All posts filed under “North America

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Homeownership Declines As US Student Loan Debts Soar

A story in the New York Times on Friday shed light on the relationship between student debt and homeownership in the US. The amount of people under the age of thirty owning a home is hovering near a three decade low, according to statistics from the FED: only 35 percent of people younger than 35 own a home. According to census data, this is down from 41 percent in 1982. At the same time, the nation’s student loan bill has exploded to $1.4 trillion, surpassing credit cards to become the largest source of personal debt outside mortgages. The Federal Reserve Bank of New York researched this development and its conclusion suggests that student debt was responsible for up to 35 percent (again) of the decline in homeownership among people between the ages of 28 and 30 from 2007 to 2015. Moreover, the study says that, if the amount of student debt would’ve stayed at the level of 2001, more than 360,000 people in that age group would have owned a home in 2015. (source)

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Tension in GE Pensions

The Wall Street Journal opened this Sunday with a story about General Electric (GE), one of the US’ biggest companies. In the story, they talked about an alarming development: pension plans being under water and stock options from retirees. These stock options have lost so much value over the last decade, that multiple retirees have had to go back to work, just to afford retirement. GE’s market capitalization has fallen more than $460 billion since its 2000 peak, and according to the article, this can mostly be attributed to poor decision-making from above. (source)

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Trump tariffs, a drop in the ocean?

One of the biggest stories in the last month has been the reintroduction of protectionist policies by the United States. Protectionist rhetoric was part of the campaign President Donald Trump ran on, and he’s put some truth to those words in the last month: he introduced steel and aluminium tariffs, while also applying tariffs on Chinese products. This week, China responded by imposing tariffs of their own on US products, culminating in what pundits claim to be a ‘trade war’. This graph, made by Goldman Sachs, shows the effective tariff rate since 1929, against this backdrop, it looks as if Trump tariffs are small, despite all the media attention. The recent tariffs equate to an increase of less than 1%. (source)

Update 4/4: This graph does not reflect the new tariffs that have been enforced on April 3rd, of which Douglas Irwin, author of “Clashing Over Commerce: A History of U.S. Trade Policy,” says that President Trump’s action is one of the largest trade moves in more than three decades.

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US Interest Spending and Debt Could Increase Drastically With New Interest Rate

On the sixteenth of March, the Federal Reserve Bank lifted its key interest rate from 1.50%, to 1.75%. This is the highest it’s been since 2008. It was the first major decision under the new Chairman Jerome Powell, and was made because of the continued growth and strengthening of the US economy. However, there’s one major concern regarding this decision: the interest spending and the size of the debt of the US. As shown in the graph, made by the Committee for a Responsible Federal Budget (CRFB), they estimate that interest costs will total $6.8 trillion over a decade and $965 billion in 2028. With just 1 percentage point annual increase in interest rates above CBO’s projection, this number would increase interest costs by $2 trillion (to $8.8 trillion) over a decade and by $325 billion (to $1.3 trillion) in 2028. Scenarios with an even higher percentage point increase are also shown. Moreover, the CRFB estimates that with the new key interest rate, the debt (to GDP) will grow to 101%, and would be at 107% with an increase of the key interest rate of 1%. (source)

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Boys, Race and Social Mobility

An extensive economic study for Stanford University that was published this month, shows the relations between race, income and social mobility. One of the thing it finds is that black Americans have substantial lower rates of social mobility than white and Hispanic Americans, while also having a higher chance of downward mobility. Correspondingly, this study, done by Raj Chetty, Nathaniel Hendren, Maggie Jones and Sonya Porter points out that even in similar neighbourhoods, with similar family structures, black boys have a considerable lower chance of having high incomes in adulthood than white boys. The study truly is a fascinating read. (source)

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Making Losing Less Attractive

With less than a month to go, the curtain is about the fall for the 17/18 NBA Regular Season. In contrast to former years, the interesting battles are not so much found at the top of the standings, but more so on the bottom. The National Basketball Association is a league in which every year, the inflow of new players from colleges and outside the US is determined by a draft. The worst fourteen teams in the NBA take part in the draft lottery, with the worst team having the highest odds to get the first pick in the draft, and the fourteenth worst team having the worst odds to get a high pick; the worst teams have the best shot at jumpstarting their team, by picking a new player first. However, this has incentivised losing over the years, with this year being the best example for that: no less than eight teams are currently trying to lose as much games as possible. Why? Because this is the last year of the current draft lottery system, with the new one being less top heavy, and the lottery odds being more levelled after this season. With this measure, the NBA is hoping to disincentivise losing. (source)

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Foreign Fruits and Vegetables

Source: U.S.D.A. Economic Research Service

The New York Times has published a thoughtful pieces on the pros and cons of eating imported fruit and vegetables, pivoting around one stunning statistic:  imports have been rising steadily for decades, and now more than half of the fresh fruit an  a third of the fresh vegetables consumed in the US come from other countries. Among the reasons are: improved trade infrastructure, deregulation, more demand for fresh produce year-round, the influence of immigrants’ tastes on the US consumption patters (e.g. avocados and mangoes). Almost half of the imported fruit comes from Mexico, some 15% from Chile. (source)

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US Companies And Their Taxes: A Race To The Bottom

Research done by Financial Times shows that, despite a decade worth of government efforts to cut the US budget deficit, big corporations have come out unscathed. The companies effective tax rates have come down considerably since ’91, with the biggest recents cuts coming in 2014-2015. For instance, the graph shows the ten multinationals with the largest offshore cash piles, whose effective tax rates got cut from 25% in 2015, to around 16% in 2016. (source)