Saturday, November 16, 2013

US production of oil exceeds the import of oil for the first time since 1994. This is either "Fracking" good news or bad news...

Depends on your opinion of Fracking.

The RED line represents imports of oil. The BLUE line represents domestic (US) production of oil.

The  RED line and the BLUE line cross circa 1994 and 2013.

In between these two time periods,  imports of oil are greater than the domestic production of oil.  It is hard to see, but 137,000 more barrels a day the U.S. produced than it imported in the week ending Nov. 8, 2013.  (the tips of the lines cross on the far right).  There are 42 gallons in a barrel.

Source: Wall Street Journal
If you were to add domestic production and imports at each of those two intersect points you would have roughly 14 million barrels per day in 1994 and  about 16 million barrels per day in November of 2013.

We are producing more ourselves (good and bad there) and consuming more overall on a daily basis (good and bad there, too). In fact, 14.3% more.

FRACK!! (insert your own tone and emphasis).

List of the 50 Greatest Breakthroughs the world has seen and why they become insignificant as time passes.

The Atlantic has compiled a terrific list of "The 50 Greatest Breakthroughs Since the Wheel". 

I encourage you to read the article associated with the list. The author does nice job of creating over-arching categories that each of the breakthroughs fall into. Notice a common word?:
1. Innovations that expand the human intellect 
2. Innovations that are integral to the physical and operating infrastructure of the modern world 
3. Innovations that enabled the Industrial Revolution 
4. Innovations extending life 
5. Innovations that allowed real-time communication beyond the range of a single human voice 
6. Innovations in the physical movement of people and goods 
7. Organizational breakthroughs that provide the software for people working and living together in increasingly efficient and modern ways
All/most of the breakthroughs identified came about as a result of MANY small innovations and discoveries aggregated over time and allowed the  "Big Idea/Product" to eventually emerge. This is an under-appreciated aspect of the process by which these game-changing ideas and products come about.

While all the items of the list stand prominent by themselves, they pale in comparison to the "spin-off" ideas and innovations that were spawned as a result of the initial breakthrough.

Think of electricity and its eventual democratization ("cheapened",or scaled, so it is available to the masses) and how it allowed the proliferation of seemingly infinite new ideas and products.  Electricity is now an afterthought and its significance is virtually lost in the process as time passes.

If you look at the list you can substitute anyone of the identified 50 breakthroughs with the word "electricity" in the above paragraph and come to the same conclusion.

Eerie, isn't it?

Friday, November 15, 2013

"Remittances" to Latin America are 8 times more than foreign aid to that region. That has to be good, right? But what the heck is a Remittance?

An important topic we cover in AP Macroeconomics is "Balance of Payments". This is an accounting of the flow in the trade of goods and services, factor payments on interest or dividends paid or received, certain transactions involving the buying and selling of physical and/or financial assets, and subsets of other transactions that occur across borders.

According to Pew Research:
""Remittances are a larger source of money to Latin America than official foreign aid. In 2011, when foreign aid to Spanish-speaking Latin America nations totaled $6.2 billion, formal remittances were more than eight times that—$53.1 billion
Wow! That is amazing? Oh, wait, you don't know what a "Remittance" is? That's ok. I will help you out.

Remittances are cash transfers (or it could be non-cash assets) that migrants to a country send back to their home country.  For example, a Mexican migrant in the US works, earns money, then sends a portion of it back to Mexico to his or her family.  It also works in reverse. An American migrant in Mexico sends money back home to the US.  Hence, a "Net value" is obtained---The amount leaving the country versus how much is coming back.

In the US Balance of Payments in 2012 net remittances from all countries were -$79,913,000,000 (negative $79.913 billion).  This means there was a net OUTFLOW of dollars from the US to foreign countries.

By comparison, TOTAL foreign aid by the US to the rest of the world was approx $54 billion in 2012. Remittances earned in the private sector play a larger role than foreign aid financed by tax dollars.

Pew Research has a new study out showing the effect of remittances to Latin America.  The study can be found HERE but I am posting a couple of interesting graphs for your viewing pleasure.

As you might expected due to geographic proximity, most of the remittances are earned in the US.
Share of Latin America Remittances from Top Sending Countries, 2012

Mexico is by far the country that receives the most remittances.  A little over $20 billion whereas the rest of Latin America/South America takes in a little over $30 billion.

Total Remittances Received in Latin America and Mexico, 2000-2013

However, the total effect on the recipients economy, as measured by the impact the remittance has on the nations GDP, is not equal. El Salvador, Honduras, and Guatemala (as percent of their GDP) are highly dependent on this source of income.

Remittances as a Share of GDP, 2012

Remittances and Foreign Aid are just two sources of US dollars to Latin America. For example, this does not count charitable donations, religious or non-religious.

Thursday, November 14, 2013

Even the SNAP ("Food Stamp") Program has a Wall Street Connection. Mind Blown...

This from the Wall Street Journal Today:  
"Wal-Mart estimates it rakes in about 18% of total U.S. outlays on food stamps, or about $14 billion of the $80 billion the U.S. Department of Agriculture says was appropriated for food stamps in the year ended in September 2012."
Food Stamp (now called SNAP, are not actual paper stamps anymore  but a Debit Card) benefits were recently "cut" by approx. 5.5%.  This means Walmart, ceterus paribus, will potentially lose about $770 million in sales.

This led me to wonder how other companies might be adversely affected by the cut in the program. Found this from HERE (list not exhaustive):

All of them made sense to me. They are in the wholesale/retail food or drink business.  BUT, what does JP Morgan have to do with the SNAP program?

Led me to this graphic of the SNAP hierarchy and how the program is administered (found HERE).

I learned that JP Morgan (a big financial institution) is a major "middleman" in the program and they contract with 24 States to administer the program. I did not know this and assumed it was directly administered by the Federal Govt (Ag Dept).

 It pays handsomely to be one of these contractors.  JP Morgan earns a monthly fee for EACH SNAP recipient is anywhere from $.65 to $1.45 (it depends on the State they contract with).  They earn additional revenues on the rental of the machines retailers use to process SNAP cards, as much as $14.95 per month,per point of sale machine.

I am not making a judgement about this relationship.

I just did not know about it before.  If you didn't, well, now you do.  Hope it helps. :)

Half of the Trade Deficit in September was from Oil Imports. Is this good thing? Bad thing? Or is just "a thing"?

Below is a graph (which I modified for instructional purposes) from Calculated Risk.

It shows the MONTHLY status (deficit or surplus) in the trade of goods and services that the US has with the rest of the world. It does not include ALL items accounted for in the Current Account of the Balance of Payments, but most of it.  We would call this "Net Exports" in our GDP equation (C + I + G + N(x)).

The gap between the RED line and the Blue line represents the value of imported oil in a particular month (not inflation adjusted as far as I know).

This graph is useful in showing the significance of oil in international trade.  As you can see, in September the dollar value of oil imported into the US was approx $20 billion.  That accounts for about 50% of the trade deficit in September.  Yes, just one commodity albeit an important one.

This graph also gives a nice perspective as to how dependent we are on "foreign oil" at any particular time. For the most part that means Canada and Mexico where we get a majority of our imported oil.

Oil imports usually increase during good economic times and decrease during bad. The BLACK line generally shows this---trends up during recessions, down during non-recessionary period(s).

However, in the last couple of years it has trended up DURING the economic recovery from the Great Recession.  How can that be?

That is the question for you.  There could be multiple reasons. Any guesses??

Tuesday, November 12, 2013

The phrase "Do you want fries with that?" will not be uttered by a human being in 10 years. It will just be a button on an order pad.

When Businesses allocate their investment dollars (presumably from profits) one of the major things they look at is the price of labor relative to the price of physical capital they can deploy in their operations. Both can be assigned a dollar value on an hourly basis---how much it costs to hire, train, and offer benefits to a worker versus the use a machine/technology in a 60 minute time span.

There are lots of explicit costs (money costs) and implicit costs (how employees/customers are affected) that go into this consideration. The cost of technology to do "routine jobs"  has fallen tremendously just in the past 10 years and the closer it gets to the cost of employing a unit of human labor the more likely it is to be used as a substitute for labor.

Here is an example of "technology creep" into lower skill level of the work force.  What has happened to mid-wage manufacturing is coming to the retail/service sector.

Do we still think it is a good idea to raise the minimum wage and make it competitive with technology? The issue is more complex then is promoted in populist circles. More thought and consideration is needed on this issue than I see taking place.

Bolt Burgers: the most high-tech burger you’ll ever order, coming soon

No restaurant in D.C. has been better outfitted for the iPhone generation than the forthcoming Bolt Burgers. It is a restaurant full of screens -- touchscreen systems for ordering your food and making your drinks, tablets at every table, and a 16-foot-wide projected TV screen to watch while you wait for your order.
You can order food without having a single interaction with another human being, which, for millennials who prefer texting and online ordering through Seamless to picking up the phone, is a major plus.

Monday, November 11, 2013

How many foreign students study in the US? Where do they study? What do they study? All these questions I KNOW you have wondered about are answered HERE!!

It is well known that the US offers some of the best higher education opportunities in the world. The latest report from the Institute of International Education has a great deal of profile data on foreign students studying in the US (and US students studying abroad).

Below is some of that data I thought interesting and that most people would not know.  Now you will!

In raw numbers, China sends the most students to US colleges and universities.  They represent 29% of the total.  You can see the drop off after that.

Here are the colleges/universities that are the most receptive to the inflow of foreign students. Northern and Midwestern institutions are favored by foreign students, for the most part.

What do they study?  I was actually surprised that "Business and Management" was first on the list. However, if you combine Engineering and Math/Computer Science, and Physical/Life Sciences, then the "STEM" majors dominate.

Finally, how do foreign students pay for their US education?  Like most students in the US, parents/family are the primary source by far.  
Check out the "Fast Facts" from the study. Lots more information on this interesting topic.
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