"Ben Bernanke: Currency Manipulator"

          This post lags behind last weeks debate in which Presidential Candidate Mitt Romney pledged to accuse China of being a currency manipulator, but in yesterday's Wall Street Journal opinion section, an article entitled "Ben Bernanke: Currency Manipulator" gave the case that Federal Reserve policies force the rest of the world into unfair situations.
          The article details this argument using Brazil's reaction to Ben Bernanke's proposal of a third round of Quantitative Easing or commonly QE3: "Brazilian Finance Minister Guido Mantega has complained bitterly about it because in his mind the higher relative value of the real makes Brazil worse off." While the U.S. must rely on its central bank to help get this country out of the recession, Ben Bernanke has no qualms about stepping on other countries' toes. Obviously, Americans want to get back to manufacturing and producing goods for export, and by lowering the value of the dollar, this should lower the price of our exports, thereby increasing the amount of exports. However, with the dollar as the world's reserve currency and the U.S. economic dominance in question, how far can we go in upsetting the international community before opinions about this country turn sour? Taking this a further step: if the U.S. continues to print money "at a rate of $40 billion per month with no deadline" will this accelerate a change in the world's reserve currency?

Getting Ready for the Final Debate

          Last Week I meant to post this for those of you commenting on China in your blogs, the Chinese would like to have a word themselves about the U.S. Presidential race: http://usa.chinadaily.com.cn/world/2012-10/16/content_15819728.htm

         The Article discusses some points about how China bashing has been more prevalent in this election season than in previous ones. Because the bashing has been this way, the Chinese are wary about the fact that although in previous instances of China bashing during the election season, the winner usually reverts to an amicable disposition. However, they are hoping these two candidates do not go so far as to damage bilateral relations.

          Tonight, we will see how far the candidates will go. While China may not be first on the list of topics for tonight's debate, the debate will certainly highlight the subject of China as a rising global power.

          Both Romney and Obama have been heavy on the "China bashing." Mr. Obama accuses Mr. Romney for having a penchant for advising companies to send jobs or other investments overseas to China, while Mr. Romney rebukes Mr. Obama for not being tough enough on China as a currency manipulator. From my perspective, Mitt Romney is catering to a group of Americans that are not exactly knowledgeable on the subject. Earlier this year, the IMF downgraded the rating of China's currency from "substantially undervalued" to "moderately undervalued," raising the question: "How far is Romney willing to push China over this issue?" (IMF Summary Report)

          Granted that using a foreign rival (a Communist one at that) as a proverbial punching bag is a move many politicians would make, but diplomatically-speaking, denouncing China as a "currency manipulator" is  a very insensitive position for a president to take. The president is the face of America when it comes to international relations, and attempting to stir up bad blood with the number one foreign holder of U.S. public debt and our second largest trading partner is a precarious action to take.

          In terms of the other topics on the table for tonight, there is the Attack on the U.S. Embassy in Benghazi, the War in Afghanistan, relations between Israel and Iran, and the Crisis in Syria, among some other international issues. Although the last debate was very heated, it will be interesting to see what the candidates have has to say about one another in this debate. Romney has made many political gaffes abroad while Obama made the mistake a few weeks ago of mislabeling the Attack on the U.S. Embassy as a protest. Their positions on the War in Afghanistan are relatively similar, but I imagine they will certainly be more contrasting on the situations regarding Iran and Israel.

          As this is the final debate and the most relevant one to the two candidates' potential future job as Commander-in-Chief and liaison to the International Community, I encourage you to enjoy the final debate if you get the chance.
       

The Student Debt Crisis

          Noticing an interesting point in Annelise's post about the rising "cost" of tuition, looking at the possible student loan bubble may be a model to look at for analyzing an ongoing crisis.

          While professors' salaries may be rising, the real rise in tuition has perhaps come from the huge reductions in state spending on higher education. The Department of Education has made drastic cuts in subsidies for college tuition, and because the cost of an education is not decreasing, the students must make up the difference where the Federal government has come up short. 

          Another factor to look at is the value of college education (determined by simple supply and demand aspects). As more students go to college, more people get degrees. With more people graduating from college and the current scarcity of jobs, the demand and thereby the value of a college degree has fallen due to a large supply of unemployed college graduates. Annelise is right to note that while many college graduates are fortunate enough to go to a university that can deliver the potential for higher future earnings, other students may not be able to pay off their loans. To get a scope of things, the amount of student debt is over $1 Trillion (that is a T), and already ~13% of those who had borrowed money to pay for college have defaulted on their payments. That dollar amount is bigger than both the debts owed on auto-loans and credit cards.

          Defining the "cost" of tuition is difficult because the government made credit so readily available for financing college tuition payments. While this originally was an effort to maintain the affordability of college for the middle class, has this ease of credit gone on for too long? Have we created a glut of college students who now cannot find jobs and consequently cannot pay off their loans? More fundamentally, is there a limit to how many college students our economy can sustain?

          Looking at Krugman's take on the Asian Crisis in Thailand, it seems we can draw some comparisons... 

          Q: Is it necessary that we reduce the amount of financial aid for college tuition payments? If so, how can we do it responsibly to avert a real crisis?

          Q for You: Romney and Obama have not really discussed the debt burden of college graduates. For the young demographic 18-25, maybe some older, this is probably the most important issue next to finding a job. How are they going to answer the questions above? Look for some answers (given with a mountain of salt) in the town hall debate this week!

         
       

Reduction of Government Funding for College and Education (2):
http://moneyland.time.com/2012/01/25/students-bear-the-burden-of-state-higher-ed-cuts/ (Jan 25, 2012)
http://libertystreeteconomics.newyorkfed.org/2012/09/soaring-tuitions-are-public-funding-cuts-to-blame.html (Sept 19, 2012)
Facts and numbers about recent graduates, employment levels, and other interesting points:
http://www.huffingtonpost.com/2012/06/26/infographic-shows-how-us-_n_1628187.html (June 26 2012)
Defaults on Student Loans:
http://www.washingtonpost.com/local/education/concerns-raised-about-student-loan-defaults/2012/09/28/99ba45b8-099d-11e2-a10c-fa5a255a9258_story.html (Sept 28, 2012)
USA Today, College Costs and the Department of Education:
http://usatoday30.usatoday.com/money/economy/story/2012-06-13/college-costs-surge/55568278/1

Samsung a Good Corporation?

          Even with Apple's recent victory over Samsung in patent infringement charges in the U.S., the back and forth legal battle will continue into the future as the companies try to establish exactly who is copying whom and in what respects. This trouble has not yet played out in China, which just recently became the world's largest smartphone market this year (Forbes Article), and perhaps in an attempt to shift its focus, Samsung has begun investing in its manufacturing operations in China to ratchet up its already dominant position in the smartphone market.

          Although it is unclear whether China is either a developing or developed country, its sprawling and modernized metropolises like Shanghai and Beijing certainly stand in contrast with the western part of the country, which is much less developed than in the East. However, with Samsung's investment in a $7 billion semiconductor manufacturing factory in Xi'an, a second-tier city in the western Shaanxi province, the pace of growth is accelerating for the West (Korea Times). As if the creation of jobs and attraction of business that this investment will bring were not enough, according to an article from China.org.cn, Samsung also plans to create a partnership with the nearby universities in Xi'an to provide graduates with jobs and stimulate growth in the fields of IT and electrical engineering.

          In light Stiglitz's opinions about how globalization should progress in his chapter on "Patents, Profits, and People",  this example is interesting because it is evidence of a "good corporation," one that is investing in the improvement of capital and education in a developing country (of course, smartphones are not nearly as important as live-saving pharmaceuticals, but they at least promote development of China's low- to medium-skilled labor). At the same time, Samsung has been proven to be infringing on patents, so I wonder what his opinion would be concerning Samsung.