Michael Watts | Critique of "America’s Economy is Outperforming Rivals Because the U.S. Is Excelling at Globalization"

Michael Watts

6/25/13

Kassens

ECON 122

(See article here)

Critique of “America’s Economy is Outperforming Rivals Because the U.S. Is Excelling at Globalization”

            In this article, the author states that because of globalization, which is the process allowing financial and investment markets to operate internationally, mainly resulting from deregulation and improved communications, America’s economy is growing and performing better than other developed economies around the world. He supports this assertion by providing positive reports, such as unemployment decreasing, consumer confidence increasing, and personal debt returning to normal levels. Therefore, these reports reveal that the American economy is flowing smoothly and at a steady rate.

            Those who should be acknowledged for this economic shift are the Federal Reserve and businesses who have been dedicated to globalization for the last two decades compared to
Europe. Furthermore, Bill Clinton and President Barak Obama stimulated global trade and improved the economy. Bill Clinton enacted NAFTA (North American Free Trade Agreement), created the World Trade Organization, and drew China and other nations into a global trading system. President Obama is working on negotiating a new trade deal with several other countries.

In class, I learned the importance of capitalism and how it affects economic growth. Globalization provides opportunity for American companies to compete against those countries with stronger developed economies. Also, globalization enables the U.S. to aid those countries with weaker economies to become stronger, and thus, developing more goods and services and increasing supply and demand. As a result, this will increase employment and increase GDP (Gross Domestic Product), the total market value of all goods and services produced within a country annually. Furthermore, I learned that one of the functions of the Federal Reserve was to conduct monetary policy by setting short-term interest rates. In this article, the Fed kept the interest rate low, but because of globalization, markets didn’t move and the interest rate may potentially increase.

Julia did an excellent job of analyzing the information from the article to explain that globalization is impacting the U.S. in a good way and how it occurred and advanced through Clinton’s, Obama’s, and the Fed’s ambitious actions by creating organizations, deals, treaties, and other pacts. Furthermore, she did a nice job with how she formatted and worded her blog entry in a way where it could be easily read and understood, she even explained what globalization meant in layman’s terms for those who never heard of it. I also like the fact how she used a couple direct quotes to support her statements on her interpretation of the article.  

Home Prices are Rising, and So Are Sales

Spencer Parsons

Home Prices Are Rising, and So Are Sales

During our nations most recent recession, the real estate market and overall home ownership were two of the main contributing factors to the slight downfall of our economy. For this assignment, I found an article written in The New York Times by Shaila Dewan, who discusses the recent trends of average home prices and sales and how they are continuing increase. Throughout the article she gives several examples within our economy that are positively influencing our nation’s real estate market.

One aspect of our economy that the real estate market is benefitting from is the improving job market within our country. During the recession, there was an increase in the fixed mortgage rates, which decreased consumer spending on Wall Street and within our consumer markets. Our improving job market has the ability to increase overall GDP within our country because more people will be able to find jobs and make an income and evidently put money back into our economy. The stock market would see positive effects from our improving job market because there will be an increase in investments for companies that deal with home construction and the real estate market. The overall increase in prices of houses helps reduce or even eliminate the possibility of someone owing more money on their mortgage than the overall worth of their home or property.

 In the article, Dewan also discusses an alternative view as to why our real estate market is benefitting the economy. The recession halted consumer spending in our economy causing our housing market to dwindle because of the absence of new homes being built. Since there were so few homes built a couple years ago, the construction companies are really benefitting because the demand for new homes is back on the rise. The demand for the services of construction companies is fueled by the low supply of new up to date homes floating throughout our real estate market. “Inventories are low for both new and existing homes, as well as for rentals, said Stuart Miller, the chief executive of Lennar Corporation, the nation’s third-largest home builder, which on Tuesday reported a 53 percent rise in revenue in the second quarter of the year” (NYTimes, Dewan). This is an extremely large increase in the demand for the services of construction companies and just goes to show how our real estate market is recovering very strong. A common misconception that was brought to light in this article is with such a dramatic increase in home construction, mortgage rates would naturally increase to take advantage of the flow of consumer spending. This however was disproved because the expected rate is 4 percent by the end of the year, which is still much lower than historical norms. Besides, a recent college graduate who is looking for a place to live in Boston said, “she was much more concerned about finding an affordable price than about rising mortgage rates” (NYTimes, Dewan).

Dewan, Shaila. "Home Prices Are Rising, and So Are Sales - NYTimes.com." The New York Times - Breaking News, World News & Multimedia. The New York Times, 25 June 2013. Web. 25 June 2013. <http://www.nytimes.com/2013/06/26/business/economy/home-sales-are-rising-and-so-are-prices.html?ref=economy&_r=0>.

Is it really your home?

When we all think of home we all have a different idea about what a home is. To some of us it is a house sitting with a yard and maybe a white picket fence to others it could be something like a sprawling mansion that looks like it came out of the great Gatsby. The question I have to ask is “is that really our home anymore?”  The reason I ask this is because it has become more and more apparent that the current real estate market has made it apparent that more and more people don’t actually own the place they call home like they used too. During the most recent economic crunch that this nation befell many people who had bought their homes on fluctuating mortgage levels thinking they were genius’s because they didn’t have to pay as high as those that had a set rate soon found themselves drowning in a sea of notices demanding more and more money.

The reason for the sudden demand by the bank is due to many reasons but namely they had made a few bad choices and were trying to recover having made the investment into the idea that people would be able to afford to pay a mortgage payment should it go up rapidly from say 3% to 10%. Though that may not seem like a lot that amount of money was all dependent on how much the home was worth and unfortunately people felt they deserved houses like those of Beverly Hills when they were working at a job that could barely support a two bedroom apartment a month on wall street in nyc.  So the people who were once thought to be geniuses were now baffled that they had to pay a lot more money than they had before because they didn’t realize the interest rate on their mortgage could actually go up. When they couldn’t pay for their “McMansion” they lost it to the legal owner the bank that had paid for its construction.

                It used to be the American dream to have your own house that you built with your own two hands and that you could raise your family in. however in the modern day it is becoming harder and harder for the new generation of people to buy and actually own their own home luckily there is hope on the horizon. Due to the government stimulus plan the fed had caused a lower interest rate that was stable when it came to loans not to mention the Federal housing commission was able to stabilize the entire market as well as offer an mortgage insurance plan. Which actually put a sense of stability to the chaotic market which made nervous investors calm down a bit something that helped a lot more than anything else that could have been done.

                The fact still remains that many people who thought themselves to be homeowners had to see their dreams go up in smoke like their bank accounts because of the fluctuating interest rates.  A house was once thought of as an investment in the future because of the thought that many generations could have the home it is slowly becoming that not even one generation can hold onto a house. Hopefully people will learn the truth of interest rates like I have from my time in economics and will learn that they are not a stable thing.

http://realestate.msn.com/8-ways-the-housing-market-has-changed-for-2013#3

Critique of “The Problem With Too Many Millionaires”

Josh Mowles

ECON122

Dr. Kassens

July 26, 2013

Click here for the article.

Critique of “The Problem With Too Many Millionaires”

            In this article, the author talks about how the rich are getting richer, and the middle class is disappearing.  She gives several examples of how the already rich and well known entrepreneurs are creating products that they are the only seller but there are many, many buyers.  Something else she mentions was how productivity has gone up by 85% since 1980.  Wages have only gone up by 35% during that same span. (Freeland, 2013)  She uses all this information to show the problem with too many millionaires.

            If the author of the article is correct and the middle class is hollowing, then this will begin to affect the real gross domestic product (RGDP).  What I mean by this is that if the lower class keeps getting bigger than the consumption will begin to lower.  If more people have less money to spend than this will affect the economy in negative way.  Most people think that the more rich people make, the better the economy is because that will create a lot of new jobs.  This isn’t necessarily true if you look at the production v. wage problem as mentioned before.

            Something else we learned in class is that in Milton Friedman’s Permanent Income Hypothesis.  In this hypothesis, Freidman states that consumption is based on people’s lifetime average income rather than the deviation from that income.  Consumption has the biggest influence on RGDP being that it makes up of 70% of it.  So if there are many more people making much less over their lifetime then this will inevitably affect RGDP in a negative way.

            Emily did an excellent job of using the information from the article to show the effect of the top 1% is having on the economy.  She also did a wonderful job in making her blog entry very easy to read as well as adding a bunch of material which made her blog entry very informative.  She used a lot of stats which made her brought a lot of validity to her blog entry.  I also really liked the fact that she used very credible sources in her blog entry.  One of the sources is a professor of economics at Harvard University. And the other source is the chairman of President Barack Obama’s Council of Economic Advisers. 

 

Works Cited

Freeland, C. (2013, June 20). The Problem With Too Many Millionaires. Retrieved from The New York Times: http://www.nytimes.com/2013/06/21/us/21iht-letter21.html?ref=economics&_r=0

Tinker, Taper

Emily G. Murphy

Econ 122

June 23, 2013

Since December 2008 when the Federal Reserve’s main policy interest rate fell near zero they have enacted a wide spectrum of what The Economist refers to as “unconventional policies” meant to advance the economy.  The Economist informs us that very recently the Federal Open Market Committee has “ostensibly” left “its foot on the gas.”  An example of this is the FOMC’s pledge to continue adding $85 billion in bonds per month which has almost quadrupled to $3.4 trillion since the beginning of the recession.  We can identify from class that this latest round of bond buying is a strategy to help inch the federal funds rate towards the Fed’s desired target. 

The Economist also informs us that the stocks of risker assets have fallen steeply, which results in an “effective tightening” in the monetary climate.  This tightening is said to be a direct effect of Ben Bernanke’s assertion that a “tapering” of the pace of the purchase of assets may possibly begin later this year.  This has significance to us as we have learned this semester that a tightening in the monetary climate has numerous negative effects but most importantly it decreases the available credit in the market as banks are less willing to lend and take high risks.  The Fed’s opinion of this however is not as panicked of a response as the market’s is.  They believe a more comfortable buying pace doesn’t equal tightening.  It is also believed that it is really the overall size of the Fed’s balance sheet that is most important and as long as assets grow policy will loosen. 

An important piece of the conversation to remember is that Bernanke has informed us, “tapering will be closely linked to economic conditions” says The Economist.    However the Fed’s plan, all going well, would end asset purchases by the middle of 2014.  There are of course many complications when dealing with a central bank.  These issues are only intensified when the Fed’s main interest rate tool cannot be further reduced.  In this situation the economic forecast and the Fed’s response to the forecast are ever crucial. 

The Economist continues on addressing the fact that if the Federal Reserve desires to gain more stern control in quantitative easing (QE) without harming the economy their main job must be convincing markets it won’t allow inflation to drop or employment to fall behind.  The idea that the Fed must convince markets it won’t allow inflation to drop or employment to fall behind is of course related to the idea of uncertainty in money demanded.  We learned that as uncertainty rises the demand for money shifts outward meaning we are less likely to see high levels of investment, especially in risker assets.  As uncertainty falls the demand for money shifts inward meaning we will be more likely to invest and convert our hard currency into other risker assets.  Another goal of Bernanke’s latest press conference was to attempt to make crystal clear the Fed’s policy strategy, among other things.  Bernanke’s main message was that the outlook for the labor market will be considered substantially improved only after unemployment has dropped to around seven percent.  Bernanke reiterated that until that time comes QE will continue. The Economist proceeds to state that a “hawkish minority” of the Fed’s nineteen policymakers desire bond buying to end as soon as possible, claiming dangerous risk taking and “asset misallocation.”  Whereas recently Bernanke stated his most looming concern about QE isn’t inflation but instead is financial stability.  It is extremely clear that the internal division of the Fed is complicating goal clarity and communication.

Click Here for Article
Citation - Tinker, taper: the federal reserve tries to clarify it's goals. (2013, June 22). The Economist. Retrieved from http://www.economist.com/

Chinese and the Federal Reserve; Blogger William Merritt

William Merritt

6/23/13

Macroeconomics

Chinese and the Federal Reserve; Blogger Assignment

The article I chose for this blog assignment talked about the ways in which the market has failed recently in the United States and China. China problem is basic; interest rates are too high, and the government is unable to bail out the lenders who are being told they have to stop blindly investing, thinking that the government will be able to bail them out.  Labor interest rates are going up, and bond prices are plummeting in both America and China.  "There's no more cheap money" (Stepek, 2013)'. The credit crunch in China and the head of the Fed, Ben Bernanke, provide insight into for inflation problems and solutions.  Bernanke, Stepek noted, claims that the money printing press in America will stop producing cash. Bernanke also made a promise about the market and how it will always be supported by the central bank (although I'm not so sure how much support he is willing to lend, especially if no more money is being printed). Monetary policy is a bit firmer in China, generally speaking, but when we consider the quantity theory of money it is clear that Chinese in general have a better game plan.  Demand for money goes up, and inflation goes down.  According to Stepek, Chinese investors have been stocking up on American dollars; which is a strategic move in the worldwide market, especially in the long run. The gross domestic product of both countries is very high but the demand for supply is going down within these countries is going down as inflation continues to go up and the recession gets deeper.  The central bank of China has usually had a plan to stop the credit crunch from happening.  The market will always prove to be an unpredictable thing, especially in larger, and more industrialized countries like the United States and China, which is a factor in business cycle theory

This article was intriguing because the differences that the author points out about Chinese and American fiscal policy, and because of the author's objective, telling us about the recession that the current business cycle stage has brought with inflation, are vital the global market economy.

Works Cited

1. Stepek, John (2013, June 22) "MoneyWeek Roundup; The Markets's Worst Nightmare". MoneyWeek. (2013, June 24)

Retrieved June 23, 2013 from http://moneyweek.com/moneyweek-roundup-the-markets-worst-nightmare/

Impact of Globalization

Julia Ritter
Econ122
6.23.13

In the economics news article, “America’s Economy Is Outperforming Rivals Because the U.S. Is Excelling at Globalization” by Robert Shapiro, it is voiced that the U.S engagement with foreign affairs promotes our economic growth. Shapiro argues that Globalization is now a driving force force for our economy.

            

“Last weeks revised report on the GDP showed consumer spending rising at twice the preceding three quarters. Housing investment is also at an increasing 14 percent annual rate. Following a 25 percent drop in home foreclosures compared to the first quarter of 2012 and many months of rising housing prices.” These positive reports are a good indication of the flow of our economony and we can thank globalization for paving the way.  Americans have always benefited from expanding markets for products as well as from lower input prices for our firms and more affordable goods for all of us.  The only downside that was reported was the lag in our Government. "If not for Washington’s misguided sequester cuts, tax increases and continuing layoffs by state and local governments, GDP would be growing at a healthy 3.5 percent annual rate."

It is due in part this turnaround, that credit goes to American Policymakers and business. They have been committed to globalization for the last two decades. Bill Clinton and President Obama are also key figures in this commitment to globalization as well. There have been major steps taken to increase trade and improve the economy. “Last term, he got Congress to approve new free trade pacts with South Korea, Colombia and Panama.” These actions have further our economy to a brink of a turnaround. It is a golden opportunity for the US to prevail. Globalization means that economic activity flows in both directions; although we may lose jobs to foreign workers, we also may gain jobs and boost economic activity.

I think that open trade has and will create many opportunities in the U.S by helping foreign economies become stronger and the demand in their goods and services will soar. The rise in foreign demand will be a window of opportunity for the U.S firms to compete to provide products for foreign imports. From what I have learned in Macroeconomics I know that it is important to capitalize on all possible sources of success and I believe Globalization has revolutionized the way American companies do business by making them multi-national corporations. The interlinked nature of these globalized economic systems permit all nations to benefit from the innovations from one another. Globlaizatoin induces promotes sharing and creates stability. I think that globalization is a great benefit to not only our world, but clearly to the economy itself. 

works cited:

Shapiro, Robert. "America’s Economy Is Outperforming Rivals Because the U.S. Is Excelling at Globalization." Http://www.thedailybeast.com. N.p., May-June 2013. Web. May-June 2013.