Chapter 7 Blog

http://www.cbc.ca/consumer/story/2009/04/02/credit-senate.html

Summary

Credit card interest rates has always been higher than bank rates in Canada but with the bank rate falling down to a mere 0.5 percent in the recent month, people are wondering why credit card rate is still at the high of 19.9 per cent. Such people include the Senator of New Brunswick, Pierrette Ringuette. She believes it is all due to greed of the credit card company. The reason the Canadian Bankers Association gives for the credit rate being so high is due to the delinquency rate. Since the recession, the rate has gone up to 4.5 per cent from the 1 per cent before. Companies have suggested regulating the fee that merchants pay each time the credit card is used but credit card companies are quick to dismiss such suggest. They say that regulating merchant fees would hurt small businesses as they would have to pay same amount as big companies while their profit is lower.

Connection

This chapter discusses money and the ways money can be held in Canada. Money doesn’t necessarily mean cash. It can take many forms. They can be turned into numbers on a debit card and can be burrowed through a credit card. When one purchases something on a credit card, they do not actually spend their own money. It is instantly burrowed and to be paid back later. Credit cards are handy and allow people to purchase things without having to actually to have the money. It is good for people in a recession since cash is not around and things still need to be bought. But many people in the recession are unable to pay off their credit card right away and instead have to keep the money burrowed off the credit card at extremely high interest rates. The high rates are seen by some for credit card companies to make money while some are saying they are doing it to keep up with the recession.

Reflection

With the way people normally shop, more and

more people are already using credit cards other than cash or debit. It is much easier to carry around and people feel more secure with credit cards than with cash. We have created a habit of buy now and pay later. So once the recession started, people are still buying and not thinking of paying. Many people are still shopping like the recession never happened and are using money they do not have. Some declare bankruptcy after they have accumulated so much debt due to the high interest rate of credit interest. I think it’s fair that the credit card company have such high interest rates to cushion themselves against the money they could lose due to the instability of some of their clients.

 

 

Chapter 6

http://www.economist.com/finance/displayStory.cfm?story_id=13240636&source=hptextfeature

Chapter 6


Summary

Japanese households use to be one of the world’s biggest savers and because of that, they had a massive trade surplus. But they are no longer, as they now save less than the American households based on income. The saving rates have fallen from 18% of income in 1980 to about 1% in 2008. This is due to the growing numbers of people aged 65 and over. The ratio of Japanese aged over 65 to those of working age rose from 14% in 1980 to an estimated 34% in 2008. It is forecast to increase to 49% by 2020. With so many people in the retired field, less money are being put into savings as they are pulled out of the bank and used as an retirement plan. Another issue that is causing Japans saving rate to decrease is a decress in income. Japan’s trade balances are no longer in the surplus zone but instead moved to the deficit zone due to the world recession. The low demand and the strengthening yen have destroyed Japan’s exports. In the six months to January, it had an annualised trade deficit of ¥4 trillion ($39 billion), compared with a surplus of almost ¥11 trillion a year earlier. Although in January, there was still deficit showen, experts expect a surplus for the year as a whole but as much as 1% of GDP would have been reduced compared to the peak of 4.8% in 2007.

Connection

In this chapter, we learned about the positive and negative effects savings can have on one country’s economy. On the positive side, the more money one puts into the bank for savings, the more there is for the country to lend out for investments. With that, the interest rates would be lowered for those that want to burrow money. The negative side would be reduced consumption due to savings. The more one saves, the less there is for them to spend. The factors for increased savings are higher incomes, which is what is described in the article. When people are young and working, they consumed but put a large sum of their earning into a savings account to themselves for retirement. Once they reach retirement, their income have significantly dropped and they are pulling money out of the bank thus decreasing their savings or are dissaving. That is the problem for Japan because the percentage of people being over 65 is on the rise as baby boomers are reaching retirement age.

Reflection
It is a vicious cycle as the recession is forcing people to stop saving as many are becoming unemployed and are digging deep into their savings account to survive. Although many are reaching into their saving to live, it is still not enough. The banks are making the interest to go down as the banks want to encourage people to start burrowing money and spending. I think in a time like this, savings is as important as spending. With little being put into savings, there are less money going into the bank that can be lend out to investments that can help bail us out of the recession. Also, with savings being a huge part of one countries GDP, a decrease of it affects the countries economic state greatly.

*Comment on Raymond C