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.

What do China’s capital outflows tell?

What do China’s capital outflows tell?

China’s capital outflows have reached $500bn in the first eight months of this year. Developed countries are more likely to have huge capital outflows, compared with developing countries. From GDP per capita, China is not a developed country yet. However, excluding Hong Kong and Macao, there are three metropolises and six provinces, with GDP over 10000 dollars per capita. We can say that some areas of China have already achieved the developed country standard. It is sensible to say that the $500bn outflows mainly come from the more developed area in China. The capital is attracted to the overseas, because people see the returns abroad are more secure or higher than investment in China, especially in those less developed area in China. In the future, the more developed area could enjoy the returns from abroad, but the less developed area will have limited development and the gap between the rich area and the poor area will become wider. I am not saying that the Chinese government should limit the capital outflows, but I think the government needs to make the inland areas, usually the less developed areas, more attractive to investment. Maybe the government is already making such policies, just I do not know yet.

Renewable energy is good for the future, but the decision of cuts to renewable energy subsidy makes sense as well

The UK cuts to renewable energy subsidies is criticised by a top UN environmental scientist. Renewable energy is good for our future, this is agreed by all of us. However, it does not mean that the subsidy for renewable energy needs to continuously rise forever. Subsidy exists because there is a external benefit. An external benefit is a benefit that the market does not realise and take account into its price. The value of renewable energy is now better understood by the public and most people are more willing to use renewable energy if the prices are similar. Keeping the same level of subsidy might cause a negative externality. This means the external benefits of renewable energy have reduced. In addition, solar energy firms had been hot spots of many investors recent years.Technology of renewable energy develops at an incredibly fast rate, the cost has been reduced to a great extend. Cutting in renewable energy subsidy is sensible and good for the market and the government budget, as this encourages competition between the renewable energy industry and the traditional energy industry. Renewable energy is good for our future, but this does not mean that it needs unlimited support. This is how an economist and a scientist think differently.