Note!!!!

I just merged all three reaction papers today, May 18. The topmost article Oil Is Plentiful, Demand Weak. Why Are Gas Prices Going Up? was submitted April 30 but i think it wasn't checked because there was no comment and it was under the link http://econ02.blogspot.com/2011/04/econ-2.html. I re-posted it here in this link (the first one i submitted) to make sure all three reactions papers could be found. I just found out earlier they can be merged on the same link. The article below it with the title Economic Problems of the Philippines is my reaction paper for the finals. Sorry for this sir.

ECON 2

Oil Is Plentiful, Demand Weak. Why Are Gas Prices Going Up?

http://www.time.com/time/world/article/0,8599,1901446,00.html

Storage tankers across the globe may be brimming with oil that no one is buying because of the global economic downturn, but the traditional laws of supply and demand don't always apply to oil prices. Drivers have faced rising prices at the gas pump in recent months, as investors and oil-producing countries hoard supplies in anticipation of a global economic recovery later this year.

The 12 member countries of the OPEC cartel voted in Vienna on Thursday to maintain output at current levels rather than increase supplies in order to bring some relief to consumers, particularly in the gas-guzzling West. The OPEC oil ministers, whose countries account for about 40% of the world's entire crude-oil supply, also renewed their commitment to stick to their agreed quotas, rather than ship extra oil, as they began doing last April when several members ignored their agreed output limits. OPEC leaders, many of whose economies are heavily dependent on oil exports, have struggled to stabilize prices at a level that suits their own economic needs amid falling demand and rising supplies. Prices had rocketed to a record level of $147 a barrel last July before plummeting to $30 just five months later and beginning a new climb. (See pictures of South Africa's oil-from-coal refinery.) 

Oil analysts believe OPEC's decisions on Thursday could help push oil prices even higher; oil futures on the New York Mercantile Exchange have risen 36% in just two months, to about $63.46 a barrel on Thursday. And that appears to be on track to achieve targets set by OPEC leaders. Saudi Oil Minister Ali al-Naimi — OPEC's key power player — said Wednesday that oil prices ought to rise to between $75 and $80 a barrel by the end of the year. "Demand is picking up, especially in Asia," he told reporters puffing alongside him as he jogged through the streets of Vienna. "The price rise is a function of optimism that better things are coming in the future." 

The economic recovery Naimi so optimistically predicts would certainly be vital to oil-producing countries, whose own economies would be imperiled by a drawn-out recession. Oil demand in rich countries has crashed since the onset of the economic crisis last year, and is now at its lowest level since about 1981, according to the Paris-based International Energy Agency. U.S. oil inventories — the stored surplus — this month reached their highest level since the 1980s. And about 2.6 billion barrels are currently stored in commercial tankers around the world. "There is some risk we will run out of storage space in the next four to six weeks," says Simon Wardell, director of global oil at IHS Global Insight, an energy-forecasting company in London. To oil-rich countries that possibility evokes grim memories of 1998, when the Asian economic crisis sent demand plummeting, driving world oil prices down to $10 a barrel. "If we run out of storage it could prompt a collapse in the price," says Wardell. Oil producers might then choose to dramatically cut output in order to run down the surplus.

Despite such dangers, investors and oil producers are betting that global demand will roar back, apparently hoping that the recession has already hit bottom. Over the past two months, investors have plowed billions of dollars into oil futures. If the U.S. and other major industrial economies rebound, oil supplies could be depleted because the recession has prompted producer nations to freeze hundreds of projects to open new oil wells or upgrade existing ones. In the oil-rich Niger Delta, a major Nigerian government offensive against rebels has seriously disrupted production for several weeks. Venezuela's Oil Minister Rafael Ramirez said in Vienna that his country could not afford to invest in major new oil exploration unless prices rise further. "We need a level of at least $70 [a barrel] to recuperate investment," he said on Thursday. Muhammad-Ali Zainy, senior energy analyst at the Center for Global Energy Studies in London, says oil demand could increase quickly once the recession ends, especially as China has begun to build up its strategic oil reserves. "We think the price is going to go up gradually," says Zainy. 

For those feeling the pain at the gas pumps, however, there is one piece of good news. Oil is unlikely to hit $147 a barrel again — at least not during the coming decades. The U.S. Energy Information Administration said on Wednesday that oil prices would likely rise to $110 a barrel by 2015 and $130 a barrel by 2030. By that time the world oil markets might once again follow the normal rules of economics.

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Reaction

First off, I was really wondering as to why the title of the article was so. It seemed weird though we know for sure that such a thing exists in our economic lives as we all experience its diverse effects. If we indeed have a lot of oil supply in the global market then how come they’re making the gas price keep going up, up, and away? As if it’s never going to really go down. I’ve been a witness to much protest each year because of it. Though most jeepney drivers wouldn’t drive on the day of protests and oil price hikes still there would be some who would go on with their lives and take the wheel. Eventually, those other jeepney drivers would get back to work the following day because they realize that they can’t really do anything about it for now and if they don’t work they’ll not have anything to fill their needs. I understand why they would do those during the oil price increase. I feel pity for them. Were it not for their profession many of us would not be able to go about our day to day activities. It’s not really fair for their part. We take them for granted and they are the most affected when this phenomenon happens. 

I think we don’t really have much of the choice at the moment even though we want things to change and become more convenient for us since we’ve been in this situation of poverty and somehow deprived of the good things in life since our country’s been occupied by other nations. We do have the right to have happier lives yet with the way we are living as of this time and the way we conduct ourselves, I believe it is going to take a while before we could rise up from our economic status. I can’t blame anyone why they protest or increase the prices of goods and services. It’s not their fault why they do it. As if they really have much of a choice right now. We could at least be optimistic. It doesn’t mean that we have to be naïve or something. I’m just saying that good things will happen to those who would believe it would happen. I can tell that many would disagree with me about this but seriously it will happen. If we think that other countries are much better off than us, we may not know but they’re facing similar challenges with us. A friend of mine from the US told me that even they have a big debt to pay as a country. Let’s just be grateful that not many things happen in our country that happens to theirs. We wouldn’t make it were it to happen to us. Like terrorists that blow off skyscrapers. 

Overall, whatever economic crisis we may encounter in the next years or so, all it really takes is a little practice. We just started being on our own now and it’s reasonable that what our economy or society rather has undergone over the years is a way of saying that we’re just starting on managing the affairs of our country. There’s no point blaming anyone really. The prices of goods are still expected to rise so just bear with it. It’s going to be over so long as we keep working on it.

Reaction Paper

ARTICLE

 

The Depression of 2011?
23 Economic Warning Signs from Financial Authorities All Over the Globe 

http://theeconomiccollapseblog.com/archives/the-depression-of-2011-23-economic-warning-signs-from-financial-authorities-all-over-the-globe 

Could the world economy be headed for a depression in 2011?  As inconceivable as that may seem to a lot of people, the truth is that top economists and governmental authorities all over the globe say that the economic warning signs are there and that we need to start paying attention to them.  The two primary ingredients for a depression are debt and fear, and the reality is that we have both of them in abundance in the financial world today.  In response to the global financial meltdown of 2007 and 2008, governments around the world spent unprecedented amounts of money and got into a ton of debt.  All of that spending did help bail out the global banking system, but now that an increasing number of governments around the world are in need of bailouts themselves, what is going to happen?  We have already seen the fear that is generated when one small little nation like Greece even hints at defaulting.  When it becomes apparent that quite a few governments around the globe cannot handle their debt burdens, what kind of shock wave is that going to send through financial markets?  

The truth is that we are facing the greatest sovereign debt crisis in modern history.  There is no way out of this financial mess that does not include a significant amount of economic pain. When you add mountains of debt to paralyzing fear to strict austerity measures, what do you get? What you get is deflationary pressure and financial markets that seize up. Some of the top financial authorities in the world are warning us that unless something substantial is done, that is exactly what we are going to be seeing as 2010 turns into 2011. Of course some governments around the world could try to put these economic problems off for a while by printing and borrowing even more money, but we all know by now that only makes the long-term problems even worse. For now, however, it seems as though most governments are opting for the austerity measures that the IMF seems determined to cram down the throats of everyone. So what will austerity measures mean for the global economy? Think "stimulus" in reverse. Yes, things are going to get messy. It looks like there is going to be a great deal of economic fear and a great deal of economic pain in 2011 and the years beyond that. So are we headed for "the depression of 2011"? Well, let's hear what some of the top financial experts in the world have to say.

 

#1) Economist Nouriel Roubini:

"We are still in the middle of this crisis and there is more trouble ahead of us, even if there is a recovery. During the great depression the economy contracted between 1929 and 1933, there was the beginning of a recovery, but then a second recession from 1937 to 1939. If you don't address the issues, you risk having a double-dip recession and one which is at least as severe as the first one."

#2) Bank of England Governor Mervyn King:

"Dealing with a banking crisis was difficult enough, but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there's no backstop."

#3) German Chancellor Angela Merkel:

"The current crisis facing the euro is the biggest test Europe has faced for decades, even since the Treaty of Rome was signed in 1957."

#4) Paul Donovan, the Senior Economist at UBS:

"Now people are questioning if the euro will even exist in three years."

#5) Michael Pento, Chief Economist at Delta Global Advisors:

"The crisis in Greece is going to spread to Spain and it’s going to be very difficult to deal with. They are bailing out debt with more debt and it isn’t sustainable. It’s a wonderful scenario for gold."

#6) LEAP/E2020:

"LEAP/E2020 believes that the global systemic crisis will experience a new tipping point from Spring 2010. Indeed, at that time, the public finances of the major Western countries are going to become unmanageable, as it will simultaneously become clear that new support measures for the economy are needed because of the failure of the various stimuli in 2009, and that the size of budget deficits preclude any significant new expenditures."

#7) Telegraph Columnist Edmund Conway:

"Whatever yardstick you care to choose – share-price moves, the rates at which banks lend to each other, measures of volatility – we are now in a similar position to 2008."

#8) Peter Morici, an Economics Professor at the University of Maryland:

"The next financial tsunami is emerging and will ripple to America."

#9) Bob Chapman of the International Forecaster:

"The green shoots of recovery have now turned into poison ivy. The abyss has again been filled with more debt and more fiat currency. In the process the Fed and now the ECB have lost all credibility."

#10) Telegraph Columnist Ambrose Evans-Pritchard:

"The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history."

#11) Professor Tim Congdon from International Monetary Research:

"The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly."

#12) Reuters Columnist Iliana Jonas:

"The default rate for commercial mortgages held by banks in the first quarter hit its highest level since at least 1992 and is expected to surpass that by year-end and peak in 2011, according to a study by Real Capital Analytics."

#13) Paul Krugman, a Nobel Prize-winning Economist:

"It's not hard to see Japan-style deflation emerging if the economy stays weak."
#14) Stan Humphries, Chief Economist for Zillow.com:

"Anyone expecting a robust rebound in the housing market ... will be sorely disappointed."

#15) Fox News:

"As the national debt clock ticked past the ignominious $13 trillion mark overnight, Congress pressed to pass a host of supplemental spending bills."

#16) Bloomberg:

"The U.S. government’s Aaa bond rating will come under pressure in the future unless additional measures are taken to reduce projected record budget deficits, according to Moody’s Investors Service Inc."

#17) Peter Schiff:

"When creditors ultimately decide to curtail loans to America, U.S. interest rates will finally spike, and we will be confronted with even more difficult choices than those now facing Greece. Given the short maturity of our national debt, a jump in short-term rates would either result in default or massive austerity. If we choose neither, and opt to print money instead, the run-a-way inflation that will ensue will produce an even greater austerity than the one our leaders lacked the courage to impose. Those who believe rates will never rise as long as the Fed remains accommodative, or that inflation will not flare up as long as unemployment remains high, are just as foolish as those who assured us that the mortgage market was sound because national real estate prices could never fall."

#18) The National League of Cities:

"City budget shortfalls will become more severe over the next two years as tax collections catch up with economic conditions.  These will inevitably result in new rounds of layoffs, service cuts, and canceled projects and contracts."

#19) Dan Domenech, Executive Director of the American Association of School Administrators:

"Faced with continued budgetary constraints, school leaders across the nation are forced to consider an unprecedented level of layoffs that would negatively impact economic recovery and deal a devastating blow to public education."

#20) Mike Whitney:

"Without another boost of stimulus, the economy will lapse back into recession sometime by the end of 2010."

#21) Kevin Giddis, Managing Director of Fixed Income at Morgan Keegan:

"There is big money making big bets that at a minimum we we'll have a recession if not a depression that could last for years."

#22) John P. Hussman, Ph.D.:

"In my estimation, there is still close to an 80% probability (Bayes' Rule) that a second market plunge and economic downturn will unfold during the coming year. This is not certainty, but the evidence that we've observed in the equity market, labor market, and credit markets to-date is simply much more consistent with the recent advance being a component of a more drawn-out and painful deleveraging cycle."

#23) Richard Russell, the Famous Author of the Dow Theory Letters:

"Do your friends a favor. Tell them to "batten down the hatches" because there's a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don't need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won't recognize the country. They'll retort, "How the dickens does Russell know -- who told him?" Tell them the stock market told him."

  

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REACTION

After all that has been said who would not believe that we are facing an economic collapse this year and even more of these in the next years to come. Throughout the world we have been facing the constant flow of economic crisis and the fear of future difficulties continue to haunt our worldwide economy. From the rise of prices to the sky rocketing increase our debts, the list keeps going on and sooner or later we might not be able to make it out of the list of issues that has piled up in our "to solve list". I admit that it's easy to talk about things like this and maybe critic our nation's leaders for messing up, but hey, their jobs aren't that easy to do. We could protest all we want such as what's been happening in our country during oil price hikes but the thing is it's not that easy to lower the prices. We can't control when prices go up or down. Nor can we really do anything about it. Money concerns are tough to beat.

The article mentioned that the two primary ingredients for a depression to occur is debt & fear, and that we have these two in abundance. As far as i know, having debt is becoming a culture than a problem that we have to avoid. To most people it has been a common practice. Because of our immediate wants we often go through debts not realizing the consequences it would inflict on our lives especially on our families. Most people don't consider if they are fully capable of paying back what they owe. The mentality that they can always pay later makes them fall to this trap and later find themselves financially indebted to other people. Pretty soon they'll be hiding or making desperate decisions to pay their debt by committing crimes such as stealing, robbing banks, oppressing other people, and so forth. Thus the crime rates increase especially in third world countries. Unless we stop the culture of making unnecessary debts to meet our immediate wants and needs, we could expect more debts that are unpaid such as the international debt we have at present.

The other primary ingredient of depression is fear. As they say, we fear the unknown. Fear is also "False Expectations Appearing Real". We can't blame people for having such fears. With all that's happening to countries throughout the world and the growing crisis in our economy, one cannot help but fear for the future. Tendency is that we would make drastic actions to face those fears and that often would do no good and make matters much worst. When people are faced with critical decisions they often tend do make those drastic actions the lead to more problems. We can read from the article some comments of financial authorities regarding the upcoming or already happening depression and economic collapse. If one were to read these we could not help but worry and feel the fear of the uncertain future. If we are to dwell on those fears surely we couldn’t do anything about it. But if we face this as an opportunity for us to increase our capabilities to overcome the challenges and that we can still make a better economy, surely we can do it.

Over all, I think if we change the way we live we could have a chance of rising from these economic crisis that beset us. As economics is somewhat related to managing the household, how we manage our individual families and homes will determine the strength of the future generation to overcome the crisis much better than how we are doing at present. It would give the future leaders to manage the economy better and hopefully end the crisis. It’s about what we do about it than worrying about it.