Economics Explained in Thirty Minutes by Billionaire Ray Dalio - Time Well Spent Watching this Video

This 30 minute video by Ray Dalio explains how the economic machine actually works.  Spend the next 30 minutes watching it and I assure you that you won't regret it.  Beats any Economics module offered in the universities.

Double Dip Fears

I guess we have been hearing this for the longest time but it seems that fears of a double dip recession is still there. Just recently, President Obama announced plans to pump in another $50b into the economy through infrastructure works, hoping to ease unemployment rates and boost recovery.

Interest rates have also fallen sharply and it seems that the double dip fears are indeed real.

On the other hand, the economy has been supported by increased corporate spending and strong profit growth and healthy cash flows indicate a certain legitimacy to the overall recovery. Nevertheless, it seems that US GDP forecasts will continue to slide in the near term.

At the same time, it is worrying that policymakers in the EU are already focusing on austerity measures to cut budget deficits. Historical evidence has often shown that increased state spending has a correlation in helping economies emerge from recession. Joseph Stiglitz has warned that such austerity measures could have systemic consequences for Europe and the rest of the world.

Sing Dollar Rises with Record GDP Growth Forecast

With Singapore's GDP expected to grow at a record 13 to 15 percent in 2010, the Sing Dollar is also expected to rise to curb inflation. MAS has declared that it will maintain a modest and gradual appreciation stance for the currency at the next policy meeting.

I have always been quite interested in economics. Unfortunately, I have never been trained in this subject. The closest I got was to study Economics 101 in university and that was pretty much about supply and demand lines. We hardly talked about currency appreciation and inflation.

This is my version or laymen's language of what is going on:

1. Singapore's output in terms of products and services have been pretty high over the past 2 quarters. As such, the expected GDP figures are going to be between 13 to 15 percent. GDP stands for Gross Domestic Product and is basically a measure of the country's economic output. For the long term, a healthy GDP growth is around 3 to 5 percent.

2. When GDP rises, inflation is also expected to increase. This is because firms require more workers and start bidding against one another to attract workers so as to produce a higher output. This leads to an increase in the prices of goods and services and thus leads to inflation. When GDP grows rapidly, inflation is also expected to rise rapidly. Most economists try to keep a low steady inflation rate of 2 to 6 percent. That basically means that there will ALWAYS be inflation in Singapore as it is judged that low rate of inflation is good for the economy. So do take note that inflation is not some airy fairy thing that only takes place once in a blue moon. Most countries try to keep a positive inflation as they view that deflation is bad for the economy. In that sense, we can expect inflation to be always with us.

3. By appreciating the Singapore currency, inflation will be kept in check to the low rate. MAS is not trying to abolish inflation. Rather, it is trying to achieve the targeted inflation rate of 2 to 6 percent which is deemed healthy.

I am not an economist and I am also not from MAS. But I guess this is the linkage between GDP, inflation and currency appreciation. At least, this is the way I understand it to work =)