Thursday, October 6, 2011

This year it seems as though revolution after revolution keeps on taking place somewhere in the world. First it started in North Africa and spread rapidly across the Middle East. For the most part, the movements in the Middle East were for democracy and heightened due to economic woes and social inequality, so I could see where the protesters were coming from.

However, the latest protest in New York, "The Occupy Wall Street movement" to me seems entirely ridiculous for 2 big reasons: It's extremely short sighted with its generic demands that are, in truth, unrealistic to accomplish, and that they are targeting the wrong people

1. I'll start with the their demands. The main goal of the Occupy Wall Street is to end government corruption by asking the President to create an oversight committee to monitor lobbying. That's really cool and original, did they think of that themselves? I mean it's such an innovative concept that will surely accomplish a lot and revolutionize the way we support our government and our political leaders.

Sarcasm aside, this is not a new thought and it's too general. It sounds like they haven't fully thought through how effective a committee would be. Let's face it, most Congressional members are non-cooperative with opposing party members. So let's imagine that the President decides to act on this protest and he forms a bipartisan committee. In order to be fair, the bipartisan committee would have to have an equal number of Democrats and Republicans despite the fact that Republicans have a majority. What would likely happen is that Democrats will target Republican representatives for catering to special interests and vice versa. Strategically speaking, these bipartisan members will reject claims about lobbying when it concerns members of their own party so that they can have leverage when it comes to voting on important issues.

2. They are targeting the wrong people. Congratulations protesters, you have determined that Wall Street executives and their respective firms have received $1.5 trillion from the bailouts in 2008 and 2009. Obviously this must mean that they are hoarding money from the government because they have a lot of influence on the government.

Now for the serious part. Yes, the government paid AIG and other Wall Street firms a lot of our taxpayer money and it is difficult to imagine what would have happened had the government decided not to bail them out. Some say the banks are too big to fail, and others say that we should have let them rot and gamble with the potential repercussions. But to say that Wall Street can basically hold the government to ransom is dogmatic and misinformed.

There are several executives across a wide domain of industries who lobby politicians such as environmentalists, oil executives, energy executives, labor unions, trade unions, health, miscellaneous businesses, etc. In fact, the Finance, Real Estate, and Insurance lobby constitutes just 14% of all lobbyist spending between 1998 and 2010 while health, communications, and natural resources together constitute over a third of lobbyist spending in that same time frame.

Finance isn't even the lone reason behind the spending. Real Estate was buoyed by the 2000s housing bubble so naturally a lobby would be able to spend a decent amount to prevent restrictive laws. Insurance has been steadily escalating its premiums and policies over the past decade due to adverse selection and moral hazard so even if there were movements to stop their influence, the insurance companies would be more than able to deal with that. So if the Occupy Wall Street movement is going to target the Financial sector, they should be willing to put an offshoot movement and target other major lobbying sectors like healthcare and energy because they too contribute a lot. 14% is a small part of the puzzle and while eliminating that kind of influence is a good thing, it doesn't really stop the overall presence of lobbying.

So while Occupy Wall Street can help some frustrated people vent their frustrations out on some bigger organization, it won't solve anything because they'll realize that all their economic woes are not caused by Wall Street. While several firms on Wall Street did fail disastrously during the 2000's, there are deeper problems that we are not recognizing and targeting one particular organization for what they did in the past is no guarantee that we will have a better future.

Monday, July 18, 2011

Federal spending has gone through the roof in the past decade given the extended conflicts in the middle east and the prolonged global recession. In fact, spending has gone so high that we are in danger of not being able to pay back our debts. We have about 15 days before the United States Federal government will default on its debt. That is, unless Congress agrees to raise the debt ceiling which gives us some time to start lowering our debt.

Defaulting on debt is a horrible process to go through and we're seeing Portugal, Greece, Ireland, and Spain having to undergo serious austerity cuts. When their governments defaulted, the recessions in their respective countries worsened and fueled more negative speculation in global markets. Not to downplay the importance of their economies, but Ireland was the only country experiencing significant growth prior to the recession.

If the United States defaults, the global economy will enter an extremely dire situation on several fronts.

1. No one will be able to bail them out----When Greece defaulted, the International Monetary Fund and the European Union combined to give them an initial bailout. A significant part of the money from the IMF side of the 110 billion euro bailout was funded by the US. The US economy is the largest as an individual country and much larger than Spain, Greece, Ireland, and Portugal combined so if the public debt and deficit percentage are too high, it would take a serious combined effort from the EU, China and India to give us some help but their economies would be too adversely affected from a US default that they would have to stretch their resources just to keep the global economy stable
2. The IMF and World Bank would lose serious legitimacy--- These two institutions are primarily responsible for creating a global banking reserve, but the United States was a chief contributor and should another crisis emerge elsewhere around the world, neither institution would gather enough cash to bail them out.
3. Commodities would have to find a new currency to trade in---The only apparently stable currency to trade different commodities is the Chinese Yuan (RMB). However, the Yuan is not too popular because it is currently pegged to the US$ and a default crisis would cause sever instability of the US$. The Yuan also suffers from inflation within China that is repressed in the statistics because of their fixed exchange rate. The Euro is currently in its own series of upswings and downswings due to their own continental crisis. The pound is not a good currency to trade in because it is such a powerful currency and not as involved as the US$, the Euro, or the Yuan. Not to mention, commodity prices will rapidly shoot up in the US and in other countries.
4. US trading partners will see a large downturn---This is a huge negative because a lot of developing nations export several goods to the US and some developed countries like Japan and Canada will see a drastic downturn in global demand for their goods because the US is their top foreign consumer. China's rapid growth rate will slow down significantly due to the lack of demand around the world and a loss of confidence in the global economy.
5. Foreign Aid will be setback several years--- Although foreign aid makes up a whopping 0.7% of US GDP, it's not their contributions alone that will be affected. The nations who actively provide aid will have to cut back on theirs just to stop their own debt after bailing the US out. As a result, potential conflict could break out and the democratic revolutions that have occurred this year could revert back to their previous oppressive dictatorships.

There are of course several other implications behind a US default but let's just hope that congress can come together one time to help us out. I'll publish a list of things the US should do to avoid having to raise the debt limit again and continuing the cycle.

Friday, May 20, 2011

It is no secret.

Me and several of my friends are attending private colleges because they have programs that are highly ranked in newspapers, world class professors who have won Nobel Prizes, well established connections in the job markets, and the respect that comes along with attending these schools. There is only one drawback though


Virtually all of the top schools in the country have tuition rates in the mid 30,000s per year like the University of Michigan (Out of state), UPenn, Stanford, Harvard and Princeton. Some are in the mid 40s such as Cornell, Columbia, CMU, Georgetown, and the University of Chicago to name a few. All of these schools are well respected and have produced some revolutionary graduates who have contributed positively to the world in some form or another. But as tuition rates rise at an astounding rate, the question comes to play whether or not going to a well-esteemed school is worth the debt. Not only is getting into these schools becoming a challenge but attending them and paying the steep financial cost will be the next filter.

Graduates from these schools, assuming they don't get any financial aid whatsoever, will have over $200,000 in undergraduate debts and people who want to attend graduate school will have an additional $100,000 in debt for Masters/MBA programs. After interest is added up, it would likely take between 10 and 15 years to pay off such a large debt. Our generation will likely scrimp and save more than any generation has ever done before and college costs will be as big a commitment as mortgage and car payments if tuition keeps sky rocketing like it has done for the past two decades. If our generation does not consume as much as it should due to college costs, we will face a huge ordeal of problems in the near future as governments everywhere will struggle to pay for the pension and healthcare burden senior citizens will place on them.

But on the positive side, I highly doubt college education costs will rise to that degree to cause massive economic problems in the future. People's attitudes towards the elite colleges will change in the near future. Employers will eventually realize on a broad level that some of their brightest candidates did not go to an Ivy league school and they are starting to put less weight towards a degree from the Ivies. I think that when people understand that an elite college degree does not set them apart as much as it used to, they will eventually turn away from the steep financial prospects placed on them and they will apply to any school that values their intelligence enough to give them a scholarship. When application fees to the elite colleges drop, only then will they realize that they have to entice the public to get a degree from their university and tuition rates will become slightly more reasonable but not enough so that we won't be in debt. For my generation, it might be a little bit too late but for future college applicants, where you go doesn't determine how good you are in life. In the end you have to be the one that makes the most out of a degree. It is true that going to one of the elite colleges sets you slightly apart but it won't be worth the debt.

Friday, March 18, 2011

The story from Japan is truly tragic. The Fukushima nuclear power plant is on nuclear meltdown as all 4 reactors have essentially malfunctioned and there are reports saying that there might be damage to the core.

While this nuclear disaster is probably one of the worst since Chernobyl, that does not mean that we should abandon nuclear power as a viable alternate energy source. Nations like Germany, Canada, and the United States have anti-nuclear advocates vigorously calling for the end of nuclear power. I disagree, mainly because the power plant didn't just randomly malfunction. An 8.9 magnitude earthquake and a subsequent Tsunami triggered the malfunction, but events like those happen near major fault lines which Japan has plenty of across its islands. Most countries that have adopted nuclear power are not near major fault lines in the same way Japan is. I can understand some of the protesting nations such as China, and India because they do have fault lines and the potential for strong earthquakes but Germany isn't near a fault line and Canada has fault lines across its West coast as does the US. Given that these countries are two of the largest in the world, they could definitely build a power plant in Wyoming and Manitoba respectively and still see little harm. Japan will likely have to build the sarcophagus over the power plant to prevent future radiation; however, seawater is still being pumped into the reactors to cool down the plant.

What we do need to learn from this disaster is that we cannot keep spent rods at the power plant. They need to be buried a mile deep under a mountain so that the particles can decay for thousands of years without causing any specific harm. As controversial as this sounds, they have to be kept away from the general public to prevent disasters such as radiation fires which spew particles into the air. Even if Nuclear Power isn't a permanent fix for our energy dilemmas, we can certainly get a lot of mileage from developing them further in the right places.
2011: The people of Libya, Egypt, Tunisia, Jordan, Yemen, Bahrain,and (to some degree) Cote D'Ivoire have all risen up within the past month to support economic and political reform.

1989: China, Hungary, Romania, Poland, and Soviet Bloc countries rise up in protest of Communism. Resulting in the dissolution of the Soviet Union.

1968-69: Robert F Kennedy, Martin Luther King are key figures who are assassinated. 1968 Polish political crisis breaks out and Greece and Brazil's governments tighten their regimes. Socialism takes root in Africa and Muammar Gaddhafi gains power
1947-49: Global imperialism takes a tremendous blow as India, China, Pakistan, and Israel declare independence and form homelands. These nations eventually become the most important.

In the span of 60 years, the globe has undergone massive changes in political and economic ideology and influence. However, what's more interesting is when these changes occur in relation to one another. 1948 to 1968 was about 20 years. 1968 to 1989 was 21 years which is still relatively close. 1989 to 2011 is another 22 years. The question now becomes, why do these revolutions in thinking occur every 20 years or so.

Well there isn't a universal answer to that question. In my opinion, every 20 years or so there is a significant bulge in the population. Not just in people who are born but rather a generation that is distributing itself in the same place at the same time. As a result of youth rebellion, older people who lacked opportunities joined the younger ones in demanding change, even though they wouldn't experience much mobility in their working life.

The people who led the revolutions in the late 1940s were made up of largely disgruntled young adults. In India, young farmers were particularly upset at the lack of societal mobility and wanted representation of their interests. In China, peasant farmers who were economically squeezed out by Western traders turned to revolutionaries such as Mao Zedong and Chiang Kai Shek who promised a new sense of nationalism.

In 1968 and 1969, the young people who were growing up at the time had known nothing in their lives but the way their countries were being run, however there was unrest caused by Western interests and Cold War tension. As a result, many regimes that were put into place, lasted only because they had support of powerful nations such as the USSR or the United States at the time. Any expression of individuality or progressive change was squashed or reprimanded severely. In the US, protesting of the Vietnam war caused hostility with the troops and with the young adults who were forced to enter the draft. In Brazil, Chile, Libya, and Latin America, military juntas thrived at the expense of the people because expressions of individuality began to develop among the younger generations and these juntas feared sovereignty.

In 1989, The Soviet Union was losing its grip on the world and other communist nations who were supported by the Soviet Union did not have as much credence or authority. The new generation, born from those who revolted in the 1960s, now realized that this was their opportunity to think for themselves and create their own wealth and political opportunity. The 1980s were a troublesome time for many of the regimes as they looked to educate their own population with Western ideals to fuel domestic growth. Sending these younger students to America and Europe was a serious mistake on the part of the regimes and many of them were clueless when they revolted in mass.

Now in 2011, the people who are revolting in Egypt, Libya, Tunisia, and across the Middle East are mostly people who are 20 years old and have grown up with little satisfaction. Although many of these Middle Eastern nations have granted some economic reform in the past 20 years, the people feel as though change is not coming fast enough. They have access to social media as Facebook and Twitter were the media of communicating protest events across the major cities such as Benghazi, Cairo, Tripoli, Tunis, etc. They get ideas from Western civilizations faster than you can say "Facebook" nowadays. Censorship has become very difficult for the regimes in charge and they have resorted to banning social networks. That is too little too late because these people have many other reasons to feel frustrated besides the censorship issue. Limited economic opportunities in these regions partially due to a lack of investment, fears of terrorism which haven't been as much of an issue, rising costs, and limited political freedoms have all contributed towards their rage.

But I've only touched on the current factors that cause these things to happen rather than the common factor that coincides with these revolutions happening every 20 years. I believe that these events are closely tied with how influential economies in the world perform at the given time. Any sense of weakness is a signal for change. In 1948-49, imperialist nations suffered great losses during World War II and required heavy rebuilding and restructuring due to war damages. As a result, many former colonies seized the opportunity to demand independence and Western nations had no choice but to give in, in order to save costs. In 1968, the world was bipolar with the US and the Soviet Union on two opposite sides of the spectrum. These 2 nations divided the world into strategic areas of development to fuel their self interests at the expense of the younger generation in these underdeveloped countries. 1989, was basically the fall of Communism and that idea swept across the entire Communist Bloc as a sign of weakness and thus a pathway to freedom. 2011? This year has shown us that long term regimes that don't connect with the current generation are going to fall apart because they are out of touch with their own people, networking, and common interests.

Tuesday, February 1, 2011

For the past week the Egyptian riots have rocked the Middle Eastern nation that many investors have recognized as a nation with true economic potential but a lot of lingering doubts about security and stability.

As with any nation that undergoes a political upheaval, investment tends to rapidly leave a country in a process known as capital flight due to uncertainty in the future (i.e. A socialist dictator overtakes a capitalist society with a weak ineffective government). Egypt was no different. Internet access was cut off and the protest has only intensified in the past week to become the March of One Million, but for some reason the effect of capital flight wasn't so pronounced on international markets as it should have been.

From a Western perspective, the riots while best avoided haven't done serious damage. January 28th, a significant day in the protests, caused a greater economic grievance for the EGX (Egypt's local index) which declined 10% but in the US, DJIA, Nasdaq and S&P suffered declines less than 2 %. Today is February 1st and the markets do not at all seem to be acting riled, on the contrary all 3 indexes gained most of what they had lost on Friday. The worst effect that all markets are experiencing is a rise in oil prices which is to be expected but overall not a bad month for Indexes across the world.

The riots I think are arriving at a good time. Egypt has long dealt with corruption, brutality, and a surging unemployment rate along with austere living conditions for 40% of its labor force who live under 2 USD per day. After a week of intense protesting have received assurances that their long serving president Hosni Mubarak will not seek reelection and many are still calling for him to resign now. Mubarak's resignation will certainly be a kick to the jaw for the United States who have come to respect his position as a moderator for Israel-Middle East relations. But other than that slight hurdle, I think Egypt is tending towards a more moderate direction. Many commentators fear another situation similar to the Iranian Revolution of 1979, but this protest is led more so to drive out Domestic Inhibitors than Western Imperialists.

Considering Egypt is one of the new emerging market groups under the acronym CIVETS, an economic group of countries similar to BRIC who would be able to combine their strengths and create an influential trading bloc, these protests should have caused a major backlash. However, Egypt's lack of media usage has not been able to attract many investors to these regions because of its relatively unknown economic nature. Egypt is a diversified economy and is not so oil dependent as some of its Middle East and African neighbors, but not to the degree that BRIC nations have been able to garner. These protests will definitely help Egypt's cause in the next few years as long as the movement does not radicalize, because the situation has gained a lot of international attention whereas the most recent riots in April 2008 was barely noticed. The blocking of sites like Google, Facebook, and Twitter did not keep young Egyptians from sending updates about the situation and once the new leader steps in via election, Egypt will reactivate its economic engine to serve as a model for aspiring non-oil African nations.