[3rd_CB] Are we experiencing global financial power redistribution from U.S. to China?

One of major global financial issue was establishment of AIIB (Asian Infrastructure Investment Bank) under China's leadership. Many economists offer their thoughts that China starts to show its power towards global economy as one of two largest economy countries. The reporter at Reuters claimed that "Chinese President Xi Jinping launched a new international development bank seen as a rival to the U.S.-led World Bank at a lavish ceremony on Saturday, as Beijing seeks to change the unwritten rules of global development finance." For further reading, please refer to the following link (http://goo.gl/UH4dvB).

China reveals its influence in U.S. securities market. According to CNN.com (http://goo.gl/bBBzI4), last year "China owned $1.3 trillion of U.S. Treasuries as of June, making it the biggest holder of U.S. debt". The article said that "China is not trying to sink U.S. economy". However, it sounds to me that China has abilities to shake U.S. economy, if they want. One obvious thing is that China can also put the United States in difficult situation. China can raise borrowing costs of U.S. If the U.S. national debts increase with current rate of speed in the future, China's small movement towards raising borrowing costs would be detrimental to U.S. economy. Possibly, such movement may cause the crash of U.S. securities/bonds market that Robert Shiller estimates in a different context.

What do you think about current amount of U.S government securities/bond? Do you expect China will take over the U.S. title of the biggest economical power? Are we experiencing global financial power redistribution from U.S. to China? Do you see AIIB as a first step of China to move towards the largest economic power? What is your thought about China's financial influence towards the United States? What should the U.S. government do? Please feel free to share your thoughts and other sources.

Gigs Instead of Jobs

I thought this was a really interesting article, again by the NYTimes, about the shift in the kinds of jobs that people are getting. Using the example of Uber - a company that has contractors that are the core of the service, and how many companies are looking to have contractors and outside people to fulfill the roles necessary to run the company. This article begs the question of where do we as an economy see ourselves going in say the next 5 to 10 years? also where do you see yourself. As an "alternative arrangement" or as a full time salaried employ?

http://www.nytimes.com/2016/03/31/upshot/contractors-and-temps-accounted-for-all-of-the-growth-in-employment-in-the-last-decade.html?ref=economy

But big money does corrupt .....

 From Huffington Post (see here)





Most people remember that the Arab
Spring started with a guy who lit himself on fire. What they don’t
remember is that he did it as a protest against corruption: Mohamed Bouazizi, a Tunisian fruit vendor, decided he’d been shaken down by police officers one too many times. 




Bouazizi’s death set in motion the biggest political upheaval of the 21st century. The
Arab Spring was “mostly about corruption,” said FBI Special Agent
George McEachern, one of the leading investigators of global graft.
“Corruption leads to failed states, which leads to terrorism.”


That’s what makes the corruption revealed in a new trove of confidential emails from a mysterious Monaco-based company called Unaoil so significant.


On Wednesday, The Huffington Post and
its Australian partner, Fairfax Media — led by reporters Richard Baker
and Nick McKenzie — published the results of a months-long investigation of Unaoil, an obscure firm that helps big multinational corporations win contracts in areas of the world where corruption is common. 

Hundreds of major international corporations — including Halliburton,
its former subsidiary KBR, Rolls-Royce and Samsung — counted on Unaoil
to secure lucrative contracts in Iraq, Kazakhstan, Libya, Syria,
Tunisia, and other countries in Africa, the Middle East, and the former
Soviet Union, tens of thousands of internal emails and documents reveal.
It’s common for large multinational corporations to partner with
smaller firms with local expertise to win contracts. But in many cases,
Unaoil wasn’t winning contracts because of its expertise — it was
winning them by paying millions of dollars in bribes to corrupt
officials.



How much money?  Upwards of a trillion dollars a year in bribes.

Bernie Sanders could still win the nomination

If we chose party candidates democratically, where we all had an opportunity to vote for them, Bernie Sanders would win easily (see here).  But the party system doesn't work that way, especially for the Democrats.  From the article:  Sanders just swept through the West, winning five of six contests by
stunning margins. In addition, he isn’t just a candidate — he’s a cause.
Sanders seeks to build a movement that can make the political
revolution needed to transform the country, not simply win the White
House....He’s already won 15 primaries and caucuses, and lost four more by the barest whisker. And he keeps rising.For the first time, the most recent Bloomberg poll shows him edging ahead of Clinton
among registered Democratic voters. Other national polls consistently
show her once forbidding lead continuing to narrow. Sanders draws large
and mostly enthusiastic crowds and continues to rouse young people
across the country. His supporters are eager to fuel his campaign. He outraised Clinton dramatically
in February — $43 million to $30 million, as his 2 million small donors
contributed more than her deep-pocket investors. In fact, more than 70
percent of Clinton’s donations have come from large donors, who are maxing out in increasing numbers.



Why won't he win handily?  All of the "superdelegates" are pledged to Clinton.  What are super delegates?  Delegates who aren't awarded by primaries. (see here)  But he, along with Trump for the Republicans, is showing that big money doesn't have to drive every political outcome.

The Trade Deficit Isn't a Scoreboard

This article is a little bit lengthy but I thought it gave great insight to what the trade deficit is all about, as well as what Donald Trump thinks about it. Not only that, but the example of CarNation and BananaLand, I think, is an easily understandable metaphor. I also thought the sentiments on the US dollar having a global prominence is a great point because thinking back to 2008 - not only did the US economy crash, but the effects were felt all around the world. Do you all agree that part of what makes the United States powerful is the global prominence of the dollar?


http://www.nytimes.com/2016/03/28/upshot/the-trade-deficit-isnt-a-scorecard-and-cutting-it-wont-make-america-great-again.html?ref=economy&_r=0

[2nd_CB] Another Financial Crisis in the future?

Few economists support that there will be another financial crisis in the future. One of them is Robert J. Shiller who enrolled at Kalamazoo College in his freshmen year before transferring to the University of Michigan. He later won the Nobel Prize in Economics. He is currently an Economics professor at Yale University. He expected 2000 stock market crash and 2008 Financial Crisis.

He became famous for expecting year 2000 stock market crash with his book, "Irrational Exuberance" in 2000. In 2005, he additionally pointed out the real estate problem by adding his arguments into the second edition of the book. His points about the real estate problem came true when Financial Crisis occured in 2008.

In 2015, Robert Shiller came up with the third edition of the book. He insisted that there will be a possible bond market crash in the future, approximately 2025. The following youtube video is about Robert Shiller's discussion about his thoughts on another Financial Crisis. This is an hour long video, so I recommend our classmates to just watch first eight minutes to have a broad and general idea about his argument.

Based on his argument and your own research, do you see the problem in bond market? Do you think the bond market would be the next place to be crashed? What is your thought on U.S. bond market? Please feel free to share your own ideas about future financial crisis. Other sources are more than welcome to our discussion!

Are today's companies competitive? Probably not

From a story in The Economist:



Profits have risen in most rich countries over the past ten years but
the increase has been biggest for American firms. Coupled with an
increasing concentration of ownership, this means the fruits of economic
growth are being hoarded. This is probably part of the reason that
two-thirds of Americans, including a majority of Republicans, have come
to believe that the economy “unfairly favours powerful interests”,
according to polling by Pew, a research outfit. It means that when
Hillary Clinton and Bernie Sanders, the Democratic contenders for
president, say that the economy is “rigged”, they have a point." ...



Since 2008 American firms have engaged in one of the largest rounds of
mergers in their country’s history, worth $10 trillion. Unlike earlier
acquisitions aimed at building global empires, these mergers were
largely aimed at consolidating in America, allowing the merged companies
to increase their market shares and cut their costs. The companies in
question usually make no pretence of planning to pass the savings they
make this way on to their customers; take their estimates of the
synergies involved at face value and profits in America will rise by a
further 10% or so...High profits can deepen inequality in various ways. The pool of income
to be split among employees could be squeezed. Consumers might pay too
much for goods. In a market the size of America’s prices should be lower
than in other industrialised economies. By and large, they are not.
Though American companies now make a fifth of their profits abroad,
their naughty secret is that their return-on-equity is 40% higher at
home.



The problem is that these profits stem from monopoly and not from innovation.  

International data on inequality and redistribution

The Great Recession is far enough in the past that we can see how it affected incomes and wealth in data series.  Kenny and Jay are doing well all over the world;  everyone else not so well.    Click on the link below to see:



Why Voters Will Stay Angry

[1st_CB] Federal Reserve Bank

I strongly recommend a documentary film, "Money For Nothing: Inside the Federal Reserve". The film and its trailer are available at Amazon.com (http://goo.gl/PE5TUD). Last year, I watched this film several times. This video will cultivate your understandings of Federal Reserve Bank and financial crisis in 2008. This one was free when I watched last year, but it requires a payment. If I find enough people interested in this film after watching the trailer, I will find ways to show this video in my facilitator week (week2). Please leave a comment after watching the trailer.

I also suggest all classmate to give a brief glance to "The Financial Crisis Inquiry Report" (https://goo.gl/XNQbnu). This report was officially written by The Financial Crisis Inquiry Commission under the U.S. government. In the report, the commission presented succinct conclusions why the financial crisis happened. Interestingly, the commission acknowledged that the financial crisis in 2008 was avoidable. Please share your comment how this report changes your original knowledge towards the Financial Crisis.

The commission stated "the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public"(PDF file 18 page out 663). This part of conclusion leads me to think "Did Ben Bernanke do a great job as the chairman of FRB before the Financial Crisis?" (He was appointed as the chairman in 2006). If the Financial Crisis was avoidable and Ben Bernanke was the one leading the FRB just before the Financial Crisis, shouldn't Bernanke partially deserve blames for letting the Financial Crisis happened? The following article from Chicago Tribune might expand your insight (http://goo.gl/jyQvzi)

I do not negate Bernanke's great job on preventing further recession. However, I would like to discuss whether Bernanke only deserves credits for defending us from the Financial Crisis. What is your opinion?

Brian's group will win

Party at Bharath's House Tonight

Get ready for the biggest bash of the quarter! Bharath "bad boy" Kotha is hosting a rave tonight in his basement. Be there!

turn up for bharath

Scavenger hunt

We are so excited for this class!

In the aftermath of the financial crisis

Economic changes have increased inequality and the sense of inequality in the United States.  A medical emergency or a layoff can send a family into economic ruin.  Go here for a good short article on changes in how Americans see themselves.



 In a time of divisive politics, are leaders in Washington responding?  (see here)



The House Republican budget plan, which could come to the House floor in
April, would prove especially harmful to low- and moderate-income
families and individuals, cutting programs for such people by an
unprecedented amount while taking a strikingly unbalanced approach to
deficit reduction.  It also would be inconsistent with statements of
Republican leaders like House Speaker Paul Ryan that reducing poverty is
a top priority.



The house budget plan is unlikely to be passed.  But it comes at a time when many Americans feel disaffected by Washington (see here).   How much of this is a result of the financial crisis?  That's one thing we will talk about for the next 10 weeks.