Summary
Even in this global recession, many economists now believe that China’s massive fiscal stimulus will indeed help China to achieve its growth target of 8% in 2009. After being stagnant in the 4th quarter of 2008, China’s GDP has risen an estimated annualized rate of 6%. The economy looks to be recovering as various sectors are performing well. Industrial production is up 8.3% from a previous 3.8% two months ago. Retail sales are 16% higher than a year ago, while fixed investments have increased 30%. Although this is indicative of government infrastructure-led stimulus working, exports are still considerably down and the demand is forecasted to remain weak. With one of the biggest fiscal stimulus in the world and the ability to force state-owned firms to spend and state banks to lend, China’s efforts to reverse the current economic trend are being employed quicker than anywhere else. JPMorgan believes that this credit and investment boom could help China’s growth to an annualized 10% in the remaining three quarters of 2009. Jonathan Anderson, an economist at UBS, explained how the property market is already rebounding after falling sharply and is up 36% year-to-date, a key factor as more houses sold will result in more construction done. If infrastructure spending continues to rise and construction continues to quickly recover, China could see its GDP grow by 8% at the end of the year, even if exports remain weak. Despite the good forecast, there are others who are concerned over government-influenced spending accounting for ¾ of China’s GDP growth because it may potentially lead to overcapacity, low rates of return, and potential bad loans for banks.
Connection
This article is primarily concerned with discretionary fiscal policy as China alters its government spending in order to improve economic conditions. As there is a need to combat the recession and level of unemployment, China had to go through a lengthy process to determine the appropriate combination of government spending. However, the greatest connection, or perhaps lack thereof, is the issue of time lag. The textbook clearly states there is a recognition lag, time before evidence of a problem becomes apparent, and decision lag, time it takes for a decision to be made, passed in government and implemented. However, China’s response to the global economic downturn shows no signs of the adverse effect of time lag. As its economy began to slow in 2007, well before America’s exports stumbled, China recognized its problem immediately and already began to prepare for the economic downturn that hit recently. Also, China does not waste any time as their fiscal stimulus was prepared, passed in government and implemented rather quickly. This decision lag is clearly a non-factor in China’s fight against the recession. They have recognized that the fall in domestic demand is leading its economy down and also that by raising it, it can reverse the circumstances and help China’s economy rise again. The fact that China is run under a single-party system means that political consideration is not a factor either in determining fiscal stimulus. China’s single-party communist state allows the country to skip the time lag and go straight to reversing the economic slowdown.
Reflection
I can honestly say that I am thoroughly impressed with China’s ability to eliminate the time lag. Although I do not have full knowledge of the process they went through to pass the massive fiscal stimulus, it is evident to me that they did it in quick and efficient fashion. Conversely, as many people have criticized Canada’s actions against the current economic crisis and our Prime Minister Stephen Harper’s decisions on what to do about our country’s circumstances, the general idea I have gained is that there is a definite time lag that Canada faces when making a big financial decision. The political difference between China and Canada are clear, China is a single-party communist state and Canada is a multi-party democratic country. Perhaps this is the biggest issue when discussing the decision lag as China passed its fiscal stimulus with relative ease, while Canada had to go through an incredibly lengthy process to pass it as law. Furthermore, it is likely that political considerations came into play when developing the fiscal stimulus. There is no doubt the reigning Conservative party considered its status and perception in future upcoming elections. While I am not asking Canada to become a communist state, it would be in the country’s best interest that all parties work more closely, instead of defying each other, to lift Canada from its recession. Canada can learn quite a bit from China if they begin to work faster in similar situations. After all, time is money.
http://www.economist.com/finance/displayStory.cfm?story_id=13496444&source=features_box2
Friday, April 17, 2009
Wednesday, April 1, 2009
Deceiving Plastic!
Summary
An investigation ran by the Competition Bureau of Canada will attempt to find out whether credit card titans like MasterCard and Visa are breaking the law by charging ridiculous transaction fees to businesses and retailers. Across the country, complaints are being made that these credit card companies are abusing their dominant position and charging unfair and unwarranted fees. Liberal New Brunswick Senator Pierrette Ringuette hopes that legislation can be brought to Australia’s level where interchange rates are maxed at 0.45% for businesses, 0.33% for governments and a friendly zero for charities. Compared to Canada’s rates, maxed at 3% for businesses, 1.8% for government and 1.5% for charities, Australia’s rates are downright small. The Retail Council of Canada has recently started a website, stopstickingittous.com, which boldly states Canadian consumers have paid over $4.5-billion dollars in hidden credit card fees in 2008. In simple terms, the credit card companies take approximately $2 out of every $100 businesses receive in sales. MasterCard has recently responded that they welcome the investigation and hope to clear up any negative press spread by the retail and business sectors.
Money and the Canadian Banking System
As the recession has caused households to cut down on expenses, cash is becoming both less available and less spent. Instead, credit cards and debit cards have taken over as easily accessible forms of money. While the non-profit association Interac dominates the debit market with its low flat-rate fees, monster credit card companies such as Visa and MasterCard are seemingly taking advantage of their dominant position. In doing so, they have put themselves in a predicament where consumers and businesses may be reluctant to favour credit cards as much as they do now. Credit cards are handy because they allow for purchases to be made on the spot without an actual item of monetary value and eliminate the need to carry cash. Despite this, the popularity of Visa and MasterCard may fall if the Competition Bureau of Canada discovers they are indeed in violation of Section 79: abuse of a dominant position. In any circumstances, high interest rates from either the bank or credit card companies defer people from spending and ultimately, will keep the company in a recession. It is commonly agreed upon that you must spend your way out of a recession. The more money paid towards interchange fees, the less money business and retailers will have to spend on business purchases and endeavours. In order to raise the demand for money, interest rates need to be low in all areas to increase the supply of money in order to encourage spending in the midst of a recession.
Reflection
Although it is only natural to feel ill will towards Visa and MasterCard after reading this article, they too are companies trying to meet their quarterly and yearly target in a time where the movement of money is scarce and slow. Credit cards have brought us convenience upon making transactions. As a great deal of Canadian citizens now pays with credit cards, consumption and spending have become a whole lot easier. If credit cards were to lose popularity, I would think that consumer spending would take a great hit as people would need time to adjust to spending cash over whipping out the plastic. In any sense, if people were able to adjust and the level of consumer spending does not decrease, we could be moving in a positive direction by spending cash rather than paying with credit cards and being hit with hidden fees. Undisputedly, the only party that benefits from hidden fees is the credit card companies, while both consumers and businesses lose money. I believe a good way Canada could encourage spending is to introduce competition in the way we pay for goods and services; it could help to lower fees paid by consumers and businesses. On the note of interest rates, however, it seems relatively simple to me how credit cards should be used. The most ideal way to use a credit card is to religiously clear the balance at the end of every month to avoid charges.
http://www.calgaryherald.com/business/fp/Competition+bureau+probes+credit+card+fees/1430376/story.html
An investigation ran by the Competition Bureau of Canada will attempt to find out whether credit card titans like MasterCard and Visa are breaking the law by charging ridiculous transaction fees to businesses and retailers. Across the country, complaints are being made that these credit card companies are abusing their dominant position and charging unfair and unwarranted fees. Liberal New Brunswick Senator Pierrette Ringuette hopes that legislation can be brought to Australia’s level where interchange rates are maxed at 0.45% for businesses, 0.33% for governments and a friendly zero for charities. Compared to Canada’s rates, maxed at 3% for businesses, 1.8% for government and 1.5% for charities, Australia’s rates are downright small. The Retail Council of Canada has recently started a website, stopstickingittous.com, which boldly states Canadian consumers have paid over $4.5-billion dollars in hidden credit card fees in 2008. In simple terms, the credit card companies take approximately $2 out of every $100 businesses receive in sales. MasterCard has recently responded that they welcome the investigation and hope to clear up any negative press spread by the retail and business sectors.
Money and the Canadian Banking System
As the recession has caused households to cut down on expenses, cash is becoming both less available and less spent. Instead, credit cards and debit cards have taken over as easily accessible forms of money. While the non-profit association Interac dominates the debit market with its low flat-rate fees, monster credit card companies such as Visa and MasterCard are seemingly taking advantage of their dominant position. In doing so, they have put themselves in a predicament where consumers and businesses may be reluctant to favour credit cards as much as they do now. Credit cards are handy because they allow for purchases to be made on the spot without an actual item of monetary value and eliminate the need to carry cash. Despite this, the popularity of Visa and MasterCard may fall if the Competition Bureau of Canada discovers they are indeed in violation of Section 79: abuse of a dominant position. In any circumstances, high interest rates from either the bank or credit card companies defer people from spending and ultimately, will keep the company in a recession. It is commonly agreed upon that you must spend your way out of a recession. The more money paid towards interchange fees, the less money business and retailers will have to spend on business purchases and endeavours. In order to raise the demand for money, interest rates need to be low in all areas to increase the supply of money in order to encourage spending in the midst of a recession.
Reflection
Although it is only natural to feel ill will towards Visa and MasterCard after reading this article, they too are companies trying to meet their quarterly and yearly target in a time where the movement of money is scarce and slow. Credit cards have brought us convenience upon making transactions. As a great deal of Canadian citizens now pays with credit cards, consumption and spending have become a whole lot easier. If credit cards were to lose popularity, I would think that consumer spending would take a great hit as people would need time to adjust to spending cash over whipping out the plastic. In any sense, if people were able to adjust and the level of consumer spending does not decrease, we could be moving in a positive direction by spending cash rather than paying with credit cards and being hit with hidden fees. Undisputedly, the only party that benefits from hidden fees is the credit card companies, while both consumers and businesses lose money. I believe a good way Canada could encourage spending is to introduce competition in the way we pay for goods and services; it could help to lower fees paid by consumers and businesses. On the note of interest rates, however, it seems relatively simple to me how credit cards should be used. The most ideal way to use a credit card is to religiously clear the balance at the end of every month to avoid charges.
http://www.calgaryherald.com/business/fp/Competition+bureau+probes+credit+card+fees/1430376/story.html
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