WSJ Business News for 08312011 - Fed Very Divided on Options

Business & Finance

• US Authorities are investigating whether Oracle, one of the world's largest software companies by sales, violated federal anti-bribery laws in its dealings abroad, according to people familiar with the matter.  
• Exxon Mobil snatched away a major Arctic exploration deal with Russia's Rosneft from competitors including BP in a sweeping deal that gives Rosneft access to energy projects in the US
• Fed officials are as deeply divided as they've been in decades about how to spur the flagging economy, records released Tuesday show.  (this is a big deal)
• The SEC lawyer who has accused the regulator of improperly destroying thousands of sensitive documents is a proven whistle-blower   
• The Dow industrials clawed back from 110 points down to finish up at 20.70 or 0.2% at 11559.95, the index's sixth gain in seven sessions.  
• Sentiment among euro-zone companies and consumers plunged in August.  Separately, the ECB stepped in to buy Italian and Spanish bonds.  
• Accounting-rule makers said some European banks haven't taken big enough write-downs on the values of the distressed Greek debt they hold.  
• BofA was suited by a unit of US Bancorp on behalf of investors in a $1.75 billion morgage-backed bond deal that quickly soured.  
• Whirlpool has buttressed its bottom line for five years with export tax credits from Brazil.  That pool of funds is now dwindling, however.  
• H-P said it will temporarily resume manufacturing the TouchPad, just 11 days after killing its iPad rival as part of a corporate overhaul.  
• Barnes & Noble's loss narrowed less than expected but the bookseller continued to post robust sales growth tied to its Nook e-book reader.  
• Kerzner is exploring selling its 50% stake in the Atlantis resort in Dubai as it scrambles to raise money to restructure $2.6 billion in mortgage debt.  
• Kerzner is exploring selling its 50% stake in the Atlantis resort in Dubai as it scrambles to raise money to restructure $2.6 billion in mortgage debt.  
• Questions are arising about how long some publicly held home builders can survive without significant improvement in the market.  
• Boeing said airlines had committed to buying nearly 500 of the revamped version of its 737 jetliner, with the first delivery slated for 2017.  
• A judge said creditors can vote on Lehman's $65 billion creditor payback plan, nearly 3 years after the company filed for Chapter 11.  
• Carl Icahn is walking away from his Lions Gate investment under an agreement that ends an effort to take control of the film studio.  

Also, home prices ticked up in the 2nd quarter but remained low.  The S&P/Case-Shriller Home Price Index rose 3.6% from the first quarter as the Spring selling season began.  But the index was 5.9% below its year-earlier level and 31.5% below its peak five years ago (2006).  With a large inventory of unsold homes on the market, sustained price increases may be years away.  

Inflation, Military Spending, and Zimbabwe Inflation

Hi All,
These couple of posts will be quick, as I've got Open House tonight with some of your parents.

Inflation rates, as you can find out in your book, can be a serious problem.  It is measured through increases in consumer prices.  The back cover of the Economist gives weekly figures for GDP growth, industrial production, Inflation (Consumer Prices), and Unemployment on a country-by-country basis.  Here are some figures for you to chew on:
Country - 2011 inflation rate (estimated by the Economist or the Economist Intelligence Unit)
United States - 2.9%
Japan - 0.3%
China - 5.3%
Britain - 4.4
Canada - 2.8
Euro Zone - 2.7
France - 2.2
Germany - 2.5
Greece - 3.2
Spain - 3.0
Russia - 8.9
Turkey - 6.0
Hong Kong - 5.0
Pakistan - 11.6
Singapore - 4.6
South Korea - 4.1
Taiwan - 1.9
Thailand - 4.3
Argentina - 9.8
Brazil - 6.6
Mexico - 3.5
Venezuela - 26.9
Egypt - 13.3
Israel - 3.8
Saudi Arabia - 5.6
South Africa - 5.2

Here is a link to a piece on Zimbabwe Inflation from a couple of years ago.  Their hyper-inflation rate at one point was 89.7 sextillion percent (or 8.97x10^22 percent).  It was the worst bout of hyper-inflation in recorded history.

Question 19 for tomorrow asks you to find the military spending for Brazil, Russia, North Korea, and Japan.  Here are their totals for % of GDP for that problem.  Note that GDP is for the official exchange rate, and is not adjusted for purchasing power parity (PPP).
Global Security has a much better table - see: http://www.globalsecurity.org/military/world/spending.htm

Brazil - 1.7% of GDP (GDP = $2.01 Trillion)
Japan - 0.8% of GDP (GDP = $5.459 Trillion)
North Korea - 25% of GDP (GDP = $40 Billion)
Russia - 3.9% of GDP (GDP = $2.116 Trillion)
United States - 5.2% of GDP (GDP = $14.120 Trillion)

The Stockholm International Peace Institute also has up-to-date data on all of this as well.  See:
http://milexdata.sipri.org/

Economic Statistics

Check out:
http://www.usdebtclock.org/

While the numbers are moving fairly fast, and it does generalize a few things, it does give a wide range of fairly important economic statistics pertaining to the US, the states, and important global economies.

One note on China's total debt - while the number it shows is indeed the amount of debt held by the national government, there is also a substantial of debt held at the local level that boosts China's total government debt up into the 80% range.
See: http://www.google.com/hostednews/afp/article/ALeqM5i5YD3WbYRV6yrY55mViOZKvgqs_A?docId=CNG.97d94edab3e052b1df342424351ca0c0.701

http://the-diplomat.com/2011/07/05/china%E2%80%99s-ticking-debt-bomb/

WSJ Business News 08302011

Business & Finance

• The Dow industrials gained 254.71 points, or 2.3%, to 11539.25, although trading was diminished in the wake of Hurricane Irene.  The S&P 500 climbed 2.8% while the Nasdaq jumped 3.3%.  Treasurys slipped, sending the 10-year yield to 2.273%
• A merger of two Greek banks sent stocks in Athens surging 14%, while market sentiment elsewhere in Europe was bolstered by Bernanke's remarks on Friday.  
• Bank of America agreed to sell about half its stake in China Construction Bank, booking a $3.3Bn gain and giving CEO Moynihan some more breathing room.  
• Trichet signaled that the ECB may reconsider its longstanding warning about inflation, potentially setting the stage for a lengthy pause in rate increases.  
• China's central bank issued a memo to further rein lending, highlighting continuing tightening efforts as well as how its economic management remains shrouded in secrecy.  
• Inkeepers USA trust sued Cererus, claiming the private-equity firm abandoned a $1.12Bn deal to buy the hotelier as part of a ploy to pay a lower price.  
• Big drug makers are turning more to products like Pfizer's Xalkori, which treat diseases afflicting small numbers of patients, rather than traditional block-busters such as Lipitor.  
• GM's redesign of its Malibu illustrates the many engineering changes needed to hit fuel-economy targets that will eventually require the average new vehicle to get 54.5 miles a gallon.  
• UAW head Bob King's toughest adversary in contract talks with Detroit's auto makers may be his own rank-and-file members.  
• Alan Krueger, Obama's pick to head the White House Council of Economic Advisers, will likely serve as an advocate for more aggressive government intervention to revive job growth.  
• Manchester United choose Singapore for its $1Bn IPO (initial public offering) so it could have a dual-share structure that enables its owners to effectively retain control of the team.  

08302011 Quiz Answers & Homework

Hi All,
Question One had to do with the principle of economic surplus, while question two had to do with microbehavior in the face of trash pick-up fee change.

First, the economic surplus from taking any action is the benefit of that action minus its cost.  This problem is therefore an example of the cost-benefit principle.

Benefit of performing a car wash = $6
Cost of performing a car wash = $3.50
Net benefit (economic surplus) NB = B-C
Economic surplus = $6 - $3.50 = $2.50


Just so you all remember, the Cost-Benefit Principle states that an individual (or form, or a society) should take an action if, and only if, the extra benefits from taking the actions are at least as great as the extra costs.

Question Two is about the difference between a fixed weekly fee for unlimited garbage pickup and a 'tag' system where one garbage bin costs $2 and they are reusable.  The question is about the total quantity of garbage collected in the city (not about revenue, which would clearly drop in this system).  Given the cost-benefit principle, once again, most residents would presumably wish to save on their garbage bill, and would therefore limit their weekly trash output to somewhere between one and three cans of garbage.  Perhaps they would reduce their trash output by doing more recycling, composting, or burning.  It is also feasible that some people would purchase more than three tags and put out four or five bins of garbage.  However, from a macro-standpoint, the total amount of trash generated by this scheme would indeed be less than the $6 unlimited policy.

I will have your quizzes graded tomorrow.

Also, don't forget that Chapter Two Study Questions from the text are due this Thursday, and your quantitative exercises (handed out yesterday) will be due the following Tuesday.

Finally, we will begin talking about absolute and comparative advantage tomorrow.  Absolute advantage is where one person can produce more of that good than the other person in the same period of time.  Comparative advantage is where one person is relatively more efficient than the other person at producing that good, meaning that his/her opportunity cost of producing it is lower than her counterpart's.  Specialization based on comparative advantage is the basis for economic exchange.  When each person specializes in the task at which he/she is relatively most efficient, the economic pie is maximized, making possible the largest slice for everyone.  This is true because people all have different production possibilities curve (PPC).

Wall Street Journal (WSJ) News for 08292011

Business & Finance

• US companies racked up big profits during the first half of the year even as economic growth slowed to a crawl.  Now they are facing their biggest test of the recovery in trying to maintain that momentum amid a dimming economic outlook.  
• The world's central bankers are concluding that the global economy is still in a precarious position and that the policy apparatus is ill-equipped to help.  
• To seasoned investors, last week's sharp market swings were a fresh reminder of a problem tormenting financial markets: moral hazard.  
• Obama plans to nominate labor economist Alan Krueger of Princeton University to the post of chairman of the White House Council of Economic Advisers.  
• Greek lenders EFG Eurobank Ergasias and Alpha Bank are expected to announce a tie-up to create the country's largest banking company.  
• Widely-grown corn plants that Monsanto genetically modified to thwart a voracious bug are falling prey to that very pest in a few Iowa fields.  
• Lone Star Funds, Wells Fargo and JP Morgan emerged as winning bidders in the auction of Anglo Irish Bank's portfolio of US commercial real-estate loans.  
• Kleiner Perkins is scrambling to grab a leadership role in the latest Web boom after missing out on early-stage investments in some of the hottest new companies.  
• Sino-Forest said its CEO has resigned and three employees have been temporarily suspended, after Canadian regulators said the company may have committed fraud.  
• A drug being developed by Bristol-Myers Squibb and Pfizer significantly outperformed warfarin in a major stroke-prevention study.  

World-Wide

• The CIA sought to hobble a weakened al Qaeda.  The US intelligence agency is seeking to hit hard at the terrorist network, but some US officials say the drive is so politically damaging for Pakistani leaders that they will seek to curtail it.  The US confirmed that a CIA drone strike killed al Qaeda's second-in-command on Aug. 22.  Attiyah Adb al-Rahman had been in charge of attack planning for the group.  
• Japan's ruling party will vote Monday for a new prime minister.  Top contenders are trade minister Kajeda and ex-foreign minister Maehara.  
• Evidence mounted in Tripoli about possible war crimes committed as Gadhafi loyalists lost control of his compound last week.  
• Libya's rebel government won't deport the man convicted of the 1988 Lockerbie bombing that killed 270.  
• Perry and Romney, who lead in Republican presidential polls, have locked horns in the past.  
• German politicians tried to distance themselves from embattled foreign minister Westerwelle and his stance on NATO's Libyan campaign.  
• A Gandhian activist ended a hunger strike after the Indian government said anti-corruption legislation would address Hazare's demands.  
• Nigerian officials worry that an Islamic militant group linked to an attack on a UN building has a faction seeking ties to terror groups.  
• An Iraq suicide bomber blew himself up in Baghdad's largest Sunni mosque, killing 29 people during prayers.  
• The Singapore ruling party's preferred candidate won a razor-thin victory in a presidential vote.  

Bloomberg TV & Charlie Rose

Hi Students,
Not all TV is created equal.  Bloomberg TV, found at http://www.bloomberg.com/tv/, is a great way to watch the global finance markets, developments in Asia, Europe, and in New York, as well as develop your global perspective on the interrelationships between governments and economies of scale.  Most interviews have a lot of substance, and you will feel like you're travelling at a million miles a minute as the conversation goes forward.

Also, Charlie Rose is unlike any other interview show out there.  While the Daily Show and Stephen Colbert are certainly famous with your generation, take a look at some of the shows that Charlie Rose does.  You can find him online at Hulu, or Bloomberg TV broadcasts his interviews as well (4pm & 7pm PDT/PST).  He is also on late at night on public television, for you insomniacs out there.  His website is:
www.charlierose.com.

Enjoy!

CIA World Factbook

Hi All,
The most comprehensive site for economic facts divided by country and region is the CIA Factbook, found HERE.  Inside you can examine national economic statistics for every country, including GDP, unemployment, inflation, etc.  It also gives a good breakdown of household consumption, taxes, investment, industries, electricity and oil production and consumption, and many other useful statistics.  Check it out!

Also, this week is a short week, but I'm looking forward to talking about Chapter 2, distributing some quantitative exercises for you, and also going over the Chapter 2 homework (listed below).  I'm also excited to meet your parents this Wednesday at the Back-to-School night (or at least some of them).  For overseas parents, I'm available anytime for discussions over Skype, should there be any interest.

Keep up the good work!

Bjorn Lomborg on the role of Economists

This is a really good Ted Talk on the role of Economists in setting global priorities.  This relates very much to our discussion of Opportunity Costs.  Enjoy!

http://www.ted.com/talks/bjorn_lomborg_sets_global_priorities.html

Bernanke and the Federal Reserve

Next week we will discuss the role that Dr. Ben Bernanke has had on the global economy as the head of the Federal Reserve.  Dr. Bernanke was previously an economics professor at Princeton before becoming the successor to Alan Greenspan at the Fed.  The Fed, based in Washington, D.C., is an independent institution which controls U.S. monetary policy.

Instead of reviewing an academic paper this week, I am giving you a Feb 3, 2011 speech Dr. Bernanke made in Washington, D.C. on the current economic outlook, monetary policy, and also fiscal policy (controlled by Congress and the President).  While much has happened since February, including ongoing developments in the European debt crisis and a downgrading of the U.S. credit rating by S&P, much of Bernanke's analysis still rings true today.  You can view the paper online at:
http://www.federalreserve.gov/newsevents/speech/bernanke_speech_20110203.pdf

Happy Reading!

Going Hungry in America

Hi Class,
Was watching the ABC World News Tonight and they had this report on the 46m people now on food stamps in the United States right now.  Please watch the report and follow up with your thoughts on how to help fix this crisis situation.

Hunger in America - Special Report from World News Tonight

Dr. Rogoff - Macroecon Challenges

This week we are studying some of the work of Dr. Ken Rogoff, a Professor of Economics at Harvard University.  Dr. Rogoff was formerly the chief economist at the International Monetary Fund, based in Washington, D.C.

The article we read is entitled, "Three Challenges Facing Modern Macroeconomics."  

Abstract:
There are three great challenges facing researchers in modern macroeconomics today;, all brought into sharp relief by the recent financial crisis.  The first is to find more realistic, and yet tractable, ways to incorporate financial market frictions into our canonical models for analyzing monetary policy.  The second is to rethink the role of counter-cyclical fiscal policy, particularly in the response to a financial crisis where credit markets seize.  A third great challenge is to achieve a better cost-benefit analysis of financial market regulation.  

His basic point is that economic analysis should include more math into the field.  This makes it easier to generalize, test, advance, and refute proposed economic theories.  It also allows successful theories to be applied more broadly than before.

I'm also going to include several videos of Dr. Rogoff on different media outlets for you to peruse:

• GPS on CNN
• Charlie Rose 
• Project Syndicate 

You can also Google "Kenneth Rogoff" under the videos section for more.

Opportunity Cost Quiz 08252011

Today we had a pop quiz where you were asked about Opportunity Costs relating to taking this AP Economics class.

Opportunity Cost - the amount of other products that must be forgone or sacrificed to produce a unit of product

Most students understood that opportunity costs are what you must give up in order to achieve a unit of product (i.e. taking this class), but some listed only benefits of taking the class.  Popular and correct ideas that students listed included time for studying, materials, money, taking other elective classes, and putting one's GPA at risk because of the rigorous class material.  In theory there are infinite opportunity costs associated with taking this class, but students generally listed the ones that are most relevant to them.

Opportunity costs are important when examining production possibilities graphs (see pg. 26).  In that graph, industrial robots and pizza production are examined.  The graph shows that opportunity costs are measured in real terms, that is, in actual goods rather than in money terms.  Producing 9000 robots instead of 10000 means we can make 1000 pizzas instead of zero.

Chapter Two Homework

Chapter Two is entitled, "The Economizing Problem."

Study Questions:
2, 3, 4, 5, 6, 8, 9, 10, 11, 12, 15, 19

For number 19, please have a look at the Central Intelligence Agency's website at www.odci.gov/cia/publications/factbook/index.html and follow the directions on the question.  You are being asked questions about Brazil, Japan, North Korea, Russia, and the United States

Homework - Chapter 1

Chapter 1 - Nature & Methods of Economics
Study Questions: 2, 4, 6, 8, 10, 11, 12, 15, 17 (pg. 13-14)
For No. 17, please visit www.rnc.org and www.democrats.org.  Your question is, "Identify an economic issue that both parties address, and compare and contrast their views o that issue.  Generally speaking, how much of the disagreement is based on normative economics compared to positive economics?  Given an example of loaded terminology from each site."

Appendix: 2, 3, 6, 7 (pg. 20-21)
These are math questions requiring you to do some quantitative analysis of raw data and also the relationship between consumption and income.

Good luck!

Welcome

Hello Students,
This blog will give us the opportunity to continue class after the final bell each day.  I will be posting readings, answers to homework & quizzes, and relevant videos of mainstream economics for your convenience.  It is my hope that you check this blog as often as possible to look forward to what we will be doing in class, as well as to enhance your own exploration of Macroeconomics.

Furthermore, you are encouraged to post comments on any of the posts.  Good luck!

Mr. Joy