including the U.S. and Greece. However, I would argue that as unemployment rates rise and debts are lowered in these countries, recovery is still not in sight. One reason I think this is because while the economies of these countries may be rising, instability within the countries is undermining these economic successes. How large of a role does the public's perception play in an economic recovery? Does civil unrest in the U.S. (think Occupy WallStreet and other movements) and Greece (massive daily protests) hinder the already unstable economies in these areas? Can economic recovery occur fully without the support and acceptance of the country as a whole or in part?

Unemployment rate drops in key swing states

Good news came on Tuesday for the Obama campaign, as unemployment rates drops in several key swing states. Ohio, Florida, and Michigan had the biggest drops in unemployment. Together, those three three states have a combined 63 electoral votes. This positive economic trend could influence these states to vote for Obama as the election date comes closer. Yet if the economic growth slows in the second half of the year it could mean trouble for the Obama campaign.

No Relief in Sight at Pump

Oil, one of the natural resource that run the economy. as the price rises higher and higher in the near future, will we see another sluggish economy? This is becoming one of the main factors in the presidential campaign, and I feel like, this economy is becoming more and more socialist.

China's Wage Hikes Ripple Across Asia

The article reports that more and more asian governments across Asia now are increasing wages as a way to prevent outbreaks of labor unrest by pressing businesses like increasing the minimum wage level. Malaysia has approved the country's first-ever minimum wage to be imposed soon. Other regions in the region from Thailand to Indonesia follow efforts by China over the past two years to boost pay after years of widening gaps between rich and poor. All these efforts raises the specter of higher manufacturing costs for global companies and the products they sell world-wide.

The Reason for Rising Oil Prices: Dan Yergin

Tensions over Iran and the sanctions against the country are the main reasons for surging oil prices.

The sanctions are set to take effect this summer and are expected to reduce the flow of Iranian oil into the world market. While they are anticipated, they are not fully priced into the oil market. 

In other words, once the sanctions go into effect, he expects oil prices to rise further. While people may be looking at Iraq, Angola, and Libya to help replace the Iranian barrels in the market, don’t count out the United States.

http://www.cnbc.com/id/46765040

Jobless numbers defy economic theory

The unemployment rate is also influenced by the labor participation rate – that is, the percentage of working-age persons who are employed as well as unemployed and searching for work. While labor participation has been stabilizing recently, it has declined considerably over the years. And at 64%, the rate is two perecentage points lower than its pre-recession level. As Fortune pointed out last week, the drop might have less to do with discouraged workers giving up their job hunt (as economists widely believe), but also the flux of aging baby boomers retiring and leaving the labor pool altogether.

The Resource Curse?

http://www.economist.com/node/21547793
This article presented an interesting look on the general belief behind the resource debate.  Natural resources are a major shaping factor and influence in the economy and organization of the economic system of a country. The supported theory has been that resources are a curse through the attraction of rent seekers, but also the "Dutch Disease" with a less competitive manufacturing center.  However, this article points out that in Texas currently and some of the other oil rich areas we are not seeing a curse, but rather a boon.   As one of the other bloggers posted, petroleum engineers are in high demand in the economy and although oil itself as a fuel source is not sustainable there has been a lot of growth and wealth in the industry.  What do you think will happen as sources dwindle further?  Might Texas experience some of the same effects of the "Dutch Disease" that has commonly afflicted more developed oil-rich areas?

Energy, Jobs, and High Salaries

As the energy market heats up, new drilling technology allows for development of new oil reservers, and many Engineers in the energy industry are hitting retirement there is a perfect storm for a high demand and high wage career. Today Petroleum Engineering has the highest job placement rate and highest salary out of any engineering sector, under graduate students are taking notice more are pursuing the field of student. Energy companies are hard at work to insure they are able to attract the best students and have used wage as a driving factor. Do you think it is right that today a Petroleum Engineering is likely to make nearly $20,000 more then a Civil Engineer?

Body of evidence Is a concentration of wealth at the top to blame for financial crises?

IN THE search for the villain behind the global financial crisis, some have pointed to inequality as a culprit. In his 2010 book “Fault Lines”, Raghuram Rajan of the University of Chicago argued that inequality was a cause of the crisis, and that the American government served as a willing accomplice. From the early 1980s the wages of working Americans with little or no university education fell ever farther behind those with university qualifications, he pointed out. Under pressure to respond to the problem of stagnating incomes, successive presidents and Congresses opened a flood of mortgage credit.

In 1992 the government reduced capital requirements at Fannie Mae and Freddie Mac, two huge sources of housing finance. In the 1990s the Federal Housing Administration expanded its loan guarantees to cover bigger mortgages with smaller down-payments. And in the 2000s Fannie and Freddie were encouraged to buy more subprime mortgage-backed securities. Inequality, Mr Rajan argued, prepared the ground for disaster.

Mr Rajan’s story was intended as a narrative of the subprime crisis in America, not as a general theory of financial dislocation. But others have noted that inequality also soared in the years before the Depression of the 1930s. In 2007 23.5% of all American income flowed to the top 1% of earners—their highest share since 1929. In a 2010 paper Michael Kumhof and Romain Rancière, two economists at the International Monetary Fund, built a model to show how inequality can systematically lead to crisis. An investor class may become better at capturing the returns to production, slowing wage growth and raising inequality. Workers then borrow to prop up their consumption. Leverage grows until crisis results. Their model absolves politicians of responsibility; inequality works its mischief without the help of government.

New research hints at other ways inequality could spur crisis. In a new paper* Marianne Bertrand and Adair Morse, both of the University of Chicago, study patterns of spending across American states between 1980 and 2008. In particular, they focus on how changes in the behaviour of the richest 20% of households affect the spending choices of the bottom 80%. They find that a rise in the level of consumption of rich households leads to more spending by the non-rich. This “trickle-down consumption” appears to result from a desire to keep up with the Joneses. Non-rich households spend more on luxury goods and services supplied to their more affluent neighbours—domestic services, say, or health clubs. Had the incomes of America’s top 20% of earners grown at the same, more leisurely pace as the median income, they reckon that the bottom 80% might have saved more over the past three decades—$500 per household per year for the entire period between 1980 and 2008, or $800 per year just before the crisis. In states where the highest earners were wealthiest, non-rich households were more likely to report “financial duress”.

The paper also reveals how responsive government is to rising income inequality. The authors analyse votes on the credit-expansion measures cited in Mr Rajan’s book. When support for a bill varies, the authors find that legislators representing more unequal districts were significantly more likely to back a loosening of mortgage rules.

Inequality may drive instability in other ways. Although sovereign borrowing was not a direct contributor to the crisis of 2008, it has since become the principal danger to the financial system. In another recent paper Marina Azzimonti of the Federal Reserve Bank of Philadelphia, Eva de Francisco of Towson University and Vincenzo Quadrini of the University of Southern California argue that income inequality may have had a troubling effect in this area of finance, too.

The authors’ models suggest that a less equitable distribution of wealth can boost demand for government borrowing to provide for the lagging average worker. In the recent past this demand would have coincided with a period of financial globalisation that allowed many governments to rack up debt cheaply. Across a sample of 22 OECD countries from 1973 to 2005, they find support for the notion that inequality, financial globalisation and rising government debt do indeed march together. The idea that inequality might create pressure for more redistribution through public borrowing also occurred to Mr Rajan, who acknowledges that stronger safety nets are a more common response to inequality than credit subsidies. Liberalised global finance and rising inequality may thus have led to surging public debts.

Reasonable doubt

Other economists wonder whether income inequality is not wrongly accused. Michael Bordo of Rutgers University and Christopher Meissner of the University of California at Davis recently studied 14 advanced countries from 1920 to 2008 to test the inequality-causes-busts hypothesis. They turn up a strong relationship between credit booms and financial crises—a result confirmed by many other economic studies. There is no consistent link between income concentration and credit booms, however.

Inequality occasionally rises with credit creation, as in America in the late 1920s and during the years before the 2008 crisis. This need not mean that the one causes the other, they note. In other cases, such as in Australia and Sweden in the 1980s, credit booms seem to drive inequality rather than the other way around. Elsewhere, as in 1990s Japan, rapid growth in the share of income going to the highest earners coincided with a slump in credit. Rising real incomes and low interest rates reliably lead to credit booms, they reckon, but inequality does not. Mr Rajan’s story may work for America’s 2008 crisis. It is not an iron law.

'Stupid' and Oil Prices Obama's Forrest Gump analysis of rising gas prices.

'Stupid' and Oil Prices

'The American people aren't stupid," thundered President Obama yesterday in Miami, ridiculing Republicans who are blaming him for rising gasoline prices. Let's hope he's right, because not even Forrest Gump could believe the logic of what Mr. Obama is trying to sell.

To wit, that a) gasoline prices are beyond his control, but b) to the extent oil and gas production is rising in America, his energy policies deserve all the credit, and c) higher prices are one more reason to raise taxes on oil and gas drillers while handing even more subsidies to his friends in green energy. Where to begin?

To what extent do you believe President Obama can control gas prices? How important are gas prices to inflation?