CH 7 Blog

Student debt bankrupting a generation

http://www.financialpost.com/news/Student+debt+bankrupting+generation/4874861/story.html

Summary:

Canada is breeding a generation of “debt students” where their first job starts with paying off debt. Nearly 2 million Canadians have student loans worth as much as $20 billion and it includes provincial government loans, credit cards, and family loans. One reason for the increase in debt is tuition fees, which nearly doubled in the pass decade and other fees for necessities. However, the main problem is the interest rate implied on the loans. In a time of very low interest rates, the government charges 8% on student loans. Many students find that a nightmare especially how the interest begins to compound. The fact is that students own so much that saving up an account or starting a retirement program early is almost impossible. As a result, the economy suffers as the generation focuses their money in repaying the banks and saving money.

Connection:

The connection that seem obvious to me is the concept of the bank of Canada. As we know, in Canada the banks have the ability to do many things that will influence the economic conditions. For example, if the bank saw inflation as a serious problem it would try to reduce money supply. This connects with the article because the banks have the ability to change their policies about student loans to be more modest. Another connection is with the supply of money. Because everyone with a post secondary education is in debt, the nation’s GDP will feel the ripple affects as people are going to spend less to cover their debt. Therefore, it effectively decreases the velocity of circulation of money and market transactions. In other words, living off debt is not sustainable and the banks need to act to resolve this epidemic.

Reflection:

It may not be on the top to do list for the government and the banks but it will be of major concern in the near future. If I were to propose a solution to the problem it when be to reduce the interest rate while extending the repayment terms and there should be an adaptable rate to accustom each student for special cases. This really worries me, as I am also a student about to enter post secondary. I know for a fact I do not want to be spend half my life paying off student loans because of high interest rates. I hope the banks propose a plan to fix this cause eventually it may potentially shake the foundation of the country's economy.

Great Depression

Great Depression

1                    Almost all economists can agree that no single one event started the Great Depression. Instead, many events intervene together influenced the start of it. It began with the stock market crash on October 29 1929. As a result, shareholders lost more than $40 billion dollars. Afterwards, bank failure rose throughout the country and because of that people started to lose their savings. Things now escalated to a point where demand for products dramatically drop due to phobia that the economy will worsen. The government anxious hastily implies a policy of tariff. The policy was enforce to protect American companies by raising taxes on foreign goods. However, this would prove to be a catastrophe as it reduces imports and exports. Finally, detriment to crops around America cause difficulties for farmers to pay taxes and in turn lost their farms. It would these events and started a long line of miserly known as the Great Depression.

2                    It came with a bang and left many people feeling the affects of it. The current recession has causes a global crisis and resulted in many powerful nations feeling the consequences and it all began in America. The banks started offering mortgages to individuals and families with poor credit. Under the situation, the citizens were incapable of paying the low-down-payments/low adjustable mortgages. As a last ditch effort everyone began to sell their property before the banks repo their houses. This reaction made prices drop. (It is because of the contrast between and supply and demand changed) In addition, oil emerge record high prices. As a result, of China consume much more oil and the Middle East in continual civil war. The final cause to the recession is debatable with but some people believe it may be because of the decrease of the U.S currency. Nevertheless, it is these reasons that caused the “Great Recession”.

3                    The government in my eyes has done a reasonable job in reacting to the recession. Some of the actions include Barack Obama’s strategy to pump money into the economy by spending but that is only for temporally time. Leaders of the world have made efforts to get together in the G-20 Summit but it is hard to determine if anything even was done during that time. Overall, I do not know if they were successful in their attempts but at least they tried.

4                    Compare to the recession and during the Great Depression they lack advance technology that help us resolve many of the problems faced. In the time of the 1930s they did not have computers, cell-phones and credit cards. The banks use these to great effect today. The computer offer many online benefits that ordinary people have access to that educates them.

5                    Online resources and banking affect America’s GDP because it provides services that help to make profit. For example, the internet gives constant feedback about current prices on products and keeping track on the stock market is that much easier. Another benefit is and banks give citizens a formal way of transferring cash around the world with little difficulties and provide loans. All of the positive things that online resources and banking lead to America to having a better GDP therefore efficiently alter/changing it.

6                    I think the Great Depression affected the world more than the current recession. I can sympathize that people are suffering a lot due to the slow down of the economy however, it’s better than having thousands of ordinary citizens laying on the street starving. It was so troublesome at times people started to commit suicide as an alternative to getting out of debt. In addition, many lack current technology and education on helping themselves to pay off debt and various credit that are essential to fixing their problems. Therefore, I personally believe the Great Depression was much more devastating than the current recession.

Smart (Phone) Money

1          It’s hard to judge how long it’s going to take before the idea of using virtual cards to pay for your everyday needs to become a reality. I believe that people are usually always skeptical when new products are introduced. In addition, it depends on how well Interact Association as well as other companies pitches this idea to their target market and how well their ability is to predict future problems and to solve them. Therefore, if I were to pin down a time frame in which everyone will go virtual would be some time in the next three decades.

2          I think it depends on each individual as to his or her circumstances regarding the use of a virtual wallet. One demographic, for example, is the older generation that has made it a preference to use cash, as it’s something they already know how to use. Another group of people that would not jump the wagon would be those who simple don’t trust the product as newly release versions usually have faults and are confusing to use at first.

3          Some companies that are going to be negatively affected by the virtual wallet are those that do not support the system. For instance, in Japan the follow companies (Ticketing agency PIA, credit card company JCB, BitWallet, JR East, Japan Airlines, All Nippon Airways, and convenience stores am/pm and Circle-K) have been participating in a joint collaboration to bring the virtual wallet to Japan, but some prominent companies like 7-Eleven and Tokyo Metro have yet to join the party.

4          The mobile phone industry is going to make a huge profit if the virtual wallet becomes a hit. As the main component of the function would be located in the mobile phone, therefore the industry can charge more for a profit. Also, the retailer industry will benefit from it, as now it is a little more convenient to shop and buy goods. Another industry that will make money from the virtual wallet would be the banking industry. This is a result of all the profit that will be made from every transaction and when someone borrows money using the virtual wallet.

Chapter 6 blog

http://www.financialpost.com/news/features/Canada+demographic+time+bomb/4544389/story.html

Canada's Demographic Time Bomb

Summary

            Dismay over the political drama in the 2011 federal budgeting, people are overlooking a threat of aging Canadians. As results set out by Statistic Canada shows that the Canadian population could exceed 40 million by 2036 and for the first time senior citizens could out number children. The government should be concern, as they will need to find an extra $2 billion each year through either program cuts or tax increase to finance payments through the Old Age Security and Guaranteed Income Supplement schemes. In addition, these figures could jump to $3 billion from the period of 2015 to 2020. If the government does not address these problems now it may prove devastating in the future.

Connection

            The connection that seems obvious to me is to that of aggregate demand. As we all know, aggregate demand means the total demand of good and services in the economy; this also includes government spending. If the predictions of StatCan are true, then this will greatly affect the aggregate demand of the government’s. This means they will need to develop a plan to answer the situation. As ultimately, this will translate in a slower potential economic growth in the years ahead, which also translate to slower growth in tax revenue. This will lead to effect how the government will export/import some of their resources as well as change future spending.

Reflection

            I personally think this could potentially uproot Canada’s economy in the future because if all the Baby Boomers retire during a short time frame this drastically puts a hole in the labour market. This shortage in the labour market is going to pose many problems in the production industries. As the article has mention, the government is already on a tight budget and if their solution is to raise taxes then this may scare away consumers, which leads to difficulties for many businesses. Not to mention the health care cost that is going to take to support all the seniors. The government has work up to their necks and if they want to resolve this, I think discussion about this topic needs to be brought up in the upcoming federal election otherwise I do not see a bright future for Canada.

ch 4

http://www.thetelegram.com/Opinion/Columns/2011-01-29/article-2182050/A-federal-election-about-taxes/1

A federal election about Taxes

Summary

Our Prime Minister is preparing voodoo economics again and is trying to sell us a bridge that does not reach the other side. Once again, he wants Canadians to believe that the corporate tax cuts of $60 billion just were not enough and now plans to give some of the worlds largest companies another tax break of about $6 billion. Canada has been repeatedly slashing the corporate tax rate, from a historic low of 18% in 2010 to 15% by 2012. With these latest round of tax cut, how does the government except to cover these lost? Will this mean less government spending in programs such as education or health care? On the other hand, does the government plans to borrow from the banks that benefit from the tax cuts? In the end, it does not really matter as working Canadians will eventually have to pay for it.

Connection

The most recognizable concept related to the textbook is horizontal and vertical equity. With the government decreasing the corporate tax for the companies that make billions of dollars they neglect the ability-to-pay approach or a progressive approach. Because of this, many Canadians feel frustrated and unsatisfied by the action of the federal government. As a result, it does not seem “fair” that the world’s largest companies get another tax break while working Canadians do not. In the theory of taxation, taxes should be fair as stated in the textbook but because of this recent tax cut for corporations it causes Canadians to feel that the government is being unfair. Now the mind set for many taxpayers is, “the rich continue to become richer and the poor continue to become poorer.”


Reflection

I do not know if I agree with the recent tax break. However, I do know this topic is up for debate as the federal government has an acceptable reason for these tax breaks. According to reports, the federal government is doing this to increase the employment rate and stimulate the economy. By reducing the tax, corporations are encouraged to employ more workers (expand their business) and it attracts other companies to do business in Canada. Nevertheless, this is very controversial as there is many down sides in doing this such as whether it is “fair” or not and who will cover these lost in revenue. I feel that the government is trying something that does not necessary work. I have found no study that has concluded that decreasing the corporate tax rate has resulted in increase of employment. I feel instead of doing this the government should do something else to increase employment.