Trade-deficit, the bigger the better?
Data of the December US international trade was declared, and economists showed positive response to the jump of trade deficit.
In December 2009, US imported 4.8% more to $182.88 billion, when exports climbed 3.3 percent to $142.70 billion. That is, trade deficit surged to $40.18 billion. However, instead of worrying about the increasing high debt hold by foreign countries like China, economists consider that to be a positive signal pointing to the economy recovery. They believe, the increase of trade-deficit, which mostly caused by the increase in oil importation, means US is producing more goods.
Applying that fact to the theories I am learning in class, that make sense. too.
More trade deficit simply leads to more goods to be consumed domestically. Because of the multiplier effect, economy activities would be boomed up by several times more than initial deficit amount. It is even better when the deficit is mainly made up by energy purchase. The oil imports ensures US's reproduction ability. As we use more oil, we produce more goods, which gives us even more to consume and the firms more profit. With the increasing profit of firms, we would step onto a positive virtuous circle pushing our economy back to normal.
The current situation leads to an assumption which seems weird. During a recession, like what we are now, is it the bigger the trade-deficit is, the better it is for our economy? From my point of view, that is just the case.
Wednesday, February 10, 2010
Monday, January 25, 2010
Jan 25
Obama’s middle-class care
Obama proposed to “re-establish some of the security that’s slipped away” for the middle class this morning.
His proposal tries to ease the domestic resentment by helping paying off college-loan and child-care, saving for retirement and making sure that elderly parents would be took good care of. The specific plan, based on Erica Sagrans's Blog, is listed below.
• Nearly doubling the child and dependent care tax credit for middle class families making under $85,000 a year
• Easing the burden of student debt by limiting students’ federal loan payments to 10 percent of his or her income.
• Helping workers save for retirement by creating a system of automatic workplace IRAs, requiring all employers to give the option for employees to enroll in a direct-deposit IRA.
• Expanding tax credits to match retirement savings and enacting new safeguards to protect retirement savings, making it easier for families to plan for retirement.
• Expanding support for families balancing work with caring for elderly relatives, helping them manage their multiple responsibilities and allowing seniors to live in the community for as long as possible.
However, there’s currently no answer about where the money would come from and how much it would cost in total until the release of budget.
Securing middle class cannot create jobs, but it would make the employed one more efficient. Middle class is regarded as the most creative part of society, and their no fear of troubles in the rear would boom the creativity of society and the productivity accordingly. That would benefit our economy and standard of living in the long run and make a solid foundation of our recovery.
Obama proposed to “re-establish some of the security that’s slipped away” for the middle class this morning.
His proposal tries to ease the domestic resentment by helping paying off college-loan and child-care, saving for retirement and making sure that elderly parents would be took good care of. The specific plan, based on Erica Sagrans's Blog, is listed below.
• Nearly doubling the child and dependent care tax credit for middle class families making under $85,000 a year
• Easing the burden of student debt by limiting students’ federal loan payments to 10 percent of his or her income.
• Helping workers save for retirement by creating a system of automatic workplace IRAs, requiring all employers to give the option for employees to enroll in a direct-deposit IRA.
• Expanding tax credits to match retirement savings and enacting new safeguards to protect retirement savings, making it easier for families to plan for retirement.
• Expanding support for families balancing work with caring for elderly relatives, helping them manage their multiple responsibilities and allowing seniors to live in the community for as long as possible.
However, there’s currently no answer about where the money would come from and how much it would cost in total until the release of budget.
Securing middle class cannot create jobs, but it would make the employed one more efficient. Middle class is regarded as the most creative part of society, and their no fear of troubles in the rear would boom the creativity of society and the productivity accordingly. That would benefit our economy and standard of living in the long run and make a solid foundation of our recovery.
Jan 24
From Greek to Europe
Greek and Iceland have similar national fundamental industry; similar debt-investing strategy; similar in predicament. However, they have one significant difference. Greek is a member of EU and it is a part of Euro-zone; Iceland, instead, is all by his own.
Being a part of EU particularly influence Greek, providing it pros and cons.
For the pros, EU, as a mighty union, injects positive mental implication to the troubled Greek government and people. When Iceland was worried about who could come out and save the world, there is no doubt that EU would take the responsibility when Greek debt is out of control. What’s more, because of the stable expectation of the Euro value, people won’t worry about the possible deflation in Greece, which increases its bond interest rate in responds to the decline of its credit evaluation. The existence of Euro-zone also makes it easier for Greek to attract investment from other Euro countries.
However, it is also the existence of Euro-zone that brings Greece negative influence when solving this crisis. From one respect, the 50 billion euro bond was issued with a 6.23% annual interest rate, which is the peak since 2001 when Greece adopted euro. At the same time, the bond interest rate in German is only 3.12%. That means, borrowing a same amount of money, Greece would pay more than two times as much interest as German. On the other hand, Greece cannot control its own interest rate, which in turn, forbids Greece decreasing the real value of its debt by inflating itself.
Go back to EU, it is also worrying about whether to help Greece or not.
If ECB acts and saves Greece by its rescue, then it will show the other debt-troubled countries a signal that EU would also act and save them when they cannot survive themselves. For Spain and Portugal, they might rely on the potential help instead of stimulating its self-recover ability. That would be a
If they keep silent instead, and Greek falls into insolvent, then that will be a disaster for not only Greek but all the other euro countries. The international influence of both euro and EU would be questioned. The euro-zone would drop into financial confusion. Once Greek was announced to be insolvent, there must be international speculation pouring into other debt-troubled euro countries trying to destroy the order of euro and make profit. The distribution of euro order may even cause the second global financial tremors.
Greek and Iceland have similar national fundamental industry; similar debt-investing strategy; similar in predicament. However, they have one significant difference. Greek is a member of EU and it is a part of Euro-zone; Iceland, instead, is all by his own.
Being a part of EU particularly influence Greek, providing it pros and cons.
For the pros, EU, as a mighty union, injects positive mental implication to the troubled Greek government and people. When Iceland was worried about who could come out and save the world, there is no doubt that EU would take the responsibility when Greek debt is out of control. What’s more, because of the stable expectation of the Euro value, people won’t worry about the possible deflation in Greece, which increases its bond interest rate in responds to the decline of its credit evaluation. The existence of Euro-zone also makes it easier for Greek to attract investment from other Euro countries.
However, it is also the existence of Euro-zone that brings Greece negative influence when solving this crisis. From one respect, the 50 billion euro bond was issued with a 6.23% annual interest rate, which is the peak since 2001 when Greece adopted euro. At the same time, the bond interest rate in German is only 3.12%. That means, borrowing a same amount of money, Greece would pay more than two times as much interest as German. On the other hand, Greece cannot control its own interest rate, which in turn, forbids Greece decreasing the real value of its debt by inflating itself.
Go back to EU, it is also worrying about whether to help Greece or not.
If ECB acts and saves Greece by its rescue, then it will show the other debt-troubled countries a signal that EU would also act and save them when they cannot survive themselves. For Spain and Portugal, they might rely on the potential help instead of stimulating its self-recover ability. That would be a
If they keep silent instead, and Greek falls into insolvent, then that will be a disaster for not only Greek but all the other euro countries. The international influence of both euro and EU would be questioned. The euro-zone would drop into financial confusion. Once Greek was announced to be insolvent, there must be international speculation pouring into other debt-troubled euro countries trying to destroy the order of euro and make profit. The distribution of euro order may even cause the second global financial tremors.
Saturday, January 23, 2010
Jan 23
What has happened to Greece?
Greece now is in really desperate condition. The national debt has been predicted to reach 135% of its GDP. How could a EU member get trapped in such a predicament?
You first reaction might be that it is our bad. Our subprime crisis leads to global economic tremors. Well, that is true in most country, but not exactly the case in Greece. The central bank of Greece did not badly engaged in the so-called “toxic waste” investment. America affected Greece more in an indirect way.
Greece is not an industrial country, which, like China, stimulates GDP by exporting. Instead, it heavily relies on international service including tourism and shipping. However, because of the global crisis, people cut their spending mostly by canceling trips rather than save on food or other necessities. What’s more, as the cool down of global trade, shipping industry reached its bottom since the 21st century. Both of those restricted Greek economy and sharply reduced its national revenue.
Earning less money was just one respect of Greek political and banking crisis. On the other hand, Greek national bank’s debt-investing strategy has put heavy debt (most from German) burden on Greece.
Instead of buying bad mortgage from US, Greek banks focused on some tough acquisitions in those relatively undeveloped countries before the subprime crisis exploded in US. Greek national banks’ acquisition of Finansbank in Turkey turned out to consist most of its debt now.
As Greek GDP of 2009 did not reach its expectation, its debt did not decrease. That is, Greek actual budget deficit turn out to be 12.7 percent in 2009 rather than the predicted 6 per cent. The more than 6 per cent difference far exceeds EU’s relative 3% max policy. The deficit estimation is as high as 9.4 percent in 2010. Those factors had bad influence on Greek national credit, which would make Greece even harder to raise money from financial market. Once Greece cannot afford to pay the debt by refinancing on financial market, it may face the situation of insolvency.
Above is how Greek Crisis is caused. The process of its forming is muck like the Iceland Crisis. However, Greece is a EU member, but Iceland is not. The close interaction between EU and Greece have affected the crisis and produced other influence. I will try to analyze the influence and how EU engaged in my next daily.
Greece now is in really desperate condition. The national debt has been predicted to reach 135% of its GDP. How could a EU member get trapped in such a predicament?
You first reaction might be that it is our bad. Our subprime crisis leads to global economic tremors. Well, that is true in most country, but not exactly the case in Greece. The central bank of Greece did not badly engaged in the so-called “toxic waste” investment. America affected Greece more in an indirect way.
Greece is not an industrial country, which, like China, stimulates GDP by exporting. Instead, it heavily relies on international service including tourism and shipping. However, because of the global crisis, people cut their spending mostly by canceling trips rather than save on food or other necessities. What’s more, as the cool down of global trade, shipping industry reached its bottom since the 21st century. Both of those restricted Greek economy and sharply reduced its national revenue.
Earning less money was just one respect of Greek political and banking crisis. On the other hand, Greek national bank’s debt-investing strategy has put heavy debt (most from German) burden on Greece.
Instead of buying bad mortgage from US, Greek banks focused on some tough acquisitions in those relatively undeveloped countries before the subprime crisis exploded in US. Greek national banks’ acquisition of Finansbank in Turkey turned out to consist most of its debt now.
As Greek GDP of 2009 did not reach its expectation, its debt did not decrease. That is, Greek actual budget deficit turn out to be 12.7 percent in 2009 rather than the predicted 6 per cent. The more than 6 per cent difference far exceeds EU’s relative 3% max policy. The deficit estimation is as high as 9.4 percent in 2010. Those factors had bad influence on Greek national credit, which would make Greece even harder to raise money from financial market. Once Greece cannot afford to pay the debt by refinancing on financial market, it may face the situation of insolvency.
Above is how Greek Crisis is caused. The process of its forming is muck like the Iceland Crisis. However, Greece is a EU member, but Iceland is not. The close interaction between EU and Greece have affected the crisis and produced other influence. I will try to analyze the influence and how EU engaged in my next daily.
Jan 22
Barack Obama made a proposal about tighter bank restriction yesterday, aiming to stabilize the financial market. Now let’s see how America response to his nation-widely discussed proposal today.
Ever since the announcement of the proposal,financial institutions have been experiencing a huge decline in stock price, especially Citigroup, which lost 2.635% yesterday and loss another 3.67% today. Experts believe that people have over-reacted with the proposal. People do not need to be panic, after all it is just a proposal and it still has a long way to go to be written into law. What’s more, such a timely regulation is just what America need.
As I mentioned in my last paper, the positive side believe that the high-risk investment commercial banks has made is using the taxpayers’ money to engage into reckless speculation. That is irresponsible for the taxpayers who save their money in the bank, putting the savings from the taxpayers and even the whole society in danger to pursue their own profit. As the banks went into crisis, it, in turn, uses the money from taxpayers again to survive. That’s unfair for the savers. What’s more, if the commercial banks keep on doing so, they may drive the American Economy into an abyss again.
However, the negative side have their own opinion.The core dispute is that his proposal has not reached the core of the creation of crisis. The crisis was not caused by the high-risk financial actions of the commercial banks, but mostly the bad house loans they made and the churning transactions made by investment banks. Punishing a system you want to heal, however, the punishment would not cure the root cause of trouble; it is not hard to understand why this proposal is highly criticized.
Personally,I would rather regard the proposal as another trick played by Obama Administration’s to win popularity.All his ideas sound perfect, but few act so. Obama Administration is suffering from the largest decline in support rate after his first year in White house in American history. His stimulus plan has not reached its expectation, and American Economy still has mo positive signal heading to recovery. Obama is trying to ease those ordinary people by cutting the profit of an industry which originally caused the crisis.
No matter what, it is obvious that Obama’s proposal has tremendously affected not only the banks but the whole society. Theories could only judged by truth. Let’s wait and see what is going on?
Jan 21
Goldman Sachs' profit was declared this morning. It earns $4.79B in fourth quarter, which outdistanced its business opponent. The company rewarded its employees $16.2B in salaries and bonus in 2009, 47% higher than last year but still lower than its expectation.
Almost at the same time, a statistic of first-time claims of unemployment aid was announced. Data shows that there was a net loss in job markets last week, which dimmed many optimistic economists’ opinion about a net gain in January job market.
Not directly related with these two events, but absolutely related with them, Obama proposed a new policy regarding big banks, which aims to limit the size and complexity of large financial institutions. The proposal would limit commercial banks’ ability in getting into high-risk trades to separate them from investment banks.
He believes, without these regulation, financial system would still walk on its old path, which leads to its recently collapse.
“When you see more and more financial sectors basically churning transactions and engaging in reckless speculation and obscuring underlying risks in a way that makes a few people obscene amounts of money but doesn’t add value to the economy—and in fact puts the entire economy into enormous risk—then something’s got to change,” Obama said in an interview with Time magazine published Thursday.
All of those give us a signal that US’s basic conflict in this financial crisis has not changed. As more and more struggling to live, there are some others earning much money by irresponsibly risking the whole society. Obama administration is trying to solve the problem existed for a longtime, all the policies sounds great,but nobody is certain about whether
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