LOST redux

This post as a whole is not meant to be taken seriously and it is not that I am choosing to write this out of the huge unfilled, gap that was created after the ending of LOST, but having recently gotten back to studying economic schools of thought, I recalled something interesting - Daniel Faraday is proponent of fate. In LOST season 5, he conducts research at Ann Arbor, presumably to determine whether or not free will exists - can he and his companions, trapped in the 70s, ever return back to the 2000s?

Where is Ann Arbor located? Michigan. The Midwest. A hotbed of freshwater economists, let alone right-wing conservative economists who advocate that any sort of intervention done by any governing power in money markets will exacerbate inflation. However, Daniel's own study in the land of monetarists and (some Austrians) may indicate that he himself was led to believe that free will was impossible. Note the following exchanges:

Faraday: We don't know when the next flash is coming
Sawyer: So how can we stop it?
Faraday: We can't stop it
Sawyer: Well then who can?

Faraday: It doesn't matter what we do. Whatever happened, happened.
Sawyer: Well, thanks anyway, Plato. I'm going over there

Which also seems to alienate Sawyer from Faraday's train of thought. Sawyer may very well represent the flawed common man. He himself to be fully capable of living his own destiny, when he is at the mercy of the world and his own fate.

Our hero Jack thinks likewise, along w/ Desmond Hume (perhaps not directly) - the constant [variable]; Faraday's constant - who is off island (the character; both Humes, however, are proponents of free will). For a while in between his arrival back to the island and his untimely death, Daniel Faraday joins in with the others out of desperation. To do what, exactly? To save their lives from the drop of a hydrogen bomb that's gonna get dropped. Faraday is subsequently killed by his mother, whom he says knew all along that he would die (despite the fact that the present time Eloise says that for the first time, she does not know what is going to happen because...

SHE USES ADAPTIVE EXPECTATIONS!!! REGRESSION WILL NOT WORK ANYMORE BECAUSE THERE IS NO PRECEDENT TO WHAT THEY ARE DOING!!! Daniel Faraday turns Neo-Keynesian or rather, I'm not even sure if we can label him.

So - Ben Linus moved the island in order to save it from a domineering Charles Widmore. John Locke goes back to fix the wheel and returns to the present. Faraday, who believed that destiny could not be changed, attempted to change it w/ friends in the face of disaster. Then Jack and co. return back to the island. In the process, Flocke emerges. It appears that Faraday was somewhat right, since the "past" was definitely relevant to the present.

Eurozone Debt Crisis: Bailout for Ireland

Austerity, that is - a mindset usually coupled with deficit-cutting policies and fiscal conservancy - is now politically popular. Moreover, it is a part of Ireland's economic agenda. Read my report below for the scoop.

Also here's a question to pick on: if Ireland's government could enforce their own fiscal policy instead of the EU's central bank, would they be more Keynesian than Austerian? I don't think so, but I've never been to Ireland! Anyway, read my report below for the scoop. Note the bibliography, as well. They were good sources for coming up with all the objective information

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Following a property bubble that began in late 2007 and burst in 2008, Ireland joined one of many nations in the worldwide financial crisis. The crash caused the housing sector to experience a decline of 35% in property values from 2007 to 2010. Like the US housing crisis, homeowners suffered severe losses in equity. Angela Merkel, along with German officials, spearheaded the move to persuade Ireland to accept a bailout. By November 2010, the European Union recommended that Ireland accept a bailout projected at €85B. Ireland’s government conceded and its prime minister Brian Cowen publicly announced on November 21, 2010 that they would accept the stimulus aid package.

Ireland’s government has already intervened by nationalizing its four major commercial banks, including Allied Irish Banks and the Bank of Ireland. Prior to the bailout, the country had a fairly low deficit – by the end of September 2007, it had been approximately €3.1B. Now, the deficit hovers between €20-21B. Despite the government insisting that public services cuts are favored over raises in income tax, the Euro Stability and Growth Pact’s target of having a reduced deficit of 3% of GDP by 2013 seems unlikely. €4B worth of new taxes and spending cuts – consisting of the layoffs of 24,750 public workers – has been announced and is speculated to go into effect by the end of the fiscal year.

Austerity has gained momentum as Irish taxpayers face further tax increases and budget cuts in subsidized public programs – education, healthcare, etc. Moreover, Ireland’s European neighbors - this including French finance minister Christine Lagarde - urge the government to raise the 12.5% corporate tax. According to a report by Goldman Sachs, “companies in Ireland face the lowest effective tax burden of the euro-zone's 12 larger countries.” (page number not given) Consumer confidence is in effect, at a low. Higher taxes, high unemployment rates, and plummeting income levels will not be conducive towards boosting spending.

Economists who have paid keen interest to the debacle of the “PIGS” countries, such as Paul Krugman, have shed light on the differences between Iceland’s and Ireland’s financial meltdowns. He argues that while Iceland could directly influence its native currency, the krona, by devaluation, Ireland cannot do so for the Euro. They have virtually no control over interest rates or the money supply, let alone monetary policy. Importantly, Iceland did not pass on debt to their taxpayers via default on bad loans. Ireland did the opposite by bailing out their banks. In accordance with IMF logic, private sector defaults tend to lead to market declines in external debt. In addition, Iceland implemented capital controls which limited residents from transferring funds out of the country. Krugman’s analysis confirms that Ireland’s government has little choice in deficit cutting, and that the EU – due to its regulations - must fashion its policy for Ireland, as oppose to the country self-prescribing its own economic policy.

With respect to the Euro and the foreign exchange market, the EU has been readily available to provide emergency credit lines to its members. The Euro hit record lows throughout this year, dropping along the dollar, which contrasted with record high bond yields. Yields on 10-year bonds added 31 basis points to 9.07 percent. Wary of the instability of the Euro, senior officials are now proposing that the €750B rescue net should be increased, if necessary. Portugal and Spain are next on the list of countries that may need a bailout.

Economics has an underlying goal of full employment of people and capital. Today, there is very little capital to be employed and jobs are being lost at a rapid pace. Increased emigration from Ireland is a bitter fact among many natives that are now forced to leave their home country in search of work. Irish immigration in America is up 25% from last October (here is a relevant article). Austerian policies are politically popular, but will not work in fighting deficits; or at least, the plan at which the Irish government has is bound to have little effect in restoring consumer confidence. Prior to the acceptance of a bailout, Ireland’s government officials speculated as to whether defaulting and restructuring would be a better choice of action. By accepting the bailout, they have now passed the point of no return.

Bibliography

Finfacts Team. "Irish Exchequer Deficit in First Nine Months of 2007 at €3.1 Billion; Shortfall on Tax for the Year to Be between €1 and €1.5 Billion." Finfacts Ireland. 2 Oct. 2007. Web. 26 Nov. 2010. .

Clarke, Jody. "Irish Property Crash: Is Ireland Heading for Recession - MoneyWeek." Investing, Investment Advice, Financial News & More - MoneyWeek. 3 Oct. 2007. Web. 25 Nov. 2010. .

"Metronews - Article." Metro- Choose Your City. 23 Nov. 2010. Web. 27 Nov. 2010. .

Alderman, Liz. "Ireland Unveils Austerity Plan to Help Secure Bailout." The New York Times. 24 Nov. 2010. Web. 25 Nov. 2010..

Brussels, Traynor In. "Ireland Bailout: Fears Mount That Eurozone Fund Is Too Small | Business | The Guardian." Latest News, Comment and Reviews from the Guardian | Guardian.co.uk. 25 Nov. 2010. Web. 25 Nov. 2010. .

Czuczka, Tony. "European Ministers Hold Ireland Debt Crisis Talks at G-20 - Bloomberg." Bloomberg - Business & Financial News, Breaking News Headlines. 12 Nov. 2010. Web. 25 Nov. 2010. .

Juergen, Baetz, and Eddy Melissa. "Merkel, Sarkozy Want Quick Bailout for Ireland - Yahoo! News." The Top News Headlines on Current Events from Yahoo! News. 25 Nov. 2010. Web. 25 Nov. 2010. .

Krugman, Paul. "Eating the Irish." The New York Times. 25 Nov. 2010. Web. 26 Nov. 2010. .

Horobin, William. "French Finance Minister: Ireland Should Use Taxes In Deficit Cutting - WSJ.com." Business News & Financial News - The Wall Street Journal - WSJ.com. 23 Apr. 2010. Web. 26 Nov. 2010. .

rant

NYTimes op-ed columnist Paul Krugman writes articles that seem to be getting more and more desperate. Cool-headed Americans must appreciate the result of our administration's policies causing fiscal conservancy to be the new big thing (again). As elections draw near, we are seeing more and more right-wing sentiment - one could call it bigotry - being implemented in Republican campaigning. The Tea Party claims to possess the same agenda and principles that our founding founders made fundamental when working on project America. But aside from fiscal conservancy, did they not also advocate for social liberty, or at least plant the seeds for a unified people, each person imbued with the same rights as the other? And did not Alexander Hamilton, our nation's first secretary of the treasury, advocate for a pragmatic approach to stabilizing America - that is, possessing more centralized power, perhaps having knowledge of the irrationality of the masses, let alone human beings? We see that Democrats and Republicans both echo different values our founding fathers possessed. The Republican party's identity has degenerated - thanks to Bush Jr, his administration's wartime blunders, and the past 20 years of Friedman/Rand-esque financial market liberty and greed. But now, globalization and foreign trade has changed the entire nature of politics. Global terms of trade. Debt, to name a few.

Past the Cold War, we no longer have a common enemy that we can point the finger at. In the past generation, mob mentality fueled anti-Communist sentiment. Capitalism was Americanism. Americanism was capitalism. And now, to witness a declining America - a multi-ethnic America where WASP elites are now sensing a threat to their own seats of power - and to see the big whigs taking action with a very visible hand is disturbing to them. Economic contraction is appropriate, they feel. But pragmatic contraction would be even better, for shrinking our economy relative to the world market. We have no exit strategy. We just never expected that there would be repercussions for the collective practice of living beyond our means.

One thing that comes to mind is what Obama said: "History never precisely repeats itself"

Not blind to his inevitable perceived shortcomings upon taking up the presidency, Mr. Spock knew that change would not happen overnight. It would be politically impossible to deliver fulfilled promises in two years, let alone appease the masses expectations of those promises. But he sure gave us hope, didn't he?

Continuing on w/ the history lesson and my point - Heavily in debt, following the Revolutionary War, America was in a similar position to the one we are living in now. We live in a crucial time in which we need to prove to the world that we are sustainable. Beyond numbers and troubled finances, we must again show the world that we have the potential to be sustainable, if not in certain sectors of industry (what industries?). It would be wishful thinking to believe that we can return to being no. 1. Yet, if America made it this far, would it not be strange to believe that we can continue? It's crucial that we don't turn back on the social values that have done so much to be inclusive. Aside from economic woes, which apparently every nation has, we must sustain as much grace as we possibly can so that we do not degenerate into a country with the face of bigotry.

Calamity Ahead (continuation from past post)

China's manipulated devaluation of currency has been subject to much attention, even prompting President Obama to call for a float at the UN. "Experts" believe that the renminbi "is artificially weakened by 20 to 25 percent." Wen Jiabao, including other government officials involved with China's finance ministry, has been avoiding this complaint directly. Let's ask ourselves some basic questions concerning this situation:

1) Why do it? Why devalue the currency?

For starters, they would hope to maintain a long-term trade surplus by doing so. Second, they would probably want to knock their competitors out of the box. Vietnam and other South East Asian countries are capable of producing/manufacturing products that the Chinese export, at an even cheaper price (quality about the same - good; ceteris paribus, just for sake of argument).

2) What are the ramifications of the devaluation of the renminbi?

A constant, lower standard of living. Suppressing the wage of China's massive labor force, that is - they want to keep a cheap, domestic labor force in order to stay #1. The villagers will remain villagers, while the business elite and aristocrats in the cities exploit them collectively (but mostly not consciously, nor intentionally) - this is capitalism. This is not true nationalism, but perhaps, this is how progress is made, at least in the pragmatic sense. This, I believe, is having a negative effect on not just China's domestic population, but the countries who have potential to gain from specialization, emerging countries/markets, fellow developed markets/nations, and etc. This is not to say that there are perhaps positive effects, in terms of international investment - China's interest in Africa and Europe need to be noted. But to what end - short term and long term?

and 3) a bonus question - who are China's friends?

China's ties with US weaken. It makes sense from their point of view that they would view America as loaded with debt. We have indeed unconsciously eaten the words "Too Big to Fail", but when China is in a bind in the future, despite its A-list of importers (Japan - who they are still disputing with over the past World War - South Korea, Taiwan, US, Germany, being the top 5), who will help China? As an economist-in-the-making, I am susceptible to being concerned with social prosperity. Truly wonderful nations have souls. Their legacy means nothing if their people do not have a nation they can live with, consciously support, and in times like these, believe in. Next year, if I am able to make it to Shanghai, I shall try to find new perspective and understand how social prosperity may best be formed there, and probably long-term economic prosperity as well.

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additional article (op-ed) that contrasts China and US, also lightly making note of the first's modern "5-year plan"

Upcoming Elections; What's Bothering Me

It has been a while since I have last posted but this time I would like to address an issue at home: the much heated 2010 gubernational elections.

After reading this blog and all of the comments, I couldn't help but feel that the situation here is a torrent of bad data. Here in the 808 (lingo for Hawaii; area code "808"), image is everything for the political candidate. Specifically, its image funneled through endorsements and local news. But many of our denizens here aren't given much information when it comes down to finding out candidates' or incumbents' business plans for their potential term/terms. Nor is their record, in some cases. We don't have the NYTimes or WSJ. We have the Star Advertiser. We must rely off word-of-mouth, which is highly volatile because of personal bias; in a way, it's like playing telephone. Facts can become exaggerated and/or played down. It is hard to find anyone practically anywhere who will examine all sides of the story and then vote not in just their own self-interest, but everyone's (that felt disgusting after recalling many grueling hours of Philosphy 101 freshmen year).

There has been much drama over the previous city council election, concerning Ed Case, who bowed out to Colleen Hanabusa. Speculators felt that his endorsement for Abercrombie and his dogged criticism of Hannemann was the best thing he could do for himself politically. If Hannemann is elected governor, Case's political career is "effectively over", as one of the commentors on the blog put it. Others say that Senator Inouye's criticism of Hannemann's scare tactics was more damage control. If there are two political machines in the US, regardless of state, I would say that they are as follows:

- one Democrat
- one Republican

The coordination of the parties - incumbents and candidates, alike - creates political machines (which isn't necessarily a bad thing). Cooperation is much wanted. It would be nice if we saw Hannemann and Governor Lingle work together more but frankly, it's hard to when you both have different agendas and political parties. Bipartisanship is like a dream here in America, but in Hawaii, it should be a lot simpler. Or harder? We have a lot of different networks here. Ethnic groups, the church, districts, local businesses with money , foreign businesses with money, etc. Its hard to get representation from everyone and then act on what's in the best interest of 80% of the people, as opposed to 5-10%. Anyway, in summary, local politics and a lack of information are what holds back the representation of the majority of our population. This includes people just not voting - but this isn't what truly scares me.

What truly scares me are the scare tactics that the Hannemann team employs. What scare tactics, you ask? Tough 7-foot samoans advising you to vote for a certain candidate? Allocation of millions of $ that help single entities as opposed to a whole district/island? (my stance on the Super Ferry was different; what you did not find in the papers was off-record: Lingle telling Justice Ronald Moon that Hawaii politics has always favored single entities/businesses) This whole rail deal - a $5-6B project that the Fed only gave verbal approval, not written approval that they will back $1.5B? (Even if this does fly, on elevated tracks, no less, remember that "borrowing is but a tax deferred") Backdoor deal making with developers without transparency to the public? Certain pamphlets that discriminate on ethnicity? Indirectly attacking an opponent's spouse? What is this? These practices are perpetuating the world of Hawaii politics with corruption, the exact opposite of our state motto. The young adults and keiki will learn to bully, blackmail, threaten, and use realpolitik in a way that will only seek to fulfill their own ambitions, not the needs of the people, when observing such practices. Never for a moment should we give in to the talk that scare tactics are necessary to accomplish things. Bullying will simply never be progressive. Moreover:

Inclusiveness is Hawaii's strength, not exclusiveness! That's what keeps Hawaii Hawaii. It is important as a voter to again, keep in mind the 80% of Hawaii - hopefully community interests before social interests; I'll let readers discern the two themselves - not 5-10% special interest population network, as well as a long-term Hawaii.

It is for the above reasons I will vote for Neil Abercrombie (as well as Peter Carlisle for mayor). Things won't be perfect under his administration, or any administration for that matter. But right now he's the candidate Hawaii needs to choose in the upcoming elections. He represents more of Hawaii's communities than Hannemann ever will. I strongly urge others to vote for Abercrombie and vote! Even my grandparents in their 90s are politically active and mark my words, they will vote. Every vote makes a difference. Family, friends, and peers will be aware of your beliefs and concerns for Hawaii and take them into consideration

It's Summer and I'm Taking a Break

Summer Reading that is economics-related:

Too Big To Fail by Andrew Ross Sorkin

The General Theory of Employment, Interest and Money by John Maynard Keynes (possibly)

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The market is a mess. Consider this a sabbatical
There is no surefire microeconomics equation that can guarantee you economic survival. The only thing to do now is just take a deep breath and just take everything in stride and in moderation. Don't forget that savings = investment almost. Unemployed capital is not good for economies, which is why (on a side note) to make sure to exchange your currency within reasonable time after vacations to other countries.

Have a good summer all. If I feel motivated, I will post, so please motivate me if you see me

Bear and my Macro Final

Here's a Bloomberg article about Bear Sterns getting what comes around. Some years ago, when a hedge fund named Long-Term Capital Management failed and Fed Chairman Alan Greenspan called for the largest US banks to bail it out to prevent ripples from imploding Wall Street, as well as impacting Main Street (due to the Asian Crisis). Bear Sterns refused and the result? Years later, JPMorgan bought Bear at a fairly cheap price. $240M. 6 months are their bailout, Goldman Sachs' competitor Lehman Bros. was allowed to fail. Speaking of which, I watched a good half hour of Lloyd Blankfein's testimony in front of the senate. J McC and co. grilled him and within hours he looked like hell. Warren Buffet's recent defence of Goldman Sachs has been surprising. And this picture made me laugh (inside of course, I'm in the library)

My macroeconomics final exam will cover comparative advantage, specifically the flaws of David Ricardo's Trinity of trade theory (Comparative trade theory, specialization, and the quantum theory of money). The second essay concerns the economic appropriateness and effectiveness of sweat shops. Finally, our last essay will concern our presentation topics - subprime, which I'm kind of sick of. Maybe I'll use my work exp. from this past summer to write up lots of random words, but not randomly matched together. That is all!