Connect with us

Economy

Rebuttal to the Washington Post: The True Economic State

Published

on

Whether one agrees with Donald Trump’s economic policies or not, the state of economy he will inherit needs to be clarified. A recent article by the Washington Post’s Catherine Rampell stated as one of her main theses that Trump will inherit a strong and vibrant economy. While other aspects of the article make interesting points, the premise upon which the article’s foundation lies upon is mistaken. The economy that is being handed to President-elect Trump is not in the most favorable conditions as claimed by the article, it is actually the contrary.

In 2008, one of the greatest recession in modern history struck the US and the world. This economic disaster occurred in the last year of the Bush administration as the Obama administration was coming into power. While President Obama inherited the economic disaster and attempted to remedy it, all he has done, similar to his predecessor, is further conceal the root cause of the issue. Despite what Mrs. Rampell claimed as economic success by the Obama administration is anything but success.

The economic conditions presented to the President-elect are not favorable, nor was the economic conditions provided to President Obama. A long understood political maxim has been that the president cannot directly affect the economy, but that has not been the case in the last decade or so. The economy has been sitting on a bubble for a long time. Just like anything, all good things must come to an end. The prosperity under the Clinton years was due to for a recession but was dampened by the Bush administration’s famous tax cuts and other detrimental economic policies. But such meddling could only go so far before coming to an end, which it did in 2008. Even though that would have been the panacea to the economic travails, the Obama administration began to implement a series of government interventions that has helped delay the inevitable, a major recession.

In order to understand why the Washington Post article is incorrect, a review of the main arguments is needed. The article puts forth the following arguments:

2/3 of Trump’s supporters don’t believe government data.

A Gallup Poll found that 2/3 of all Americans do not believe what the mainstream media reports. Another poll found that 81% of all Americans do not trust the government. So despite painting a picture of Trump supporters believing in tin-foil hat theories, which some perhaps do, the country as a whole, liberal or conservative, is tired of what they see as misinformation, such as this Washington Post piece.

The unemployment rate is 4.6%, which President Obama can claim credit for. Anything around 5% or lower is considered full employment but to think of economy as fully employed is misleading. Even though the unemployment rate has been falling since 2008, there are two things not being discussed. The government performs mathematical voodoo and the Obama administration is not the first, it goes back many presidencies. A cognitive dissonance exists amongst the people who use government statistics to claim the country is fully employed yet ignore the other bits of information that exists. There is the U-6 unemployment rate, which accounts for those working part-time but desiring full time work and those who desire work but could not find it. The rate is more than twice the supposed unemployment rate, so how can it be claimed that the economy in great condition when the data says otherwise? Furthermore, the unemployment rate also declines because people are no longer seeking work; therefore that figure in itself is not a true indicator of an economic recovery. It is better to review the labor participation rate in order to comprehend the actual status of the economy. The participation rate hovered at a high of 66% prior to the Great Recession. Since then it has been on a downward trend, currently hovering right below 63%.

While real wages have increased in the last several months, the data set is not an accurate one used to demonstrate the true purchasing power of Americans. Instead what should be reviewed is the real median household income. This has not reached the highs of the late 1990s. This indicator is still trending downwards.

Gas prices should never be used as an indicator of economic prosperity. A president does not control the price of gas; rather it is determined by energy markets as well as the largest oil producer, Saudi Arabia. Current oil prices are low and being kept artificially low by Saudi Arabia supposedly for an array of reason.

The stock market continues to reach new highs. The reason for this continued growth in the last several years has been due to quantitative easing and near zero interest rate. With more $12 trillion dollars printed, nearly $10 trillion in negative-yielding global bonds, and more than 650 interest rate cuts since 2008, the market has been artificially pumped to these new highs and will not sustain. Unfortunately, when the crash occurs, it will have to compensate and will do so in a very detrimental way.

One of the greatest overlooked factors that have not been accounted for is the quality of jobs. In the decade since the Great Recession, most of the jobs created have been service jobs rather than skilled and manufacturing jobs. This is an important indicator that should be accounted for in determining the robustness of an economy. Skilled jobs are vital in ensuring a healthy middle class, which is essential to any democracy. Yet the US economy has transformed since the Great Recession into a 1099 or uber economy. This does not bode well for the future.

While Trump’s plan for an infrastructure overhaul might help alleviate some of the economic toil, it is nothing more than another bandage for a much larger issue. A recession is inevitable; it will come when nobody knows perhaps next year or in four years. But unlike any other recession, this will be worse than the 2008 recession. Similar to Trump’s claim of draining the swamp, the economy has needed draining for the past couple of decades. Perhaps this will happen under the Trump presidency, maybe not. But it should be known that it is not Trump’s economic policies per se that will lead to the next great recession, he may be able to delay it or expedite this collapse but it will not be as a result of him. It is a long time coming and has been only exacerbated by President Obama and his predecessors.

Luis Durani is currently employed in the oil and gas industry. He previously worked in the nuclear energy industry. He has a M.A. in international affairs with a focus on Chinese foreign policy and the South China Sea, MBA, M.S. in nuclear engineering, B.S. in mechanical engineering and B.A. in political science. He is also author of "Afghanistan: It’s No Nebraska – How to do Deal with a Tribal State" and "China and the South China Sea: The Emergence of the Huaqing Doctrine." Follow him for other articles on Instagram: @Luis_Durani

Continue Reading
Comments

Economy

Anglo-American Axis Needs Common Market, not Common Alliance

Published

on

With the eruption of the war in Ukraine, and considering the post-war situation, the alliance system in the West and its future should be something worthy of concern.

Anglo-American Axis is a concept that I proposed well before Brexit, and such an axis has already been fully formed today. With Brexit, the United Kingdom is now no longer part of the continental European alliance. It has instead re-aligned with the United States, and reverted to being a maritime nation that it used to be.

Such an axis would not be moved by the independence inclination of France, the wish of Germany to become the leader, nor the ambition of Turkey to be a regional hegemon. It cares even less about countries like Israel, Iran, and India. What the Anglo-American Axis focuses is to control the high ground of fundamental values, so that it can win the historic future as long as civilization continues to progress. Wars in other regions do not carry much significance to it. For NATO to play a role, it must negotiate conditions with the United States. It is not the Anglo-American Axis that needs NATO, but that NATO needs the Anglo-American Axis.

The United States, Canada, Australia, and New Zealand, the former members of the Commonwealth, have formed the largest single market in the world, with a coordinated monetary policy for the U.S. dollar and British pound. Such a market can consider certain African and South American countries, as long as they remain stable, and this usually means some “friendly dictatorships with open economies”, similar to Chile in the past.

Civilization is a dynamic force. Although many have studied monetary issues and finance, they fail to link these with civilization. In fact, these are appendages of civilization, and they are products of it. Humanity will inevitably move towards civilization.

Continue Reading

Economy

What are Market Anticipations and Policy Expectations as Shares Tumble?

Published

on

On April 21st, the three major A-shares indices saw a severe drop due to a combination of local and global causes. The Shanghai Composite Index dropped 2.26%, the Shenzhen Component Index dropped 2.7%, the ChiNext Index dropped 2.17%, and the CSI 300 Index dropped 1.84%. More than 4,400 stocks fell in both cities, while industrial categories led by tourism, fertilizer, agriculture, and photovoltaics almost across the board.

As April started, the Shanghai Composite Index has fallen 7.5%, down 10.5% from the beginning of March. The CSI 300 Index has dropped 13.40% from 4,614 in early March to the current 3,995.83, which tumbled 21.31% from 5,078 in mid-December last year. Because incremental funds were not injected into the market anymore, only stock funds were up for grab. Since the middle of March, A-shares stock trading has been declining, indicating a lack of investor trust.

Researchers at ANBOUND believe that this demonstrates the market’s pessimism about the future economic situation. With the downward pressure on the economy increasing, market confidence restoration and expectations stabilization are critical to helping in the healthy development of the capital market, as well as important in maintaining growth and averting risks.

Figure 1: The Shenzhen Component Index plunging more than 4,200 in the past 4 months

Source: Sina Finance

Market institutions have generally accepted the several factors that have caused the recent severe falls in the stock market. First, the worldwide geopolitical risk of distorting the supply chain and affecting company earnings is rather high. Second, since the Federal Reserve has escalated monetary tightening, the quick reduction of the interest rate gap between China and the U.S., as well as the inversion of the RMB exchange rate, is driving the RMB exchange rate to alter, raising concerns about capital flows. Next, the resurgence of the domestic pandemic has a substantial negative influence on China’s economy, particularly in consumption and real estate as indicated in the first-quarter economic statistics, which has heightened concerns about the country’s macroeconomy. Finally, the pessimism has been accentuated by a substantial disparity between recent central bank macro policy actions and market policy expectations. As a result, as long as present internal and external concerns persist, the A-shares market is unlikely to improve much in the immediate term.

Figure 2: The Shanghai Composite Index shedding more than 600 in the past 4 months

Source: Sina Finance

Historically, the fluctuations and transformation of China’s stock market couldn’t fully reflect China’s overall economic situation. However, in terms of expectations, the shifting trend of the A-share market, by acting as a barometer of the economy, continues to illustrate the genuine expectations of capital market investors on future business and overall economic developments. As observed in the March market trend, changes in external variables have been absorbed, but recent stock market volatility is more likely to be aggravated by changes in internal elements. As a result, changes in China’s economic circumstances and policy expectations are undoubtedly the cause of the stock market’s dramatic volatility. Investors are increasingly concerned about the negative economic impact of the COVID-19 outbreaks, as well as a lack of trust in the stability of present economic strength and the rhythm of macroeconomic measures that sustain the economy. As things stand, despite the continued implementation of measures and policies aimed at stabilizing the capital market, these policies are insufficient to boost market confidence.

The pandemic and policy declarations are not only harming the capital market but are also major variables influencing China’s economic future. Notably, the recurrence of COVID-19 is concentrated in those economically developed regions such as the Yangtze River Delta and the Pearl River Delta. The scope and depth of its economic impact may surpass that of the outbreak in Wuhan in 2020. In such a case, we believe that there is a demand to put dedicated unconventional policies into place. In this regard, it is necessary to implement targeted measures to stabilize economic fundamentals based on strengthening prevention and control. On the other hand, it is also essential to promote systematic easing among macro policies to avoid the catastrophic consequences caused by shrinking demand.

Since the beginning of the year, in the framework of the Chinese central bank’s monetary policy implementation process, it has taken a cautious approach to progressively easing, which is far from the policy expectation. Although the central bank has maintained “reasonably ample liquidity” as a whole, the reality of the domestic economy indicates the private economy and a large number of small and medium-sized enterprises are unable to obtain sufficient credit support from those “accurate liquidity provisions”. Such economic structural difference requires not only targeted structural reforms, but also overall easing to achieve the dredging effect from “loose money” to “loose credit”, which would reverse the passive situation. Zhang Jun of Morgan Stanley Securities also pointed out that the policy-level “fueling tactics” will cause a waste of policy space and may also deepen the risk to diminish the expectations.

Concerning the present external limitations that limit China’s domestic measures, ANBOUND has previously stated that variables such as interest rate spreads produced by economic and policy disparities are only one of the external factors impacting China’s economy, but not the most important one. Further concern should now be given to the fundamental factors that drive economic growth and structural improvement. In terms of policy, it is imperative to enhance the ‘autonomy’ of macro policies. We should occupy this window, fundamentally reverse the economic trend, and assist the capital market to construct stable market expectations and policy expectations before the international situation undergoes further evolution, hence coping with a better response to the changes in external factors.

It would be difficult to reverse the situation after market expectations have shifted. When combined with a self-reinforcing impact, it frequently leads to a downward spiral vicious cycle in the capital market and the actual economy. Hence, it is hard to reverse market expectations without stable policy expectations. Judging from the economic data of the first quarter, the overall economy is still resilient and possesses a stable foundation. However, to achieve the economic growth target of the current year, it is still necessary to strengthen the implementation of macro policies. This is not only conducive to the stability of the capital market but for the overall economy as well.

Continue Reading

Economy

Education Must Come First in our Global Economic Agenda

Published

on

A 13-year-old girl solves a maths sum at a school in Gujarat, India. © UNICEF/Mithila Jariwala

With leaders gathering at this year’s World Economic Forum, it’s time to prioritize the impact investments in education bring to businesses, economies and beyond.

As all eyes turn to this week’s World Economic Forum in Davos, we call on world leaders and world-leading businesses to put education at the heart our global social and economic agenda.

Education is our investment in the future, our investment in sustainable economic growth and global security, our investment in the vast potential of our collective humanity.

To realize our goals of delivering equitable, quality education to every girl and boy on the planet – especially those caught in armed conflicts, forced displacement and other protracted crises –  we must activate a global conscience and commitment, and create a value proposition that shows businesses, politicians and the general public just what an investment in quality education means for our world.

This means pre-schoolers can learn to read and write in safe environments. It means girls can become entrepreneurs and doctors – not child brides. It means boys can be teachers and lawyers – not soldiers.

It means refugee children and adolescents displaced by conflict, climate change and other crises in hot spots like Bangladesh, Colombia, the Sahel and Ukraine can go on to complete 12 years of education and become leaders of a peaceful and healthy society.

It means college and beyond, a smarter workforce, and greater socio-economic stability. It means an end to poverty and hunger, establishing gender-equality, and advancing human rights for all.  

Unravelling the challenge

This is one of the most complex problems ever to face humanity. When Education Cannot Wait (ECW) – the UN’s global fund for education in emergencies and protracted crises – was established in 2016, an estimated 75 million crisis-impacted children and youth did not have access to the safety, protection, hope and opportunity of a quality education. That number has risen to an estimated 200 million in recent years as we see a rise in conflicts, displacement, climate disasters and a deadly pandemic that has upended our progress to achieve the Sustainable Development Goals by 2030.

While a minority of people on the planet are enjoying all the comforts of modern life – and football teams sell for more than $5 billion – over 617 million children and adolescents worldwide cannot read or do basic math. That’s more than the total population of ECW’s three largest donors – Germany, the United Kingdom and the United States – combined. 

Nevertheless, to date, less than 3% of government stimulus packages have been allocated to education, and in low- and lower-middle-income countries, the share is less than 1%. We can and must increase this government funding three-fold, following the example of the European Union, which announced in 2019 that it would increase education spending to 10% of humanitarian aid.

Government aid alone isn’t enough

The private sector, businesses and philanthropic foundations like The LEGO Foundation, Dubai Cares, Verizon and Porticus are already activating significant investments into the space.

We need to bring in more funding from industries closely connected with education – like Google, CISCO and Microsoft – and from those which have a vested interest in ensuring global economic stability and resilience, like the Jacobs Foundation, Western Union and Hilton Foundations of this world.

As we embrace the spirit of Davos – “to demonstrate entrepreneurship in the global public interest while upholding the highest standards of governance” – it is clear that this is a global issue that won’t just impact the rights and life trajectories of the world’s most vulnerable children, it will impact the bottom line for businesses, disrupt global socio-economic stability, and affect us all if we don’t act immediately with decisive action and collective humanity at the forefront. 

Building together

Education Cannot Wait has already mobilized over US$1 billion over a few short years and reached approximately 5 million children, but it is simply not enough.  

In the next three years, with the support of donors, the private sector, philanthropic foundations and individuals, we need to mobilize at least an additional $1.5 billion. This needs to happen with the leadership of the G7, the resources and know-how of the private sector partners featured at this year’s World Economic Forum, and the enhanced commitments that will make headlines at this year’s Transforming Education Summit, convened by the UN Secretary-General.

This will enable ECW and our strategic partners to respond immediately and effectively to the education needs of at least 10 million children and adolescents – including 6 million girls.

Think about the ROI. This works out to just $150 per child. If each of the world’s Fortune 500 companies made just a US$15 million contribution, we could surpass our goals and reach 100,000 children per donation! That’s 50 million more children with an education, 50 million more children breaking the hunger and poverty barriers, 50 million more opportunities to provide certainty in the face of very uncertain economic times.

Think about the future. If you could future-proof your business for the next 30 years with such a simple investment, wouldn’t you do it? Investment in education is good for the bottom line. With increased security and economic opportunity in the Global South, we are opening new markets, increasing economic resilience and building a more prosperous world.

Think about the legacy. For every $1 spent on girls’ education, we generate approximately $2.80 in return. Making sure girls finish secondary education could boost the GDP of developing countries by 10% over the next decade.

Think about scale. For every dollar raised, ECW and our strategic partners are leveraging about a dollar. This grows impact exponentially.

Think about our place in history. This is our moment to transform education for those left furthest behind. Please join us in ensuring every girl and boy – no matter who or where they are – has the opportunity to go school, to learn, to grow and to achieve their potentials not just for a day, but for a lifetime.

Continue Reading

Publications

Latest

Economy2 hours ago

Anglo-American Axis Needs Common Market, not Common Alliance

With the eruption of the war in Ukraine, and considering the post-war situation, the alliance system in the West and...

Environment3 hours ago

China will aim to plant and conserve 70 billion trees by 2030

Xie Zhenhua, China’s Special Envoy for Climate Change announced the country’s active response to the World Economic Forum’s 1t.org initiative,...

Russia4 hours ago

Why We Need to Acknowledge Russia’s Security Concerns

At the height of the Cuban Missile Crisis in 1962, the United States was able to avoid nuclear war over...

Tech News5 hours ago

Global CEOs Commit to Collective Action on Cyber Resilience

For the first time, leading oil and gas stakeholders are calling for industry to come together to stop harmful cyberattacks....

Finance8 hours ago

New Initiative to Strengthen Cross-Border Investment in the Digital Economy

A pioneering effort to facilitate cross-border investment in the digital economy was launched this week at the World Economic Forum...

Finance10 hours ago

Post-COVID, Latin American Leaders Say their Countries Are Open for Business

Rising food and energy prices and a migration crisis are posing significant economic and social challenges in Latin America, according...

Americas12 hours ago

The WW III that Biden and All Other Neocons Are Leading U.S. Toward

The intensely neoconservative U.S. President Joe Biden is leading the world into a World War III against both Russia and...

Trending