The Markets
Really?!
Okay. Okay. If
you’ve been trekking through Siberia or Patagonia for about a year, then maybe
it surprised you to hear the minutes from the Federal Reserve Open Market
Committee meeting showed it expects to begin tapering Quantitative Easing (QE) in
the coming months.
However, since
the Fed has been telling anyone who will listen – telling them over and over
and over again – that its intent is to slow the pace at which it buys bonds as
the U.S. economy strengthens (and since most people haven’t been exploring the hinterlands
where the convenience of modern communications may not be readily available),
it’s difficult to understand why that information was so surprising that it
pushed stock and bond markets significantly lower.
It might have
been easier to understand market declines if they had occurred on Tuesday after
the Organization for Economic Cooperation and Development (OECD) released its
revised economic outlook. In his speech, OECD Secretary-General Angel Gurría
said:
“The recovery of
the global economy is progressing at a moderate and uneven pace. World GDP growth,
which averaged about 4 percent per year in the decade up to the onset of the
global crisis, is expected to reach only 2.7% in 2013, the lowest rate since
2009. While we expect global growth rates to move again towards 4 percent in
2015, the world will continue to be affected by the harsh social legacy of the
crisis… The recovery itself is exposed to potential downside risks, including
fiscal brinkmanship in the United States, unresolved banking problems in the
euro area, the high debt burden in Japan, and financial vulnerabilities in some
large emerging-market economies.”
Gurría also said,
in the OECD’s long-term view, economic weakness was the result of investment
remaining anemic, credit growth remaining subdued,
trade growth gaining sluggishly, and growth in emerging economies faltering.
Regardless, the
markets’ downward foray was short-lived. On Friday, the Standard & Poor’s
500 Index closed above 1800 for the very first time. Other U.S. markets moved
higher as well.
an oh-so-brief
brief on digital money… If you read or
watched the news during the past few months, you may already know this, but
there has been an explosion of interest in digital money. That’s the reason you
may be hearing and reading about dozens of companies that are rushing to coin
virtual currency that has real value. It just seems so 21st Century,
doesn’t it?
Odds are you’ve
already used digital money. For example, you used it the last time you purchased
something online. Digital money is what we use when we pay or are paid
electronically. Think smart phones and credit cards. Digital money is not
tangible; however, it is possible to convert digital money that is part of a
large centralized banking system into paper money by making a withdrawal from
an ATM.
In the United
States, the Federal Reserve is responsible for maintaining the integrity of U.S.
bills and coins by setting monetary policy. Digital currency companies offer a
parallel currency universe; a means of transferring electronic money from one
person to another without using traditional banking or money-transfer systems.
Digital money
companies appear to be delivering American economist Milton Friedman’s dream,
according to The Economist. Years
ago, Friedman suggested the Federal Reserve be abolished and replaced by an
automated system that would increase money supply at a steady, pre-set rate. He
believed such a system would better control inflation, making spending and
investment decisions more certain. The
Economist article said:
“In theory, then,
the system ought to keep a lid on inflation – making it attractive to critics
of interventionist monetary policy of the sort practiced since 2008 by
America's Federal Reserve under the label quantitative easing… It offers other
apparent benefits, too. The currency can be used by anyone (unlike credit
cards, for instance), anywhere. Transaction costs are also likely to be lower
than those for traditional payment systems, though these are not in fact zero…”
The Economist goes on to point out a key difference
between central-bank-controlled currencies (which often offer both bills and
coins and digital currencies) and digital currency companies is the former are
backed by a country’s regulations and laws; the latter are answerable to online
communities using the currencies.
Weekly Focus – Think
About It
“A business that makes
nothing but money is a poor business.”
--Henry Ford, American Industrialist
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