Tag Archives: United States

The Economy in Digits – 12/28/2013

Welcome to this week’s edition of the Economy in Digits. Without further adieu, here are the economic highlights from the week ending December 28th.

United States

Pending home sales, which measures contracts to purchase previously owned sales, rose less than forecast in the month of November. Pending home sales rose only 0.2% whereas economists had predicted a rise of 1%. This indicates that rising borrowing costs due to the FED tapering its asset purchases is resulting in a slowdown in the residential real estate market. When compared with the previous year, pending home sales have fallen 4%. The graph below displays an aggregate of 30 year mortgage rates in the United States. As you can see, mortgage rates dropped after 2008 but have recently been picking up.

fredgraph (3)

Since the start of the financial crisis, the US government and the FED had been artificially supporting the housing market. For example, the FED’s Quantitative Easing program had been purchasing $40 billion of mortgage backed securities since last year, leading to an artificial decrease in mortgage rates. The recent indicators displaying a slowdown in the housing sector points to the fact that the housing market is returning to its fundamental levels instead of being inflated by external factors.

Japan

In response to Prime Minister Shinzo Abe’s expansionary monetary and fiscal policy, Japanese inflation (measured by the Consumer Price Index) increased by 1.2% over the previous year, which is the largest increase over the last 5 years. In an effort to bring Japan out of a two decade long era of slow growth and deflation, Shinzo Abe promised to stimulate the Japanese economy and increase inflation with massive fiscal and monetary easing. The recent inflation figure indicates that Abenomics, as some have labeled this policy, seems to be working. The graph below depicts Japanese CPI since 2010.

japan-consumer-price-index-cpi

But as I had stated in the previous Economy in Digits post, not everything is clear sailing for the land of the rising sun yet. Monetary and fiscal stimulus devalues a nation’s currency. This usually has the effect of increasing exports. But because Japan imports a majority of its energy, devaluing its currency has the effect of increasing the value of its imports too. Additionally, the Japanese government is expected to implement a tax hike later this year which could weaken demand and bring inflation back down again.

China

Ever since the Chinese Communist Party first started opening up China’s economy to the world and adopting free market principles under the leadership of Deng Xiapoing in the 1908s, China had been experiencing extremely rapid growth,  As you can see from the graph below GDP growth had been almost 10% on average over the last decade. But over the past few years, as China enters the final stages of its transformation from a rural to an urban economy and implements the reforms to become a middle class nation, its economy has started to slow down. With that in mind, the Chinese government announced last Tuesday that their target GDP growth for 2014 would be 7.5%. As you can see from the graph below, if you exclude the crisis of 2008, 7.5% is lower than the growth numbers that China used to produce in the past. However, Chinese President Xi Jinping has promised to continue to reform the Chinese economy and the Chinese society. In line with that promise, Chinese officials have stated that they are confident that maintaining a 7.5% growth rate will help keep creating more jobs, while providing room to deepen reforms as well.

china-gdp-growth-annual

That is all for this week ladies and gentlemen. I was late in posting this week’s Economy in Digits due to an exam I had to take on Sunday. But I can assure you that it won’t happen again. So tune in next Saturday for the upcoming week’s economic indicators.

“The economy isn’t some vengeful being that takes things away from us. The economy is just made up of people, and people have just lost their faith in it. What people really should be doing is spending more. Spending is fine. People should just go outside. People should just go outside. They should buy the things they need for their friends and family”
Kyle Broflowski

Advertisements

Pacific Theater – Japanese PM Visits WW2 Shrine

Last Thursday, in continuation of his hawkish foreign policy and his disinterest to remedy Japan’s reputation for its acts in World War 2, Japanese Prime Minister Shinzo Abe visited the Yasukuni Shrine in Tokyo. The Yasukuni Shrine honors Japanese World War 2 veterans, including several convicted Class A war criminals, and is a blatant representation of Japan’s militaristic and imperial past. As I had explained in an earlier Pacific Theater post, Imperial Japan attacked and invaded most of the Pacific nations during World War 2. Considering the fact that World War 2 ended less than 60 years ago and that Japan still has yet to claim full responsibility for its past, most of Asia is still agitated with Japanese government.

Shinzo Abe (middle) at the Yasukuni Shrine
Shinzo Abe (middle) at the Yasukuni Shrine

Obviously, this action drew reactions from Japan’s neighbors. The first statement came from China, Japan’s main pacific rival.

“Under these conditions, not only does the Japanese leader not show restraint, but instead makes things worse by manufacturing another incident over history and creating a new political obstacle to the improvement and development of relations between the two countries. Japan must bear all the consequences arising from this.” stated Chinese Foreign Ministry Spokesperosn Qin Gang.

The United States was also frustrated with the Japanese government. Even though the two nations are close allies, America views these kinds of actions by Japan as threatening to the stability of the region.

“The United States is disappointed that Japan’s leadership has taken an action that will exacerbate tensions with Japan’s neighbors,” a statement posted on the website of the U.S. embassy in Tokyo said.

Finally, a statement came from South Korea as well.

“Our government cannot but deplore and express anger about Japanese Prime Minister Shinzo Abe’s visit to the Yasukuni Shrine despite concerns from neighboring countries and the international community,” said Yoo Jin-ryong, a South Korean spokesman.

The most likely reason why Shinzo Abe could have decided to visit this shrine is to appeal to his base. Shinzo Abe draws most of his support from the hawkish conservatives of Japan. Over the last year, Abe spent a lot of political capital to implement various economic reforms. So, this is an act of appealing to his base. The following video of  Pacific research expert on CNN breaks down Abe’s motives in greater detail.

Shinzo Abe also has also declared to reform Japan’s pacifist constitution. After its loss in World War 2, Japan had its constitution written by the United States, which limits the size of Japan’s military and the portion of the budget the government can allocate to defense spending. In order to increase Japan’s geopolitical sway in the Pacific, Shinzo Abe has promised to scrap the old constitution and write a new one.

As Japan continues to try and flex its muscles, it will be interesting to see what kind of results they achieve and how the rest of the Pacific reacts. Stay tuned for more updates on the Pacific Theater.

“The must unfortunate war[WW2] which I deeply deplore”
-Emperor Hirohito of Japan

The Economy in Digits – 12/21/2013

Welcome to Economy in Digits, my new weekly segment that briefly covers significant economic indicators released in the past 7 days. Initially, I didn’t want to write a post for every single indicator that makes the headlines. That would mean that I would have to bombard this blog with post after post of statistical data, which is not why I created this blog. I created it in order to inform my readers about significant global issues AND also keep it interesting and enjoyable at the same time. However, economic indicators are significant and sometimes we receive data that hints where a nation’s economy is headed. Thus, I decided to sum up indicators released in the prior week in a single post.

United States

In the United States, November industrial production, which measures output in the utilities, mining and manufacturing sectors rose 1.1% from the prior month. That was the biggest increase over the last year and brought total US industrial output to its pre-recession levels. The manufacturing sector increase 2.9% from a year earlier thank to rising automobile sales. Meanwhile, the utilities sector expanded by 3.9% due to increased demand in the winter for heating and output in the mining sector increased by 1.7% as several oil rigs that were closed last month due to tropical storm Karen reopened. The graph below depicts total US industrial output for the last 10 years.

fredgraph

Again in the United States, 3rd quarter GDP growth rates, was revised upward from its initial figure of 3.6% to 4.1% from a year earlier.The revision came mostly due to the adjusted increase in consumer purchases. The graph below depicts quarterly US GDP growth rate over the past 10 years.

fredgraph (1)

Both the industrial production and the revised GDP figures prove that the American economy is hastening on the road to recovery. The fact that these figures are coming out shortly after a period of fiscal instability is also impressive. However, we also have to see the effects tapering of QE by the FED will have on the economy.

Japan

Despite the push by Prime Minister Shinzo Abe to devalue the Yen and drive exports up, Japan’s trade deficit increased as exports fell by 0.2% and imports rose by 3.5% month on month. When a nation devalues its currency, its exports are supposed to increase and its imports are supposed to decrease. However, there are two possible reasons for Japan’s widening trade deficit. The first reason is due to a concept in economics called the J-Curve, which states that devaluing a national currency will initially increase the trade deficit because trade contracts set in place cannot be adjusted during the short run. Once old contracts are expired or cancelled, new trade agreements will be made given the devalued currency. Another possible reason for Japan’s trade deficit is that Japan closed almost all of its nuclear power plants following the Fukushima disaster in 2011. Thus, Japan imports almost all of its energy now. A devalued currency means that Japan must now pay more to import its energy from abroad.

United Kingdom

In the UK, inflation fell to 2.1% from 2.2% last month due to steady food and energy prices, which bring the figure to its lowest since November 2009. Just two days later, it was also announced that the unemployment figure in the third quarter fell to 7.4%, down from 7.7% in the second quarter. Following the recession, the Bank of England promised to leave interest rates at record low levels until unemployment dropped to 7% and promised to bring inflation down to 2%. Over the past few years, it was failing to achieve both targets. But these two indicators prove that the UK economy is improving and is nearing its twin targets. If inflation and growth follow the same trajectory, we could see a hike in interest rates by the BOE sometime in 2014.

India

In India, wholesale inflation increased by 7.52% from a year earlier, compared to a 7% increase in October. The expected rate by a survey of economists was 7%. Inflation is becoming a serious issue in India where consumer prices also increased by 11%  last month from a year earlier. An even bigger problem is that inflation is being coupled with a slowdown in growth. The RBI predicts India’s economy will expand 5 percent in the 12 months through March 31st, the same pace as the last fiscal year, which was the weakest in a decade. If the RBI hikes interest rates to battle inflation, they will reduce the GDP growth rate even further. High inflation and weak growth can only mean one thing. STAGFLATION

That is all for this week. Tune in next Saturday for the upcoming week’s economic indicators.

Economics is a subject that does not greatly respect one’s wishes
-Nikita Khrushchev

The Pacific Theater – Chinese Show of Forces Displeases Japan and the United States

Welcome to the first post of the Pacific Theater, a new recurring segment regarding the geopolitical events currently unfolding between the nations of the Pacific region. I’ve decided to take a distinct look at this region for a couple of important reasons. Firstly, the 3 largest economies in the world: the US, China, and Japan; are all located in this region. Although many people might not consider America as a Pacific nation, its influence and power extends deeply into this corner of the globe. Even though all three nations have strong economic ties with one another, they each have different geopolitical ambitions. Secondly, ever since the debate regarding the Diaoyu/Senkaku Islands began between China and Japan over a year ago (which I will discuss soon), the tensions  between the countries in this region have been increasing at a gradual pace. Thus, it’ll be very interesting to see how events unfold in this part of the world. Before we get into the latest news however, let me give you a brief history lesson.

Relations between Pacific nations have always been uneasy and the history of the region has been riddled with tension and conflict; so much that it would put Brazilian soap operas to shame. To get a better understanding of the region, it is crucial to learn more about 3 significant historical events.

1) Japanese Incursions and Hostilities – Japan had been an empire from 1889 to 1945 when it was defeated in World War 2. As you can see from the map below, during World War 2, Japan invaded pretty much  all of the its east Asian neighbors. It was especially brutal in its invasion of China where just in Nanking, Japanese soldiers killed somewhere between 250,000 to 300,000 Chinese civilians. However, that was not Japan’s only show of hostility to its Pacific neighbors. In fact throughout its history, Japan had been at war with its neighbors, especially China and Korea, many times. I think you’re starting to see a pattern here. Japan is pretty much the Germany of the Pacific and most Pacific nations are still upset at all the havoc and destruction that Japan has caused in the past. The fact that some government approved history books in Japan don’t recognize their country’s actions during World War 2 and that the Japanese government has yet to properly apologize for those acts does not help their reputation at all. Thus, there is still unease between Japan and other Pacific nations that stem from the past.

The height of Imperial Japanese control during World War II

2) The Korean “War” – The Korean War was fought from 1950 to 1953 between the Communist nations of North Korea and China versus South Korea and the United Nations. The official war resulted in stalemate which led to the current borders of Korea. However, the two sides are still unofficially at war. North Korea is still a closed totalitarian dictatorship led by the ever handsome and charismatic Kim Jong-Un who promises every now and again to rain a fiery death upon South Korea and the United States.

kju

The only thing stopping a war between the two sides is the fact that the United States and South Korea are strong allies and the US has pledged to support South Korea against any possible force of hostility by North Korea. However, North Korea’s only ally and trading partner in the region is China, creating an even additional layer of awkwardness in the Pacific.

3) Chinese Claim on Taiwan – The Chinese Civil War was fought from 1927 to 1950 between the Communists and the Nationalists. The war resulted in a victory for the Communists when the Nationalists where driven out of mainland China to the island of Taiwan in 1950. Since then Taiwan has become its own nation. However, it is still not recognized by China and many other nations. Both countries in fact claim to be the actual China. The (mainland) Chinese have always had their eyes set on retaking Taiwan by force. However, just like in Korea, because Taiwan is a liberalized democracy, it is an ally of the United States. Thus, any war against Taiwan would also drag the United States into it as well. Now you might get a better sense of why I believe that the United States is one of the crucial Pacific nations. No major event or war can take place in the region without the United States’ involvement.

Recent Events

There is an island chain located between China, Japan and Taiwan called Senkaku in Japanese and Diaoyu in Chinese.  Even though the islands were first discovered by the Japanese, throughout the history, these islands have been continuously disputed between China and Japan. The area surrounding the islands is rich in fishing areas and possibly oil. Up until recently, the islands had a private owner. However, on April 2012, Tokyo governor Shintaro Ishihara announced that he would use public funds to buy the islands. Of course the Chinese were outraged and a nationalist anti-Japanese sentiment started to develop within China. Some Chinese nationalists even called on a boycott of Japanese goods and tried to slander Japanese products. The Chinese government saw this as a provocation and set out to undermine Japan’s control of the islands through incursions of surveillance vessels and patrol aircraft; to which Japan responded by scrambling fighter jets. Recently an unmanned Chinese drone flew over the islands. When Japan threatened to shoot down the next one, a Chinese general said that would be an act of war.

I told you this was just like a Brazilian soap opera.

map-locating-disputed-south

Fast forward to November 23rd of 2013, when, in effort to retaliate against the Japanese and further increase its military influence on the global stage, China declared a large portion of the East China Sea to be part of its “Air Defence Identification Zone” (ADIZ). According to Chinese officials, all aircraft that intend to enter the zone must file flight plans with the Chinese authorities and maintain communications with Chinese controllers or face “defensive emergency measures”. The map below displays the area that China claims as its ADIZ.

_71299031_china_sea_dispute

As you can see, the AIDZ clearly includes the disputed Senkaku/Diaoyu islands. The area also runs awfully close to Taiwanese and South Korean territories, causing these two nations to be spooked as well.

In an act of defiance, just 3 days after the Chinese introduced the ADIZ, the United States flew two B-52 bombers over the Senkaku/Diaoyu islands within the ADIZ. Suddenly, the United States had entered into the fray to protect the freedom of movement and to curb Chinese ambitions. Then, earlier in December, US Vice President Joe Biden traveled to China to meet with Chinese President Xi Jinping and told him that the United States does not recognize the Chinese ADIZ. However, the Chinese did not seem to budge. On a side note, it is so assuring to know that the negotiations to defuse tensions among the world’s most powerful nations are being handled by a man renowned for his gaffes. If you have 5-6 minutes to kill for a good laugh, enjoy Biden’s gaffe reel.

Response to the ADIZ by other Pacific nations have also been in a militaristic manner. On December 8th, to respond  to the Chinese ADIZ, South Korea declared its own ADIZ. Just like the Chinese ADIZ covers disputed territories with Japan, the South Korean ADIZ covered disputed territories with China. Similarly, Japan announced this Tuesday that it would invest 24.7 trillion yen ($240 billion) over the next 5 years on purchases of stealth fighters, submarines and drones. Japan’s military has been pacifistic and almost non-existent since World War 2. However, recently elected hawkish Prime Minister Shinzo Abe has stated that he wants to normalize the military of Japan. In recent years, China’s increase in defense spending has been in double digits, and as China starts throwing its weight around both economically and militarily, it won’t be a surprise to see neighboring countries strengthen their military and territorial claims as well.

On the positive side, most of these nations are crucial trading partners. So any type of direct military conflict would hurt everyone involved. Thus, the chance of an actual war is quite slim. Nevertheless, it will be very interesting to see the next step in the chess match between these Pacific powers. Stay tuned for more.

“The vast Pacific Ocean has ample space for China and the United States. We welcome a constructive role by the United States in promoting peace, stability and prosperity in the region. We also hope that the United States will fully respect and accommodate the major interests and legitimate concerns of Asia-Pacific countries.”
-Xi Jinping

Video of the Week – Janet Yellen Nominated as FED Chair

Ladies and gentlemen, its official.

As many, including myself, had predicted, Janet Yellen has been nominated by President Obama to be next chairman of the Federal Reserve. Her nomination was almost a done deal when Larry Summers withdrew himself from the race. Since investors predict that Yellen will continue Ben Bernanke’s accommodative monetary policies, stocks rallied across America and emerging markets when the nomination was officially announced.

Idiocracy – U.S. Government Shuts Down

1234161_551112361627623_503254578_n

Many people, including myself, didn’t think it would happen, but the government of the United States, the most powerful nation on Earth, has shut down.  A social media intern at the White House, President Obama confirmed the shutdown on Tuesday via his twitter account.

obama tweeted

As I had discussed in my last post, Republicans in Congress, more specifically, Tea Party Republicans, started this whole debacle when the time came to pass a resolution to keep the government’s operations funded. But they insisted that they would only pass the bill if the bill also defunded Obamacare, which is another name for the Affordable Healthcare Act passed by President Obama in his first term. That bill was passed through the House of Representatives but was rejected by the Senate, which is ruled by the Democrats. As the deadline for the budget approached, both sides did not compromise and did not back down. There were rumors of a deal being passed in the last second where the Republicans would agree to have a budget passed in return for delaying the implementation of Obamacare for a year. Personally, I too expected a dodgy weak deal being passed in the last minute to kick the can down the road. That’s what Republicans and Democrats had done in the past when they were in time sensitive situations and were unwilling to compromise. However, that was not the case this time.

September 30th came and passed and the government shutdown. 800,000 federal employees have been sent home indefinitely and another 1.3 million continue to work without pay. That of course does not include the endless list of  government agencies that have been hampered.

Obviously the shutdown has important economic effects. A median of estimates by economists according to Bloomberg state that for every week the shutdown continues, GDP growth will be reduced by 0.1%. Additionally, the US Dollar declined in value against other currencies. However, markets have remained relatively calm. As evidenced by the graph from Yahoo! Finance, the S&P 500 hasn’t had a very big drop after the government shutdown on September 30th.

SP500

This is because markets expect Congress to come up with a deal quite soon. Even though politicians from both sides remain adamant, investors believe a compromise is close. What is a cause to worry however, is the debt ceiling. Towards the end of this month, the American government will reach its legal limit to borrow money. Unless Congress raises that ceiling, the government will default on certain payments its obligated to make. If this shutdown prevents the debt ceiling from being raised, it could effect the entire global economy. The American economy and the US dollar is seen as the safest and most trustworthy financial investment. Many financial contracts across the world are written with the understanding that America will certainly pay its debt. If that assumption is broken, who knows what could happen. Finally, because the shutdown is slowing economic growth, the Federal Reserve is likely to delay tapering QE even further.

Now for a bit of my own opinion. There are certain parts of Obamacare that I like and certain parts of it that I disagree with. The fact that insurance companies can’t deny customers based on pre-existing conditions for example is a great idea. However, I’m against the mandate, which fines individuals if they do not purchase health insurance. I don’t think government can fine people for inaction. Its ok to tax transactions, but what prevents the government from forcing people to buy a certain company’s products for example. I’m sure Republicans disagree with certain parts of Obamacare too. But holding a nation hostage for a single law that has already passed is no way to act. Who’s to say that they won’t do it again for another law that they disagree with. And this doesn’t just apply for Republicans. If this precedent is set, Democrats might try it if they’re in the minority too. Making the people of a country pay for political bickering is not right. There are other ways the minority party can try to overturn a law they don’t agree with. They can try to convince members of the opposing party, they can go on the campaign trail and try to turn the people’s opinion against it, or they can make sure they win their elections and get enough seats to overturn the law. But, as I said before, forcing 800,000 people out of their jobs and leaving 1.3 million without pay, especially in these hard economic times is unacceptable. Saying that Obamacare will raise premiums might be correct, but nothing is worse than leaving people without a job.

If the shutdown drags on for too long, maybe America can learn a lesson from Australia. When there was a similar government shutdown in Australia in 1975, the queen came in and fired everyone in parliament. That begs the question, if America had a cold no-nonsense queen, who could it be?

hillary-clinton

“It’s to us Norwegians, hard to understand that it can be happening in one of the most influential countries in the world that you can have such a dysfunctional government. It is kind of a joke or disbelief. We laugh about it”
-Andres Tvegard (journalist for the Norwegian Broadcasting Corporation)

Video of the Week – US Government Looms Towards Shutdown

The inability of Democrats and Republicans to agree on anything is once again dragging the United States government towards a cliff. This time, the argument could lead the government to shut down indefinitely. Here we go again.

Typically, Congress is supposed to pass a budget for government agency operations. But, for many years, Congress has been so divided that instead of passing a budget, they could only pass a short term stop-gap funding measure called Continuous Resolution (CR). The current Continuous Resolution, which expires on September 30th, is in jeopardy of not making it through Congress. This is because Republicans in Congress are adamant that the only way they will approve the new Continuous Resolution is if Obamacare is defunded. The most fervent supporters of this measure are the Republican representatives that are backed by the Tea Party movement. Obamacare is the name that has been given to the Healthcare bill passed by Congress under President Obama’s first term. The first parts of the law will be enacted in October and the bill will be fully implemented in January 2014.

On the other hand, President Obama and the Democrats have stated that they will not agree to defund Obamacare. Thus, we’re slowly approaching September 30 and both sides are not caving in. The House of Representatives, where the Republicans are in majority, passed a bill that renews the CR but demands reducing funding to Obamacare and repeal a medical device tax. However, the Senate, where the Democrats are in majority, rejected this bill.

If September 30th passes without a deal between the two sides, the government will effectively shut down. A shut down won’t effect mandatory government payments such as Medicaid and Medicare, but it will put a vise on discretionary spending. That means that national parks and Smithsonian museums would close, pensions and

veterans’ benefits checks would be delayed, visa and passport applications would be delayed, and as many as 2.1 million public employees could temporarily be out of their jobs.  A brief government shutdown occurred in late 1995 and it cost the government more than $1 billion.

Government+Closed

The Video of the Week comes from Ted Cruz, a Republican Senator, who spoke on the Senate floor on Friday for roughly 21 hours in order to hold up delay voting on the bill approved by the House so as to make the Senate more desperate to accept it. In that 21 hours, Ted Cruz referenced Star Wars, tried to speak like Darth Vader, compared Obamacare to Nazi Germany, read Green Eggs and Ham by Dr. Seuss, talked about Whitecastle hamburgers. The most ironic part is that Green Eggs and Ham is a story about how people may not like things they haven’t tried but once they try it, they find out that they in fact like it. That may be the worst story to read to oppose Obamacare. The clip I’ve shared is just a short snippet of that speech. You can find longer versions on Yotube. So sit back and enjoy the hilarity that ensues.

It seems that as of yesterday, Republicans and Democrats agreed to a deal where Obamacare would be delayed for a year and in return, Republicans would allow the CR to pass. We’ll probably have to wait for the final hours of Monday to see what kind of deal is struck. As usual, we can expect the US Congress to never do their best, to try their softest, and to disregard the well being of the rest of the nation. Typical politics.

If you’re still concerned regarding this issue, you can take a look at this link from the Telegraph which answers most frequently asked questions about the impending government shutdown.

http://www.telegraph.co.uk/news/worldnews/barackobama/10341981/Why-might-the-US-government-shutdown.html

“immediately on hearing that phrase [rebellion against oppression] I wondered if at some point we were going to see a tall gentlemen in a mechanical breathing apparatus come forward and say in deep voice ‘Mike Lee, I am your father.'”
-Senator Ted Cruz