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U.S. Treasury to China – Revalue Remnimbi or We Will

  
Analysis, Economy, Education
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There’s a lot of talk around the markets and in Washington about China’s currency policy. What many want to know is whether the US Treasury will name China as a currency manipulator. Perhaps a more important question is, should China be named as a currency manipulator? And if it were named as such, what actions could the US take? In recent days the Chinese and the US administration have taken shots in the press at each other. The US is hinting that China is manipulating its currency to boost its economy. The Chinese is firing back saying that the US “should not politicize the remnimbi exchange rate issue.”

First, some background on the problem. Basic economics says that if you keep the currency of your country at a weak (but not so weak as to cause a collapse in it) level you help boost exports. The currency becomes weaker making your goods cheaper for foreign consumption. In a freely floating exchange system, the market determines the equilibrium value. Speculators look at economic statistics like GDP growth, interest rates, inflation etc. to figure out what a currency should be worth and then place bets accordingly. If speculators think that an economy can grow strongly while keeping inflation at a benign rate, they will bid up the currency of that economy. As that happens, the country whose currency is getting stronger could see a decrease in exports. This is caused by the larger amount of currency the importer uses to make the same purchase as previously made. (more…)

Why is Jim Rogers Sceptical of India's Future?

  
Analysis, Economy, Education
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Investor and Adventure Capitalist Jim Rogers remains deeply sceptical of India’s future. In an interview with Forbes India, he argues the country is sitting on a fiscal time bomb.
 

The finance minister has changed the direction of India’s budget deficit by reducing the target for 2010-11 to 5.5 percent.
You really believe it will happen? Go back over the years and see their previous claims.

He has got a lot of praise for that in India. Still you are not impressed. Why?
Even if it happens, it is not being done by sound budgeting. It is from selling off the family jewels if it happens.

Don’t you think a high deficit was justified last year when the government had to spend and help the economy revive?
No. They are just trying to push the problems out into the future rather than solving the underlying problems. Do you really think the solution for a problem of too much debt and too much consumption is more debt and more consumption?


Are we not living in extraordinary times when we have to follow such flexible policies?
We are indeed. They are making the problems worse in extraordinary times which require tough measures to correct decades of abuse.

The finance minister rolled back some of the economic stimulus measures he had announced last year. Would you have preferred to see a complete rollback than a partial one?
Yes. And more.

If you were to set an agenda for the government, what would that be?
Cut spending and subsidies dramatically. Many studies have shown that countries start having serious growth problems when debt is 90 percent of GDP (gross domestic product). India is now [at] 80 percent and will be [at] 90 percent soon under this budget. The subsidies distort the economy in less productive areas.

Full Interview: LINK

ALERT : Japan to downgrade fiscal 2016 growth forecast

  
Analysis, Education
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The Japanese government will cut its fiscal 2016 estimate for real economic growth from 1.7% to 0.9%, owing to uncertainty over the global economy and expectations of lower consumption after a tax hike set for the following year was delayed.

The nominal growth forecast will be lowered from 3.1% to 2.2%. The Council on Economic and Fiscal Policy will release the adjusted outlook Wednesday for approval by the cabinet. The new figures will not take into account a stimulus package to be put together as soon as early August.

 The downgrade owes partly to the postponement of a consumption tax hike that had been slated for April 2017. The January estimate had factored in a surge in demand ahead of the increase. With the hike having been pushed back, the government will cut its projection for real consumer spending growth from 2% to around 1%.

Another issue is uncertainty surrounding the global economy, stemming from such factors as the U.K.’s decision to leave the European Union. The yen’s unexpected strength and slowdowns in China and other emerging markets are expected to depress exports and capital spending.

The Japanese government plans to set its real and nominal growth estimates for fiscal 2017 at 1.2% and 2.2%, respectively. It sees growth picking up slightly as the world economy gradually improves.

Ten Key Principles in Economics

  
Analysis, Education
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ASR-10Everything has a cost. There is no free lunch. There is always a trade-off.Cost is what you give up to get something. In particular, opportunity cost is cost of the tradeoff.

 

One More. Rational people make decisions on the basis of the cost of one more unit (of consumption, of investment, of labor hour, etc.).

iNcentives work. People respond to incentives.

Open for trade. Trade can make all parties better off.

Markets Rock! Usually, markets are the best way to allocate scarce resources between producers and consumers.

Intervention in free markets is sometimes needed. (But watch out for the law of unintended effects!)

Concentrate on productivity. A country’s standard of living depends on how productive its economy is.

Sloshing in money leads to higher prices. Inflation is caused by excessive money supply.

The Stock Market Is An "Attractive Nuisance" And Should Be Closed

  
Analysis, Education
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Submitted by Charles Hugh Smith from Of Two Minds

The Stock Market Is An “Attractive Nuisance” And Should Be Closed

The dark pool of parasitic scum known as the stock market is an “attractive nuisance” that should be shut down.

In tort law, an attractive nuisance is any potentially hazardous object or condition that is likely to attract the naive and unwary, i.e. children.

A classic example is an abandoned swimming pool half-filled with fetid water.

Since many stock market investors are demonstrably naive about the risks and unwary of the dangers posed by the stock market (the proof of this is that they remain invested in the market), it is but a slight extrapolation of the attractive nuisance doctrine to declare the stock market is clearly an “attractive nuisance” and should be closed immediately.

Is this really a legal stretch? Consider the conditions that characterize an attractive nuisance. I have edited these to pertain to the stock market and investors:

1. The market is one in which the Powers That Be (the exchanges, the Central State, the central bank, et al., the effective “owners” of the stock market) know or have reason to know that brainwashed or ill-informed investors are likely to risk their money in.

2. The market is one of which the Powers That Be know or have reason to know (and fully realize or should realize) will involve an unreasonable risk of financial loss or ruin to such investors.

3. The investors, because of their consumption of officially sanctioned propaganda and misrepresentation of market risk and return, do not discover or realize the risk involved in placing money in the stock market. (more…)

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