While you were blinking – High Frequency Trading

April 21, 2014 Leave a comment

Another High Frequency Trading graphic from the NYT . Having read the reviews of Flash Boys in the NYT and especially that of Diane Coyle on her blog The Enlightened Economist it seems to be a good read.

High-frequency-trading activity is not constant; it occurs in microbursts. The line at the bottom of this graphic is the stock-market activity involving General Electric shares over 100 milliseconds (one-tenth of a second) at 12:44 p.m. on Dec. 19, 2013. The gray box magnifies a five-millisecond window, during which GE experienced heavy bid and offer activity and a total of 44 trades. Credit Graphic: CLEVERºFRANKE. Data source: IEX.

HFT Activity

Free Market v Communism: Flooding in Berlin

April 19, 2014 1 comment

BerlinParts of Berlin are now suffering the effects of a rising water table which has increased in places to just 2.5 metres below ground level. What is interesting is that there seems to be a correlation between the political ideology and the water level. For instance after 1945 when industrial output was virtually zero the water levels in Berlin started to rise. However in the 1950’s Berlin recovered in the Wirtchaftswunder (economic miracle) and under the communist rule water prices were kept artificially low which meant that East Berlin consumers were much more lax on water conservation. This had the effect of reducing the water table and thus avoiding the threat of flooding.

With the collapse of the Berlin Wall in 1990 came unification pro market policies and the price of water was no longer determined by the Communist party but the free market. This meant that water prices went up and consumers started to consume less. Add to this the increasing presence of the Green movement and conservation of water was on the increase. Since 1989 the level of commercial activity has increased in Berlin but it has been predominately the service sector which are less reliant on water.

Since the fall of the Berlin Wall the groundwater level has risen by over half a meter. Berliners are using 200m cubic metres of water but should be using 300m to avoid the rising water table. There is obviously a case to subsidise water consumption because of its positive externalities.

Imagine the dream-like insanity of a city that needs to turn itself into something like a vertical dam to survive: re-engineering itself not to keep the ocean out, but fortifying itself from below to prevent a lake from rising up onto the sidewalks and streets. It’s as if the fate of Berlin now is to turn itself into a fleet of inland ships, a grounded armada awaiting its moment at sea. [The Economist]

Some big questions for Europe’s trade position.

April 18, 2014 Leave a comment

EU US TradeWith Europe keen on a transatlantic deal with the US, there have also been calls for a separate EU-China trade pact. Although they have shown a lot of enthusiasm to the US deal, the pact with China has been met with scepticism.

Here are the facts:

* China has overtaken the US as the biggest single trader
* China will overtake the EU as the biggest single trader in 2020
* China will surpass the EU in global GDP by 2020
* By 2020 the biggest destination for German exports will be China
* By 2020 the second biggest destination for French exports will be China
* Italy and Germany will export more to developing markets their euro-zone partners.

Therefore if Euro countries start to trade more with countries outside Europe the commitment to a single currency may weaken. With countries less or more reliant on exports and imports the exchange rate will not satisfy all members. If it is going to work Euro members economy’s will have to become more affiliated and better equipped to withstand unbalanced shocks from external partners.

Categories: Euro, Trade Tags: ,

Global GDP – 2007 – 2013. It’s a Chinese Roadshow

April 16, 2014 2 comments

Here is an image from The Economist which shows how the global economy is very reliant on China. Some key points from the graph:

* Since 2010 China has contributed 35% of global growth
* Developing economies overall have contributed over 70% of global growth during the same period.
* Developed economies are responsible for approximately 25%

World GDP composition

Welfare benefits the wealthy – #GlobalPOV Project

April 14, 2014 Leave a comment

It is time for America to reconsider who is dependent on welfare. Poverty is not only the lack of income and wealth but also the poverty of power. A key part of the poverty of power is to be defined as dependent: dependent on charity, handouts, welfare. Yet, it is the wealthy, not the poor, who are dependent on government subsidies. To transform dependency into self-determination is the work of poor people’s movements. To demonstrate the dependency of the wealthy on welfare as well as on the labour of the poor must be our collective work.

The #GlobalPOV Project is a program of the Global Poverty and Practice (GPP) Minor. Based at the Blum Center for Developing Economies, University of California, Berkeley, the GPP Minor creates new ways of thinking about poverty, inequality and undertaking poverty action.

Categories: Development Economics Tags:

AS Revision for June resit exam – Externalities

April 14, 2014 Leave a comment

Here is another video from Phil Holden concerning negative externalities. Remember the following:

Externalities are common in virtually all economic activities. They are defined as third party (or spill over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid.

Externalities can cause market failure if the price mechanism does not take into account the full social costs and social benefits of production and consumption. The study of externalities by economists has become extensive in recent years, not least because of concerns about the link between the economy and the environment.

THE DIFFERENCE BETWEEN PRIVATE AND SOCIAL COSTS

Externalities create a divergence between the private and social costs of production.

SOCIAL COST = PRIVATE COST + EXTERNALITY

* Private costs are the costs to a ‘firm of producing a good or service and to an individual of consuming a product.

* External costs are the spill over effects on third parties.

* Social costs are obtained by adding the private and external costs together. They reflect the total cost to society of an economic decision.

Categories: Externalities Tags:

Trading in the Fast Lane

April 13, 2014 Leave a comment

Trading in fast laneAnother image from the NYT adaptation of Michael Lewis’ new book ‘Flash Boys’. In the microseconds it takes a high-frequency trader — depicted in blue — to reach the various stock exchanges housed in these New Jersey towns, the conventional trader’s order, theoretically, makes it only as far as the red line. The time differences — now under investigation by New York’s attorney general — can be financially advantageous in a number of ways. Credit Graphic: CLEVERºFRANKE. Data source: IEX.

Categories: Financial Markets Tags:
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