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Author: savas

Inflation Isn’t Too High; It’s Too Low

After years of modest price increases, the American public commonly misconstrues inflation.  Today, consumers still cannot wrap their heads around the ideas that inflation is really low and that inflation can be too low.  Over the past year through February, the Consumer Price Index rose only 1.1 percent.  Although consumers enjoy the relatively low prices for goods, low inflation causes three problems for the whole economy.

One problem with low inflation is that it negatively affects wages.  When prices do not generally go up, workers’ wages do not generally go up as well.  Despite the low inflation levels in the United States, hourly and weekly earnings have rose pretty well over the last year.  During this time period, hourly and weekly wages have increased by 4 percent and 3 percent respectively.  However, these rising wages are not sustainable because employers will not keep raising their employees’ wages faster than the price they charge consumers.

China’s New Wager: Pulling Energy From the Ocean

As fossil fuel prices rise and the pollution caused by them grows, the world looks to unlock a source of clean energy.  One potential source is the ocean.  The process to try and to harness the sea to make electricity consists of three principles: “underwater turbines that draw power from the ebb and flow of tides, surface-based floats that rely on wave motion and systems that exploit differences in water temperature”.  Currently, the European Union has led the charge to capture electricity from the ocean.

As Taxes Rise in Japan, Will Abenomics Turn Into Abegeddon?

Since becoming the Prime Minister of Japan, Shinzo Abe has implemented controversial steps to revive Japan’s economy.  Tomorrow marks his riskiest move when he raises the consumption tax for the first time in 17 years.  Starting this new fiscal year on April 1st, the consumption tax will rise from 5 percent to 8 percent.  This could be problematic for Japan’s recovery.

First Year of Abenomics Boosts All Economic Indicators

Since returning to office on December 26th, 2012, Prime Minister Abe Shinzo has used his Abenomics policies to target economic recovery in Japan.  The key figures for December 2013 revealed that both business and consumer sentiment has improved since last year.  It has also shown improvements in production, individual consumption, employment and wages, and stock prices.  The Bank of Japan’s quarterly Tankan report also has shown improvement in short-term business confidence among large-scale manufacturers and some major corporations are stating to increase pay.  These good indications hint at the first signs of the positive economic cycle promised by Abenomics and necessary for breaking free from deflation. 

Economist Warns that China’s ‘Bear Stearns Moment’ May Strike Any Time

Recently, China has experienced its first-ever default of a corporate bond and this default has led to the idea that China may experience a ‘Bear Stearns moment’ or a ‘Lehman moment’.  The Chinese solar company Shanghai Chaori Solar Energy Science and Technology Company announced that it cannot pay interests in the amount of roughly $14.6 million on its 11 Chaori bond.  The interest payments were due on March 7th.  Unlike the fall of Bear Stearns and the bankruptcy of Lehman Brothers, Chaori’s default did not change the market’s perception of inherent credit risk in the economy or cause a liquidity crunch.  The reason why Chaori’s default did not impact the economy the same way Bear Stearns and Lehman Brothers did is because it was known for some time that the solar company was in trouble.