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Economics
February 12, 2016

If you want more affordable housing available to low-income renters, the best solution can be to build more expensive apartments. This isn't as counterintuitive as it first sounds. In fact, it's based in simple rules of supply and demand: If you increase the overall supply of housing — even by adding on the high end — competition for low-end units declines and so do their prices (or, at least, the rate of price growth).

A new report from the California Legislative Analyst's Office provides the data to back this up. In the San Francisco area, the study found, neighborhoods with heavy construction of market-rate buildings saw half the displacement of low-income residents that low-construction neighborhoods suffered since 2000:

The report concludes that boosting private construction would do more to broadly help poor households than expanding small and costly affordable housing programs that can serve only a fraction of them. Those programs also don't resolve the underlying cause of high rents — the housing shortage itself.

And that shortage actually undermines affordable programs like housing vouchers, because it's a lot harder for the poor to use vouchers in a market where they're fiercely competing with everyone else. [Washington Post]

Building new housing also allows older units to look worse by comparison, so old housing becomes affordable to the poor and middle class while the rich move into new luxury options. Bonnie Kristian

January 13, 2015

The number of U.S. job openings hit a 14-year high in November, a new Labor Department report shows. That month, 142,000 new openings were recorded, bringing the total to 4.97 million. It's a level the country hadn't seen since January 2001.

"The labor market is in fine shape," Brian Jones, a senior U.S. economist at Societe Generale in New York, told Bloomberg News. "There is an increase in openings. Confidence is rising."

Check out the full Labor Department report here. Julie Kliegman

November 22, 2014

Helped by boosts from the People's Bank of China and the European Central Bank, U.S. stock markets closed on Friday with a fifth week of positive performance — the best stretch since 2011, Fortune notes.

The People's Bank of China announced an interest rate cut on Friday that nudged international markets higher, while the European Central Bank's president, Mario Draghi, made comments about the bank's plans to double down on boosting the eurozone economy. The Dow Jones Industrial average closed at a record 17,810, while the S&P 500 rose nearly 11 points, to 2,064. The U.S. stock markets' reaction to international news underscores the need for consistent global gains, though, said one portfolio manager.

"It's short-term good news, but the really good news is going to take longer to play out," Tom Kolefas, of TIAA-CREF, told The Wall Street Journal. "What we really need is real economic growth (outside the U.S.)." Sarah Eberspacher

October 8, 2014

The International Monetary Fund (IMF) reports that, when calculated according to purchasing power, China now boasts the world's largest economy.

The calculation method is key here, because in raw numbers, the United States' GDP ($16.8 trillion in 2013) is still about $7 trillion ahead of China's ($9.2 trillion in 2013). But because of significant cost of living differences between the two countries, those figures don't provide a completely accurate picture. That's where purchasing power comparisons come in, and where China's growth is evident: By 2015, the U.S. will account for 16.28 percent of the world's purchasing power adjusted for GDP. China will be responsible for 16.48 percent.

China's growth is representative of a larger trend of "emerging economies" commandeering an ever-larger share of the world economy while "advanced economies" become less prominent. Bonnie Kristian

September 5, 2014

The unemployment rate is down to just 6.1 percent, according to the latest jobs figures released by the Bureau of Labor Statistics.

The U.S. economy created a net 142,000 new jobs in August. That's decent job growth, but significantly less than the 230,000 jobs that economists were expecting. More disappointingly, the labor force participation rate fell to 62.8 percent, from 62.9 percent.

Such middling numbers will put pressure on the Federal Reserve to keep interest rates lower for longer, even after the end of its quantitative easing stimulus program. John Aziz

September 4, 2014

The European economy is in an epic depression. With industrial production stagnant, mass unemployment showing no signs of abating, and inflation on a severely downward trend, economists such as The New York Times' Paul Krugman are concerned that Europe is becoming like Japan, the former second-largest economy in the world, which has spent more than 20 years in a deflationary depression.

But now the European Central Bank — which has a mandate of 2 percent inflation per year, something that even with interest rates close to zero it has not been achieving — is finally going to do something about it.

ECB chief Mario Draghi announced today that starting in October, the ECB would be purchasing asset-backed securities in order to try and reinvigorate the European economy. The ECB may not be calling it quantitative easing (QE), because it is not quite the same as what the Fed has been doing — the Fed's QE plan involves buying both asset-backed securities as well as U.S. government debt in order to buoy the economy— but it is a start.

The real question is: why now? After all, earlier in the summer Draghi was quoted as saying that he believed that the European recovery remained "on track."

The answer may be that Germany, the economic superpower at the heart of Europe — which is now on the brink of a recession — has finally been shaken. Germany has been strongly opposed to quantitative easing while other eurozone economies such as Spain, Greece, Italy, and Portugal struggled, with Chancellor Merkel remaining adamant that structural reforms, such as government spending cuts, are the right answer for those countries' woes. But now that the contagion has spread to Germany, things are different. John Aziz

August 27, 2014

The bull market in stocks isn't running out of steam, at least not yet — even with lots of geopolitical risks rearing their ugly heads and the Fed pressing forward with tapering its quantitative easing stimulus. Yesterday the S&P500 index soared to close at an all-time high of 2000.2, although it fell back a little today and is currently trading at 1999.6. The index is up 9.67 percent so far in 2014, and that's off the back of a monster 2013 when it rose 30 percent, the best annual gains since 1997.

What's driving the continued growth? Ordinary investors — after a grim few years since the financial crisis — finally began to come back into the market in 2013, and money keeps flowing into stocks, albeit a little more slowly than last year. According to Gallup, the percentage of investors optimistic about the market soared to 54 percent last year, compared to 24 percent who were pessimistic. Today, the optimists still greatly outweigh the pessimists by 46 percent to 26 percent:

Forty-one percent of investors surveyed by Gallup last month said that the best place to put an extra $10,000 was in the market, compared to 36 percent who preferred to keep it in cash, and 20 percent who preferred a certificate of deposit. John Aziz

August 21, 2014

Bank of America has finally reached a settlement to pay a whopping $16.65 billion to the government for selling badly-designed mortgage-backed securities in the run up to the financial crisis.

Those mortgage-backed securities had been advertised to investors, including public pension funds and federally-insured financial institutions, as safe, strong investments with little risk. But the financial crisis saw those investments lose billions and billions of dollars. Securitization — which was supposed to decrease risk by spreading it out throughout the system, for example by bundling up lots of different mortgages together into mortgage-backed securities, and then selling those securities to investors — in reality turned the minor risk of mortgagees defaulting on their loans into a systemic risk that crashed the economy.

Many (but not all) of these mortgage-backed securities were created by Countrywide and Merrill Lynch, two firms Bank of America acquired during the financial crisis at pennies on the dollar. But those firms' assets came with the added burden of responsibility for their prior activities, for which Bank of America is now paying a steep price.

The settlement — which according to The Wall Street Journal is approximately equal to the firm's profits for the last three years — is the single largest settlement ever reached between the U.S. and a single company.

The terms of the settlement involve the bank paying $9.65 billion to government agencies, including the Justice Department, several states, and other government agencies. Much of that money will go to paying down the national debt.

And those payments are in addition to providing $7 billion worth of aid to customers through a variety of actions such as modifying mortgages for borrowers who owe more than their homes are worth, and donating money to housing counseling agencies.

The settlement is similar to other deals with major players in the financial industry for similar conduct. In July, Citigroup paid out $7 billion, and late last year JP Morgan Chase paid $13 billion. John Aziz

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