Florida School Board Shooting

I wanted to quickly mention the recent Florida School Board Shooting. Now before I begin, these are just my reactions. Don’t get me wrong; I truly believe that anyone who takes a gun to an unarmed individual and furthermore kills himself afterwards is a coward who probably doesn’t deserve to live. Now to the incident.

Ginger, you really should have thought things through before using a purse to attack an armed gunman three times your size. Nonetheless, kudos to your courage (if reckless) and I don’t know if I’d have it in me to do the same.

If there was a hero from this shooting, aside from guard Mike Jones who brought Duke down with two shots, I believe it was Superintendant Husfelt. He remained level headed and tried to reason with a clearly illogical man whose only counterargument was to raise a gun and fire. Even as Duke raised the weapon and aimed it point blank, Husfelt didn’t outwardly panic. I truly respect his efforts and his, self-endangering leadership in a crisis situation.

Lastly, I’d like to address the red V Duke painted on the wall. While watching the video I immediately recognized the V from the movie V for Vendetta. In the movie, an outlaw whose intelligence, morality and ability to reason far surpass this gunman, takes action against an unjust and oppressive government. Duke believed that this movie somehow provided an explanation for his actions. Now, V for Vendetta is one of my favorite movies and if you haven’t seen it, you’re really missing out. So naturally, I was upset when this was cited during the shooting. Though the media has begun to critically analyze the movie, I firmly believe that the news world needs to understand that this only goes to show Duke’s irrationality. This is a man who cannot find the true meaning in a masterpiece of cinema, and whose idea of expression of grievances involves not listening to and then trying to kill a righteous citizen.

           So there you have it. Now I’ll leave you to form your own personal interpretation from the video if you haven’t already seen it.

YouTube Top Picks! Watch them. NOW.

Some of my very first blogs mentioned the new 4g iTouch I got and one of the many awesome things I can now do is watch YouTube conveniently whenever and wherever I want (as long as I’m in wifi). And thus I have been enlightened as many great videos and channels have come to my attention.

Over the past few months, I have collected 24 very deserving videos and several great channels that I ought to mention but I thought I’d share some of the very best.

Watch Marcel the Shell With the Shoes On. Now. DO IT. Right now, I’m honestly not kidding, this isn’t an option. Com'on I linked it three times and its to the right for heavens sake. Before I rant about her awesomeness I’d like to say that to all the people I’ve seen who don’t really react to this video or call it stupid, you’re stupid! Next, no matter what anyone says, Marcel is a girl not a guy! Ok rant time; Marcel is in her own way the cutest creature I’ve ever met. I’m a guy so I know I’m not allowed to say cute but Marcel is cute. I could quote her a million times and it would never get old and besides she has a lint dog named Allen. I could go on but the point is watch the video now!!!

As for channels, my favorites would probably be Nigahiga, Smosh and one that recently caught my attention, =3 or as you know it, RayWilliamJohnson. If you haven’t seen him, Ray takes viral videos and couples them with his great sense of humor. It just can’t fail I mean you’re taking videos you would want to watch anyways and making them funnier. I will admit that he’s a bit “inappropriate” at times and some of his humor is repeated but these are the quirky things that really distinguish his videos. Those and other small things like his genuine nature, comment question of the day or his songs (which you can see on his other channel FattySpins) have made his my favorite channel not to mention earned him 2.2+ million subscribers and a collective 500+ million views.

So those are my current YouTube top picks. I’m sure there are many others right now and yet to come and I might blog about it again some other time.

PS Watch those videos!

Hate to break it to ya, but you're not Warren...

You’ve probably heard of Warren Buffett alongside Bill Gates as the world’s richest men and as of March of this year, according to forbes, Buffett was worth $47 billion. So what is the source of his tremendous wealth? Berkshire Hathaway and his own investment genius. Basically, through BRK for which he is the chairman, CEO and primary stakeholder, Buffett has earned the title of the Sage or Oracle of Omaha by making shrewd and seemingly risky investments that have netted him and the company billions of dollars.

So the obvious thing to do would be to gather a few thousand dollars, take a good solid look at the BRK portfolio, start investing and become filthy rich. Simple enough right? Wrong. Money magazine took an interesting look at the validity of copying Warren and came up with two key reasons for why most people who try to do so, either fail or see only meager profits.

The first, discouragingly unattainable fact is that Mr. Buffett has earned privileges that you simply haven’t. He’s the big shot whose name everyone knows while you simply exist. Most any company would and have gone to great lengths to secure a spot upon Berkshire’s portfolio. Not only does it mean that all of us copycats are going to follow suit and buy shares, but to the fiscal world, the company has received the financial security of a firm with billions at their disposal and the endorsement of one of the world’s greatest investors. This allows BRK to cut deals that often greatly their own side, and through the very purchase, increase the value of their purchase. In simpler words, you could go buy a new car for a substantially lower price than anyone else, and the fact that you bought it makes it worth even more.

Of course you could easily argue this; after a while, the brand “BRK” just can’t be enough and how did Warren himself start out? This brings us to the second reason which is that Warren is most likely smarter than you. His efforts aren’t just focused around giving promising companies the capital they need to boom, but also involves delving far deeper into common stocks, preferred shares, currencies, distressed debt, merger arbitrage, fixed-income arbitrage etc. I personally don’t know half of the things I mentioned, and even if you do, I doubt many out there are capable of successfully investing in such securities.

The point is, (this is the ending for every get-rich-quick scheme) copying Warren simply won’t rake in the dough.  If you’re going to play the stock market, be smart, careful, independent and who knows, if everything works out right, you just might strike it rich.

PS Check out Money magazine's new blog which I've linked to to the right.

Harry Potter and the Deathly Hallows (P1)!!!

A few weeks ago the Harry Potter and the Deathly Hallows Part One was released and though it’s probably impossible to fully live up to JK Rowling’s masterpieces, the movie was AMAZING, LEGENDARY, AWESOME, MAGICAL, SCRUMDIDLYUMPTIOUS, (insert all-caps, italicized word here)! I will admit that I was a bit depressed to have not seen some of the characters we are so accustomed to and Hogwarts but I think it was the varied settings that really defined what a change this movie represented. Harry, Ron and Hermione (I love how Hermione is a word according to MS Word 2007) are now travelling the world away from the comfort of Hogwarts. As a result the plot strays from the classic, but never boring, ending in which everything culminates into a brief encounter between Harry and Voldemort (now I’m disappointed that Voldemort isn’t a word in MS 2007). This allows HP7 to explore new dimensions and makes it more action packed than ever before which is very fitting as death-eaters draw ever closer, and their task becomes increasingly important.

So I f you can’t tell, I really, really, really love the Harry Potter series. I got off to a rocky start when in the first grade my mom gave the Sorcerer’s stone and I couldn’t get past page two. Three years later when we moved, I came across the book again and gave it another shot and this time I loved it. Within a couple of months I read the remaining published books and have stayed on top of the series ever since. I’ve read each book about two times and thanks to the wonders of digital video recording coupled with ABC families Harry Potter weekends, and I’m not kidding here, I’ve seen each movie at least five times through. The seventh book was the one I most anticipated and undoubtedly my favorite one. I pre-ordered it and got it on the release day and finished it within the second day (though I’m sure there are the crazy fans who cleared it with the day). As you can guess, I really wanted to go to the midnight showing of HP7 but as is my luck, it fell on one of our school’s finals nights.  Yup out of the 365 days in an year, the movie just had to be on one of six finals nights we have over the entire school year. And so I and most of my fellow unlucky classmates were kept home during this most special occasion. Nonetheless I got to see the movie by Saturday and have vowed that I will watch the midnight showing of the last movie (just watch now it’s going to be on finals again or some other impossible day). It occurred to me that right now is the greatest point of one of the greatest sagas of history (in my opinion J). HP7 part two will be bittersweet and when the movie ends, I just might break down. But not to worry, the series will undoubtedly live on for generations to come, and if not I’ll make sure my children read it.

In all the talk leading upto this most sacred event, I discovered that some people whom I knew very well did not dearly love and cherish the series. I feel it very important to briefly mention that if you fall into this class of individuals, no matter how great a person you may be, this is one fatal flaw that you really have to address.

And so I await the ending. Until then I’ll keep re-watching the movies on ABC and checking the mail for my letter from Hogwarts.

PS Youtube has enlightened me once again; I don't know if I'm super impressed or just scared but at least I now truly know who the biggest Harry Potter fan in the world is http://www.youtube.com/watch?v=I0VlIjXj9NA

Galleons, Sickles & Knuts

The unprecedented success of the Harry Potter series is reflected through the millions of fans including myself and the individual in the video I’ve linked below. So what numbers does this sensation translate to; well let’s take a look.

Apart from Harry Potter actors Daniel Radcliffe, Emma Watson and Rupert Grint and author J.K. Rowling are amongst the most memorable personas of this series. Prior to the release of part one of Harry Potter and the Deathly Hallows, each had amassed a wealth of £42 million, £22 million, £20 million and over $1.1 billion respectively. And the grand total thus far in sales for the entire series; approximately $6.5 billion! To put that in perspective, that would mean that each of the roughly 4,200 brilliant pages crafted by J.K. Rowling translated to about $1,550,000 in revenue of some form.

Here are a few more interesting tidbits: the print series which is available in 69 languages has netted over $400 million (I’m truly sorry to the numerous publishers that denied J.K. Rowling prior to Scholastic), 30 owl species are endangered in India after adoption as pets spiked, part one of HP7 sold out 2000 theaters prior to the actual show time, there are over 400 major Harry Potter brand products and 46 teams competed in this year’s fourth annual Quidditch World Cup in New York City.

If anything, these numbers are just another testament to the true greatness of Harry Potter.

$700,000,000,000: Is It Really Worth It?

President Barack Obama recently announced a $700 billion tax deal meant to put money back in Americans’ pockets and to hopefully stimulate the economy. Though it is undisputed that this will give Americans hundreds of dollars back and prevent the removal of existing tax cuts, NPR’s Planet Money turned to the Congressional Budget Office’s January report to assess how much of an economic boost the deal would offer.

There are three key facet’s to the new plan the first of which is an extension of unemployment benefits. This measure accounts for a mere $56 of the $700 billion but should have the greatest pay off for the economy. Why? Because those who receive unemployment benefits tend to, out of necessity, spend what they receive immediately. And consumer spending, as you’ve probably heard on the news, is the key to fiscal stimulation.

The second part is to reduce the federal payroll tax from 6.2% to 4.2% and will consequently give money back to every taxpayer in America. This measure may seem to be the most popular as it benefits everyone rather than any particular sect, but isn’t the most effective. Unlike the previously listed measure, the $120 billion invested in this one will not for the most part return to the market as constituents are equally likely to use the money to pay debts or save the money.

The last and most significant ($500 billion), of the primary aspects of the deal is the extension of Bush tax cuts. This piece justly extends tax cuts to the entire populace but in the name of equality, applies to the wealthy as well. The result; $120 billion of the entire $700 billion deal result from highly inefficient cuts for high earning individuals who already experience few of the inhibiting effects of the recession. Thus, this substantial portion of the entire plan is also the least useful by CBO measure.

These are the major parts to the Obama Tax Deal and though it will undoubtedly offer a boost, we have yet to know if it justifies the $700 billion price tag.

Pirating Music: How Can the Legal Industry Survive?

Pirating music; I’m sure all of us have heard of it and a good number of us have at some point directly or indirectly done it. And it’s easy to see the appeal; creating a sizable music library and keeping up with ever-changing trends can rack up hundreds of dollars in CDs or off iTunes. Hence it’s no small wonder that governments and the music industry are unable to shut down rapidly proliferating file sharing websites. The problem has come to the point that many would rather put up with commercials than pay even small monthly subscriptions for services like Pandora, Spotify etc. As The Economist puts it, all in all, we live in the “world’s toughest recorded-music market”.

This problem has come to a head in China where music revenue is disproportionately miniscule in comparison to other large economies. Last year sales accounted for a nearly invisible less than 0.005% of the country‘s GDP at $75 million while the United States netted $4.56 billion and the nearby nations of India, Indonesia and South Korea each raised $104, $51 and $145 million respectively. In what can be considered desperate attempts, Chinese entrepreneurs have gone as far as to offer free, download-able music simply with advertisements running alongside. Yet search engines such as Baidu and other simple alternatives have sent the revenues of even these most generous companies, into the red.

One such company, Top100.cn has taken an innovative approach to attract the frugal Chinese consumer market. Founder Gary Chen’s solution can be compared to the success of a newspaper or magazines which take stories that can often be found online for free, and compiles them into edited, convenient, well-presented groups with reviews and additional information. Mr. Chen wants to apply the same principle to music to offer consumers similarly packaged, appealing selections. Furthermore Top100.cn is trying to increase the versatility of these bundles to load and play them on the various electronics in use by today’s generation rather than simply iPods or mp3 devices.

The question remains if people will pay up for this new service but for now, such efforts have brought China to the forefront of innovation in the music industry.

Why Gold?!

In my blog I’ve frequently talked about the value of gold as a commodity. Look at the periodic table and you have 118 building blocks to everything you could ever and can’t even think of. So why out of all these incredible pieces have we humans isolated Au to be ours to cherish as singularly ours? To answer this, NPR’s Planet Money approached chemical engineer Sanat Kumar at Columbia University.

So of course they pulled out a periodic table and began crossing eliminating elements. Start with the right side of the table. Some of these elements are extremely stable but all are gasses. So basically as soon as you contain your money everything’s great but you’re just an open lid away from being broke. Plus I’m not sure how you’re going to give a cashier some gas for the week’s groceries. So gasses are out. Now over to the far left where we run into highly reactive metals; basically if you were to expose any of your money to the air you’d have a spontaneous fire. Not good. Similar less severe spontaneous reactions rule out more elements. Next we look at the two rows of elements at the bottom of the periodic table. Unfortunately for us, all of these elements are highly radioactive and carrying any of them around would deform and/or kill us.

Our list is getting pretty small. Now we want our element to be somewhat rare so it’s actually cool to have it so we lose some more elements. At the same time we don’t want our element to be too rare like osmium which occurs when meteorites bring some in when they crash into the earth. So can’t disappear right in front of our eyes, can’t explode the moment we take it out, can’t kill us, and has to be acceptably rare; we’re not asking for too much but that only leaves us with rhodium, palladium, silver, platinum and gold all of which we love.

So let’s narrow it down further. Rhodium and palladium weren’t discovered until the 1800s so that takes them out of much of our history. Silver tarnishes so it can’t be good enough even though we do like it. Platinum is more valuable than gold today but, due to its 3000 degree melting point, was pretty useless until modern powerful furnaces. And there you have it, GOLD. It was just meant to be.

Debt: Is it Really That Bad?

Across Europe it is becoming more and more expensive for countries to borrow money; and this includes Italy, Spain and Portugal (as well as France and the UK to a lesser degree) rather than just the extreme cases of Greece and Ireland. As I’ve addressed in previous posts, government’s receive loans by issuing bonds. These bonds are often considered the safest form of investment but usually yield very little interest to the holder. Therefore, as bonds become harder to sell when countries suffer economic collapse or similarly destroy fiscal trust, states are forced to increase the interest rate to attract buyers which in turn makes paying off debt even harder.

In today’s economic crisis, stocks and funds obviously seem scary to the average investor with little tolerance for risk on savings. So people turn towards select investment in safe commodities (such as shares in Wal-Mart), gold and in government bonds. Hence, in times like those we face now, people around the world turn towards treasury bonds, particularly towards those of the US. Though Europe has illustrated some of the worst disasters of this economic recession such as Spain’s 20% unemployment and Ireland’s impractical bank bailouts, the fact is that the overall debt as a percentage of economy remains similar between the US and many European states. And yet US bonds hold and have held for decades, some disproportionate value that has drawn government revenue even in the bleakest times. This means that as other countries accrue high interest rates and are forced to dig holes within holes, the US holds fairly “cheap debt”.

Government debt today is often driven by demographics as retirement age individuals draw out of health care and social security. Even in this arena, Europe has and is forecasted to have a higher ratio of older people to younger than the US as a result of their quicker demographic transition.

In the end, no one can say that the Unite State’s almost $14 trillion is even remotely acceptable, but in some ways, we may be better off than others.

Facebook and Money

It’s been just over a half decade since Facebook’s launch and yet the social networking site has five headquarters stretched across the globe to serve over $500 million current active users from all walks of life. So I couldn’t help but wonder how much revenue this web giant generates and where from.

In 2009 Facebook’s revenue amounted to about $700 million from four primary sources centered around advertising. The biggest source is performance advertising which involves interactive banners such as FarmVille, social games etc. which offered about $350 million.  Brand advertising along the website’s side banners has grown sharply to nearly $250 million as more users translate to more commercial’s worth more money. The Microsoft sub-advertising sect alone added another $150 million and virtual goods (gifts) translated to a real $20 million.

All-in-all $700 million is comparatively small for a website second only to the Google empire which through its search engine and subsidiaries such as YouTube, amassed over $23.6 billion in 2009. Nonetheless, Facebook has much potential considering it is 7 years younger than Google, still only requires less than a tenth of Google’s current staffing, occupies a still unfulfilled niche and is almost doubling in revenue every year with next year forecasted at $1.1 billion.

2010 Economics Nobel Prize

The 2010 Nobel Prize for economics was recently awarded to Peter Diamond, Dale Mortensen and Christopher Pissarides for their analysis on “markets with search frictions”.

Complicated as this may sound, the core of this subject is fairly easy to understand and credits some economic hardships to the complexity of today’s trade systems. To understand, lets apply the prize recipients’ theory to the labor market. When an employer seeks a new employee, the search and hiring process requires time and resources. Even with the aid of intermediates such as consultants, the process will always take a toll. These factors mean that some demand will not be met while some supply not bought. And thus “frictions” are created in markets.

Such frictions can help explain the fact that many people may be unemployed at the same time that several job positions are available. In this manner, the Nobel winning Search Theory has been applied to monetary theory, the housing market and various other economic sectors.

Fast Money: The Potential of Speed (Part 1)

The New York Stock Exchange; it’s the iconic backdrop of all things financial and is a beacon of the complexity & supremacy of the US economy. But unknown to many, about 70% of stock trades occur off the NYSE trading floor and the majority of these occur through high frequency trading.

As the name suggests high frequency trading is fast as in extremely fast. Companies such as Goldman Sachs, Morgan Stanley, Merrill Lynch etc. that engage in this kind of transaction often buy or sell over a billion shares every day which to put in context, is over 11,500 stocks every single second. This outrageous volume is handled by computers governed by complex algorithms that take market factors into account to predict minute fluctuations. Despite the wealth of information processed, the end goal is simple; as always, buy low and sell high. Now high doesn’t have to be very high. In the example of the TradeWorks LLC, computers in charge of high frequency trading are instructed to make a profit as small as a penny or less 40 million times every day. It’s easy to see that the pennies really do add up as the relatively small corporation nets approximately $400,000 every day solely from this activity. Don’t forget that these numbers are based on 40 million stocks a day rather than the billion stocks daily of larger companies, mentioned above.

But in many cases, merely knowing the algorithms behind successful calculation is not close to enough. As TradeWorks LLC CEO puts it, eventual profit lies in the ability “to capture opportunities that last for only a fraction of a second” often less that the blink of an eye. This doesn’t require any “special” Wall Street knowledge as many falsely suspect but does entail knowing publicly available information long before it reaches the public. For this, companies adopted the most advanced computers and communication systems available. Yet as this sector becomes increasingly competitive, collocation has become popular in which traders offer tens of thousands of dollars every month to place their computers right next to exchange servers.

Fast Money: The Potential of Speed (Part 2)

Effectively, the only limitation to quicker computation has come down to the speed of the electrons. Thus, those who have attained everything necessary for a few centi or even milliseconds of extra speed, have secured the chance for increased millions or potentially billions annually.

Lucrative as this may seem, many remain skeptical considering the known shortcomings and foreseeable uncertainties. Fundamentally, this robotic system removes the human aspect of trading as the only consideration becomes quantifiable data. Additionally, this manipulation has been classified as parasitic for it fuels off small inflections rather than true variations in market activity. Perhaps most significantly, any accidents can be disastrous and occasionally, irreparable. In the case of the May 6^th, DOW Jones 600 point crash, a mutual fund emptied $4.1 billion in securities into the market. Computers instantaneously bought and immediately after sold these shares as programmed. Seeing this, real traders began selling as well causing prices to plummet; the end result was that an accident turned into a mild catastrophe.

Though counter arguments concerning liquidity are brought up the fact remains that this highly effective form of market exploitation must proceed with caution and under unyielding regulation.

Is Google Doing It Again?

First created three centuries ago by William Fleetwood, a price index offers average prices of categories of goods or services during a particular time period in a given region. As a result, it is an important value in trade, comparing prices over time and between regions all of which reflect inflation or deflation, standard of living and normal good values. Today the Consumer Price Index (CPI), Producer Price Index (PPI) and GDP deflator are the most commonly used price indices

Though still unfinished, Google has yet another implement of its infinite information access, up its sleeve. An inspired Hal Varian, Google’s chief economist, in the hope of conveying inflation statistics has compiled vast amounts of related web data to create a Google Price Index (as an alternative to classic statistical data).

This “GPI” would offer a real time depiction of pricing in contrast to delayed, manually processed past indices such as the CPI. Though the tool may lack the depth of analysis that has garnered the CPI its enduring support and respect, the GPI is based primarily in goods sold online and therefore will be of much greater use to the masses.

Current observations have confirmed such potential, as the GPI has accurately offered values within less time as the CPI of similar products. Nonetheless, the GPI is merely in its infancy and will be meant as a supplement rather than competitor to existing records… for now.

RIC? No It's BRIC (Part One)

A few posts ago I discussed the potential BRIC powers of the 21^st century who are forecasted to overtake current economic superpowers and dominate the G6 by the year 2050. Yet a mere 20 years ago, such prospects for Brazil would have seemed hopelessly optimistic and almost laughable; so how did Brazil progress so far?

                Starting in the 1950s plans to build a dazzling new capital for Brazil called Brasilia were in full swing. To finance the enormous costs, the state began printing vast sums; though this lasted only a short while it had a lasting and almost irreparable effect. Yet this kind of economic disaster was fundamentally different from the sort of problems that fiscally plague countries around the world in that this inflation stemmed from the instantaneous addition of a lot of money into public circulation and not from economic fallout. This fact would prove key in the eventual re-stabilization of Brazil.

By the 1980s Brazil suffered from a skyrocketing inflation rate that reached 80% every month. To put this figure in context let’s refer to an example on NPRs Planet Money; at 80% monthly iinflation, eggs priced at $1.00 one day would cost $1.02 by the very next day. Now that doesn’t seem too bad, right. Even by the end of a month, the eggs would cost $1.80 which though double the cost, was still affordable to many. Now let’s fast-forward to the end of the year; by the end of just 365 days, your wonderful, Sunday morning eggs would have gone from a dollar to almost $1,200 and by the end of the second year, oh just a meager $1.34 million. This meant that stores had to hire a person whose sole job was literally to walk the aisles updating the prices of items constantly. As detailed in one account, people used to race the “sticker-man” to grab what they needed before a new price got tacked on. Humorous as it seems to us, this was the startling and sad truth in late 20th century Brazil.

Through these decades, numerous leaders tried their hand at fixing the problem from freezing prices, to bank accounts to commodity production itself and yet, nothing seemed to work. Then in 1992, reform in the finance ministry ushered in a group of four advisors from the Catholic University of Rio de Janeiro including Edmar Bacha (studied inflation through grad school).

RIC? No It's BRIC (Part Two)

After brief meetings with the president and other representatives of state, the group of four embarked on their mission. Their plan was simple enough; print less money for obvious reasons and rebuild the public’s faith in the common currency (which is absolutely key as reflected in last week’s money posts). The former seems difficult as it is, I mean it’s not exactly easy to convince someone to stop turning paper into money when they have the power to do so. Yet hard as it may be, the latter was much bigger a problem as it meant somehow convincing the populace that money had value and should be trusted (would you trust the dollar if the egg example above were a reality?!). Yet recognizing this issue as foremost in the struggle to revitalize Brazil’s economy was the very genius behind the plan.

To do this, they set about creating a brand new virtual currency, the unit of Rio value or URV, without the expected coins or notes nor meant to replace the cruzeiro (the failing entity at the time). The URV was then used to denote all values merely as a label that translated to a varying number of cruzeiros. In the case of our pack of eggs, the eggs may become equated to 1 URV, so now whenever you went to the grocery store and found your eggs, they would always be 1 URV. It was only after you went to checkout that the cashier would then inform you of how many cruzeiros that 1 URV meant. This was applied to anything that had to do with money so wages, prices and even taxes were listed in URVs. At this point it occurred to me and you yourself might be saying that this solved nothing. All we’ve done is add a medium of exchange for a medium of exchange and all of this at the expense of the poor old “sticker-man’s” job. Yet the key to the URVs success was its stability in that thought its value fluctuated on a daily basis, it represented the same thing to people because now one URV always was and always would be your wonderful, Sunday morning eggs. Thus people began to think in URVs, and started to believe in this constant and unchanging value.

Finally the day came that all of a sudden, the cruzeiro vanished and the URV, almost symbolically renamed the real (pronounced ray-al), took its place. And on July 1^st, 1994, the Brazilian Central Bank distributed the new currency and the BRL became Brazil’s official currency. The result can only be described as miraculous as poverty decreased, the economy boomed and faith was restored.

This is the story of the B in BRIC and with genius as was displayed in the URV, we would be hard-pressed to say Goldman-Sachs prediction will not at least in part come true.

Economic Warfare!

The current economic crisis appears to be coming to an end but the mood is still grim as was reflected at the fall meetings of the International Monetary Fund and World Bank in Washington DC. As the economy begins crawling in the right direction, countries have started vying for any way to increase their portion of the coming economic recovery and potential success. But how do countries go about this? Trade treaties, tariffs or similar examples may initially come to mind but how can the value of currency used as a weapon?

The fact is, lowering the value of a nation’s currency can directly translate to increased demand for the countries goods. At first this might catch you off guard; but to understand you can’t think of this as inflation. Instead if a country can lower the value of its currency to the outside world but domestically reduce prices as well, then the populace is no worse off but goods the country produces are cheaper.

For example, if the of Indian rupee were sold on the foreign exchange markets or similarly manipulated to decrease in value while the Chinese Yuan increased then the exact same car made in India would cost less than one made in China. If India were self-sufficient so that the price of goods did not increase, then the Indian people would have the same cost of living while the goods they produce would increase significantly in demand and generate greater revenue.

Today, several countries primarily including China, Korea, Taiwan, Japan, and Switzerland have used such means to depreciate or otherwise alter the value of their currency. The shortcomings of such practices are obvious for they defy the principles of currency, run contrary to capitalist beliefs (government intervention), give some nations an unjustifiable advantage, promote disunity in a time when it is needed more than ever and has the potential to cause trade or real warfare.

GDP: The Story Behind the Numbers (Part One)

The GDP; you’ve undoubtedly heard of it before and if you haven’t you really should watch the news every once in a while. But what exactly is the gross domestic product?

                Gross domestic product is the market value of all final goods and services produced within an economy in a given period of time; in other words, the GDP puts a single dollar value to the total output of goods and services with an economy over a set period of time. Though this may seem similar to the fiscal measures mentioned in earlier posts (such as C, M1, M2, M2 and M3), they differ in that GDP depicts flow while the latter show stock. To better understand the difference, think of a bathtub; flow values represent changing values from a set unit of time similar to the flow of water from the faucet while stock values are unchanged and measured at one point in time similar to the water sitting in the tub. Thus, the GDP illustrates the exchange of currency and consequently, is often used as a measure of economic activity.

                The GDP can be measured in two main ways both of which reflect the same eventual value: as the sum of income and labor or as the sum of goods and expenditures. So calculating GDP as the total exchange of money for a certain time frame seems easy enough but how do we compute this value for a whole country for as long as an year. There are five main rules that allow us to figure out such a tremendous value. The first rule almost goes without saying; the price of individual goods affects their value in the GDP. This just means that 5 flash drives each worth $10 and 5 HD LCD flat-screens each worth $1000 translate to $5,050 GDP increase rather than a 10 electronic item increase. Next, the exchange of used goods cannot play a part in the GDP. This is because the GDP is meant to reflect production and economic activity. So when grandpa decides to sell his old used car to a desperate teenager, the trade doesn’t involve any form of manufacture or fiscal productivity and therefore is not input.

GDP: The Story Behind the Numbers (Part Two)

The third rule concerns inventories or extra goods whose production was paid for but do not end up being sold. Either one of two things happens in a scenario such as this one. If the goods are perishable and become spoiled or for any other reason must be disposed of, they do not factor into GDP. On the other hand, if the stock is inventoried for later sale, it is assumed that the vendor has bought its own goods and the sale value is input. Remember though, that when consumers do eventually buy these goods, they must be considered similarly to used goods for they have already been bought once. Next we must consider intermediate goods which though present in the final product, are added at distinct stages. Thus, the fourth rule states that a products value on the GDP is the market value of the item or the total value added by firms in the concerned economy. To explain, let’s look at a Panchero’s burrito. The total cost of the raw goods may have cost the restaurant about $3. These are then put together to create the delicious burrito we dish out $11 for. So what affect did my meal have on the United States GDP? The answer is $11 and not $14 because the original $3 is a part of the final retail value. We can also arrive at this by summing up the value added at each stage which is $3 at the farming/raw goods level and then $8 at the restaurant.

Finally and perhaps the most unsuspecting value comprises housing services and similar imputations. Imputed value is the estimated price of goods and services not sold in the market. For example, just as a tenant pays a monthly rent, a homeowner gives up a certain “rent” through the act of living in his/her residence (this is directly seen in the lower value at resale). Other such amounts include government services such as the police, fire department etc. and oddly enough, things like cooking, lawn mowing etc. Despite these efforts, imputing value is very difficult and uncertain; as a result, with the some exceptions (like the ones listed), this practice is avoided.

These are the broad concepts behind the calculation of a single yet comprehensive and telling figure. In the United States alone, the 2009 gross domestic product amounted to a mind-numbing $14.59. To put this in context, that’s the wealth of about 300 Bill Gates or to further simplify (sort of) about six billion of the leather couches from my previous blog entry. Needless to say, it’s a bit too much to comprehend, but through the gross domestic product we can arrive at a general picture of the staggering economic activity we are a part of.

Are BRICs the Foundation of Tomorrow?

The BRIC was a concept coined by the global investment banking and securities firm, Goldman Sachs back in the October of 2001 as published in Dreaming With BRICs: The Path to 2050. The paper through extensive research, affirms that by the mid-21^st century, the economies of Brazil, Russia, India and China could become the dominant world powers replacing many of today’s wealthiest states.

If the findings of the publication, which have been investigated and asserted numerous times over the years, prove to be correct, the BRICs which currently comprise only about 15% of the G6, will surpass their wealth by about 2040, making Japan and the United States the only enduring members. Furthermore, China will overtake the US shortly after, the BRICs will become the world’s dominant consumers, and the dynamics of fiscal dominance will change for the largest economies may not be the richest per capita (overpopulation in China, India etc.).

These changes, as dramatic as they seem, are very possible especially considering the changing face of the planet over just the past 50 to 100 years as Britain fell from centuries of supremacy, replaced by a short-lived USSR and continuing United States. Yet these specific outcomes pivot around several uncertain patterns and choices on the part of the BRIC nations. Furthermore, about a century ago, economists predicted their own version of today’s BRICs with Argentina, Russia, Austria-Hungary and the US becoming the world’s largest economies. Investment in these nations rose just as it is today and initial years forecasted success. Yet as the new millennium approached, the United States was the only one left standing as Argentina fell to dormancy, and Russia and Austria-Hungary ceased to exist (as they previously did).

Nonetheless, with the exception of World War III or a similar global meltdown, the BRICs remain on track with Goldman Sachs’ predictions and have grown astonishingly. Foreign investment in these nations has been at its highest with 34 Brazilian, six Russian, eight Indian and sixteen Chinese companies listed on the NYSE (this doesn’t even include technology companies listed on the Nasdaq). Though, we cannot decisively say what the future holds, Brazil, Russia, India and China will undoubtedly play a vital role as world leaders if not superpowers.

What's Money Anyways? (Part Two)

There are two forms of currency. The first is fiat money which like the dollar and most currency around the world, is government issued and has no intrinsic value. The key to fiat legal tender is the trust that it will be accepted in exchange (liquidity). This may seem trivial in the US where the dollar has always been a fairly strong currency, fully backed by the government (printed is “This note is legal tender for all debts, public and private”); yet a failure in trust for any reason can cause economic ruin and has in the past. A notable example of such an occurrence dates back to World War II. During this period the German Mark became so inflated by depression and wartime spending, citizens simply could not use it and as was reported, were better off burning Marks than buying firewood. This is illustrated today by the Zimbabwean dollar which though once more valuable than the USD, is now hyper-inflated to the point that currency exchanges often have to update the country’s exchange rate every half hour or more and $100 billion legal tender is printed.

The second form of money, commodity money, is fairly immune to such fluctuation because it possesses intrinsic value and therefore is trusted & accepted around. This form of currency has prevailed for much of history up until just over a century ago, primarily in the form of gold (gold standard economy) and occasionally other precious metals. Though this practice has largely died out and one cannot walk into a store offering a hunk of gold as payment, many invest in gold for fiscal security (especially in times of recession). I found an interesting example of commodity money from Mankiw’s Macroeconomics 5^th ed. which also appears in the commendable Maus series. In the Nazi POW camps during World War II, the Red Cross provided prisoner with food, clothing, cigarettes etc.  These resources were fairly, evenly allocated without attentions to individual preferences. Eventually, the soldiers allocated cigarette values to commodities such as 80 cigarettes for a shirt. Soon these became an accepted medium of exchange at the camps.

Despite its safety, commodity money quickly becomes cumbersome and difficult to manage; as you can imagine carrying around a pouch of gold gets heavy and measuring commodities isn’t very convenient. But how do you get a society to begin using and accept fiat money especially considering it has no intrinsic value. This process can be best explained through an example which has occurred in the past repeatedly. The process begins as the government issues gold or similar commodity money of standard value to replace commonly used raw gold bullion. In time the government can offer gold certificates which can be reclaimed for the original standard issue gold. Nonetheless, this is the intermediate phase to fiat money for it requires that people trust the government will at any time provide gold at any time in exchange for the certificates. In time as this trust becomes universal and more money is printed, the gold collateral becomes meaningless and a fiat system takes root.

And there you have it; the story as money as we know it. So the next time you lay down that dollar bill, think about the history, the evolution and the trust that makes the whole system possible.

What's Money Anyways? (Part One)

Moolah, bling, dough, greenbacks; rappers can’t seem to get enough of it nor can the media stop blabbing about it these days. Whatever you call it, do you really know what money is?

Most of us think of money as a measure of wealth but from an economist’s standpoint, money refers specifically to the stock of assets that can be used at any time for transactions.  Money is used primarily in three ways (and I’m not referring to clothes, eating out and iTunes): as a store value, unit of account and most importantly, as a medium of exchange. The first simply refers to savings which allow us to spend money we earn now at a later time. Though most people save as a means of financial security, money is not accepted as ideal for a store value due to inflation.

We are all accustomed to money as a unit of account or the use of currency to quote prices, balances or debts. For example, when we go to buy a house we may receive a quote of say $300,000 rather than a potentially equal but far more complicated value of 120 leather couches. This notion of money as a denoted and comparable value goes hand-in-hand with the final use as a medium of exchange.  This function applies to our everyday lives because it just denotes the use of money to buy goods and services. Without a “medium of exchange” transaction would require us to find someone in possession of what we want, who wants something we possess (and both parties are willing to give this up). This type of a lucky accident is called a double coincidence of wants and admittedly cannot be expected every time we want something. Unless you’re a prospective home buyer who just happens to have 120 leather couches on hand and stumble upon the realtor in dire need of a 120 leather couches. Thus, money enters the picture.

There are two forms of currency. The first is fiat money which like the dollar and most currency around the world, is government issued and has no intrinsic value. The key to fiat legal tender is the trust that it will be accepted in exchange (liquidity). This may seem trivial in the US where the dollar has always been a fairly strong currency, fully backed by the government (printed is “This note is legal tender for all debts, public and private”); yet a failure in trust for any reason can cause economic ruin and has in the past. A notable example of such an occurrence dates back to World War II. During this period the German Mark became so inflated by depression and wartime spending, citizens simply could not use it and as was reported, were better off burning Marks than buying firewood. This is illustrated today by the Zimbabwean dollar which though once more valuable than the USD, is now hyper-inflated to the point that currency exchanges often have to update the country’s exchange rate every half hour or more and $100 billion legal tender is printed.

Measuring and Manipulating the Money Supply

A key aspect of the economy and fiscal policy involves knowing how much money is in circulation. Money can be loosely defined as the stock of assets used for transactions and consequently, the total stock of assets is the quantity of money. Therefore, if for example, you and you friends decide to trade baseball cards based on a certain number of points assigned to each card, the total number of points available would be the monetary supply.

But measuring the stock of assets in a society like ours if extremely difficult as our investments lie in everything from cash to checks to gold to mutual funds and so on. Consequently, four fairly comprehensive, successive measures (each denoted by a particular symbol) are used to illustrate the monetary supply of a given society. The first is C which is the total legal tender currency in circulation. The second, M1, includes C and all demand deposits, traveler’s checks and other checkable deposits. The third measure is M2, which comprises retail money market mutual fund balances, saving deposits (including money market deposit accounts) and small time deposits all in addition to M1. The final measure, M3, includes M2 and large time deposits, repurchase agreements, Eurodollars, and institution-only money market mutual. As of March 2001 these values were $539 billion, $1.111 trillion, $5.1 trillion and $7.326 trillion respectively.

Most of these measures probable don’t make a lot of sense but these values are vital to the way agencies such as the Federal Reserve, specifically the Federal Open Market Committee, determine monetary policy in the United States. Manipulation of the money supply is primarily achieved through open-market operations which involve the purchase and sale of government bonds. When the Fed wants to decrease the public money supply, it issues government bonds and treasury bills which are often bought as secure investments. This removes money of equivalent value of the bonds from circulation. Likewise, when the public money supply needs to be expanded, the Federal Reserve buys bonds back.

This is a basic overview of the measure and manipulations of the quantity of money in circulation.

Macro vs. Micro

In order to analyze the various intricacies of economics, the field is broadly divided into macro and microeconomics. As the prefix suggests, macroeconomics models the economy on a large scale and deals with measures such as gross domestic product (GDP), price levels, unemployment, interest rates and international trade. Thus macro-economics can explain why some countries are rich while others remain poor, why currencies fluctuate the way they do, how countries stay afloat with massive deficits, how interest rates change and what brings on recessions such as the one we face today. Microeconomics on the other hand, details firm/industry level economies such as supply and demand with a market, economies of scale within a company, impact of regulatory policy within a sector. Despite these distinctions, macro and microeconomics are fundamentally interconnected as collective micro- changes affect macro-economic measures. Though each of these topics presents an opportunity for extensive study, the majority of my introductory research will focus around macroeconomics and its implications in our day-to-day life.

An Introduction: The Ten Principles (Part Two)

Now let’s move onto the second category; how the economy works. Though I’m sure you are fascinated by the story of my iTouch and are dying to hear more, I will appeal to broader models to discuss and clarify the following principles that concern the expansive economy as a whole. The fifth rule states that trade can make everyone better off. When I read this and came across the word trade, my mind immediately went to the traditional concept of bartering and the simple exchange of goods of similar value. Yet to understand the generality of this statement, we must think of trade as any form of payment for a good or service including trade in the form of an employee’s salary. In this sense, we understand that Mankiw’s fifth principle is one of the founding and persisting standards of today’s economy, as people specialize in individual professions to maximize efficiency. Next, the sixth principle affirms that markets are usually a good way to organize economic activity. All this means is that consumers and producers interact to increase trade efficiency and better allocate goods. This ideal forms the core of capitalism and has been central to the United States economy (with the exception of dire times such as the ongoing recession). Mankiw’s claim is further validated by the repeated failures of communist regimes in the past which represent the opposite of this system by allowing government interference in fiscal activity. The seventh stipulation offers that governments can sometimes improve market outcomes. This offers an exception to rule six in times of dire circumstance, as we have seen in the ongoing recession as numerous government “bailouts” have interrupted market flow by fueling money into failing corporations and suffering consumers.

Finally, let’s look at the way we interact. Eighth, a country’s standard of living depends on its ability to produce goods and services. As the rule suggests, countries with high productivity where people can produce more goods or services per person, have a higher standard of living. Several of these principles indicate cause and effect and likewise eight goes hand in hand with rule five for trade increases productivity which in turn increases standard of living. The ninth law dictates that prices rise when the government prints too much money. I’m sure many of you have heard this concept before as inflation primarily as the values of currencies fluctuate. The United States for example is currently experiencing minor inflation as a growing debt slowly increases the amount necessary to get one euro or pound… The final principle states that society faces a short-run tradeoff between inflation and unemployment. In other words reducing inflation causes a temporary hike in unemployment. Though I understand what is being stated, I find myself at a loss for explaining it. To get a better grasp, I referred to my dad’s MBA textbook Macroeconomics 5^th ed. and found the subject at hand on page 358 but was once again was lost in the advanced concepts.

I guess the lesson is that I’ve got a lot, as in a lot, to learn but I’m definitely off to a great start.

An Introduction: The Ten Principles (Part One)

I’d like to say that I have a basic understanding of economics but in all honesty, I’m clueless. To get a foothold, I talked to my dad and a close family friend who shared their beginnings in economics during their MBAs. During our discussions, we repeatedly stumbled upon Gregory Mankiw, the former Chairman of the Council of Economic Advisors and a current economics professor at Harvard University (if you would like to find out a little bit more about Mankiw, refer to the link to his blog I hve on the right or I’m sure Wikipedia would oblige). After a little more research, I thought I’d start by looking into Mankiw’s 10 principles of economics appearing in the first chapter of his book, Principles of Economics 3rd ed. Time to delve into the world of scarcity, investment, consumption…

Mankiw’s ten principles can roughly be divided into three categories: how we make decisions (one through four), how the economy works (five through seven) and the way we interact (eight through ten). The first principle states that people face trade-offs or simply put, to get something we want we have to give something else up. I’m sure we’ve all faced this kind of dilemma in our lives. To illustrate, I will share an example that I will refer back to for several of the principles. Last year, for my birthday, I got an 8gb iPod touch. Despite my enthusiasm, I couldn’t help but feel disappointed at how few upgrades were made from the previous generation. After thinking about it for a while, I decided to stick it out till the next generation was released. Now almost a year later, I got the iTouch 4g with a camera, facetime and an upgrade to 32gb. Some would that isn’t worth almost a year of wait but it was a trade-off I was willing to make.

The second principle is that the cost of something is what you give up to get it. This simply encompasses the monetary as well as the implicit moral/personal aspects of pricing. Here we can once again refer to my above example; the cost of the my new iTouch included not only the extra $100 for the memory and generation upgrade but also the year I spent waiting for its arrival. Our next principle stipulates that rational people think at the margin. This means that when we consider an extra unit, we rationally weigh its cost and benefits. I have had the iPod nano (3g) 8gb for about three years now. Thus, deciding to get my new iTouch (an extra unit) required that I rationally judge if the extra storage, applications and other additional benefits excuse the costs incurred. In another, more common example, if you decided to work a few extra hours a week you are employing Mankiw’s third principle to deem if the extra pay is worth the time away from home or leisure. The fourth rule asserts that people respond to incentives. I’m sure this doesn’t require any further clarification but for the sake of tradition, my incentive not to keep my original gift was the promise of a much better, far more worthy iTouch within an acceptable period of time.

Me and Economics

I grew up like every other kid wanting to be a police officer. In time my ambitions molded to my various activities; in the 5th grade after Lego League I was set on being an engineer and sure enough, after Mock Trial in 8th grade I was positive that my future lay in the field of law. Despite my indecision, I have always loved math and have taken advanced courses in the subject whenever possible. Now I know that though I've yet to decide a career, math will undoubtedly be a part of whatever I pursue in life. Over the past year, literature such as Freakonomics and other experiences have interested me in the field of economics. Therefore, I started this blog to begin researching and sharing my introduction to economics in the hope that I will finally find my calling.