Who’s the Biggest Lender to America?

China is the biggest lender to the United States. Even though the two superpowers compete, there’s no doubt about an economic symbiosis. Chinese hold $1.2 trillion in U.S. government debt alone, CNN Money reports. But the rate of growth in lending by the Chinese is slowing. And the Chinese government is looking to cut the debt it buys from the U.S Treasury.

China could potentially use cutbacks in U.S. debt purchases as a political tool against trade restrictions on part of the Trump administration. But that would likely backfire. If a sell-off of debt results, that could seriously threaten the global economy. In addition, a sell-off would decrease the value of Chinese holdings.

Treasuries are guaranteed by the United States government and can be redeemed at par value at maturity, but if investors sell them prior to maturity dates, that could result to losses. Even changes in interest rates can depress fixed income values.

“It’s hard to see how China would emerge from this scenario better off,” claimed Mark Williams of Capital Economics.

The U.S. economy is doing quite well know, but recent tax cuts could lead to its overheating. This is a concern expressed recently by William Dudley, NY Federal Reserve President. He believes the central banks should put some brakes in the next few years. Normally, this is done with interest rate decreases. Otherwise, Mr. Dudley thinks, recession will result.

European Economy Speeding Up

The economy in the eurozone is finally doing well. After extensive quantitative easing by the European Central Bank, the economies in the area have grown faster than the United States economy, CNN Money reports. At the same time, the unemployment has reached a nine-year low.

The eurozone economies (an area where euro was adopted) grew 2.4 percent in 2017, a bit faster than the American economy. According to Stephen Brown, an economist at Capital Economics, the business sentiment in Europe points to higher growth in the upcoming months. In fact, business confidence in the region is at 17-year high.

In France, the economic growth looks promising. Quite possibly, the growth of the French economy will surpass that of Germany. French President Macron is looking to loosen strict labor laws, reduce corporate taxes, and lower the budget deficit by reducing the public sector. Whether that really happens is yet to be seen.

There is some political uncertainty in Europe, though. German Chancellor Angela Merkel is having troubles forming a coalition government, while Brexit brings more uncertainty. At the same time, Spain has to deal with issues related to declaration of independence by Catalonia, while Greece continues to struggle under debt burden.

Overall, the unemployment figures in the region don’t look bad, especially 3.6 percent unemployment rate in Germany. But, when it comes to Spain, the rate stands at nearly 17 percent. So, not every country in the eurozone is benefiting from good economic times in Europe.

Trump to Attend Globalist Economic Forum in Davos

White House confirmed today that President Trump will attend the
World Economic Forum in Davos, Switzerland later this month.
The forum which is known as the world’s best networking event and the domain of business and financial elites. “Creating a Shared Future in a Fractured World,” is the theme of the four-day annual gathering scheduled to begin on January 23.
Trump’s decision has surprised many since most Davos invitees represent the globalist idea which he stridently campaigned against in 2016.
“The President welcomes opportunities to advance his America First agenda with world leaders,” said White House press secretary Sarah Sanders. She said the President plans “to promote his policies on strengthening American businesses, industries, and workers.”

Bill Clinton was the last U.S. President to personally attend the forum in 2000. Before him, President Ronald Reagan telecommuted into the event but did attend.
The World Economic Forum takes place each year in late January in the Swiss mountain village of Davos. The conference was founded in 1971 by the forum’s executive chairman, Klaus Schwab.
“It’s a balance, it is equitable globalization,” said Schwab during an interview today with The Wall Street Journal Editor in Chief Gerard Baker about the effect of Trump’s anti-globalist policies.
“We should maintain the positive effects of globalization,” said Schwab, “but certainly put more emphasis on creating a national environment which takes care of those people left behind.”

Trade Issues a Risk to Stock Market

The Trump administration’s protectionist talks are a risk to the current bull market in stocks. According to MarketWatch, a recent report suggested that President Trump may seek withdrawal from North American Free Trade Ageement (NAFTA), a trading pact among the United States, Canada, and Mexico. A couple of months ago, Trump stated that the U.S. will not be taken advantage of anymore when it comes to trading in goods and services.

A couple of Canadian officials have admitted that Canada is becoming more convinced that the U.S. will seek to end NAFTA. But, if Trump wants to do it, it will not be that simple since the Congress needs to approve it.

Even an attempt to end NAFTA would bring great business uncertainty. After all, many American companies do business in Canada and Mexico. And this is cited as one of the major stock market risks in 2018. Already, Geopolitical Risk Indicator, run by Black Rock, is at its highest level since 2015.

If there’s a serious talk about ending NAFTA, it is likely to affect global trade in general. In the past, Donald Trump has criticized trading with China on multiple occasions. If there’s a trade clash between the United States and the Middle Kingdom, this is going to bring even more uncertainty to this bull market. With equities valued sky high, a major market correction could as well come this year.

Tax Plan Agreement Reached by Republicans

Republicans have reached a deal on the tax plan. They plan on sending it to President Donald Trump next week. This is according to inside sources.

Republicans have been hashing out the details of the tax plan for months. Various disagreements have come up. It has taken a lot of time to come up with a plan that is agreeable to all parties. However, it seems like that point has now been reached.

There were plenty of negotiations over the past few weeks, because various details of the tax plan were opposed by certain members of Congress. However, Republicans are now starting to put the tax plan in legislative text. Of course, there is still the possibility of further disagreements.

The Republican tax plan will reform the tax code and will have a sweeping economic effect. The tax plan keeps the 7 income brackets, but changes them slightly and reduces the tax rates for those brackets. It also greatly reduces the corporate tax rates. However, it eliminates certain deductions. For example, it will eliminate deductions for state taxes, which will greatly affect people living in states with high taxes, such as New York and California.

It is expected that the tax plan will change the economy, perhaps for the better. Businesses, with the reduced corporate tax rate, will certainly benefit. This will hopefully improve the economy overall.

Capitalism and White Working Class Americans

Is capitalism, as an economic policy, something that benefits everyone? New research done by a Nobel Peace Prize winner shows that it has some disadvantages.

In Angus Deaton’s research, he found that mortality rates were rising for working class Americans ever since 1999. This is only in regards to white working class Americans.

Deaton attributes this to a change of life and lower wages for many Americans. In a way, it can be compared to how Native Americans experienced a change of lifestyle when the settlers came and started settling in America. This current change of life can be attributed to many things. Globalization and technology are just two of them.

Angus pointed out that there are ways we can improve this. For example, our healthcare system can be improved. The healthcare system wastes a lot of money. If we took this money and put in back into workers’ wages, then workers would be healthier emotionally and would be in better shape.

Angus also pointed out that many people become rich at the expense of others. Angus has no problem with people making smart inventions and becoming successful. The problem lies with people who lobby Congress to make deals that would benefit them at the expense of the working class.

There are still some unanswered questions. Median wages have dropped in Britain, but they have not experienced the same rise in mortality rates.

Republicans Want to Add Work Requirements for Federal Benefits

It is possible that Senate Republicans and the Trump Administration will start pushing for new economic policies that encourage poor people to work. Many poor people receive various benefits from the government, regardless of whether they work or not. However, Trump has previously complained about people who do not work and generate more income through welfare than people who do work and generate income through their paycheck.

Senator Orrin Hatch also said that he is unwilling to help people who do not help themselves.

The Republicans tried to get states to add work requirements to Medicaid. Trump is also encouraging states to add work requirements for benefits such as food stamps. Other government officials have said that getting people to be self sufficient is the ultimate way to helping them.

However, as CNN reports, many people on welfare can not work. Some are children. Some are senior citizens who are too old to work. Others are disabled and can not work.

Of those who are of working age, forty percent do work or are students. Experts have weighed in and said that most people on welfare either can not work or do work and still do not earn enough to live on. The reason for this often lies with the low minimum wage. It is rare for people to actually sit around and not work and still get welfare just because they can.

Poland’s Social Solidarity Promises Economic Reform

Prime Minister Mateusz Morawiecki told members of parliament that his cabinet was intent on addressing the economic issues faced by Poland. He stated that there were three main concerns: poverty, unemployment, lack of housing and poor health care. His administration aims to resolve these issues by focusing on developing an economy that takes care of its citizens. He said, “…a flourishing economy is a prerequisite for a generous social policy.”

He noted that capitalism has exposed issues of economic inequality in “English speaking countries” and that smaller nations like Italy and France are struggling to remain competitive. Morawiecki addressed the current economic situation in the European Union by stating that he did not believe there should be a divide between rich and poor nations.

Morawiecki’s administration is conservative and aims to integrate traditional Polish customs into a modernized economy. The former administration was represented by the Law and Justice Party. Officials noted that a shift in leadership was made in order to address economic issues. Morawiecki is a former banker. His knowledge of economics is strong and he seeks to tackle the housing crisis. He believes progress has already been made against poverty and unemployment. Under his administration, Poles can expect to see a surge in housing construction. The surge will be on affordable, relatively inexpensive housing.

Morawiecki’s efforts to create an economy centered on development and growth while still addressing social policies could result in a new interpretation of capitalism, should it be successful.

World Bank Announces New Policy On Oil and Gas Funding

The World Bank announced that they will not be funding exploration for new gas and oil reserves from 2019 and onwards. This decision was based on the dangers of climate change. It delighted activists who have campaigned for more control over gas and oil digging.

The World Bank ended their support for coal long ago. However, it was still lending around one billion dollars a year for oil and gas exploration. They not only decided to end this, but they hope to increase their lending for climate action programs to twenty eight percent of their lending.

There may be some exceptions, however. If third-world and developing countries are in strong need of new gas and oil resources to help the poor get access to simple amenities, then the World Bank will consider helping them out, but only if they comply with the agreements reached during the Paris Climate Accords.

This announcement was made by a conference attended by the President of the World Bank, the President of France, and the Secretary General of the United Nations.

It is expected that this decision by the World Bank will influence decisions by banks and financial institutions all around the world. Those in the financial industry will have to decide what the future of fossil fuels will be.

The Bank of England has also revealed the possibility of a new initiative to get companies to come clean about how they are affecting the climate.

Robot Automation Threatens Jobs Across the Globe

The BBC recently published an article about a report released by the McKinsey Global Institute that estimates that as many as 800 million jobs from across the globe may be disappearing by the year 2030 because of robotic automation.

 

The report is based on data collected from 800 occupations in 46 different countries. McKinsey believes that people who operate machinery and work in the food sector will be impacted the most by changing technologies. Even some white-collar jobs, such as accountant and mortgage brokers, are also likely to diminish.

 

Not all jobs are at equal risk. According to the report, occupations requiring interaction with human beings or specialized manual labor will be the safest from new technologies.

 

McKinsey also predicts that the impact of robotic automation will vary from country to country. Highly-industrialized nations, such as the United States and Germany, will likely need to retrain a large percentage of their workforce. College degrees will be even more critical in these countries than they are now because of the disappearance of low-skilled jobs.

 

As for poorer, less-developed countries, the impact on workers will be less severe since there is less capital to invest in emerging technologies.

 

McKinsey believes that the changes brought on by robotic automation will be comparable to the industrial changes in the early part of the twentieth century. At that time, jobs in the agricultural sector decreased while jobs in factories proliferated.

 

The good news is that new technologies will also mean new types of jobs. Still, these new jobs will likely be much fewer than the number of jobs that will disappear.