2013-58 Record unemployment in Europe

19.5 million people looking for a job and not finding it.
Unemployment rate  12.2%, over 25% in Spain and in Greece
Youth unemployment: over 55% in Spain and in Greece

2013-57 Now about the problems with inflation

If the inflation was raised, as Ken Rogoff suggests:

• the FED may lose control of inflation
• as inflation accelerates, any benefits will be swamped by "disruptive consequences of people spending money as soon as possible
• Inflation punishes people on fixed incomes
• It discourages lending and investment, slowing economic growth in the future

2013-56 Deflation in Europe

We have just talked about the possible (if doubtful) benefits of inflation. Here is an article about deflation in Europe
I am not sure you can read it - access may be restricted to subscribers - so here is a summary.
1. After underperforming for a long time, the Euro-area economy starts growing. But unemployment is high "And now, the single-currency club faces a more dangerous health risk stemming from fiscal consolidation, a surprisingly strong euro, excess capacity and tight credit conditions: economy-crippling deflation."

2. Inflation in the area is below 1%, the lowest level since 2008. Prices have been falling in France, Italy and Spain. Even in Germany it is only 1.6%.

3. So the ECB can safely stimulate the economy, without the danger of inflation.

4. If Europe falls into deflation, the cost of servicing debts will "rise dramatically". Italy in particular will be in trouble. According to one estimate, to keep the debt/GDP ratio constant, it needs to increase its surplus by more than 1% for each % decrease in inflation

5. What is at fault? Austerity

2013-55 OMG!

Inflation is the solution for economic troubles???????????????????????

This is a long and interesting article about the benefit of inflating our way out of the trouble.
The issue is important as the cornerstone of monetary policy in the last 20 years was a low and stable rate of inflation.
I would like to talk about it for a few lectures.
Here is the first fragment to discuss.

"Rising prices help companies increase profits;"
Correct or not?
"Rising wages help borrowers repay debts."
 Correct or not?
" Inflation also encourages people and businesses to borrow money and spend it more quickly. "

"The school board in Anchorage, Alaska, for example, is counting on inflation to keep a lid on teachers’ wages. Retailers including Costco and Walmart are hoping for higher inflation to increase profits. The federal government expects inflation to ease the burden of its debts."

Are they right?

Answers will come after we talk about it. It will be an excellent review of a few topics from the course.

2013-54 On currency investors

In today's Financial Post there is an article about currency investing. Basically, some people are worried that the US dollar will fall because of political problems  in the US. These people buy the Chinese yuan or baskets of currencies that are resource-linked: the Australian, Canadian and New Zealand dollar as well as the South African Rand.
The total amount of such investments is, however, relatively small.
The article mentions something we have been studying: investing in foreign currencies because of high return. One bank is offering 5.75% on the Brazilian real. But remember that for the investment to be profitable, the real cannot depreciate too much.

2013-53 On inflation and inflation statistics

Because of the weakness of the Canadian economy, inflation has been low


In an interesting article that you should read, the author discusses whether Statistics Canada inflation numbers can be believed.

I will summarize his main points:
1. People he knows complain that, in their opinion, inflation is higher than the 1-2% reported by Statistics Canada
2. Indeed, he says, several items increase in price at a higher rate: food, transportation, child care and, regrettably for you,  tuition fees (21% increase in the last 5 years);
3. Inflation is not the same for everyone. It is higher for necessities (food) than for more expensive items (electronics, cars). This exacerbates concerns about income inequality.
4. The best approach is to keep Statistics Canada independent; otherwise people will not believe its statistics.

Note point 3. The first part is trivial, of course. If you are a student with child care needs, you are facing big increases in the cost of living; if you are buy a lot of women's clothing and electronic equipment, you are enjoying deflation.
But the second part raises an important issue. Productivity growth is faster for manufactured goods than for foodstuffs. So, over time, poor families face rising relative prices.

2031-52 Baseball playoffs

Democrats win with a punt.
There is an agreement in the US to reopen the government until January 15, and extend the borrowing limit until February. In the meantime there will be discussions on how to fix long-term fiscal problems.

And the markets: they are doing their own thing