The cyber security companies do not have the incentive to eliminate all existing and potential hacker attacks

Cyber security is crucially important in today's world, because all businesses are using IT technology to increase their efficiency and productive capacities. However, I think the nature of the market requires the cyber security firms and hackers. They are against each other, but the cyber security firms need the existence of hackers. When the cyber security companies are doing well that their products block all hacker attacks and viruses, people stop their investment in the cyber security industry as they believe there is no need for this sector to grow further. However, when hackers attacks cause major losses, people think these companies are not doing well, and they will lose some of their contracts, thus their market values will decrease. Therefore, the goal of the cyber security firms is not about to eliminating all hackers, instead they want to limit the damages caused by hacker attacks.

The chicken or the egg causality dilemma in economics

The chicken or the egg causality dilemma in economics is about demand or supply. Do we have demand first or supply? It is a complex question. However, we can have answers for some particular goods and markets. For example, weapons are developed and produced because the national defense ministry demands more advanced weapons to defend the country. Meanwhile, some products are supplied first, then people find their uses and demand for them. Penicillin is a good example. Penicillin was invented by accident; however, because of its antibiotics function, it is widely demanded by people. Overall, we can see that in most cases, demand comes before supply, but there are still some cases that supply comes before demand.

Saudi is no longer to afford the cause of the current oil price

Saudi unveiled spending cuts in its 2016 budget, subsidy reforms and a call for privatization to mitigate the deficit caused by the low oil prices. Saudi has raised its oil production and lowered the prices in order to win the market share from higher-cost producers.However, the action taken by Saudi suggests that its own is not a low cost oil producer. Maybe the cost of oil production is low; however, the country requires a higher income from oil exports to support its government spending. Therefore, Saudi may no longer maintain its current production level and may reduce its production in the near future, thus the oil price will rise above the current level. However, due to the weak demand side, the oil price will hardly rise back the level two years ago.

How government and firms do things differently?

Government likes to enter the market with full details, known strategies and very clear plans. Once an act is passed and put into action, the act is not flexible and it usually requires more paperwork to amend the act than creating the act. However, firms usually enter the market with relatively limited information (especially when they enter a new market) and some new ideas. They are very flexible as they have to adopt themselves to the market changes. Therefore, government is easier to intervene the traditional industries effectively, as the changes in such markets are more predictable. When the market is changing rapidly, the government intervention could be much less effective.

Could the oil market fit into the Cournot model?

The Cournot model needs to have several characters. Firstly, firms need to have market power. Secondly, the products have to be homogeneous. Thirdly, the number of firms is fixed. Fourthly, firms are economically rational. Fifthly, firms do not cooperate. Sixthly, firms compete in quantities. In the oil market, firms are the countries that export oil. And I can see that the oil market has the first three characters and the last one. As these countries have some market power to affect the overall supply of the market and influence the oil price. Moreover, the number of these countries is fixed and they all export the same product, oil. These countries compete in quantities, as they choose their quantities to produce each year. However, the countries sometimes make their decisions based on some political reasons, so they are not always economically rational. They often cooperate, as some of these countries found the Opec. Therefore, the oil market does not completely fit into the Cournot model

Some key points drawn from some professional 2016 outlook reports

China:
the equity market: more volatile and could see a potential correction
financial reforms will become particularly important to determine the Chinese economy's future performance

Oil and commodity prices:
little optimism
unless the OPEC decides to cut supply, hedge funds will continue to short

The EU (especially the eurozone):
disappointment from the ECB
there will be limited recovery or even no recovery
the political conflicts in Europe

The UK:
the economy is recovering; however, the government budget remains as a big issue

The US:
the economy is recovering
the US Fed may choose to raise rates next year
the US government debt is a big issue

Japan:
the economy is very domestically focused
trade partner is China. The slowdown of the Chinese economy will affect the Japanese economy

The emerging markets:
the emerging markets' development is slowing down

I expect the UK Boxing Day sales could be higher than the previous years since the crisis.

Boxing Day is in two days. It is the biggest sale day in a year. From the sales data of Boxing Day, it could be used to estimate the purchasing power of the British population.  Moreover, UK bank lending to business growth for the first time since the crisis. This could show that banks believe the UK economy is in growth and the UK companies could do well in the future. Also, it shows that the UK companies are looking for more investment and opportunities as they see their markets are expanding. Additionally, this year people feel more secure about their futures and their incomes are increasing, thus the UK people would like to spend more this Christmas. Therefore, I expect that the Boxing Day sales could be higher than the sales in the previous years since the crisis.

Oil prices tend to be stabilized and might rise next year

The OPEC has lowered its long-term estimates for oil demands, but says 10 trillion dollars of investment will be needed to prevent a spike in oil prices. This sends a signal to the market that the era of oil oversupply will end shortly. However, the OPEC also leaves some room to maintain the oil prices at the current low level for a period of time. In my opinion, the oil prices could rise gradually next year. The social unrest in the Middle East could add more force to increase the oil prices. However, we also need to consider the other sided force that could drag the oil prices further down. The slowdown of the emerging market economies could weaken the oil demands. Moreover, the 10 trillion dollar investments also prevent the possibility of a sharp increase in oil prices. In my conclusion, I believe that the oil prices could rise back to around $70 per barrel at most by the summer of 2016 due to the slowdown of the EM and other factors. The area of over $100 per barrel will never happen next year.

The EU is in decline

2015 is so far a tough year for the EU. The political uncertainty, the endless Greek crisis, the scandal of the German car industry all contribute to the decline of the EU. The political uncertainty of the Southern Europe may not cause significant damages to the economy; however, the potential risk of the political uncertainty could become worsened when the economic difficulties in these countries remain unsolved. The decline might speed up if Britain decides to leave the EU in 2016. The scandal of the German car industry has had negative effects in the German economy as well as the EU economy, as the German economy is the largest economy within the EU. Many problems in the EU seem endless, because there is no single central government in the EU that could relocate resources and balance the differences between member countries. Without having a single, powerful central government in the EU, the decline or even collapse of the EU is inevitable.

The wealth inequality widened by the increases in housing prices is positively proportional to the trade volume in the housing market.

The history explains how the class of landlords fell and was replaced by the entrepreneurs and capitalists, when many landlords sold their lands as the profits generated by farming became much lower than opening factories. Previously, land was the most important factor of production. Nowadays, the importance of land becomes weaker and weaker, and capital and labour become more important. Houses are not liquid assets, especially more expensive houses have fewer demands. If people rush to sell out their expensive houses, the housing price could drop sharply and people could only make losses. Therefore, in the house markets, high demand is the key to push up the house prices. When people are generally becoming wealthy constantly, the housing price increases, according to higher demands for houses and houses become more liquid assets, thus wealth inequality widens, as rich people can sell off their houses at higher prices and make profits. However, the first thing should be done is to distinguish between the wealth inequality led by housing price increases and the housing price increases led by the wealth inequality.

What we should be aware of in 2016?

In 2016, we need to be aware of five key elements. The first thing is the US Fed's decision of further increases in its rates next year, which could add more pressure on the global markets. The second is the commodity prices. The commodity prices could signal the performance of the global economy. The third thing is the scale of the war in the Middle East. There are many OPECs in the Middle East area. The scale of the war could have a decisive impact on the world oil price. The fourth thing is the Chinese economic reform, which can could affect many countries' current accounts. The fifth thing is Britain's decision on whether it will stay in the EU or not. This election will affect the EU and Britain. If Britain decides to leave the EU, more countries could leave the EU in the future. I think these five key facts could have decisive effects on the world economy as a whole in 2016.

Brexit is not likely to happen

Britain will hold a public election to decide whether Britain will leave or stay in the EU. The rest of the EU is the largest trade partner of Britain. Leaving the EU could increase the costs of imports and exports. The decrease in imports and exports could affect the domestic economy and may lead to an increase in unemployment. Moreover, many EU workers in the UK have to rethink their job stability. They may need to require work visas in order to be eligible to work in the UK. However, some of them do not meet the minimum requirement for work visas. The jobs that become available because of their leaving could help more British people get jobs; but it may raise the costs of employing local people, as some workers from the poorer part of the EU are willing to work with relatively low wages. In general, Brexit could have negative effects on the economy and the labour market, though Britain could release some pressure from its government finance as it no longer needs to support other EU countries which have very difficult economic problems.

If middle-skilled workers are replaced, what could happen?

Research from the McKinsey Global Institute find that digitisation could add $2.2tn to the US GDP by 2025 as companies lift productivity by exploiting advanced technologies. Meanwhile 10 to 15 percent of the middle skilled workers will be replaced by the advanced technologies. These people are considered to the Middle Classes, who have relatively stable incomes. Once firms choose productivity rather than "social responsibility", many of these Middle Classes would become unemployed. The labour market would become more and more competitive and the wage will decrease further as the labours have to make themselves cheaper in order to compete with machines. This could widen the gap between the rich and the poor. The population could decrease, as parents are harder to provide sufficient incomes to support a larger family. Therefore, with technology development, there could be a decrease in the population, as only people with skills that cannot be replaced by machines can become richer.

The Fed's move is based on the three reasons

Just as I expected, the US Fed decided to increase the target range for the federal funds rates to 0.25-0.5 percent today. The US Fed implied that in the future there would no more big changes in the Fed rates. The Fed made such move based on three reasons. Firstly, the Fed kept its words. Over the last several months, the Fed made several implications of increasing its rates. To maintain the central bank's credibility, the Fed needed to raise its rates at some point. Secondly, the labour market is performing well and the economy is growing relatively compared with many other developed countries around the world. This has left room for the Fed to raise its rates without shrinking the US economy. Thirdly, the inflation rate is still very low. The Fed needed to be aware of such fact. Raising rates could create further pressure to drag down the inflation rate. Therefore, the Fed had to imply that there would only be some 'gradual'" increases in the rates in the future. In general, I think the Fed has chosen the best move that keeps it credible and avoid freaking out the market.

Forward guidance is a good tool only if the central bank can forecast the economy accurately

Forward guidance must be solidly supported by the central bank. The credibility of the central bank is the most important part of making the policy of forward guidance effective. The Bank of England steps into the mud of forward guidance. The Bank of England's forecast of the labour market was inaccurate. The Bank of England has to decide whether it will follow its initial forward guidance or amend the forward guidance in order to deal with the current economic problems. If the central bank decides to follow its initial forward guidance, the current economic problems would not be dealt effectively. However, if the central bank decides to amend its mandate, the central bank would become less credible and the future policy would become less effective. Overall, forward guidance is a good tool, but the central bank has to make a very accurate forecast.

The same mistake in the financial crisis is hardly made twice

I read an interesting article from Financial Times called "Too much 'medicine' could make the finance system sicker". It was about the Japanese economy, but I think such phenomenon could happen to any economy. The article suggests two reasons that cause this phenomenon. Firstly, after several crises, individual players play safe. It is a rational move for individuals, but the financial sector will grow slowly as a whole. Secondly, after the global crisis, regulators have tried hard to make the financial system safer and enhance financial stability. The new rules limit the growth of the financial sector when the world has been aware of the importance of sustainable growth and development.

I think such kind of mistakes could only happen once, as the whole financial sector suffers from the mistake and will avoid to let it happen again, with or without the intervention of regulators. Latent mistakes are more deadly.

The property of commodities

Commodity prices have large impacts on the global market. Commodities are used widely as raw materials across many manufacture industries. Higher commodity prices led by an increase in demand for commodities send a signal to the market that the economy is expanding and people are consuming more. Moreover, some countries' economies heavily rely on commodity exports. Then the prices of commodities will have a multiplier effect on their economies. Some large economies will then impact the global economy. Therefore, the commodity prices will add multiplier effects on the global economy. The commodity market is no longer just about the relationship between supply and demand, it is rather about people's predictions about the future global economy performance.

Today is the best time to study macroeconomics

Studying macroeconomics sometimes is like studying history that we use past examples to study and analyze our models. However, nowadays we have so many economic events going on at the moment. Especially when the central banks across the world face the same global economy, but choose to take different actions. The ECB chooses to push its rates to negative, the BoE and the Swiss National Bank chooses to maintain their current rates, while the US Fed is likely to raise rates later this month. Although these central banks have different domestic economic problems, the exogenous effects could be large enough to impact their domestic economies in the same way. Therefore, we can study which central bank policy is the best way to deal with the current global economic problem.

The more developed country should have a less restricted immigration policy on skilled labours

From my personal aspect, I of course want all governments to loosen their immigration restriction so I could move around the world more easily and have more opportunities. However, there are always some people that want their governments to make immigration impossible. Donald Trump had inappropriate comments on Muslim immigrants.  His comments were made based on his naive belief of if Muslim immigration was banned, there would be no Isis attacks on American soil. Such action could increase the difficulty for Isis to arrange an attack on America; however, I don't believe it will reduce the possibility to absolute zero. Moreover, such action could only worsen the problem and push moderate people towards radical groups. 

However, loosening immigration restriction is also not very popular. Allowing more immigrants into a country increases the level of competition in the society across its labour market, good markets and so on. It is very sensible that the government protects its unskilled labour force from the competition from outside. However, when one country's labours are well trained, the government should withdraw its protection. By encouraging competitions, the labour force could remain competitive and productive. With overprotection, the labour force could become less productive as they have very limited incentives to work harder. Therefore, I think the more developed country should have a less restricted immigration policy on skilled labours as it has well trained labour force that is capable to face the competition from outside.

Government vs Market

The US boosts funds for poor countries fighting climate change; in other words, poor countries will receive more funds to develop green energy. However, meanwhile, US pension funds also raise the bar in green energy investment; as the oil price is falling sharply, the green energy becomes less competitive. This shows that political pressure cannot win against market force.

Management of scattered resources becomes easier and more profitable

There are many innovative firms which use scattered resources to generate profits. Uber is a typical example of this type of companies. Uber builds a platform to allow private drivers to use their cars and spare time to create wealth. Airbnb also uses a similar idea to run their business. Everyone has occasional excess resources that can be useful to others. Actually, this is not a new idea. The foundation of banks is based on this idea that banks borrow people's spare money to lend to people in need. However, nowadays, advanced technology and mathematical skills allow people to manage more scattered excess resources. Any company, which can find one type of people's excess resources and use its finding wisely, could become the next Uber and attract many investors.

The Chinese capital outflows create new opportunities for the global financial market

The Chinese financial market is relatively isolated from the rest of the world, many Chinese IT companies issue their IPOs in foreign financial markets. The Chinese capital outflows reduce China's forex reserves and weaken the capability of hedging against capital flight or bailing out domestic financial institutions. However, such outflows can have positive impacts on the global financial markets.  The prices of real estates and equities are more likely to rise, compared with the prices of commodities and bonds, as they have relatively higher returns. I think the first country which has its financial market fully covered will benefit the most from the Chinese capital outflows. From the current situation, I believe the US financial market is the most likely to benefit from the Chinese capital outflows.

How far can the ECB take its actions?

Mario Draghi has stated that the ECB will take any necessary action to hit its target without limits. However, we need to know "no limit" does not mean no limit, as the ECB needs to ensure that the Eurozone economy is recovered without causing the collapse of the currency union. Moreover, it is a central bank by definition. It cannot use any stimulus tools beyond the function of any other central banks. Moreover, all member countries have their governments who are making all different fiscal decisions, and these decisions may limit the effects of the ECB's policies. The move of setting negative base rates is already very radical; I think more radical moves might damage the currency union.

OPEC cannot achieve an agreement to push up oil prices in the short term

Many oil exporting countries are suffering from the low oil price, as the price is only half of the price a year ago. Saudi Arabia extended its outputs in November 2014, won the competition with the oil exporters who have higher production costs. Such move has helped Saudi Arabia win a larger market share, but damaged the possibility of cooperating with other oil exporters. In repeated games, when one player cheats once, in all future games, all players will not choose to cooperate with each other. Therefore, the unity within OPEC is much weaker now. In order to regain trust from other members, countries like Saudi Arabia have to give away some of their market shares to other member countries. If they do so, then the move of extending productions would become pointless, so I do not expect they can achieve any agreement to cooperate together to push up oil prices in the short term.

I don't think the ECB's decision will be effective.

The response to the ECB's decision of extending its QE is very negative. The stock market fell and many European countries' bond prices fell sharply today. People are tired about the ECB's continuous QE program with no end in sight. The result of the QE program is disappointing so far. Moreover, the ECB further cut its rate to minus 0.3 percent. This is a very radical move that a negative base rate can make the economy go either way. There could be a capital outflow from the Eurozone as people may feel insecure about the cash they are holding. The worst situation is "bank run" when people are extremely panic. In addition, cutting rates leads to a depreciation in the euro. This can increase the Eurozone coutnries' exports in order to help their domestic economic growth. Moreover, as people may feel insecure about the cash, people may want to spend as quickly as possible. This can boost consumptions but imports as well, as some of the countries rely on imports in certain sectors. Therefore, the improvement of some countries' current account is limited. Overall, I think the ECB's move could increase the inflation rate in a short term but will not make a significant improvement in the countries' economic performances.

Luck is measurable

Sometimes when we want to be successful, we need luck; however, we do not know when we have luck and how much luck we have. It is possible to look back and measure how much luck you had in the past. The first thing to do is to list all elements that you feel you can have a control with, e.g. education, time and efforts. Then you need to make a judgement on all things you did in the past, whether it is successful or not. If it is successful, then the outcome is 1; otherwise, the outcome is 0. Then by running a regression you can know how each element affects your achievements. Then you substitute data into each sample and calculate the unobservable heterogeneity term, and the unobservable heterogeneity term is a measurement of the luck if you assume that the God is fair that you have equal amounts of good luck and bad luck.

Two-party politics is not very different from one-party politics under certain assumptions

Imagine people's political opinions all lie on a single line from left to right and each political party chooses a point on this line. The people will choose the political party which has a point that is the closest to their political views on the line. We assume that people's political views uniformly distribute on this line. If there are only two parties in the game, the Nash equilibrium exists when both of the parties choose the central point. In this way, only the policies which match the central political view will be carried out no matter which political party is the dominant party. Therefore, even there are two political parties, however, both parties will choose the same policies. In this way, we cannot see that the difference between two-party politics and one-party politics. People may think that if there is only one party, one party can choose any policy it wants. It could be true. However, if the single party wants to maximise the country's total utility or satisfaction, it has to choose the middle point, if we assume that distance away from the point the party selects is negatively linearly corelated to that person's utility. Therefore, with assumption of when there are two parties, parties' priority is to maximise the number of their supporters and when there is only one party, the party wants to maximise the country's total satisifaction, both political structures will carry out the same result. If we have more than two political parties, there will be no pure strategy nash equilibrium, which means the political environment could be very unstable.

The global atmosphere of low inflation rates

The US, the UK, Japna, the Eurozone and many other countries have very low inflation rates, which are often close to 0. The ECB faces the most difficult problem that it has to make decisions based on the situations of all countries in the Eurozone. The countries in the Eurozone have different economic structures as well as different economic growth rates and inflation rates. The policy made by the ECB affects all member countries; therefore, the decision must be made very considerately. Moreover, the US Federal Reserve also faces its problem. The US growth rate is very positive as well as the unemployment rate. With the thinking of stablisation, the Fed should raise rates to leave room to future expansionary policies. However, the US also has a very low inflation rate, higher interest rates may lead the inflation rate to drop further. Under such circumstances, it is important to justify that how much money is not in our economic circuit. If there is a large amount of money that is not in our economic circuit due to negative predictions, it is important to make policies to put the money back into our economic circuit instead of pulling new money into economies. Therefore, not all expansionary monetary policies are suitable under the current situation, as many expansionary monetary policies have lasted for years but showed limited impacts. These inappropriate monetary policies may start to make effects in the future and cause hyperinflation.

An evidence of low inflation has limited negative impacts on good markets as well as labour markets

Japan's unemployment rate has fallen to the lowest level in 20 years when the inflation rate falls as well. The unemployment rate fell from 3.4% to 3.1%, showing a strong performance in the domestic labour market. The strong performance in the labour market shows many companies have confidence of their own future performances and future Japanese economic growth. The Japanese government has used many fiscal tools, the Bank of Japan has also expanded its monetary policy. They hope to use their policies to raise the domestic inflation rate. However, all these policies seem insufficient as the inflation rate stays low. Therefore, we can see that low inflation rates have relatively limited impacts on labour markets as well as good markets

Oil prices may rise next year

Hedge funds's oil shorts reach 2015 peak, this shows they still expect a further fall in oil prices. However, behind closed door, Saudi officials say that they want oil prices to maintain between $60 and $80 a barrel. Saudi Arabia was the toughest country whose energy minister claimed even if oil "goes down to $20" the country would not change course. Now, the speeches have turned much softer under pressures coming from inside and outside. However, the market still has a strong belief of continuous low oil prices. When Saudi Arabia does not make a clear policy to show the other OPEC countries and the market that it is willing to raise the oil prices, the oil prices will still remain low. The effects of "verbal intervention" will be very limited as Saudi Arabia has damaged many other oil exporters' profits and negotiation will not go very well under such circumstance. Therefore, I expect Saudi Arabia will try verbal intervention later this year but receive very limited response then make a policy change to raise oil prices next year, which I believe will push up oil prices.

Low inflation rate will not affect people's consumption decisions

The Japanese government and many other countries are raising their minimum wage levels, which can be seen as a policy of raising inflation rate. The common belief is that low inflation rates would reduce consumption and affect market confidence. Does low inflation rate really affect people's consumption behaviour? Well, I think the low inflation rate will make very limited impacts on our daily consumption unless there is a deflation. Because almost all consumer goods depreciate automatically. The utility of having goods and services today is dominating the utility of having goods and services in the future.Therefore, it is also better to consume goods and services today than consuming in the future. To conclude, low inflation rates will not affect people’s consumption decisions.

Russia may start a large scale war in the Middle East

I always think it is the worst option to start a war, as I have explained in my previous blog. However, it is not hard to smell gunpowder in the air. Turkey shot down a Russian fighter jet and a wider scale of the bombing on ISIS has been launched by France following the Paris attacks. It is not a surprise if there is a war in the Middle East in the near future. A war in the Middle East will definitely affect the oil production, thus an increase in global oil prices. Moreover, the military suppliers can profit from the war. The global commodity prices, including gold, silver and aluminum will increase as many of the metals are important military resources, and gold and silver are good alternatives to the banknotes which can depreciate badly during a war. Russia has very rich natural resources; however, the recent falls in oil and commodity prices damage its economy heavily. By starting a war in the Middle East, Russia could recover its economy by the increasing oil and commodity prices. Moreover, in terms of its military power, it is unlikely for Russia to lose its battle in the Middle East unless NATO intervenes. However, NATO seems to lack interests in intervene, as NATO did not take any active response to back Turkey against Russia. Therefore, when NATO does not intervene, Russia is very likely to start a much larger scale of war in the Middle East, as it could achieve many economic goals by starting the war.

The governments have to make their tough decisions as the problem of public debts is inescapable: raise taxes or cut spendings

Government finances itself through two channels: taxation and borrowing. Any increase in government spending can lead to an increase in tax in the future. Building up a welfare state requires a massive increase in government spendings. Therefore, when people receive better benefits, people as well as firms have to face higher tax levels. With high tax levels, many companies will choose to move outside the country, as their corporate costs are increased by taxes and their competitiveness is affected. Thus a welfare state may slow down a country's economic growth. Therefore, without the support of a strong economy, a country will never succeed to build up a welfare system. However, the welfare system has many advantages. It can avoid social unrests as people have safe nets that people's living standards will not fall below a certain level. This also reduces the opportunity cost of starting a new business. This is why we can see many successful companies were founded in developed countries. Nowadays, many developed countries have very high debt level. The ratios of the total US debt to its GDP is over 100% and the ratio of the UK debt to GDP is over 89%. These countries have two choices: to increase their tax levels or cut their government spendings. Increasing their tax levels can maintain their welfare systems, but may force some companies to move out. Cutting government spendings will affect their welfare systems and may lead to some social unrest and affect their future outputs. The governments have to make their tough decisions as the problem of public debts is inescapable.

Low oil price is not sustainable

Who decides the oil price? We commonly believe the OPEC has the power to choose the oil price. If this is true, then current low oil price should be beneficial to the oil export countries. However, this is not true. The Russian economy is in trouble, 40% of its economic outputs rely on its oil industry. The oil price reduces the value of its outputs. It has only one option: it can produce more in order to maintain its revenue, but this act can pull down the price further. Saudi Arabia was not benefitting from the oil price either. Many funds from Saudi Arabia withdraw their money from global markets, this is not a good sign. Now, if the countries do not start to cooperate again, the oil price could be pulled further down as the oil export countries need to supply more and more to maintain their income levels. Therefore, we can see a deflation in the oil market, as our money against oil becomes more expensive, we tend to save money on oil, and the oil price can decrease further. Overall, I think we can see the oil exporting countries uniting again or an oil market crash followed by bankrupt of many oil exporting countries.

The difficulties of Jim Slater’s investment strategy

Jim Slater, who was a famous financier in 1970s, died on the 18th of November 2015. He was famous in buying stakes in undervalued firms and also wrote a book called “The Zulu Principle” which explains his investment strategy of “clearly defined and narrow area of knowledge”. However, such an investment strategy has some difficulties. Firstly, defining an “undervalued” company is a difficult job. Small but successful companies are not always undervalued, as stock prices do not only reflect the companies’ current values, but also reflect the public opinions about their future values. Therefore, your prediction has to beat the market, which is very difficult. Moreover, some small, undervalued companies have difficulties to find themselves; therefore, even you believe they can have bright futures, but the market force is actually working against these companies, they have more difficulties than you may imagine. Secondly, when narrowing areas of knowledge, it is easier to ignore existing exogenous risks, just like what Jim Slater died. Jim Slater’s fall was largely caused by the stock market crash following the oil crisis. Thirdly, narrowing areas of investment makes risk management more difficult. Good investment has much higher returns, but meanwhile bad investment has much worse losses as well. Being specialized makes one more efficient, but also creates higher opportunity cost and increases the losses if one fails.

The challenges facing BRIC

The slowdown of emerging markets adds more worries on the global markets. Brazil had negative GDP growth in the first two quarters this year with a 12-year high inflation rate. The Chinese economy is also slowing down. Russia is suffering from low oil prices and about 40% of its economy relies on its oil industry. The Indian economy is also slowing down. I think there are three changes that have to be made for their future success. Firstly, the countries have to reform their economic structures. Some economies rely too much on investment and some rely too much on only a few industries. Secondly, a wealth redistribution needs to be done in order to secure social stability. When an economy is growing rapidly, the gap between the top and the bottom is widening at the meantime. A wide gap is a cause of social unrest. For sustainable economic growth, a stable society is a must. Thirdly, an improvement of financial markets is necessary. A well-functioning financial market can help companies grow faster and reallocate resources to the industries which have fast growth rates. Moreover, good financial markets can signal future performances.

We smooth our lifetime expenditure because we lack the ability to manage and store our purchased goods and services.

We want to smooth our lifetime expenditure; however, we do not care about smooth our income. Why does this happen? Although future incomes and prices are all uncertain, we are more confident about our ability of managing our wealth instead of  goods and services consumed. When we receive our incomes, we feel our wealth is increased, and wealth can be managed well and used wisely. However, when we consume goods and services, because they have various characters, it costs much more to manage and store the goods and services after we consume them. Therefore, in order to reduce the costs and use our money efficiently, we tend to consume goods and services when we just need them. Moreover, we want our life standards to be constant; therefore, we tend to smooth our expenditure across our lifetime. To conclude, We smooth our lifetime expenditure because we lack the ability to manage and store our purchased goods and services; otherwise, we might spend all at once.

Large merchants need to keep their physical stores when having online stores

Moving stores to online seems like a fashion; but I feel physical stores have their advantages that online stores will never have. Larger merchants can gain more advantages to have physical stores. 

People expect lower prices when shopping online, mainly because of two reasons. First, the information provided online is not as good as the information collected when visiting a physical store. Secondly, the goods ordered online need some time to be delivered home. A good received at time t is always better than the same good received at time t+1. Therefore, demands for one good online are fewer than the demands in a physical store if we have the same customer pool. Large merchants already have many stores all over the world; therefore, the cost of opening new stores is lower if we take into account their sizes. By having physical stores, because large merchants have huge amounts of customers already, they can create more sales.

Moreover, if large merchants can efficiently use their money received in their stores, they can create more profits. Because in physical stores, merchants receive their revenues immediately after customers pay. However, online customers pay to a third party and the third party transfers the money to merchants when the customers receive their orders. Therefore the money received by online merchants is discounted by time. If large merchants can use their money in stores wisely, they can grow faster.

The impact of terrorist attacks on economies

By the end of Monday, we can already see the picture of how a terrorist attack will impact on the economy. The tourist industry suffers the most: the stock prices of many French hotels fell sharply on Monday. Moreover, the currency may depreciate as the economy, which suffers a terrorist attack, is considered to be damaged. If attacks cause incredible chaos and damages, people will feel their lives in danger, thus the prices of some goods, such as food, water and first aid equipments will rise sharply. From government aspects, the spendings of all relevant governments will increase to attack terrorists and avoid future possible attacks in order to make civilians feel safe. After the Paris attacks, France launched revenge attacks on Isis; the British spy agencies plan to recruit extra 1900 staffs, and Cameron announced his £2bn of extra spending aimed at attacking Isis. However, in general, all these effects depend on the scale of terrorist attacks. If the scale is massive, like 911, the damage on the economy and the rise in government spendings will be massive; if the scale is limited, the damage on the economy and the rise in government spendings will be limited as well. In addition, any damage caused by terrorist attacks is hardly to be a systematic damage on an economy, thus terrorist attacks are almost impossible to bring one economy into recession, unless people lose their confidence in their government's ability to bring security.

Adverse selection in the EU migration policy after the Paris attacks

Previously, the EU member countries came to some agreement of each country receiving a certain number of Syrian refugees. However, the attacks in Paris this Friday fuel the migration debate. Many people believe there might be more terrorists hidden among the refugees, and such belief is very reasonable. From humanity aspects, we should accept the innocent refugees; however, it is very difficult to identify each refugee's genuine background. With the lack of information, the safest way is to reject all the refugees, so there is no possibility for terrorists to pretend as refugees and enter the countries. This is also the most common way for people to deal with adverse selection. Such phenomenon is called by economists as "the market for lemons". Therefore, if no countries have 100% confidence to identify the refugees' genuine identities, no countries will take the risk of being attacked by terrorists. My opinion is after the Paris attacks, the number of refugees accepted by the EU countries will fall sharply.

More funds might be set up for particular interests in the future

I read an article on Financial Times, “Is banking about to be ‘Uberised’?”. The proportion of corporate financing coming from banks fell from 2006 to 2014. People have individual investment preferences, and investing directly without the intervention of banks has higher expected returns. However, because individuals have limited ability to satisfy corporates’ financial needs, they might form interest groups that create enough money pools to support their investment plans. Therefore, I expect in the future more funds with particular interests will be set up. Large financial institutions will play more important roles of advisory and credit ratings rather than direct investment. The good thing is increasing levels of competitions in the financial industry, and corporates are more likely to have good deals. The bad thing is without cooperations, funds can all focus on one “hotspot” field and create huge bubbles.

Is it good or bad to have a competitor?

Firms hate competitions, hate having any competitors. The market generally believes that a firm will lose profits when the level of competition increases. This is not necessary to be true. With a competitor, a firm has to work harder and be more creative in order to stay in the game. I want to say without competitions, Apple would never have become this successful. Many people think Steve Jobs played an important role in the rise of Apple Empire. However, at the time of Steve Jobs rejoined the company, Apple was facing competitions from Microsoft and other computer companies and it seemed that Apple had lost the fight against the PC world. Yes, Steve Jobs made Apple become successful. But without the competitions Apple faced, Steve Jobs would have never come back to Apple. In addition, Microsoft was once the most successful company in the world, its Windows dominated all other computer OSes. Microsoft earned a good amount of profits from its Windows, because it lacked competitions, it had few incentives to be creative and develop new products. These years, we saw the sales in Windows-installed computers fall and its smartphone OS was a late enter of the industry. From these two examples, I want to say that competitions give firms a chance to explore their potentials and those with greater potentials can become more successful than if there is no competition.

Unique design is far more attractive and profitable

A car company recalling its cars is usually a damage of the company's image. However, this time, Rolls-Royce tells a different story and the recall is seen as its considerate action. The car company only recalled one car due to the airbag safety issue. The number of recalling cars shows its customer that each car it makes is unique. The Rolls-Royce customers want the feeling of being special. Therefore, the recalling is successful telling their customers that each one of them is unique. People like being treated differently to satisfy their unique needs. Large companies which target millions of customers are not able to do that. Only those companies have their unique target groups can differentiate their customer more easily. By differentiating products to satisfy their customers, this type of companies can charge different prices without causing unpleasant of their customers, thus becoming more profitable. We have much easier communication ways to link customers and merchants closer than ever. A company can create a community that all uses its products, or look for a group of customers with a unique character that make them attracted to the company's product. To conclude, I believe scale of a company is less important, products with unique icons are more attractive to customers and more profitable.

allowing short selling can reduce bubbles in markets

When you believe a financial instrument is overvalued, you can short sell it and earn money if your belief is proven to be correct. In a financial market, if short selling is not allowed, then only people, who believe the market is going to grow, will enter the market. Once entering the market, the only two ways to make profits is to wait for price increases and to push prices upward. Small traders can do nothing but wait. Large traders have some ability to push prices higher if they are willing to buy more. Therefore, we can say that everyone who enters the financial market, has the same goal, which is to push prices higher. However, up to a certain level, no one believes there is a reason for the market to continue to grow. Then the capable trades want to hold the market prices for a while in order to create time for them to leave the market; then once the large players leave the game, the prices drop sharply as there is no new player entering the market, because no one believe that the prices will increase and they can make any profit if they enter the market. If the market allows short selling, at each point, there are some people who believe the market prices is overvalued entering the market. The market will take these people's beliefs into considerations. Because there are always two different opinions in the market, change in prices is more likely to be more moderate and close to the real value change.

We never play games with symmetric information, even if symmetric information has been provided to us

We all behave rationally and maximize our own expected utility. In a game, players can have symmetric information, but react like having asymmetric information. In this game, two players have equal information, but are also told they do not have complete knowledge about the game and neither of them know about what the other player know about. We can say that the two players have symmetric information. It is our human nature that we like to guess what the other player know about. Each individual is unique; therefore, each player will develop new knowledge about the game, which can be different from the other player's thoughts. Then we have a game with two players with asymmetric information. Moreover, sometimes players have a  time limit, so they only try to remember the information they believe is important. When they make their choices, the information chosen by each of them can be different. Then they start to play the game with asymmetric information, even if all players are given complete information. In reality, we can never have a game with players having symmetric information, because we like to be creative, smart and efficient.

What type of investment bank is beneficial to our economies

Investment banks have been blamed for the financial crisis and the image of greedy bankers has been branded in people's mind. I think investment banks and other types of financial institutions are necessary in our economic system. The investment banks and other institutions are the leverages for firms to multiple their capacities and raise more money for investment in order to expand at a faster rate. However, firms do not always make profits and the economy does not perform well. In such case, the investment banks and other institutions should hedge against the risks and limit the losses due to the temporary fall in economic outputs. I never like George Soros, even he is very talented and has many genius ideas. He is successful based on the losses of others. Such strategies cannot gain a long term sustainable growth, and no society likes his strategies either. Investment banks and other types of financial institutions have to share their success with other parts of the economy in order to have more freedom from the central government. Therefore, "good" investment banks and other financial institutions are looking for mutually beneficial opportunities and limit the potential risks.

Key elements in job reports, besides the unemployment rate

The US Fed announced its job report today, the results were relatively positive and heighten the expectation of the possible rate raising next month. The US unemployment rate fell to 5.0%. The unemployment rate is the key factor people generally pay attention to. There are many other key elements in the report that could indicate an economy’s performance. The first key element is the actual number of unemployed people. By using the number and the unemployment rate, we could calculate the participation rate of the population. Moreover, when we know the number of employed people, then divide the GDP by this number, we could roughly know about the labour productivity. The second element is the wage. When the wage growth rate is larger than the inflation rate, we can know the economy is expanding in real terms. If the wage decreases, but the unemployment rate also falls, we could believe that despite the economy is not doing well at the moment, firms are still confident about the economy’s future performance. If the wage falls and the unemployment rate increases, it is a sign that the economy is in a deep trouble. The third element is the number of jobs created. By comparing the sum of jobs created each month to the change of the unemployment rate, we can know how many jobs created are permanent and how many are temporary. Temporary jobs have weaker effects on the economy. I think these are the three key elements we need to pay attention to besides the unemployment rate.

Technology innovation pushes economic growth, even if researches fail

I always believe that technology is a key factor that drive long term economic growth. The content of China's 13th Five Plan shows that Chinese spending on R&D will continue to expand. Chinese spending on R&D was 200 billion dollars last year, second only to the US. Considering the size of the Chinese economy, this figure is very reasonable. There are many fascinating ideas about technology innovations discussed in the five year plan, from aircraft engines to "quantum teleportation". I do not think the success of these plans are the key, I think that the spending on the research and all the side products during the research are more important. Huge spending on research will increase more job places and income of many firms which are relative to the projects. Moreover, during the research process, many new technologies may be innovated and used in our consumer goods. Even some researches might fail in the end, the jobs it creates and unexpected technology improvement already add value to the economy.

My prediction is that the US Fed will raise rates this December, the low interest rates in Europe will survive for at least another year and China will decrease its rates.

Yellen commented on the positive performance of the US economy and raised the likelihood of rate rises in December. The markets certainly do not like the news, but did not react violently. This shows, markets know that the decision of raising rates will be made by the Fed eventually. Moreover, I believe the European central banks will not follow the US Fed after it decides to raise rates. The European economy has not fully recovered to its previous level before 2007. The current FTSE 100 index is at the same level of it was in late 2007. The Greek issue has not been resolved, and more problems are hitting the EU economy. Britain will vote on whether Britain will leave the EU or not. The refugees from Syria are flooding into Europe; in addition, the Volkswagen emission scandal is hitting the European car industry as well as the European stock markets. With all of these concerns, I expect that the European central banks will decide to maintain low rates for at least another year. China does not have zero interest rates and I think China is likely to move in that direction. The China's 13th Five Year Plan states the target of the Chinese economy is to grow at a steady and relatively fast rate. This means the central government wants to stop the growth rate falling and decreasing interest rates can be a very effective monetary tool. Therefore, I think China will decrease interest rates to stimulate its economy.

In conclusion, my prediction is that the US Fed will raise rates this December, the low interest rates in Europe will survive for at least another year and China will decrease its rates.

We cannot give up our rights in today's digital age

The police and security services will be able to access all the UK citizens' internet use records without the need for judicial authorisation, under the Investigation Powers Bill. This is understandable as internet use records can almost tell one's personality and activities everyday. By having the access to people's internet use records, the police and security services could have more information about potential criminals and terrorist attacks. However, court is still the only way that all people believe brings justice and delivers fair trial. Therefore, I will think the Bill is necessary to bring down more potential threats, but the internet use records accessed by the police and security services without judicial authorisation should not be used as evidence of guilt in courts.

Labour Market, the most supplier-unfriendly market

Labour market is the most brutal market for the suppliers, the workers. In a labour market, workers are supplying their workforce to companies. However, due to imperfect effort inspection, the companies tend to keep the market at a level of oversupply in order to push workers to work harder. Because of the oversupply of labours, there are also some people out there who are looking for jobs. When someone is out of employment for two years, he or she would be considered as unemployable. In addition, in a labour market, firms have mutual interests; but workers do not have mutual interests, as finding a job is a zero sum game, as one wins the job position, all the other competitors lose the position. Therefore, the firms can cooperate with each other to keep salaries low; however, some worker may use low wage requests as their sale points, leading to a further decrease in wage levels. To conclude, labour market is a market that the power of demanders dominates the power of suppliers, and some skilled workers lose their skills due to the increased level of competition caused by the firms.

Cuba is open, but the US is locked out

Investors from Asia, Europe and Latin American are eyeing the opportunities in Cuba; however, the US investors are left behind, due to the long history of hostility between the two countries. Would the US investment bring benefits to Cuba? Of course, yes. The US investment would be the same as the investments from other places. However, most of the ordinary people hardly accept to receive investments from a country, they had believed as their enemy for about half a century,  and the central government has to be aware of the public opinions. In this example, we can see that creating an extreme relationship is not a good idea. Having a very close ally needs the government to compromise on many issues and throw the benefits away in order to maintain the good relationship. Having an enemy is also not a wise thing to do. There is no enemy for ever; just like the US and Cuba nowadays, they are no longer hostile to each other, but because of the historical issues, they cannot cooperate with each other easily.

Some hypothesis of voting system

When there is an election, we usually vote ourselves that whether we should buy some politicians’ ideas or not. The word we use ‘buy’ does not mean we use our money to en charge for this politician idea; however, can we really use our money to buy politicians’ ideas? My answer for this question is YES.

I believe when people have immediate costs, they will act more rationally and sensitively; therefore, if people choose different amounts of credits that they are willing to pay for one political party, they will carefully judge how much more they can get from this party compared with other parties, and they will pay the amount which is equal to this different to support their political party. We also need to set a maximum and a minimum for the contribution people can pay for their supporting parties in order to achieve equity as we might know in the near future, the top 1% will be richer than the rest 99% of the population.

Different groups of people are treated differently in the election:

1, the group below the minimum income will gain free credits which equals the difference between the minimum income and their actual incomes. As I believe that the government is responsible to help them achieve the minimum income level. If any party can achieve this goal, this party should gain the credits. Even if they choose not to vote, their credits will still be counted in the election.

2, the group whose income is below the taxable level, but above the minimum income level is free to choose if they want to participate.

3, the group whose income is above the taxable level is compulsory to involve in the election by pay at least the minimum contribution, even if they choose not to vote.

If a party wins the election, it can hold a dominated numbers of seats in the parliament for a period of 5 years; however, it can be challenged by the opposite party after 3 years in a “challenging election”. The dominated party will be in an advantageous position, meaning if people choose not to vote (people are indifferent), all the credits will go to the dominated party, as a political stability is assumed to be socially benificial. If the dominated party wins, it will have 3 more years (the seat number will be changed) instead of 2 more. If the opposite party wins, the opposite party will start its 5 year period, and can also be challenged in a 3-years time. If one party finishes its 5 year period without being challenged, then a fair election will hold, the credits coming from people who are indifferent will be equally split between the parties.

The cost of propaganda should be subtracted from the total credits earn, as propaganda might make policies be overestimated. Each party will gain a proportion of the credits earned as income, the ratio of their income will be the ration of their seats won in the election. Party with the most credits will gain a bigger proportion of the credits earned compared to the other parties. This can ensure the winning party gets a dominated numbers of seats, so policies can be passed smoothly.

The maximum contribution should not be higher than the median income. If someone gets benefit which is above the median income from the government should be concerned as annual benefit which does not benefit the equity.

The income of the political parties can increase the independence of the parties from the sponsor from the minor super-wealthy groups.

Digital products have difficult issues of copyrights because of their "public good" properties

Digital products, like music, video games, are "non-rivalrous" and "non-excludable". These are the two properties that we use to refer to public goods. Digital products are "non-rivalrous, because due to the modern technology, we can almost have infinite copies of any digital product. Therefore, the marginal cost of production is infinitely close to zero. Digital products are "non-excludable", because once one consumes the product, one can always share with his friends or even everyone else by uploading to the Internet. Of course, such action is illegal, but it is too difficult to check every uploading. So it is reasonable to say that legal forces are hardly to protect the copyright of a single digital product without any services afterwards because of its public good properties. In conclusion, I think that it is never profitable for firms to earn money purely based on digital products but the services combined with the products.

Will couples be willing to have their second child?

China has abandoned the one child policy, which had lasted more than three decades. The policy targets human right issues and aging population and its relative economic issues. However, are couples willing to have their second child? Couples make their decision based on various reasons, including economics reasons. Having another child means the wife has to leave her job for about one year. In the labor market, many people argue that gender discrimination exists because employers believe female employees will leave their jobs during their pregnancy periods and spend more time on caring their children. The policy of allowing a second child may widen the gender discrimination. Moreover, couples have to choose between earning more incomes or having another child. Having another child will require parents to spend more on their family, more time with family means less time at work, then lower incomes. In addition, daily spending will increase; therefore, less money could be spent on luxury goods and services, leading to a lower living standard. In conclusion, we can see that couples, especially the middle classes, who have relatively comfortable lives but are still not wealthy enough to leave the labour market, have very high opportunity costs; therefore, they may not like to have a second child.

war is negative sum game

Fed dropped its previous warnings about the global financial and economic crisis, this act calms the markets, but also raises the question of whether the Fed decides to raise rates in December or not. Previously I predict that the Fed will raise rates in December, now I will hold onto my prediction. As my last blog mentions, the challenge will come after the major countries annouce their 2015 GDP growth rate. My prediction is based on the current economic affairs, excluding the political conflicts between countries, especially wars. I here want to discuss wars in an economics way. War is a zero-sum game, or even negative-sum game. Wars push countries to produce at their maximum capability, even produce a quantity that is out of their production possibility frontier by issuing huge amount of government bonds. If one country loses its war, the resources it used for the war are wasted, the damage caused by wars shrinks the country's production possibility frontier, and the defeated country will be forced to pay the losses of the winner, sometimes overpay the losses. The resources used in the war usually do not add onto the post war economy. And when the scale of war is very big, the winners will find that the defeated countries just have no ability to pay back their losses in the war. The two World Wars are very clear examples that winners and losers are eventually losers and the spectating countries are the true winners.

the financial market will turn gradually warming till the end of this year, the problems about the Fed's rates and other issues will add shocks on the markets after the major countries, like the US, German, China, report their growth of 2015

Many firms' earning reports have been released. The financial industry had a poor performance last quarter. However, many other industries have relatively good performances, especially the technology and internet industries. For example, Google, Microsoft and Amazon have had very strong reports, the share prices all have reached their highest in recent ten years. Even suffering from the Chinese economy slowdown, Apple still beats the predicted revenue. This shows that, just like what I predicted before, the financial market did suffer from the loss, but ordinary people's life would not be affected by the loss from the financial markets. The unemployment rate is stable, the inflation rate is low. Moreover, the possibility for the Fed to raise the rates becomes less likely, due to the low inflation rate and the increasing issue of the US debts. Based on these facts and predictions, I think that the financial market will turn gradually warming till the end of this year, the problems about the Fed's rates and other issues will add shocks on the markets after the major countries, like the US, German, China, report their growth of 2015.

What would happen if the US reached its debt ceiling?

The US reaching its debt ceiling becomes more likely these days, and the discussion has already begun. It will add shocks to its politics and economy as well as the financial market and the global economy. I will focus on the economic affects. If the government successfully passes the legislation of raising the debt ceiling, this act could be regarded as another way to default, because the government will then borrow more than it had promised to pay back its debt. The bond yield may then increase and the US dollar may depreciate as well. In addition, this will prevent the Fed from raising the base rate, as the US government wants its loan to be as cheap as possible. It could affect the financial markets in both ways. I believe that the negative force will be stronger at the start, but later the financial market will move back to its original level when it benefits from low interest rates and cheap dollars. If the government fails to pass the legislation, it is highly likely to lead another government shutdown. Government shutdown will significantly damage the economy. It will increase the unemployment rate rapidly, as it directly sends all federal employees home. Although they are very likely to be reemployed, the short term impact on the market will be unexpected. The value of US asset market will continually decrease until the government decides to reopen again.

A third party earns transaction cost created by time, it can earn more if it tries some more risky moves.

When trading on the Internet, because of trust issues, we rely on a third party. Besides the internet trading, we need a third party for many other purposes, such as when we sign a renting contract. In these cases, we give our money to the third party and only when we receive our goods or services that the seller guarantees, the third party will then transfer the money to the seller.  When the money is held by the third party, it is the third party's asset. If the third party does not want any risk, it can receive a profit of the money it holds times the interest rate at the time. However, if the third party is aggressive, it can use the money for investment which will give it a higher return but more risks. Now the third party is like a bank, buyers save their money in the third party, but the sellers will take out the money at a particular time. It is good that the third party does not need to pay interests, but it has to manage its fund more carefully because there are no long term savings.

Some concerns about the Chinese rate cutting

I think within the Chinese economy, many investors have money in their hands, but because of lack of opportunities, the money held by these investors does not have a place to spend. Cutting interest rates make borrowing cheaper, in order to put more money in the economy circulation. I want to describe the Chinese economy as a water tube. There is water inside the tube, but a plug blocks the tube. If we pump more water into the tube, we might have a strong water flow to push out the plug, or the water might make the tube burst. Cutting interest rates will affect people’s consumption, especially consumptions in housing and cars. Increase in consumption could lead to an increase in investment opportunities. However, there is one case that might lead to a hyperinflation. In this case, at the start, all investors see the increase in consumption and decide to wait a bit longer. At one point, all investors see their opportunities' coming and decide to put all their money into the game. Then the sudden increase in the amount of money in the economy could lead to an unexpectedly high inflation. I think the institutions are willing to make investments, but lack opportunities. The best solution is to create opportunities.Cutting rates is usually used to increase investors’ incentives to invest.

I do not understand where Bitcoin's value comes from so I will not accept it as money. This rule will apply to any kind of money.

I just have some vague ideas about Bitcoin; therefore, if any one exchange his one bitcoin with my 100 pounds, even I know that the exchange rate is currently 1 to 178, I will still say no. Because I only have a vague understanding of Bitcoin, which means I do not agree with the value of Bitcoin. I know Bitcoin comes from solving mathematical problems, but I do not see the direct value added by solving these mathematical problems in my life. In addition, its value is also not accepted by the market fully, as we can see this from the dramatic fluctuation of its price changing. From the example of Bitcoin, any money issued should have some real values. The money issued by the government has values that commonly accepted, partly because the central government has the ability to add value directly on people’s life. Therefore, I believe that institutions, issuing money, have to have the ability to affect normal people’s life directly.

EU: stimulator or burden? I believe the EU should treat different countries differently

EU: stimulator or burden?

British people have a split view about its membership of EU. My point of view is the decision of whether the UK should leave the EU depends on the reform of the EU. From the Subprime Crisis, we have already seen the problems existing in the system. Germany, France and Britain are the three dominated power and carry the most responsibility to help the countries, like Greece, Italy and etc. Any member exit could lead to the collapse of the whole union. In the EU, Britain has enjoyed the free trading within the union, as the EU is Britain’s largest trade partner. However, exiting the EU could remove the burden of financial support to countries like Greece and have stronger border control and reduce the competition in the labour market. I am always supporting competitions. The EU will not be a perfect model unless there is a union of politics. In the long term, the EU could benefit the UK economy if all members could perform well. The reform of the EU needs to make members have more common interests, but could allow different countries to have because countries have different economy structures. Using the same standard could only cause more conflicts between members.