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01/20/2016

Comments

Jane Chiavelli

This Washington Post article talks about the plummeting oil prices and its effects on the global stock market. According to the article, the current U.S. oil price has reached its lowest level since 2003 at $26 per barrel. This is due to an overall decrease in demand for oil. This is an important issue because oil is central to the global economy; oil is necessary for many construction and manufacturing projects which drive the economy. Therefore, if demand for oil has decreased, consumers and investors are worried that this is a sign that the economy is slowing down. In addition to oil, other companies have also fallen in the market, including Apple, Facebook, and Netflix.

This current event is very relevant to the discussion we had in class on Tuesday about recessions and the paradox of thrift. Paradox of thrift is a macroeconomic issue in which individuals decrease their spending and begin to save money when they think the economy is entering a recession, resulting in a decrease in aggregate demand and economic growth. In the case of the plummeting oil prices and falling stock prices, individuals and investors are worried about the economy, which may result in less spending and more saving. In reality, individuals and investors should not engage in such behavior since it will have negative consequences on the economy. Likewise, they should also look at other indicators of economic health such as the labor market, which has added over 200,000 jobs over the past few months. All in all, individuals and investors should avoid making sudden decisions, and they should not rely just on oil prices to determine economic health.

Danielle Spickard

This Washington Post article was very relevant to what we discussed in class on Wednesday. As Iran continuously pumps a surplus of oil, the US economy is experiencing oil prices plummeting by about 30% to $26 a barrel, the lowest since 2003. Many believe that this decreased global oil demand is possibly foreshadowing a future recession. This fear of a recession is impacting a myriad of businesses such as Netflix, Facebook, and Apple, each who are experiencing falling shares. As more people believe that the stock market is an indicator of a future recession, they are more likely to cut back on their spending, and begin to save. This is known as the paradox of thrift, a phenomenon in which people save money in hopes of increasing their income where in reality the saving decreases demand, and thus decreases jobs and income. If the global economy continues to make these rash decisions, we could actually end up in another recession regardless of whether or not our economy is headed in that direction currently. It will be interesting to see how the global economy responds to these events, and if Chris Hyzy, a chief investment officer at Bank of America Merrill Lynch, is correct in claiming that “the 80 month-long expansion is still alive.”

Ian Gipson

This article, in a subtle but still noticeable manner, takes into account the unpredictability of people's decisions. As explained by Chris Rupkey, a lot of people involved in the trading of the technology stocks have been panic selling despite it not being the most reasonable course of action. This is one of the potential downfalls of our current economic system. As investors fear a recession, whether valid or not, those fears can often turn a mild economic down turn into a reasonably large economic issue. As Chris Hyzy explains, it is based on prior experiences with the 2007-2008 recession that people are hesitant. Therefore investment officers are forced to warn their investors to try to prevent an occurrence similar to the paradox of thrift. This article also discusses the same topics we referred to in class regarding the reasons behind falling oil prices. One of which is the floundering Chinese market, and another is the vast oversupply coming from large oil exporting countries in the Middle East. It is odd to consider that despite a smaller increase in Consumer Price Index, there still exists the possibility of a falling market due simply to inefficient human behavior.

James Brady

Drew Harwell and Renae Merle’s article in the Washington Post touches on many aspects that we talked about during class. The two mention how China’s economy has come to a relative standstill, and how this can affect other world economies. China’s affect on the rest of the world can be derived from the principles of comparative advantage and specialization. Each country focuses development on the products with the lowest opportunity cost and trades to obtain the ones that they are not specialized at producing. This specialization interlocks all of the countries around the world into a trading network. The fall of China will bring down many of it’s trading partners, one being the US and have an affect on the global growth of the world’s economies. The article mentions that markets in Europe, Hong Kong, and Wall Street all tumbled. It is so coincidence that they all simultaneously faced extreme lows.

Another factor pertaining to the danger of the slowing global growth is the decreased demand for oil. When a recession is believed to be impending, consumers looking out for their own stability, decide to save their earnings. This phenomenon is refereed to as the paradox of thrift. When consumer’s earnings are withheld from firms and retailers, who are trying to sell their products, it forces them to have to layoff their employees. Unemployment stems from a decreased demand and can cause a recession. Macroeconomics describes the economy as a whole and this article shows how countries’ economies are interlocked on a macro scale and one countries’ struggling economy can lead to another’s downfall.

Jim Grant

The article from the Washington post discusses at length how the market experienced a big drop on 1/20/16. This is a big development as the market is down 1% on the day since the national market tends to grow. The article talks about how the slowing rates of growth are indicative of an impending economic crisis. Companies like Facebook, Apple, and even Netflix which has grown significantly in recent months, received big blows to as big as 6% decreases. It’s interesting to see an article based on something we discussed at length in class. We talked about how gas prices dropped as a result of the emersion of American energy production. The gas prices dropping even further suggests a bigger problem with the market as a whole. The international markets dropping sounds like the paradox of thrift, as the big players of the economy like gas companies take a toll everyone else follows. All international companies are affected, even Netflix and Apple saw big drops. As these big names find their footing it leaves analysists to point to the impending doom of another possible recession. Despite the market recovering the market recovering the last couple days the overall growth is slowing down and is raising some eyebrows.

Andrew Agrippina

This article very effectively supported our classroom discussion on Wednesday regarding oil prices. It is easy for the average consumer to see the dropping of gas prices bring about a lower cost of living, and call this an undeniable plus for our economy and society as a whole. However, we read Washington Post articles, and become above-average consumers!
It alerted me to the negatives that go along with this drop on oil prices. There has been a generally negative effect on large companies like Netflix, Facebook, and Apple, and international markets are suffering. This is in a large part due to the paradox of thrift, an idea we discussed in class, describing the phenomenon of consumers spending less because they anticipate a recession, and subsequently causing that recession by spending less - a self-fulfilling prophecy of sorts. So, we see a domino effect starting with gas companies. Because the price of oil has gone down, the demand has decreased, and gas companies are not doing as well. This has hurt international markets, and we are seeing the paradox of thrift in action. Though the market is starting to bounce back, it is certainly in flux, and the future is unknown.

John Broderick

On the twentieth there was an overall drop in the stock market of one percent. This article talks about how there is widespread fear due to the price of oil decreasing, and how the Chinese economy has finally slowed down from its exponential growth this past decade. China, with a fifth of the worlds population, having a slowing economy is definitely a valid reason for investors/people to be afraid of what is going to happen next with the economy. They play a role in basically everything that goes on in the stock market. However, as we talked in class this fear should not control our actions because based on the idea of the paradox of thrift. If we start to pull money out of the stock market and the fear controls our actions things won't get much better. The decreasing oil prices make me think of what will happen to renewable energy stocks if the cost of oil continues to plummet. It would make it so cheap to buy oil that I think it would be impractical for people to buy renewable energy sources. I think that if it continues to fall, so will the prices of renewable energy.

I find it really interesting how one thing so simple as oil can basically control economies. And how China, one country out of hundreds has such a great influence on the American economy. In my own opinion I think that we should be worried about the potential consequences of oil prices dropping so rapidly, and something should be done in order to stabilize its price. I would definitely be interested in looking more into this topic during class.

Devin Kearns

Although it is unsettling that oil prices and global use of oil has enormous power over the state of the market, what strikes me as the most disconcerting is the power China has over the state of the global market. Currently, because China is not using oil in as much volume as they have been in the past, almost every western market is experiencing huge backlash. This made me wonder if it is good that our nation relies so much on the success of China? And also, what would be the consequences of becoming less integrated with the Chinese market?

These questions seem to appear in economic policy talks and many politicians are taking both sides which makes the answer seem like it is going to be a compromise between the two. In the globalized world, it is naive to think that we can fully separate from extremely powerful nations like China. Being connected with China allows for low prices on goods because of low production costs. The United States also reeks benefits whenever the Chinese market grows which is good for investors. Connectedness also allows for more technological development because of the intermingling between people in both countries. The domestic well-being of China can increase if both countries contribute to each others success.

However, if we are interconnected with China and the markets crash, there could be huge consequences. For instance it would decrease the amount of employment in the United States which lowers the amount of income each person has, which reduces the amount of spending done by each member of the society. This would lead to the paradox of thrift and companies suffer which leads to lay-offs and bankruptcies, etc.

With these two extremes possible, it seems that a compromise needs to be in place. Having a policy where we can reek the benefits of being connected with the Chinese markets while disconnecting when markets crash. Having such safeguards seem unrealistic to me but I think they would ensure that the success of each nation would benefit the other while the failure of each nation would be confined to the nation itself.

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