"Where economics isn't just a job, but an adventure"
NEW BLOG IS OUT: The Chinese Threat
Quote of the Week
The media is the merchant of chaos
Spiro Agnew
Blog Topics 2019
March The Burgeoning US Debt
May China, Trade and Tariffs
June Income taxes: Obama v Trump
May China, Trade and Tariffs
June Income taxes: Obama v Trump
Blog Topics 2018
January What Kills Bull Markets
May Are Cheap Oil Prices here to Stay
July California and Mandatory Solar Panels
August Tariffs and Trade
September Is a Recession coming?
November Increasing Healthcare Costs
December The Oracle of Omaha
Blog Topics 2017
January Trumponomics Part 2
February The Keystone Pipeline Revisited
March Border Adjustment Tax
April Are Liberal Prof's.....
May Moral Hazard Through a Libertarian's Lens (guest blog from a student)
July What's causing the Opioid Crisis
September The minimum Wage re-visited
November Everything You Want to Know about 401K
December How The New Tax Bill Affects you (spoiler alert: the middle class makes out great)
Blog Topics 2016
January Should Insider Trading be Legalized: Part 2
February The Presidential Election & the Economy
March Does Narcan Increase Heroin Use
April Is NOAA destroying the American Fisherman
June Will California Style Power Outages Happen in New England
July Textbooks, Inflation & the FTC
Sept Economic strangulation by Regulation
Oct Is this the Best we have?
Nov The High Cost of Prescription Drugs
Dec Trump, the Economy & Animal Spirits
February The Presidential Election & the Economy
March Does Narcan Increase Heroin Use
April Is NOAA destroying the American Fisherman
June Will California Style Power Outages Happen in New England
July Textbooks, Inflation & the FTC
Sept Economic strangulation by Regulation
Oct Is this the Best we have?
Nov The High Cost of Prescription Drugs
Dec Trump, the Economy & Animal Spirits
Blog Topics 2015
January Does Implementation of the Death Penalty lead to higher costs
February Less Competition and Higher Hospital Costs
March Millionaires Who Get Subsidies from the Affordable Care Act
April The Unintended Obama Legacy
May The NY Times and $15 Minimum Wage
June Are Disability Payments Bankrupting Social Security
August Seattle's $15 minimum wage and it's Surprising Consequence
October The Great Stagnation: The Obama Legacy
November Poverty in the United States
December Should Insider Trading be Legalized: Part one by Olivia Marchioni
February Less Competition and Higher Hospital Costs
March Millionaires Who Get Subsidies from the Affordable Care Act
April The Unintended Obama Legacy
May The NY Times and $15 Minimum Wage
June Are Disability Payments Bankrupting Social Security
August Seattle's $15 minimum wage and it's Surprising Consequence
October The Great Stagnation: The Obama Legacy
November Poverty in the United States
December Should Insider Trading be Legalized: Part one by Olivia Marchioni
blog topics for 2013 and 2014 are at page bottom
July Jobs Report
The economists got it right for July. Economists predicted that the economy would create 164,000 jobs in July and that's what happened while the unemployment rate stayed at 3.7%. The reason why the unemployment rate remained the same is because the labor force participation rate increased to 63%, in other words, more people entered the labor force. Wages also increase and year-over-year wage increases are 3.2%. The real unemployment rate, which includes part-time workers and discouraged workers, decreased to 7%, its lowest level since 2000. Among the major worker groups, the unemployment rate for Asians increased to 2.8 percent in July. The jobless rates for adult men (3.4 percent), adult women (3.4 percent), teenagers (12.8 percent), Whites (3.3 percent), Blacks (6.0 percent), and Hispanics (4.5 percent) showed little or no change over the month.
Updates/Advisories 8-23-2019
The Dow fluctuated from up almost 190 points to a 750 point dive before finishing at 25,628, down 623 points. The culprit was President Trump who said that we didn't need China and is "ordering" US companies to look at markets other than China (something he really can't do). For someone who measures his success as a president by the stock market, Trump did a nice job of snatching defeat out of the jaws of victory. What also scared the market was a mid-day inversion of the 2-10 bond yields, tho at the end of the day, the yield on the 10 year is 1.53 and the 2 year is 1.51%. Trump also tweeted that the FED is hurting the economy as much as China, something I disagree with entirely. The biggest loser on the Dow was Apple which dropped more than 4%. The only Dow stock in the green was Boeing. Trump’s tweets come after China unveiled new tariffs on Chinese goods. China will implement new tariffs, 10%, on another $75 billion worth of U.S. goods, including autos. What had initially helped the market was FED chair Jerome Powell leaving the door open for another rate cut in September and positive earnings from Boeing and Salesforce .
The dollar was stable at $1.11/Euro, gold was up to $1537 as investors sought a safe haven, oil was down to $53,89/barrel and the price of a gallon of regular gas nationwide is down slightly to $2.602.
The dollar was stable at $1.11/Euro, gold was up to $1537 as investors sought a safe haven, oil was down to $53,89/barrel and the price of a gallon of regular gas nationwide is down slightly to $2.602.
Updates/Advisories 8-21-2019
With about 2 hours left in the trading day, the Dow is up 284 points at 26,246, and all of last Wednesday's losses (more than 800 points) have been reclaimed. Wednesday's loss was a result of the yield on the 2 year surpass the 10 year yield and generally signals a recession. A yield curve inversion has signaled the last 7 recessions, however, it has been a prolonged inversion (i.e., more than one day). The rates are close today with the yield on the 2 year being 2.53% and the 10 year is 1.56%. Today's rally is a function of basics, specifically, good retail earnings from Target and Lowe's. Target shares jumped 16% to a record after they posted 2nd quarter results that topped analyst expectations. The company's same-store sales, a key metric for retailers, expanded by 3.4% while only 3% was expected. Lowe's is up more than 10%. This, to some investors, is not indicative of an impending recession. I am not yet predicting a recession, but if there is wrong, i see it as being a mild recession. It should be noted, that even tho Intro Economics book define a recession as 2 consecutive quarters of negative GDP growth. This is not entirely correct. The National Bureau of Economic Research (NBER) is the organization the tells us whether we are in a recession or not, and generally not until 6-9 months after it's onset. Oftentimes, the recession is over by the time they have told us one has started and they define a recession as a significant decline in activity, spread across the economy, lasting more than a few months, visible in industrial production, employment, real income and wholesale-retail sales; The downturn must be Prolonged, Protracted and Pervasive.
In other News:
Wal-Mart is suing Tesla because some of Tesla's solar panels have caught fire that they installed on Wal-Mart's roofs. gold remains strong at $1516/oz which means investors are hedging against a recession, the dollar is stronger at $1.11/Euro, oil has been trading sideways for a week at $56.18/barrel, and the price of a gallon of regular gas nation wide is down to $2.603. It is $2.55 in NH, the lowest is in Louisiana at $2.23 and the highest is $3.59 in California (what a surprise) because of higher taxes. I vote to give California back to Mexico.
In other News:
Wal-Mart is suing Tesla because some of Tesla's solar panels have caught fire that they installed on Wal-Mart's roofs. gold remains strong at $1516/oz which means investors are hedging against a recession, the dollar is stronger at $1.11/Euro, oil has been trading sideways for a week at $56.18/barrel, and the price of a gallon of regular gas nation wide is down to $2.603. It is $2.55 in NH, the lowest is in Louisiana at $2.23 and the highest is $3.59 in California (what a surprise) because of higher taxes. I vote to give California back to Mexico.
Updates/Advisories 8-14-2019
70 After diminished trade worries powered the Dow to over a 370 point gain yesterday, the Dow is down 393 points at 25,886 shortly after the markets open. Today's culprit isn't trade fears but the fear of a recession as a result of the yield curve being inverted; specifically, the yield on the 10 year treasury is lower than that of the 2 years. The past 7 recessions, since the 1950's, have been preceded by an inverted yield curve and every republican president since Theodore Roosevelt has had a recession in their 1st elected term. Leading the decline is the financial sector since banks don't do as well in a low interest environment with all the major banks down despite good earnings for the most recent quarter. “The U.S. equity market is on borrowed time after the yield curve inverts,” wrote Bank of America technical strategist Stephen Suttmeier. On the average, the recession occurs 22 months after the initial inversion and the recessions have occurred anywhere from 7-24 months after the inversion.
Slowing global growth is also a concern as manufacturing data from China, the world's hottest economy, China, showed a slowdown in manufacturing data. That is also slowing in the US also as 2nd quarter GDP data showed that business investment in capital equipment increased by only .6%. The reason yields are low is that investors are concerned over in the short term about the economy. As a result they look for a safe haven, which is a long term bond. The increased buying drives up the price of the bond which has the effect of lowering the yield and hence the inversion. Gold, another safe haven play, is up to $1525/oz and that is also increasing the price of gold stocks. the ten year yield is 1.6% (see chart), the dollar is holding it's own at $1.12/Euro, oil is down to $55.10/barrel and the price of a gallon of regular gas is down to $2.642.
I will be on vacation until Sun the 18th when my posts will be more consistent.
Slowing global growth is also a concern as manufacturing data from China, the world's hottest economy, China, showed a slowdown in manufacturing data. That is also slowing in the US also as 2nd quarter GDP data showed that business investment in capital equipment increased by only .6%. The reason yields are low is that investors are concerned over in the short term about the economy. As a result they look for a safe haven, which is a long term bond. The increased buying drives up the price of the bond which has the effect of lowering the yield and hence the inversion. Gold, another safe haven play, is up to $1525/oz and that is also increasing the price of gold stocks. the ten year yield is 1.6% (see chart), the dollar is holding it's own at $1.12/Euro, oil is down to $55.10/barrel and the price of a gallon of regular gas is down to $2.642.
I will be on vacation until Sun the 18th when my posts will be more consistent.
Updates/Advisories 8-6-2019
Hold on to your cookies we're going for a ride. After dropping more than 1000 points at one point yesterday, the Dow finished down 767 points to close at 25,717. In the pre-market this morning, the volatility continues. After being down 600 points, the Dow recovered to a positive 160 points and it is now up 90 points about 30 minutes prior to the opening bell. The culprit is China and China trade. After President Trump tweeted that negotiations are going nowhere, he threatened to post addition tariffs on $300 billion worth of Chinese goods beginning September 1. China doubled down by devaluing its currency, the Yuan. Monday was the worst trading day of the year for the Dow.
A number of readers are probably asking how does this work? Most currencies have a flexible trading rate. In other words, they are bought and sold against another currency, in this case the US dollar, on markets similar to how stocks are bought and sold and they fluctuate in value depending on a number of conditions such as strength of the economy, interest rates, trade etc. HOWEVER, in China, the government has fixed the value of its currency against the dollar. Yesterday, the Central Bank of China announced that they would unilaterally devalue the Yuan against the dollar (see chart). This has the effect of making Chinese goods cheaper to US buyers and making US goods more expensive to Chinese consumers. The result is less goods shipped to China from the US. This in turn means less production, less profits and a diminished need for employees. China also confirmed earlier reports that it was suspending the purchases of U.S. agricultural products.
I believe this will be a short term effect until a trade agreement is reached. While we're on the subject, the dollar has weakened against the Euro and is trading $1.12/Euro.
The yield on the 10 year is down to 1.76% and the bond market is signaling a 100% chance of another FED rate decrease in September, gold, a safe haven, and gold stocks are up with the price of gold advancing to $1475/oz, oil decreased along with stocks to $54.64/barrel and the price of a gallon of regular gas nationwide is down to $2.702.
A number of readers are probably asking how does this work? Most currencies have a flexible trading rate. In other words, they are bought and sold against another currency, in this case the US dollar, on markets similar to how stocks are bought and sold and they fluctuate in value depending on a number of conditions such as strength of the economy, interest rates, trade etc. HOWEVER, in China, the government has fixed the value of its currency against the dollar. Yesterday, the Central Bank of China announced that they would unilaterally devalue the Yuan against the dollar (see chart). This has the effect of making Chinese goods cheaper to US buyers and making US goods more expensive to Chinese consumers. The result is less goods shipped to China from the US. This in turn means less production, less profits and a diminished need for employees. China also confirmed earlier reports that it was suspending the purchases of U.S. agricultural products.
I believe this will be a short term effect until a trade agreement is reached. While we're on the subject, the dollar has weakened against the Euro and is trading $1.12/Euro.
The yield on the 10 year is down to 1.76% and the bond market is signaling a 100% chance of another FED rate decrease in September, gold, a safe haven, and gold stocks are up with the price of gold advancing to $1475/oz, oil decreased along with stocks to $54.64/barrel and the price of a gallon of regular gas nationwide is down to $2.702.
Updates/Advisories 8-1-2019
Dow 2 day
Even tho the Dow was down over 200 points yesterday, it still finished up for the month of July. However, August didn't start on a good note. Yesterdays slump was a result of the Fed Chair Jerome Powell indicating that there might not be more rate cuts which the market was expecting. Today's action started with the market surging over 250 points as a result of great earnings from Kelloggs, Verizon and GM and investors realizing that yesterdays slump was an over-reaction. However, China trade took center stage once again (there's a surprise) as negotiations broke down and President Trump (who snatched defeat out of the jaws of victory) stated that he would impose tariffs of 10% on $300 billion worth of Chinese goods beginning September 1. As a result the Dow had more than a 500 point swing and finished lower by 280 points at 26,583. The president's remarks also sent U.S. Treasury yields lower, with the 10-year yield dropping to its lowest level since November 2016 at 1.89% as there was a flight to safety.In economic news, the U.S. manufacturing sector expanded at its slowest pace in almost three years in July, according to the Institute for Supply Management's purchasing manager index (PMI). Investors now look to Friday's release of the Labor Department's closely watched jobs report, which is expected to show the U.S. economy added 164,000 jobs last month, with the unemployment rate seen holding steady at 3.7%. (market watch)
The other news today was oil as it dropped nearly 10% to $54.53/Barrel, as a result of fears of decreasing global trade. Gold skyrocketed to $1454/oz, another safe haven trade, the dollar remained strong, surprisingly, at $1.11/Euro, and the price of a gallon of regular gas nationwide was down to $2.719.
The other news today was oil as it dropped nearly 10% to $54.53/Barrel, as a result of fears of decreasing global trade. Gold skyrocketed to $1454/oz, another safe haven trade, the dollar remained strong, surprisingly, at $1.11/Euro, and the price of a gallon of regular gas nationwide was down to $2.719.
Updates/Advisories 7-31-2018
The FED giveth and the FED taketh away. At the conclusion of the 2 day, the FED lowered interest rates .25%, as was expected by everyone, however, Jerome Powell hinted that this is simply a mid-cycle adjustment and more rate cuts are by no means a guarantee. The market interpreted this as a one-and-done and the Dow plunged close to 500 points off its mid-day highs. Powell recovered somewhat by say the FED is still data driven and with 15 minutes left in the trading day, the Dow has recovered somewhat and is down 240 points at 26,958. The only sector in the green is financials that generally do better in an environment where there are no expectations of an interest rate cut. The next big news for the market and the FED will be this Friday when the July jobs report is released at 8:30 AM. Today was the 1st time that the FED has cut interest rates since 2008.
Earnings continue to pour in, over 30% of S&P reporting with over 75% exceeding estimates, and today's highlite was GE that beat earnings and greatly increased it's cash position. The stock is up over 45% this year
The yield on the 10 year declined to 2.02%, the dollar stayed strong at $1.11/Euro, gold is down slightly at $1415/oz, oil is up to $58.05/barrel and the price of a gallon of regular gas nationwide is down to $2,721
Earnings continue to pour in, over 30% of S&P reporting with over 75% exceeding estimates, and today's highlite was GE that beat earnings and greatly increased it's cash position. The stock is up over 45% this year
The yield on the 10 year declined to 2.02%, the dollar stayed strong at $1.11/Euro, gold is down slightly at $1415/oz, oil is up to $58.05/barrel and the price of a gallon of regular gas nationwide is down to $2,721
Updates/Advisories 7-26-2019
The Dow advanced 52 points to finish the day and week at 27,192, it was also up 38 points for the week. Today's, and the weeks action came on the heels of better than expected earnings. Alphabet, googles parent was up 11% and finished the day at $1250/share while Twitter was also up 11% after the company posted its strongest user growth in two years. While the Dow was a couple of hundred points from a record high, both the S&P 500 and NASDAQ posted record closes. Consumer stocks such as Starbucks and McDonald’s also contributed to the gains. The coffee company gained 9% after better than expected same store-sales. More than 40% of S&P companies have reported with over 75% beating expectations which is consistent with past quarters.
GDP for the 2nd quarter came in at 2.1%. This was lower than 1st quarter GDP of 3.1%, but higher than expectations of 1.8%. The US has not had a yearly increase of GDP of 3% or more in 12 years. Growth was driven by a 4.3% increase in consumer spending (which is 70% of GDP) which offset a decrease in business purchases of capital goods (business investment which is only 15% of GDP). Investment was down 5.5%, the worst showing since 2015. GDP for 2018 was 2.9%
Next week all eyes will be on the FED's 2 day FOMC meeting with results set to be released on Wednesday at 2 PM. Analysts are expecting a .25% decrease in the Federal Funds rate. Core PCE inflation, followed closely by the Fed, rose 1.8%, was still below the Fed’s 2% target.
The yield on the 10 year is 2.08%, The dollar remains strong at $1.11/Euro, gold is stable at $1418/oz, oil is also stable at $56.16/barrel and the price of a gallon of regular gas nationwide is down to $2.749.
GDP for the 2nd quarter came in at 2.1%. This was lower than 1st quarter GDP of 3.1%, but higher than expectations of 1.8%. The US has not had a yearly increase of GDP of 3% or more in 12 years. Growth was driven by a 4.3% increase in consumer spending (which is 70% of GDP) which offset a decrease in business purchases of capital goods (business investment which is only 15% of GDP). Investment was down 5.5%, the worst showing since 2015. GDP for 2018 was 2.9%
Next week all eyes will be on the FED's 2 day FOMC meeting with results set to be released on Wednesday at 2 PM. Analysts are expecting a .25% decrease in the Federal Funds rate. Core PCE inflation, followed closely by the Fed, rose 1.8%, was still below the Fed’s 2% target.
The yield on the 10 year is 2.08%, The dollar remains strong at $1.11/Euro, gold is stable at $1418/oz, oil is also stable at $56.16/barrel and the price of a gallon of regular gas nationwide is down to $2.749.
In other news:
Consumer debt is now at an all time high in excess of $13 trillion which is in excess of 2008 recession levels. Student loan debt is approaching $1.5 trillion which has more than double since 2008. On the plus side, here are some mitigating factors. Gross domestic product, the official scorecard of the U.S. economy, demonstrates an economy in far better shape than it was during the financial crisis. GDP, which includes all goods and services produced, expanded 3.1% in the first quarter of 2019, compared against 2008 when the overall economy contracted at an annual rate of 6.3%, according to the Bureau of Economic Analysis, also consumer delinquencies are at 6%, less than 1/2 of 2008 levels (charts below)
Consumer debt is now at an all time high in excess of $13 trillion which is in excess of 2008 recession levels. Student loan debt is approaching $1.5 trillion which has more than double since 2008. On the plus side, here are some mitigating factors. Gross domestic product, the official scorecard of the U.S. economy, demonstrates an economy in far better shape than it was during the financial crisis. GDP, which includes all goods and services produced, expanded 3.1% in the first quarter of 2019, compared against 2008 when the overall economy contracted at an annual rate of 6.3%, according to the Bureau of Economic Analysis, also consumer delinquencies are at 6%, less than 1/2 of 2008 levels (charts below)
The last 5 recessions have been preceded by an inverted yield curve where the yield on the 2 year is higher than the yield on the 10 year. Currently, the yield on the 2 year curve is 2.32%, which is greater than the yield on the 3 and 5 year, but the yield on the 10 year is 2.46%. As a result, I'm not yet predicting a recession. However, if you look at the table above, once the yield curve has inverted, all is not lost. The market continues upward until a recession is imminent. For instance, the yield curve inverted in January of 2006 and the S&P peaked 20 months later in October of 2007, and the recession started in December of 2007. I will be concerned if the 2 year yield is greater than the 10 year. ON THE BRIGHT SIDE, mortgage rates have decreased by 1/2% since last summer and it is now worth it to refinance if you took out a mortgage last year.
The wealth effect is an increase in consumption (and accompanying decrease in savings) as a result of an individuals assets (usually a portfolio or land/home) increasing in value. A negative wealth effect is just the opposite, and since most indexes declined more than 10% and tested bear market territory, this appears to be the case. Conversely, the market recovered in January and all losses and more were covered. T
Prices as of 7-14-2019
In other news:
The new carbon tax that dem's want includes up to 20 cent tax on gas over and above the more than 40 cents/gallon we are already paying. We already have amongst the highest energy costs in the nation, but at least dem's are consistent with tax and spend; to put it in Perspective. The Federal tax is 18.4 cents and in NH, the state gas tax is 23.8 cents for a total tax of 42.2 cents. The avg price of a gallon of gas in NH is $2.256, the price before taxes is $1.834 which makes the current taxes on gas 18.7%. Add 20 cents to that and the gas tax is now 27.6%. THAT meets my definition of ridiculous and exorbitant.
The Energy Information Administration reported that oil output will increase from its current 11 million barrels/day to close to 13 million by 2020 and we will most likely be the #1 producer in the world. This is an increase from 5.5 million/day from 2005 and it has occurred as a result of hydraulic fracturing drilling techniques.
In Other News:
Elon Musk recently stated that the worlds population is accelerating towards collapse. Hmmmm; let's look at some facts and figures and then do some math. The earth reached a population of 1 billion in 1900 (that took about 1/2 million years), but by 1967, it was 3 billion, 6 billion in 2000 and currently, it's 7.5 billion. Let's look at the US with a population of 321 million, and ask yourself, is it overpopulated. If you look at NY City, a resounding yes comes to mind. However, in the US, about 50% of the population lives within 50 miles of a shore (this includes the Atlantic, Pacific, Gulf of Mexico, Great Lakes and Mississippi).
Let me try and put this into perspective: the average household has 2.6 people and given a population of 321 million, that yields 123,461,538 households. The size of Texas is 172,000,00 acres. Assuming you put 1 household on an acre lot, the Entire population of the US can fit into Texas with room to spare, leaving the rest of the US baron of people.
How about Russia with a population of 144 million? Russia is 1.8 times the size of the US with a smaller population, so they have even more empty space and if you look at Canada, which is larger than the US, with a population of 33 million, there is even more empty space (I know bring your winter clothes).
So while I will agree that there is definitely some localized overpopulation, I don't see doom and gloom.
FICO SCORES
Fair Isaac Company reports that it's FICO scores (FICO being an acronym for Fair Isaac Co) reports that the average FICO score in the US has reached an all time high of 700 nationwide amongst adults. The share of consumers who are viewed as the riskiest from a credit perspective (these are sub-prime and have a score lower than 640) reached a new low of about 40 million — or 20 percent of adults in the U.S. that have FICO scores. according to the Wall St Journal. A lot of you may be asking what is a FICO score, how is it calculated and how it affects me. Fair Isaac uses use information provided by one of the three major credit reporting agencies – Equifax, Experian or Trans-Union. From this, they have a formula to get a credit score which can be as high as 850. The biggest part is your payment history, followed by how much you owe, credit history, credit mix and new credit (see chart). Next, how do you interpret your FICO Score: anything > 800 is excellent (and gets you low interest rates on loans and credit cards), 740-799 is very good, 670-739 is good, and anything less than 670 is considered not good and sub-prime (chart). Lastly, as no surprise, the older you are, the better your score (chart)
Fair Isaac Company reports that it's FICO scores (FICO being an acronym for Fair Isaac Co) reports that the average FICO score in the US has reached an all time high of 700 nationwide amongst adults. The share of consumers who are viewed as the riskiest from a credit perspective (these are sub-prime and have a score lower than 640) reached a new low of about 40 million — or 20 percent of adults in the U.S. that have FICO scores. according to the Wall St Journal. A lot of you may be asking what is a FICO score, how is it calculated and how it affects me. Fair Isaac uses use information provided by one of the three major credit reporting agencies – Equifax, Experian or Trans-Union. From this, they have a formula to get a credit score which can be as high as 850. The biggest part is your payment history, followed by how much you owe, credit history, credit mix and new credit (see chart). Next, how do you interpret your FICO Score: anything > 800 is excellent (and gets you low interest rates on loans and credit cards), 740-799 is very good, 670-739 is good, and anything less than 670 is considered not good and sub-prime (chart). Lastly, as no surprise, the older you are, the better your score (chart)
What do Rising Rates mean to you and the Economy
As interest rates rise as a result of FED policy, there are both good and bad effects. Firstly, the Fed's move affects all short term rates. It has no direct effect on mortgage rates which is a function of the yield on the 10 year US Treasury bond, however, they are highly correlated (above chart). What affects the yield is the price of the bond (yield and bond prices are inversely related). As bond prices decrease, the yield increases and why would bond prices decrease? Bonds tend to be a defensive play when the economy is doing poorly; hence, investors only have so much money and they will buy bonds instead of stocks. Conversely, when the economy is doing well, investors will buy stocks and sell bonds which depresses the bond price but raises the yield. The rate on the 30 year fixed mortgage is generally 1.25% to 2.75% higher than the yield on the 10 year(Chart).
Who Benefits
As rates increase, banks generally benefit. The demand for money is inelastic and when banks loan money, they will make more on those loans. Conversely, borrowers suffer from the higher cost of money, but since the economy is doing well, more people are working, real wages tend to increase and the blow of the higher cost of money is mitigated. Savers who have minimal debt also benefit, as the FED raises interest rates, rates on Savings, CD's and money markets generally increase which helps this particular segment.
Who is Hurt
Generally, borrowers are hurt. Generally, the payments on all short term loans increase. If you take a college loan, a personal loan or a boat loan, rates will increase. The Prime Rate increases, it is generally 3% above the Federal Funds Rate and it is the rate the biggest banks charge their best customers on short term loans. If you have a HELOC (Home Equity Line of Credit), this will increase also and it is generally the same rate as the prime rate. However, the short term loan that is not affected is the car loan. Generally there is so much competition in this area, that a loan on a new car can range from 0%(not all the time) to a little over 4%.
As interest rates rise as a result of FED policy, there are both good and bad effects. Firstly, the Fed's move affects all short term rates. It has no direct effect on mortgage rates which is a function of the yield on the 10 year US Treasury bond, however, they are highly correlated (above chart). What affects the yield is the price of the bond (yield and bond prices are inversely related). As bond prices decrease, the yield increases and why would bond prices decrease? Bonds tend to be a defensive play when the economy is doing poorly; hence, investors only have so much money and they will buy bonds instead of stocks. Conversely, when the economy is doing well, investors will buy stocks and sell bonds which depresses the bond price but raises the yield. The rate on the 30 year fixed mortgage is generally 1.25% to 2.75% higher than the yield on the 10 year(Chart).
Who Benefits
As rates increase, banks generally benefit. The demand for money is inelastic and when banks loan money, they will make more on those loans. Conversely, borrowers suffer from the higher cost of money, but since the economy is doing well, more people are working, real wages tend to increase and the blow of the higher cost of money is mitigated. Savers who have minimal debt also benefit, as the FED raises interest rates, rates on Savings, CD's and money markets generally increase which helps this particular segment.
Who is Hurt
Generally, borrowers are hurt. Generally, the payments on all short term loans increase. If you take a college loan, a personal loan or a boat loan, rates will increase. The Prime Rate increases, it is generally 3% above the Federal Funds Rate and it is the rate the biggest banks charge their best customers on short term loans. If you have a HELOC (Home Equity Line of Credit), this will increase also and it is generally the same rate as the prime rate. However, the short term loan that is not affected is the car loan. Generally there is so much competition in this area, that a loan on a new car can range from 0%(not all the time) to a little over 4%.
Strangulation by Regulation:
The tax code is 77,000 pages, under Obama there were 4000 new EPA regulations (info from CBS) Dodd-Frank imposed somewhere between 310-500 new requirements on banks(various analysts CNBC) and Obamacare has over 20,000 pages of regulations (Washington Post); and people are complaining because Trump is trying to streamline government. He has signed the "2 for 1" executive order that mandates all agencies to do away with 2 regulations for every one they pass. I can run my life and spend my money, much better than the government and I applaud Trump's efforts in doing away with economically ruinous legislation.
UNH Study Results 5-31-2016
In other News:
First, a little history. In 1800, 90% of the adult population were farmers (lots of factory child labor), by 1900, 25% of the population and currently, about 2% as a result of technology garnering greater yield/acre. As a result much farmland from the 19th century is no longer. In a recent study out of UNH, it was found that 75% of the farmland from the mid 19th century is now covered by trees and this is contributing to warmer winters. Trees causing higher temperatures you say; how is this possible? It is very simple physics. In the winter in NH (and most other states), farm pastures are covered with snow, and this reflects sunlight, and heat, into space. Now that 75% of these pastures are covered with trees, the dark trees absorb the heat and it permeates into the atmosphere causing a general warming and milder winters. If you've ever wondered what a stone wall was doing in the middle of the woods, those woods were once pastures and delineated borders that contained live stock.
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A number of people have asked me about Bernie Sanders tax plan and he is in the same fantasy land as Obama. First, it would never pass a republican Congress and early indications are that the Republicans will definitely maintain control of the house.
He wants to make all state university's free; let's just look at NH. At UNH there are 14,500 students of which 45% are out of state. Just tuition, not including room and board for out of state students is $30,000 and in-state $17,000. If you do the math that's a total of $331,325,000, and that doesn't even include Plymouth, Keene and Granite state which are also part of the state University system. Do that for every state and it is an astronomical cost that his proposal doesn't even begin to cover. I hesitate to do the cost for California that has 38 million people as opposed to NH's 1.6 million.
What I find particularly disconcerting, is all the people who are buying this.
A number of people have asked me about Bernie Sanders tax plan and he is in the same fantasy land as Obama. First, it would never pass a republican Congress and early indications are that the Republicans will definitely maintain control of the house.
He wants to make all state university's free; let's just look at NH. At UNH there are 14,500 students of which 45% are out of state. Just tuition, not including room and board for out of state students is $30,000 and in-state $17,000. If you do the math that's a total of $331,325,000, and that doesn't even include Plymouth, Keene and Granite state which are also part of the state University system. Do that for every state and it is an astronomical cost that his proposal doesn't even begin to cover. I hesitate to do the cost for California that has 38 million people as opposed to NH's 1.6 million.
What I find particularly disconcerting, is all the people who are buying this.
Just as a reminder from my blog of October 2013, Carbon dioxide composes only .0387% of our atmosphere (in decimal form that’s .000387), and of all the CO2 currently being produced on the earth, man only accounts for 3.4% (.034 in decimals). Therefore, if you want to calculate the amount of CO2 in the atmosphere caused by man, you would multiply .034 x .000387 to get .0000131 or .00131%.
The Arctic ocean is warming up, icebergs are growing scarcer and in some places the seals are finding the water too hot, according to a report to the Commerce Department yesterday from Consulafft, at Bergen, Norway.
Reports from fishermen, seal hunters and explorers all point to a radical change in climate conditions and hitherto unheard-of temperatures in the Arctic zone. Exploration expeditions report that scarcely any ice has been met as far north as 81 degrees 29 minutes. Soundings to a depth of 3,100 meters showed the gulf stream still very warm. Great masses of ice have been replaced by moraines of earth and stones, the report continued, while at many points well known glaciers have entirely disappeared.
Very few seals and no white fish are found in the eastern Arctic, while vast shoals of herring and smelts which have never before ventured so far north, are being encountered in the old seal fishing grounds.
I apologize, I neglected to mention that this report was from November 2, 1922. As reported by the AP and published in The Washington Post — 96 years ago!
The text in the above example is a genuine transcription of a 1922 newspaper article, an Associated Press account which appeared on page 2 of the Washington Post on 2 November of that year
The Arctic ocean is warming up, icebergs are growing scarcer and in some places the seals are finding the water too hot, according to a report to the Commerce Department yesterday from Consulafft, at Bergen, Norway.
Reports from fishermen, seal hunters and explorers all point to a radical change in climate conditions and hitherto unheard-of temperatures in the Arctic zone. Exploration expeditions report that scarcely any ice has been met as far north as 81 degrees 29 minutes. Soundings to a depth of 3,100 meters showed the gulf stream still very warm. Great masses of ice have been replaced by moraines of earth and stones, the report continued, while at many points well known glaciers have entirely disappeared.
Very few seals and no white fish are found in the eastern Arctic, while vast shoals of herring and smelts which have never before ventured so far north, are being encountered in the old seal fishing grounds.
I apologize, I neglected to mention that this report was from November 2, 1922. As reported by the AP and published in The Washington Post — 96 years ago!
The text in the above example is a genuine transcription of a 1922 newspaper article, an Associated Press account which appeared on page 2 of the Washington Post on 2 November of that year
For a good laugh on Obamacare, go to this web site and watch this video; http://www.youtube.com/watch?v=qpa-5JdCnmo. It shows the president on 36 different occasions stating that if you like your healthcare plan you can keep it. Obviously there are 1 of two explanations for this misunderstanding. He was ill advised on the 2700 page, 4500 provision Affordable Care Act, or he knew about it and lied. According to a study by Forbes magazine, the ACA will increase premiums to men under 27 by 77%, 40 year olds, 37% and 64 year olds by 37%.
Commentary on Minimum Wage
The main argument concerning minimum wage is that it will help to alleviate poverty. That is clearly not the case. As you can see from the chart at the left, the poverty rate dropped dramatically in the 1960's. This was a function of great society legislation; specifically, increase in Social Security benefits in addition to the inception and implementation of Medicare and Medicaid. Since then, the poverty rate has fluctuated between 9-15% and is highly correlated with the unemployment rate. The vertical grey area's in the graph represent periods of recessions in the US. As can be expected, unemployment rises during recessions and peaks at the end (unemployment is said to be a lagging indicator). As you can also see from the chart, so too does the poverty rate. There is no indication whatsoever that the poverty rate is affected by increases in the minimum wage. Generally, this is quite the contrary. As can be evidenced from the below left chart, increases in minimum wage can contribute to unemployment and as we can infer from the above chart, as unemployment increases so to does poverty. If you look at NH, they have the lowest state poverty rate in the nation and it generally parallels the national unemployment rate. By raising the minimum wage, you increase business costs. As a result; businesses either pass these costs onto the consumer (in which case inflation nullifies any wage increase), substitute capital for labor, or simply go out of business. If you look at the chart below right, UAW (United Auto Workers) membership has decreased in the late 1970's from 1.5 million to 350,000 in 2009. The reason for this is simple. Detroit isn't making fewer cars, they are making more, but they have made their assembly lines more robotic and have substituted capital for labor, which became cheaper in the long run. This can also happen to those fast food workers who want a $15 minimum wage. There is currently a machine on the market that can make 300 burgers/hour. In other words, capital can be substituted for labor. Someone please e-mail me and explain how someone is better off unemployed at $10-15/hour as opposed to being gainfully employed at $7.25/hour
You cannot legislate equality. If you want to decrease poverty, implement policies to insure that higher levels of education is available to all.
You cannot legislate equality. If you want to decrease poverty, implement policies to insure that higher levels of education is available to all.
BLOG Topics 2013
January Do Protected Seals lead to Depleted Fish Stocks
February Prohibition: Profits to Cartels & Increased Violence for Americans
March Increased Minimum Wage & Extended benefits lead to Higher Unemployment
April Ethanol from corn & Agflation
May Cash for Clunkers lead to Higher Used Car Prices & Wasted Tax Dollars
June The Affordable Care Act; Anything but Affordable Part 1
July The Affordable Care Act; The poster Child for False Advertising
August Detroit: Higher Taxes + Liberal Benefits = Bankruptcy
September No Keystone Pipeline leads to more pollution
October Global Warming! Or is it Global Cooling!
November Poverty & Benefits
December Does Affirmative Action lead to Reverse Discrimination?
February Prohibition: Profits to Cartels & Increased Violence for Americans
March Increased Minimum Wage & Extended benefits lead to Higher Unemployment
April Ethanol from corn & Agflation
May Cash for Clunkers lead to Higher Used Car Prices & Wasted Tax Dollars
June The Affordable Care Act; Anything but Affordable Part 1
July The Affordable Care Act; The poster Child for False Advertising
August Detroit: Higher Taxes + Liberal Benefits = Bankruptcy
September No Keystone Pipeline leads to more pollution
October Global Warming! Or is it Global Cooling!
November Poverty & Benefits
December Does Affirmative Action lead to Reverse Discrimination?
Blog Topics 2014
January Will Lake Meade become another Aral Sea
February Does Taxing the rich hurt the economy
March The Cause of the Great Depression
April Temporary Agricultural Subsidies lead to wealthy Farmers and Higher Prices
May The Presidents Stance on Gun Control leads to Increased Gun Ownership
June Is there really a Gender Pay Gap
July Did the Supreme Court decision in Roe v. Wade lower the crime rate
August Department of Education and wasted Money
October The Financial Follies of the EPA
November Social Security and Portfolio Diversification
December The White House and Terrorism
February Does Taxing the rich hurt the economy
March The Cause of the Great Depression
April Temporary Agricultural Subsidies lead to wealthy Farmers and Higher Prices
May The Presidents Stance on Gun Control leads to Increased Gun Ownership
June Is there really a Gender Pay Gap
July Did the Supreme Court decision in Roe v. Wade lower the crime rate
August Department of Education and wasted Money
October The Financial Follies of the EPA
November Social Security and Portfolio Diversification
December The White House and Terrorism
iOMe Challenge 2012
The United States has amongst the lowest savings rate for all technological nations. The iOMe challenge is a nationwide competition between Colleges where teams submit a 10,000 page essay on how Americans can improve their savings rates. In addition, teams must produce an approximate 60 second video which complements the essay. If you click on the iOMe logo above, it will take you to Bentley University's 2012 video submission. The faculty adviser for the challenge is John Tommasi and is offered during his Fall EC 351 course, Contemporary Issues in Economics.
I'm pleased to announce that on February 15, Bentley was declared the winner of the iOMe video portion of the contest. Congrats to the team members and great job! |
EC 3900 Energy Economics
EC 3900, Energy Economics and International Markets, is a 3 credit, Short Term Program, that is offered during Spring semester. After 7 weeks of lecture, the class takes a 10 day educational/cultural tour to France where 80% of their electricity is produced by nuclear power. During the 10 day trip, students travel to, and tour various nuclear facilities Last year's class visited; Marsailles, Aix en Provance, Lyons, Brest and 4 days in Paris.
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Unintended Consequences
If there were ever words that can strike fear into the hearts of any man women or child, it's: "I'm from the Government and I'm here to help". On a monthly basis my blog, from an economic standpoint, will explore government laws, decisions and actions, which while well intentioned, had inadvertent results that were either disastrous, or made a bad situation worse. It wouldn't surprise me if you reached the conclusion that congress does two things well, nothing and overreact; and you may ask yourself, do Congressional members vote for what is best for the economy, or what will get them re-elected.
iOMe Challenge 2012 - Video |
iOMe Challenge 2011 - Video |
