Topic Category: Economy

In mid-July, Bank of Canada Gov. Stephen Poloz affirmed that the country’s GDP contracted for a second consecutive quarter in the April–June 2015 period, technically meeting the definition of a recession. That is very bad news for Prime Minister Stephen Harper’s CPC government, which will be seeking re-election to a fourth consecutive term at parliamentary elections scheduled for October 19.

The plunging Shanghai Stock Exchange and the sudden reversal in the yuan’s appreciation have caused fears to spread beyond China’s borders. Is something wrong with the world’s growth locomotive? In a word, yes. The most reliable approach for the determination of nominal gross domestic product (GDP) and the balance of payments is the monetary approach. Indeed, the path of an economy’s nominal GDP is determined by the course of its money supply (broadly determined).

Although President Xi Jinping’s position at the head of the CCP is secure, the potential for possible political instability was highlighted when the country’s stock market lost roughly one-third of its value in June and July. The government intervened strongly to help stop the slide, cutting interest rates and transaction fees, suspending IPOs, and authorizing the national pension fund to buy stocks.

Economic growth in the U.S. continues to suffer for a variety of reasons. For one, our antiquated tax code punishes U.S. companies and inhibits corporate investment here in the United States. How bad is it? The federal corporate tax rate, at 35 percent, when added to the average estimated state rate of 4.1 percent, brings the combined tax rate to 39.1 percent — the highest among developed countries.

The Federal Reserve’s recent decision to forestall interest rate increases should give Congress the impetus to pass the Trans-Pacific Partnership on behalf of the U.S. economy. This clear sign by the Fed that U.S. economic growth continues to underimpress should have our representatives in Washington looking for ways to spur consumer activity. Free trade agreements do just that.

Remember the dot.com era in the U.S., especially 1999 to March 2000? Technology stocks ruled, valuations were outrageous, the economy was entering a new paradigm and “this time is different” justified prices. The Chinese markets have experienced the same hyperbolic price increases in the last 12 months.

It should not have come as a surprise that the majority of Greek voters opted not to accept more externally-imposed austerity by voting “no” in the Sunday, July 5th referendum. The election pollsters once again were proven wrong. It was not a close race with Greeks who wanted to remain in the Eurozone and add more to the country’s obviously untenable debt burden.

For years, China has been accused of being a “currency manipulator” by deliberately undervaluing its currency to spur exports. Official bodies like the International Monetary Fund softened the language by using the term “misaligned currency” and used sophisticated techniques to gauge how far the yuan was from its fundamental equilibrium value.

Economic sanctions have long been used as the foreign policy tool of choice for nations where diplomacy has failed to yield desired results. Although widely used and despite the fact that some sanctions have remained in place for years, they generally fail to achieve their objectives. In fact, one of the most definitive studies covering 1915 to 2006 indicates comprehensive sanctions are effective no more than 30 percent of the time.