The People’s Bank of China recently reduced benchmark interest rates by 0.25 percent, marking the sixth decline within a single year. Additionally, reserve requirements for banks were cut by 0.5 percent.
China’s economic growth has steadily decreased over the past few years. While the official GDP rate stands at 6.9 percent, this figure should be approached with skepticism. Despite this, a 6.9 percent GDP is not adequate for Beijing’s expectations. Action is necessary.
Central bankers often resort to cheap credit as a means to stimulate demand. This approach might even align government statistics with desired outcomes. However, given that the Chinese economy has already experienced extensive stimulation, one must wonder: what exactly is the People’s Bank of China aiming to achieve?
Beijing’s strategy of widespread credit generation has encouraged corporations within the nation to borrow significant amounts of money. Unfortunately, the ways in which these funds have been utilized have not always yielded positive results. In essence, this borrowed capital has often been funneled into unprofitable ventures. Continue reading
In the late 1970s, an unprecedented phenomenon occurred: both inflation and unemployment soared simultaneously. Economists at the time found themselves perplexed.
The Phillips curve suggested an inverse relationship between inflation and unemployment, positing that as one decreases, the other increases. So, how could both metrics rise at the same time? Were they not supposed to be mutually exclusive? Evidently, it required significant government interference to manifest such a scenario.
As unemployment began to rise in the 1970s, the U.S. Treasury, supported by the Federal Reserve, enacted Keynesian policies by injecting funds into the economy to stimulate job creation. The planners believed they could exploit the Phillips curve, running large deficits without incurring inflation due to rising unemployment.
Unfortunately, the unexpected transpired. Continue reading
Sweeping changes are unfolding in the global economic landscape. Notably, for the first time in 27 years, wealth is moving away from emerging markets rather than into them.
The international economy that has dominated since the late 1980s is undergoing a significant transformation. The intricate relationships of production and consumption, as well as savings and debt, are reversing. In 2015, net outflows from emerging markets are projected to total $540 billion.
China is at the center of this shift. In August alone, $140 billion left the country, translating to over $1.6 trillion annually.
This exodus is creating substantial disruptions in international currency markets. Recall that earlier this year, Beijing had to unexpectedly devalue the Chinese yuan. The pressure had built up behind their dollar peg, necessitating a release of that pressure to prevent a crisis.
As a result of the capital flight, China must continue to prop up the yuan in foreign exchange markets. Continue reading
Government programs often mislead individuals. Beneficiaries tend to believe they are receiving a genuine benefit, while in reality, they are being led into precarious situations. Time and again, under the guise of government assistance, capable individuals are pushed onto shaky branches.
Take Social Security, for example. Generations of hardworking Americans have adjusted their savings and retirement strategies around this program, believing they have a safety net. Why put away money for retirement when the government has promised to take care of you?
The workforce has been assured of monthly retirement checks in exchange for mandatory wage deductions. However, for some, this assurance is proving insufficient, as evidenced by the absence of cost-of-living adjustments in 2016. It raises concerns that over the next decade or two, these promises may be entirely broken or, at the very least, significantly compromised.
“Benefits for older Americans — particularly through Social Security and Medicare — represent the largest portion of federal spending today and are poised to account for most of the growth in spending over the coming decades unless changes are made,” Continue reading
