Assigned News Items
Note: I will list here, for most of the term, the major news items that have appeared that are relevant for the course. I will usually discuss these, if only briefly, on Mondays (or the following Wednesdays when Mondays are not available). You should be sure to be familiar with them from whatever news sources you are using. Where possible, I will provide links to the items online. I will include questions about some of them on exams.
- Greece and its lenders agree on 4-month extension
-- WSJ: 2/21
| NYT: 2/21
| FT: 2/21
- The bailout was scheduled to end at the end of February, and this extension avoids an immediate crisis. It does not resolve any of the disagreements between the new Greek government and the lenders.
- The agreement is a reversal for Tsipras, the new Greek leader who had promised to kill the bailout and its commitments for Greek austerity. The Troika -- EU, ECB, & IMF -- have agreed to reduce the targets for Greece's government surplus.
- Details remain to be worked out in the next few days, and the agreement could some apart. But meanwhile, lending to Greek banks is resuming, reducing pressure on financial markets.
- West-coast-port labor dispute reaches tentative agreement
-- WSJ: 2/21
| NYT: 2/21
| WP: 2/21
- Port employers on the US west coast and the longshoreman's union reached a tentative 5-year agreement on a new contract, after 9-month standoff that has slowed passage of goods through the ports and caused weeks of delays. Ports should now become fully operational, though it will take weeks to catch up.
- During the dispute, workers engaged in deliberate slowdowns, and last week the employers shut them out completely. Last week the White House sent Secretary of Labor Thomas Perez to urge agreement.
- The most contentious issue had to do with arbitration. This has been resolved, though in what way has not yet been announced.
- EU proposes capital markets union
-- WSJ: 2/19
| NYT: 2/19
- The EU laid out plans for integrating the capital markets of the member countries, in an effort to stimulate investment in the EU and revive its economy.
- The proposed Capital Markets Union would help companies to raise money by selling asset-backed securities throughout Europe, rather than relying on bank financing.
- The focus is intended to be especially on small and medium sized businesses.
- Members of both parties oppose granting TPA to Obama
-- NYT: 2/10
- Both left-leaning Democrats and Tea-Party Republicans in Congress oppose further trade agreements and therefore oppose granting Trade Promotion Authority, or Fast Track, to Obama. This is one issue on which the Republican leadership and Obama agree, but they may not get their wish due to opposition from within both parties.
- Obama sees the Trans-Pacific Partnership, TPP, as central to his "strategic pivot to Asia" and TPA is needed for that to succeed.
- Some Democrats view all trade agreements as harmful to US wages and jobs. Populist conservatives see the trade agreements as catering to the interests of Wall Street and large corporations.
- US files case in WTO against China's export subsidies
-- WSJ: 2/12
| NYT: 2/12
| FT: 2/12
- The US administration has filed a complaint in the WTO saying that China illegally subsidizes exports in multiple sectors, including agriculture, medical goods, and more.
- "The case being brought by Washington alleges that China provides discount services and cash bonuses tied to export performance to businesses located in 179 'demonstration bases' spread across the country." (FT)
- Obama's agressive action coincides with his need to get cooperation from Congress on trade deals and Fast Track, and is an effort to show that he is tough on trade.
- Currency changes, wanted and unwanted.
-- WSJ: 2/11
| NYT: 2/10
| NYT: 2/11
| FT: 2/10
- G20 Finance Ministers met in Istanbul and gave their support to expansionary monetary policies to boost the world economy, a stance that in effect encourages policies that will cause currencies to depreciate, sometimes called "currency wars."
- The Russian currency, the ruble, continued its fall against the dollar and the euro. Many in Russia are upset by this and are trying to shift out of the ruble, but the head of Russia's central bank continues to argue in favor of letting the market determine the rubles's value.
- Venezuela announced that it would ease its rigid exchange controls and allow markets a greater role in determining the value of its currency, the bolivar. Under pressure from falling prices of its exported oil, the bolivar is expected to depreciate.
- Italy's Finance Minister argued that the recent fall in the value of the euro was desirable, moving currencies closer to rates that are justified by the fundamentals and making it easier for the Eurozone's weaker economies, like Italy, to compete internationally.
- Obama plans tax on US profits held overseas
-- WP: 2/2
| FT: 2/2
- Obama is proposing to levy a $238 billion one-off tax on overseas cash holdings of US corporations.
- Cash is held abroad because profits would be taxed when brought back to US. This tax will be less that half of that.
- He will also propose a tax on foreign earnings to reduce that incentive in the future.
- US auto exports up and oil imports down
-- WSJ: 2/6
| WSJ: 2/6
- US auto exports rose to a record high in 2014, for 3rd year in a row. Many of these are made by non-US companies at factories in the US.
- US oil imports fell for 2014, reducing their share of the US trade deficit to less than 20%, compared to 40% five years ago.
- Other imports rose, however, and the US trade deficit remained high.
- China's trade surplus hit a record high in January, even as exports fell
-- FT: 2/7
- China's exports were 3.3% less in January than a year earlier, but imports were down 19.9%.
- Both results were unexpected, and led to a trade surplus of a record $60 billion.
- China's manufacturing sector shrank, but the main reason for this change was the fall in the prices of imported commodities, especially coal and oil. Oil imports fell only 0.6% by volume but 41.8% by value.
Jan 26 - Feb 1
- US and EU pushing for more sanctions against Russia
-- WSJ: 1/26
| FT: 1/26
- While visiting India, Obama said he would increase sanctions against Russia in response to a separatist attack in Ukraine backed by Russia.
- EU leaders also said they were willing to consider a response, changing from their prior talk of reducing the sanctions.
- "The EU has already introduced restrictions on trade, defense and energy links with Russia and has targeted dozens of Russian officials and separatist leaders with a freeze on assets and travel restrictions." (WSJ) Increased sanctions could mean more Russian companies excluded from Western financial markets, ban of more exports, or -- as a last resort -- removal of Russia from the Swift Network of global financial transactions.
- Election in Greece prompts conflict with EU over bailout terms
-- WSJ: 1/27
| NYT: 1/27
| FT: 1/27
- The leftist party, Syriza, which won the Greek election, and its newly elected Prime Minister Alexis Tsipras, has promised to reverse the public spending cuts that were demanded of it by the EU, ECB, and IMF (the "Troika") in return for a bailout of its public finances and were agreed to by the previous government.
- If it delivers on this promise, as seems likely, the EU will have to decide how to respond and may force Greece into default on its debt and exit from the euro. The EU resists doing that, in part out of fear of encouraging similar political outcomes in other stressed EU countries.
- Tsipras is also demanding that the EU forgive 1/3 of its debt, while the EU, on the other hand, is requiring further reforms by the end of February in order to pay the last part of its bailout.
- China's currency now the 5th most used
-- WSJ: 1/28
| FT: 1/29
- Based on data from the Swift international currency clearing system, 2.2% of world payments are now conducted using the Chinese currency, the renminbi.
- This puts it at number 5, after the US dollar, the euro, the British pound, and the Japanese yen, and now ahead of the Canadian dollar and the Australian dollar.
- China as made changes in institutions and policies to encourage use of the renminbi, and its use more than doubled from the previous year.
- US dollar rise is hard on US firms
-- WSJ: 1/21
| NYT: 1/25
- The dollar has risen 19% since May against a basket of currencies, and much more against the euro.
- The US government's official position is that a strong dollar is good for the US, and it usually does reflect the strength of the US economy. But the strong dollar is harmful in many ways to the US economy.
- Firms selling US-made products abroad find dollar value of their foreign prices falling, and can't raise them fast enough. And if they do, demand falls. Profits take a hit either way. In contrast, US firms that use inputs from abroad for products they sell in the US, find the inputs cheaper and they do better. US tourists abroad benefit and are more likely to travel there. Foreign tourists in the US are hurt, and reduce their visits to US, which also hurts US companies that sell to them here.
- European Central Bank begins policy of Quantitative Easing
-- WSJ: 1/23
| NYT: 1/23
| FT: 1/23
- ECB President Mario Draghi announced the start of a program of Quantitative Easing, buying €60bn-a-month of European bonds to stimulate the eurozone economy. This will include both government and private sector bonds.
- The reason is weakness of the eurozone economies, and in particular the threat of deflation -- the rate of price inflation becoming negative. The aim of the policy is to raise the rate of inflation to the ECB's target of just under 2%. The move is resisted especially by the government of Germany, which fears that this will reduce pressure on other eurozone members to reform their economies.
- The ECB is the last major central bank to embark on QE. The US Fed did it first and was followed by the UK and Japan.
- Davos meeting addresses the state of the global economy
-- WSJ: 1/21
- Events over the last year have weakened the interconnections of the global economy, hurting the process of globalization that has "helped raise hundreds of millions out of poverty," said the director of a London think tank at the annual Davos meeting of world leaders.
- "...I think that the prospects of European deflation and a sudden stop in growth in China are the two things I’d be most worried about," says an economist at Harvard's Kennedy School.
- Unexpected events of the past year included the Russian invasion of Crimea and the unrest in Ukraine, and the drop in the world price of oil.
- Oil price falls to new lows
-- WSJ: 1/13
| NYT: 1/13
- The price of oil on world markets fell below $50 per barrel for the first time in almost six years. Price had already fallen by half during 2014.
- OPEC, the Organization of Petroleum Exporting Countries, has considered and rejected the option of reducing output in order to support the price.
- Fall is good news for drivers, bad news for oil producers, including the shale-oil producers in the US.
- Politics in Greece raise anew concerns about it leaving the euro.
-- WSJ: 1/12
| FT: 1/12
- Greece will have an election on Jan 25, and the leading candidate promises to end the austerity imposed on Greece by the EU and IMF to bail it out of its financial crisis.
- Though the candidate no longer disavows the euro, many question whether Greece will be able to stay in the Eurozone without the support of other members that will be conditional on continued austerity in Greece.
- Some outside Greece are now questioning also whether keeping Greece in the Eurozone is really that essential, although the creation of the euro was intended to be permanent for all members.
- Swiss central bank stops intervening to keep its currency value down
-- WSJ: 1/16
| NYT: 1/16
| FT: 1/16
- Switzerland had maintained a ceiling on its exchange rate against the euro for over three years. On January 15, they ceased their intervention and their currency rose 39% against both the euro and the dollar.
- Switzerland had tried to keep its currency value down because the attractions of their financial markets were pulling in investors and creating demand for their currency. They had been concerned that a currency appreciation would hurt their exports. But the intervention has swelled their holdings of foreign assets, and the expectation of monetary easing by the European Central Bank promised to cause an even greater inflow that the Swiss were unwilling to accommodate.
- The move was a surprise, as usually central banks communicate and coordinate their interventions, but the Swiss did not inform other central banks or the IMF before the change.