Sell! Sell! Sell!

Interesting things are happening right now with Japanese Yen exchange rates in the aftermath of the disaster. So Japan is having to sell foreign assets in order to afford their rebuilding operation. This increases the demand for Yen in the currency exchange market, which in turn increases the strength of Yen. This might sound good to those who believe a strong currency is the sign of a strong economy. However this can have seriously negative implications for Japan's economy, especially in a time when they are trying to recover. When a nation's currency is strong, relative to other currencies that is, it makes the goods produced there relatively expensive for the rest of the world. Sony and Nissan may run in to trouble competing in the global market when all of a sudden their electronics and cars provide the same quality as before, but now at a higher price. This of course leads to reduced demand for Japanese goods which leads to fewer jobs in Japan, and the scent of recession begins to hang in the air.
Luckily for Japan, this is all being avoided for the time being thanks to Europe's central banks, the Federal Reserve, and the Bank of Canada, who have coordinated to fight the rising exchange rate of the Yen against the US dollar. So they are selling Yen like it's going out of style and helping their economy maintain balance.
There are however many uncertainties in this situation. The selling of Yen coupled with the Japanese government selling foreign assets counter each other, and it may be hard to keep the two balanced. Also the  Bank of Japan is printing money to also try and weaken their currency, adding to the complexity of the situation. Only time will tell how this will pan out, but it is good to know the world supports Japan and is concerned for their recovery.

More deatils here

(This was posted by Trevor Murphy-Mannix)

Exchange Rates Change After Tragedy in Japan

First off, I want to say that I am praying for all of the citizens of Japan as I write on this most current event.  As a representative of the International Business and Economics Club, I hope the best for the people of Japan.  And while a natural disaster of this degree could be devastating to a country, the support of countries around the world is going to be ready to aid Japan. More information on the incident can be found here.

Within two hours of the massive 8.9 earthquake that has caused immense damage to the people and country of Japan, the US Dollar and Euro both gained on the Yen.  The Yen has dropped .2% and .4% off the dollar and Euro.  It should be interesting to watch how the Yen fluctuates as the effects of the tsunami continues.  The exchange numbers can be seen on Reuters, along with further information in the article about exchange information around the world, but furthermore concerning is the aftermath of this terrible disaster.

While it is likely Japan will be taking an economic hit from the tsunami that has resulted due to the earthquake and the reported 7.4 aftershock, the bigger concern should be directed towards the citizens of Japan. 

References: Huge Earthquake Triggers Tsunami Off Japan’s Coast.  NY Times

                  Yen Falls Broadly After Huge Japan Quake.  Reuters

(post by Evan Amano)

Talks of Merger for NYSE

A few weeks ago it was announced that the New York Stock Exchange (NYSE) will be sold by German company Boerse. The New York Stock Exchange has long been the icon and representative of capitalism in America, but it seems that this will soon change.

It is undoubtedly true that "NYSE is one of the most preeminent brands in the financial industry." This is why the NYSE is such a desirable asset and why such a big deal was successfully carried out.

However, Americans might maintain a good brand such as NYSE by themselves. Nonetheless the deal has yet to be completed and we must wait until the Securities and Exchange Commission and the Department of Justice sign off on the transaction.

As globalization advances, more transactions like this one will take place worldwide. More big businesses will merge, more capital will flow internationally, and more people will move from one country to another country.

(Post by Jooho)

Is Silver the New Gold?

With the falling rate of the dollar, and many other world currencies in turmoil, people are starting to return to the origins of money by investing more heavily in precious metals. But are gold and silver really as steady as some would like to believe, and is gold the way to go? A recent article by Peter Schiff weighs in on the issue.

According to Schiff there may soon be a shift from the use of gold to silver as a reserve asset. The state of the current world economy has led to a slide from developed markets to free markets in metal. While many countries are embracing this change, and profiting from it, the US has thus far held firm to the declining developed markets, driving us further into poverty. Gold has long been the metal of choice among investors, but its main constraint is that it is primarily useful as a precious metal. Silver, on the other hand, is effective both as a precious metal and an industrial metal. These days, silver is used as an input in many high-demand electronic products including touch-screen phones and batteries. The current demand for silver outweighs the supply of it by nearly 170 million ounces a year, illustrating that in time it may become a scarce resource, and thus highly valuable. Although gold is still worth far more per ounce, silver is no longer such a far second and the growing demand for silver may cause the gap to lessen even more in future years.

But what does this mean for our economy? Schiff also makes some  rather dire predictions as to the future of the falling US economy, alluding to a possible crash. His suggestion is to invest in silver now, as silver would make a more reasonable cash substitute for everyday transactions than gold. In his own words, "[silver] also comes in units that are ideal for use as a common trade unit. Two or three ounces of silver can buy you groceries for a week. By contrast, just try to eat an ounce of gold’s worth of vegetables before they spoil. There are fractional gold coins and bars, but they carry very high markups." Although I carry a somewhat more optimistic view of the future US economy, Schiff makes some very valid points. Should we start using gold and silver as money, it would be more convenient, and less risky, to carry silver coins rather than gold.

Worldwide the demand for precious metals is steadily increasing. Could this be the start of a switch from fiat money back to the use of metals as commodity money? The rapid decline of the US dollar may force the US economy to make the switch, which might incite other countries to do the same. It may very well be that currency has finally come full circle back to commodity money which, if the cycle continues as before, could later transition into fiat money. And if the latter revolution occurs it may very well be that we could finally end up with a single world currency.

(Posted by Elizabeth Hope)

The Dilemma in Japan: Growth or Protection?

There has long been a controversy in Japan about joining the Asia-Pacific free trade pact. To end this controversy, Japan Premier Naoto Kan will make a decision this June about whether Japan will enter this 

free trade pact or not.

However, it is expected that getting consent for the trade pact in Japan could be tough due to its many opponents from the service and manufacturing industry, especially from the agricultural industry, which is a powerful opinion group when it comes to voting. For this reason, opening markets in Japan has been procrastinated for a long time. According to Alan Wheatley, even though Japanese farmers’ outputs are 1% of its GDP, Japan has protected its farmers by imposing tariffs on its import goods, 778% and 252% on rice and wheat respectively.

It is anticipated that should Japan agree to join the trans-Pacific pact, it would take a long time and lots of effort to harmonize the opinions of the old trade pact participants with its new participant Japan, because the trans-Pacific pact asks its participant countries to remove all kinds of trade barriers within ten years. However, Japan might want to join the trade pact passively to minimize the loss of vested interest groups by maintaining appropriate protection for its domestic industries.

The U.S. is also very interested in having more free trading partners in the future such as Japan, Australia, Chile, Singapore and New Zealand in the anticipation that it would increase its exports to those countries. However, many business authorities in U.S. might not allow Japan’s participation in the Pacific trade pact if Japan would want to keep its protection on the agriculture, service, and manufacturing industries.

It seems like there’s no choice for Japan in June. For its own sake, and others, Japan should join the Pacific-trade-pact.  Although it would raise backlash against the government at first, Japan has to make a concession to enter the Pacific Free Trade Group by lowering tariffs in its agriculture and manufacturing industries. Japan, as an aging society, needs to find new resources from outside to keep growing; otherwise it would be highly difficult for Japan to escape from its sluggish economy and its enormous amount of national debts. In the short run, protectionism might provide more benefits to Japanese producers, but in the long run, it would cost a lot for its customers and increase inefficiency among all the other protected domestic industries in Japan. Now, it is time for Japan to use a win-win strategy to grow further. 

Do you agree with many proponents in Japan that the protectionism is necessary? Is eliminating all trade barriers dangerous to domestic industry? Or, is this making firms more efficient and competitive?

Reference: Wheatley, Allan. “Japan Premier’s Balancing Act on Joining Pacific Free Trade Group.” The New York Times 14 Feb. 2011. http://www.nytimes.com/2011/02/15/business/global/15inside.html?_r=1&ref=global

(post by Jaewon Shin)

Youth in Revolt: Where are Our Jobs? UK Edition

The UK has faced unemployment problems over the past few years.  Well, who hasn’t?  But as countries are beginning to climb out of disastrous times, a huge problem remains in the UK: young adults are unable to find jobs.

Financial Times reports that almost 1 million able bodies between the ages of 16-24 are unemployed in the UK.  20.5% of the age group is unemployed, a record high in the UK.  However, this is a common trend throughout the EU, which averages a 21% unemployment rate for the said demographic. 

While the UR has not changed from the past month for the UK as a whole (7.9%), FT reports that the fragile job market is still making it hard for many to get employed, and the youth are the ones who are taking the hit.

The Recruitment and Employment Confederation have been thinking of ways that could help solve this unemployment problem.  The Adam Smith Institute has considered a strategy that could fix the problem: waive the minimum wage standard for people under 25.  This would make it optional for private sector companies to pay minimum wage to people under the age of 25.  Naturally, this could be a lucrative deal for employers. 

While this might work in proving as an incentive for many companies, the fact that these people will be working for next to nothing could potentially affect their work ethic.  Many corporations prefer paying above the minimum wage to create a higher demand for the certain position.  While this may solve a short term problem of younger people being unemployed, undercutting the minimum wage could create animosity between employees in the work space.  People who are currently working at a business would not accept a pay decrease and while people will the same jobs (and possibly more experience or skill), they may be paid far less than their peers.

And with that stated, what could potentially keep a company from doing a “fire sale” on their minimum wage employees?  This incentive could create a price discrimination that would result in unequal unemployment if not regulated properly.  I can’t see this minimum wage law bending, and while youth unemployment is a concern, companies may have to recognize it on their own that hiring youth has incentives in itself.

Is making the minimum wage optional for people under the age of 25 a good strategy to solve the youth UR?  What other ways do you think could fix this problem?

References: Youth unemployment hits record high. Financial Times. 16 Feb 2011.

(Post by Evan Amano)

It’s Official: China is the World’s Second Largest Economy

On Monday Japan released their nominal GDP figures for the 2010 year, and with that dropped to the third largest nominal GDP country in the world.  China moved into the second slot after posting an economic value of $5.88 trillion dollars, compared to $5.47 trillion, CNN Money reports.

As stated in the report, Japan still managed to grow 3.9% over the past year; however, China estimated a growth at a blistering 10%.  Japan predicts that it will be less than 20 years before China surpasses the United States as the top GDP country in the world.

While it may seem concerning that China’s growth rate is so high, there are numbers that should be noted in both China and Japan.  Japan’s GDP per capita still remains close to 9 times higher than China ($40,000 to $4,500).  With this stated, and the combination of the structure of the political system in China, Japan can be looked at as having both a higher standard of living and level of well-being. 

As we continue to watch China grow at an exponential rate, it brings wonders into when the Chinese economy may show signs of slowing down.  With the recent rising wages in China, perhaps it may take a hit on for what they can offer to other nations. 

What do you think of the recent swap of the 2^nd and 3^rd largest economies in the world?  What effects might cause a road block, or even a bump, in the rising Chinese economy? 

References: “China Overtakes Japan as World’s Second-Largest Economy”.  CNN Money.

Post By Evan Amano