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Showing posts with the label economics

What is the gig economy? A zero hours contract?

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The gig economy is the reverse of the old Japanese idea of the 'salary man' - the worker who spends his/her working life with a single company in return of job security, a regular salary, pension etc.

What is quantitative easing?

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Quantitative easing is when a government pumps 'new' money directly into the economy. It  does this is by buying assets - usually financial assets such as government and corporate bonds.  The financial institutions selling those assets (e.g banks) can then boost the economy by lending this new money to businesses. Why is QE unusual? The normal way a government stimulates economic growth is by a) reducing the cost of borrowing  b) lowering taxes, particularly on business investment. The problem in the current financial crisis has been that interest rates are already at historic lows. As a result some governments (notably the US and to a lesser extent the UK) have attempted to inject money directly into the economy.  The European  Central Bank has resisted QE until recently. Some would argue that this has been a factor in the weakness of the European economic recovery English Language 100 FAQ Teaching Pack   -  only £1.99 using discount code  CQDWKF0

What is the difference between inflation & deflation?

Put simply, inflation is when prices rise. The result is that money loses its value.  Deflation is when prices go down and money increases its relative value.    Financial historian Amity Shales summarises the issues Deflation ... hurts good people, strivers who over-borrow. {It} can cause depressions, as the U.S. saw in the early 1930s ... In the Great Depression, there wasn’t enough money around -- literally. Lacking cash, banks collapsed, and good people did lose homes or farms. More banks collapsed. { But }..... Deflation doesn’t always spell apocalypse. It can coexist with prosperity -- or even perpetuate it. There was deflation in the 1920s. Prices fell in 1923, and 1925 through 1928. The money shortage hit one sector, farming, hard.   Overall, the economy grew. Unemployment stayed low. Vigilance on inflation kept prices stable. Stable prices made life easier. For example Harvard’s tuition stood at the same level, $150, between 1870 and the beginning of World War II.

What is the gold standard? And gold bugs?

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The gold standard is when the value of a currency is directly linked to the amount of physical gold held by a country. Britain had the gold standard until 1931 and the USA only abandoned it in 1971. They did this in the belief that the gold/currency link was too inflexible. Some have argued that the gold/currency link was a key element in the Great Depression, forcing economic austerity in contracting economies. So the gold standard is a recipe for trouble? Life without the gold standard is also not without major problems. The US dollar, for example, has declined in value and many libertarians (most notably former Presidential candidate, Ron Paul) have argued that restoration is essential to restore economic prosperity. Some also argue that the gold standard is the only guarantor against long-term financial catastrophe.  Freed from restraint, governments can choose 'quick fixes' like quantative easing in difficult economic circumstances - only to create hyper-inflati

What is the difference between fiscal and monetary?

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When economists talk about fiscal policy they are referring to raising and spending taxes. Monetary policy is what central banks do to control the amount of money in an economy. Normally they do this either raising/lowering interest rates. Raising interest rates restricts the amount of money circulating and should reduce inflation. Lowering interest rates encourages expenditure as there is more money available. But as everyone know these are not 'normal' economic times. Interest rates in the advanced western economies have fallen to close to zero - but the recovery remains this. To counter this some central banks have introduced something called quantative easing .  Put simply means pushing more money directly into the economy via the banks - see here for more details.

What is a debt default?

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To default on a debt is to stop repaying it. A sovereign debt default is when a country cannot make an agreed repayment on money it owes - as happened to Argentina in the early 1990s, for example. An early sign of a possible default is when the credit rating agencies downgrade the credit rating of the country concerned to 'junk bond status' - see here for a brief description (with audio) of what this means. What is a debt default? (mp3) What happens when a country defaults? Usually the national currency falls in value and this helps to make the goods of country concerned more affordable. International institutions like the IMF also arrange repayment plans or write offs/markdowns of debt. Why would a Greek default be such a big deal? It's a small country! 1. Because it owes massive amounts to some of the biggest European banks. They will lose money or 'have a hair cut' as financial traders put it. 2. Greece cannot devalue i

What is a credit default swap?

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Warren Buffett famously described 'derivatives' like CDS as 'financial weapons of mass destruction'. Here is a description of how they work. The Big Short: Inside the Doomsday Machine Warren Buffett Invests Like a Girl: And Why You Should, Too (Motley Fool)