The TeenBiz 2013 June by theteenbiz

2013. June

The Entirely Student-Run Business Newspaper:

The TeenBiz

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Editor: Stephanie Y.

This Month’s Hot News: 

Retirement Age in Elderly Society

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Wall Street, a Giant Without Any Conscience?

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Again 1987?

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The Dispute Between EU And China

Retirement Age in Elderly Society Writer: Byeongchan Gil

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Emergence of the New Era in Surgical Procedures

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The Power of Real Variety Television shows and Soap Operas

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The Government to Implement the Happy House Policy Japan’s aggressive quantitative easing to combat deflation

Contents: Retirement Age Wall Street

1 2-3

Again 1987?

EU-China Dispute

New Era in Surgical Procedures

Real Variety and Soap Opera 6 Happy House Policy

Volume 2. News 6.

Japan’s Quantitative Easing 7-8

As of April 1, Japan completed the law which will guarantee a retirement age of 65. Now, anyone can work until 65. If a company tries to resist the new policy, its name will be announced to the nation by government. Many people are welcoming an extension of the retirement age since they know that they cannot stop a society from aging. But there are some concrete solicitudes about the policy’s side effects. To prolong 5 years is a big pressure to employers. It has a bad influence upon individuals’ payments as well as recruiting new employees. And it also deprives people’s motivation. For these reasons, most corporations take out a card of 'reemployment'. Lots of companies have already established staffing firms to

reemploy over 60 employees and a dispatch to original companies. This is a typical dispatching working system. Wage has decreased as 70% ~60% of previous wage, and some have decreased by 50%. In comparison with the workload, the return will be little. Only one-third are hired to be permanent employees and the remaining people cannot help being workers in contract. After that, voluntary retirement is induced. Many of them are treated as unproductive employees or given only odd jobs. Some are placed in 'deportation' office'. Difficulties are predictable in terms of relationship and position after reemployment. However, workers in small and medium businesses merely envy these workers.

Most small or medium-sized enterprises cannot afford to give workers any opportunity to be reemployed. So, these workers should find a new job by themselves at 60. Ironically, if a workers finds a job by being reemployed for 5 years(60 to 65), he/she cannot help competing with those who are younger than them! Because of an increase of average life expectancy, a lot of people want to work longer than 65, but protraction of the retirement age can block people’s work route after they retire. As youth unemployment rate is going to soar higher than ever, elder employees should prepare their future. Government must set up measures to counter side effects and remove conflict between young and old.

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Wall Street, a Giant Without Any Conscience? Investigation on Wall Street through the book “Liar’s Poker” Writer: Yong Jin Lee Occupy Wall Street movement has reinvigorated our critical views towards the major firms in Wall Street. With excessive growth and accompanying wealth creating much more amicable environment for the money cravers to enter, Wall Street firms have earned a reputation as greedy giants. Before these arrivals of critical views of the public, the menaces done by the firms had led to several breakdowns of many livelihoods. Although those breakdowns were predicted by many Wall Street dwellers, it was as if there were no moral obligations for the greedy employees of Wall Street. The book Liar’s Poker illuminates on the trends in the financial sectors during the 1980’s and effectively shows the realities of investment banks. This book starts off by introducing a long held game of liar’s poker that mainly consists of betting against another’s chance of guessing the correct serial number on a dollar bill. Because the bets can range from several bucks to some millions of dollars, it has been considered as a game exclusive to the Wall Street workers. Starting with the introduction of this game of Liar’s Poker, the book starts the story of the greedy. Through his first hand experience, the author goes on with his story of how he got recruited to Salomon Brothers and portrays how investment banks were viewed and operated. He was recruited while he was studying at London School of Economics but in a rather embarrassing way. The story was that he was invited to a banquet consisted of numerous financial sector occupants and luckily got in contact with the wife of Salomon Brothers owner. This connection would further lead to his recruitment, which only comprised of few easy breakfast interviews with an executive at the Salomon Brothers, unlike the infamous interviews that most of the applicants had to go through,. Salomon Brothers had experienced tremendous influx of wealth as they facilitated bond trades and eventually dominated the bond market that would lead to overexpansion of the firm. Although unknown if it was the product of their mismanagement of the firm, excessive recruitment of new trainees seemed to show the firm’s extravagance since the firm’s gain of throne in the bond market. The training sessions that followed were arranged with talks by the executives that aimed to intimidate the trainees, praise the firm, and choose who will be selected to work in the mortgage trade sector. Since mortgage trade and bond trade was considered as the two most profitable sectors in Salomon Brothers, the competition to be selected as mortgage and bond traders and the following challenges

faced by the chosen candidates were intense. As Michael Lewis portrays his life in the Salomon Brothers, he reveals the immorality of the Wall Street workers by providing his observations on irrational decisions made by the firm. The immoral decision pointed out by Lewis in the book happens in the year 1987 when Wall Street faced one of the worst stock market crashes in history that is commonly referred to as Black Monday crisis. Black Monday stock market crash would force the Salomon Brothers to layoff large portion of their employees, but the irrational part is that the Salomon Brothers gave out huge bonuses to the remaining workers right after the firm had laid off their employees. Lewis resigns from his job since he finds no value in receiving rewards that lacks moral basis, and accentuates the immorality of the Salomon Brothers by resigning. Similar to the Black Monday crisis, the 2008 subprime mortgage crisis exhibited similar immoralities by the major investment banks, and the degrading morality of the Wall Street investment banks had become an issue that could not be ignored anymore. The burst of housing bubble that triggered the sudden failure of the investment banks pointed to the crippled mortgage system as the cause, and thus began a series of investigation that aimed to root out the faulty mortgage system. The conclusion made from such investigation on the causes of the financial crisis in 2008 is that the deregulation had led to overexpansion of the greedy investment banks. The overall history of deregulation was an attempt to resist against the Glass-Steagall Act, which was put into effect to prevent mergers between investment banks and commercial banks. Glass-Steagall Act initially prevented excessive growth of conglomerate firms but caused many outrages from the firms. Thus, several legislations since the Glass-Steagall Act, such as the Community Reinvestment Act, would provide investment banks with greater rights that would satisfy the firms. Although Community Reinvestment Act allowed many banks to increase their loans on low income households in the hopes of reducing inequality, rising number of subprime mortgage loans heightened the risk of financial crisis. According to a movie “Inside Job”, the underlying problems of deregulation first surfaced with the collapse of three largest privatized banks in Iceland: Glitner, Landsbanki, and Kaupthing. In 2000, the three banks were privatized as a result of deregulation policy in Iceland, Continued on Page 3

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Wall Street, a Giant Without Any Conscience? Investigation on Wall Street through the book “Liar’s Poker” - Cont’d which allowed limitless borrowing of money from investors outside of Iceland. The total amount of money borrowed reached ten times the size of Iceland’s economy, and the money was used to buy luxury goods such as personal jets and extravagant Manhattan penthouse. Ironically at that time, the credit ratings by accounting firms reached the highest, and extravagance done by bankers were left unnoticed. So when the three banks collapsed as a result of real estate bubble burst in 2008, tremendous amounts of personal savings were lost, and people blamed the immoral behaviors of the bankers and the failure of government regulators to protect the citizens of Iceland. In the end, the failure of the three banks in Iceland affected the whole population of Iceland and left Iceland in a bleak situation.

As Occupy Wall Street movements show, our awareness towards the immoralities of investment banks has heightened throughout the past several years, yet we still face a terrible quandary when dealing with investment banks. After the collapse of AIG in 2008, government decides to bail out AIG. Although the bailout may have been for the benefit of the society, the question of whether bail out must have been unconditional exists. In many countries, government bailouts of failing companies are common, but many critics say that because of the unquestioned bailouts by the government, investment banks do not restrain their greedy transactions. Is it morally right for the governments to save failing firms unconditionally? If unconditional bailout is the problem, then should investment banks be more regulated? But then how would we

regulate them? Is it even possible for us to regulate them? Although it may seem inevitable for the government to bailout failing investment banks, wouldn’t there be ways to prevent them from failing? Government measures such as penalties for excessive leverage borrowing rates and regulations on expansion of investment banks have been suggested as solutions, but it is evident that investment banks are subject to constant observation.

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Again 1987? Writer: Seungjun Kim Another major world war might happen. I am not talking about a potential World War III that may devastate the entire global community. Rather, I am referring to the recently rising economic issue that is topping the headlines of many newspapers: the currency war. Nowadays, many people are concerned about the potential repetition of another currency war that eradicated the Bretton Wood system altogether in 1987. Emerging economies such as Brazil first accused the United States of instigating a currency war against the global economy through devaluation of greenbacks and enormous quantitative easing in 2010. New it is Japan. After the newly elected prime minister of Japan, Shinzo Abe was sworn into office, Japan followed suit. Owing to such measures, Japanese companies are starting to do very well in the middle of the intense wave of international competition. Sony, for example, had its first black-ink balance in five years. Car manufacturing corporations such as Toyota are faintly smiling at their improving revenues and profits. Apparently, lower interest rates and devaluation of the Yen are propping the Japanese economy up, pulling it out from its long deflation. Nevertheless, there are doubts about whether these collective efforts will eventually help the Japanese economy in the long run. On

top of that, what are the implications for Still, there are signs of hope as other nations all around the world? well. Some economist claims that the complaints of other nations including Many economic analysts the EU are overdone. Although it is true predict Korean exports in the that the active quantitative easing of information technology sector, steel Japan is to stimulate domestic spending, and petroleum industries are going to thereby lower real interest rates to plummet more than 10% if Yen weaken the currency, the boost in the devalues even more to 110 yen per domestic market will lead to stronger dollar. The EU is also expressing signs imports at the same time. Therefore, the of concern, stating how such immense effect of depressing imports would be, quantitative easing and devaluation of to a certain extent, canceled by a boost currency are a zero-sum game. Even in imports due to a stronger domestic before considering the ramifications spending. Plus, scaling back spending Japan’s measures will have on the and consumption in the current status global economy, there is no guarantee quo might pave the way for double dip that the devaluation of Yen will and irrevocable stagnation. automatically lead to a boost of the real economy. Of course, measures taken by Japan might not be available for For the recent few months, countries such as Brazil where inflation various economic indicators in Japan is an uncontrollably dire problem and are displaying propitious signs of even developed nations should heed progress and development. However, the potential outburst of bubbles. analysts worry that numbers might be Nevertheless, simply denouncing such misleading. Japan has already expansive moves simply because it experienced a detrimental asset might distort international trade seems bubble in the late 1990s which resulted unhelpful for the global economy. from excessive concentration of hot Instead of resorting to groundless money on the stock and housing fear-mongering about currency wars, markets. If the overflowing money that other countries such as EU should also is circulating within Japan owing to the seek a way to combat stagnation, not current government’s bold stimulus avoid it. plan makes its way towards stock markets instead of corporate investment, another bubble asset crisis will be inevitable.

The Dispute Between EU And China Writer: Annie (Yeon Jae) Song Last year, it was a dispute about China’s export restrictions on raw materials. This time, it is the antidumping investigation on China of their solar panels.

“dumping” them in Europe. Dumping is to export a good to a foreign country to capitalize on the price difference. It gives the exporter substantial profits but can damage the importing country’s local economy. China denies the allegations and threatens to retaliate if EU decides to open an investigation on the companies in China.

China and the European Union (EU) have been trading partners for a long time since 1985, and yet, they are in a conflict with each other. EU wants China to trade fairly and meet the World Trade Organization’s (WTO) EU might impose a 47% puniobligation. However, China was tive tariff on solar panels on China, repeatedly reported to have violated it. their second largest trading partner. The EU members will vote on June 5th, Recently, EU accused China of 2013 for the final decision. pricing its solar panel and other wireless equipments too cheaply and

German Chancellor Angela Merkel and Chinese Premier Li Keqiang at the entrance to the Meseberg government guest house / ⓒSean Gallup Source: http://originwww.bloomberg.com/news/2013-0526/merkel-vows-to-avert-china-tradedispute-as-li-rejects-eu-duties.html Continued on Page 5

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The Dispute Between EU And China - Cont’d Chancellor Angela Merkel, on the other hand, is doing her best to stop this trade war between EU and China. “Germany will do what it can so that there are no permanent import duties and we’ll try to clear things up as quickly as possible,” promises Merkel. She believes that imposing the tariff will harm the consumers and

the producers in both sectors. On 26th of May, China signed the Free Trade Agreement (FTA) with Switzerland.

a bargaining lever in the trade disputes between China and EU.

“This free-trade deal is the first between China and a continental economy, and the first with one of the 20 leading economies of the globe,” Chinese Premier Li Keqiang said. This agreement will serve as

Emergence of the New Era in Surgical Procedures: Robot arms by the intuitive surgical gaining popularity among doctors Writer: Sung Bin Kang

a company called Intuitive Surgical. The technology they developed was from a US military technology from 1980s called SRI, which was originally an idea to do a remote surgery on soldiers from foreign battlefields. This technology was then further developed to be the robotic surgical system called the “Da Vinci Surgical System” later on by Intuitive Surgical. It was named the “Da Da Vinci Surgical System / © http:// Vinci Surgical System”, stfrancishealthcare.org/wp-content/uploads/ because it represented a mix davinci_surgical_system_1.jpg, May 28th, 2013 and collaboration of different fields. Have you ever imagined a surgery where all the surgeons are just When Intuitive Surgical was first sitting and peeking through a machine found, there was a medical expert, that resembles a video gaming console? a mechanical expert, and a venture Have you ever imagined a surgery capitalist. These people support mix of where there are only robot arms above a ideas and fields, just like how Leonardo patient doing all the incisions and Da Vinci was a painter, a mathematician, sutures? Well, this is happening. and a scientist, and created new ideas by fusing his knowledge from different Da Vinci surgical system was fields together. first introduced to the market in 2000 by

Due to its precision and ease to use, the robotic surgical system is gaining popularity around the world. Currently, the robot arms are used for cumulative number of 367,000 procedures just in the US. This is a significant rise from 228,000 procedures from 2011. The robot arms are currently involved in cardiac, colorectal, general, gynecologic, thoracic, and urologic surgeries. It is especially significant to realize that the “Da Vinci” system is precise enough to carry out surgeries upon soft tissues in prostate or gynecologic region. Some people are still cautious and are stunned at the idea of cutting open a person and stitching him/her back up with robot arms, but the general trend of global medical market is favorable to the “Da Vinci surgical system”, and the robot arms in the surgeries seem to be ever expanding.

Editor’s Note: Summer is already approaching and we hope that all of you will have great plans ahead. We are very proud to see a tremendous improvement in our publications. We started as a newspaper with barely three pages, and now our publications have almost doubled. This is truly a fascinating change that would have been impossible to achieve without all of our members. We sincerely thank you all for contributing to our publication. It is such an honor for us to have many talented writers. We hope to continue publishing articles that will grab readers’ interests. We hope to see you again in the next publication. Thank you, and have a great summer. Yours Sincerely, Global Connection - The TeenBiz.

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The Power of Real Variety Television shows and Soap Operas Writer: Janie Ha Today's society obsesses over fad products that are presented in TV shows and sitcoms that are popular. It is true that people love watching popular shows, but they are also increasing consumerism by getting the "fad" products. One example is the "JJapaguri" shown in Sunday real variety show "Dad, Where are We Going?" This TV show brought the now famous instant noodle recipe that everyone enjoys nowadays. Are TV shows helping particular companies with their sales or is it just our adherence to popular products that are helping the companies? "Dad, Where are We Going?" is a new real variety TV show, starring male celebrities with their children. The fans of this TV show love the "eating scene" of the children, also know as "MukBang". This new type of approach has gained

love from viewers and companies. The maker of "JJapaguri", Sung Ju Kim and his son, MinGuk Kim have been starring in commercials for Nongshim Nuguri and JJapagetti. Many citizens are using this recipe with the two Nongshim products, increasing the revenue of the company. It is not only real varity shows that produce new "fads". Products of soap operas are also gaining love from the viewers. The soap opera, "That Winter, Wind is Blowing" has gained attention from female viewers due to the fashion items illustrated by Hye Gyo Song, the lead actress. Her accessories such as her earrings have been the new “it” items in Korea. Even her seethrough bangs have been a hit. Hair salons and fashion companies are gaining attention by using her style to receive love from the Hye Gyo lovers.

Sometimes, the airport fashions of celebrities and idols have an influence on the economic society. The particular items used by famous celebrities always have been popular in Korea. For example, IU's green bag, worn in the airport has been so famous that she had to say that the bag is a "fake item, bought from a cheap store in Dong Dae Moon". What Netizens claimed is that IU's bag was a three hundred dollar bag from a well known brand. Many people pay attention to items used by celebrities and that is one part that helps the wheel of economy going. We love using items that are in fashion now-a-days and love to buy new popular items. These influential TV shows help some companies by bringing certain items into the show. Whatever it is, consumerism helps boost up the economy.

The Government to Implement the Happy House Policy Writer: Sung Mo Koo On 20 May, 2013, the Ministry of Land, Infrastructure and Transport announced the Happy House policy. Total of 10,050 households will be provided for a younger generation without solid financial basis, disabled people, and elderly. They will be rented with a fee that is about one-half to one-third of the actual market price and once rented, the residents will own the house for 40 years and then the government will reconsider people that will be renting after remodeling of the households. Jamsil, Mokdong, Songpa, Oryu, Gongneung, Gajwa and Gojan from the metropolitan area were selected as places where the Happy House Policy will be first implemented. Each region will be developed in a unique way that will express its characteristics well. The government projects to begin renting people houses from 2018, and then ultimately expand this policy to approximately 50 different regions all over South Korea and total of 200,000 households. Different minor advantages are also expected; more than 200,000 work positions will be created and

construction industry will be invigorated. The economy of the regions where this policy will be implemented will also prosper due to an increase in the population of a younger generation. Although the cost for the initial plan may rise up to 1.5 billion won, the ministry plans to cover it over a long term with the loan paid by the residents. However, negative aspects of this policy also have to be considered. If new houses are built, the price of currently existing households is expected to sharply decline. The number and the price of ‘Happy Houses’ will be inversely proportional to that of existing households, which will negatively affect current residents. Indeed, if the ‘Happy Houses’ are provided with the 70% of the market price, then the price of existing households are projected to drop by 9.17%. Because there already are movements led by current residents of the regions to prevent the policy from happening, the government will have to come up with a supplemented solution that could satisfy both sides.

The Happy House Policy proposed by the Ministry of Land, Infrastructure and Transport / © FreeDigitalPhotos.net Source: http://www.freedigitalphotos.net/ images/Residential_g296Modern_Housing_p17664.html

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Japan’s aggressive quantitative easing to combat deflation

Writer: Minjee Kim

Japan has experienced an unprecedented recession and deflation for more than 10 years, even with the fiscal policy conducted under severe budget constraint in the 1990s and the monetary policy, which reduced interest rates to almost zero. Because these policies were not enough to end deflation, the Bank of Japan has decided to implement an aggressive quantitative easing in 2014. The focus of this commentary is to determine whether the quantitative easing will be effective and whether the quantitative easing will achieve economic recovery.

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The Japan’s goal is to boost economic growth, which should increase consumer prices and achieve low and stable inflation and thus reduce the very high public debt levels. The IMF predicts Japan's economy will “grow 1.6 percent in 2013 and 1.4 percent the next year, from its January forecast of 0.4 percent and 0.7 percent.” The IMF also said consumer prices will

percent on-year in 2013, but rocket 3.0 percent in 2014.” Since the World War, Japan has been suffering from years of “bad deflation”. Deflation is defined as a persistent fall in the average level of prices in the economy categorized in two types, “good” and “bad” deflation. Japan has been suffering from the “bad” deflation, its source being in the demand side of the economy. This “bad deflation” results from a fall in Aggregate Demand (AD), shown in Diagram 1. This diagram illustrates that a fall in aggregate demand will result in a decrease in the price level and a decrease in real output. If real output decrease, then it is assumed that the level of unemployment will rise, as firms will need fewer workers if there is less demand. The decrease in aggregate demand in Japan is due to the policy

mismanagement, surplus in savings, and Yen appreciation. The resulted deflation discourages consumers from making purchases because they expect prices to be lower in the future. As people buy less, firms sell less and so the production decrease. This decline in output would mean a decrease in Japan’s real GDP, which measures the total money value of all final goods and services produced in an economy in one year adjusted for inflation. This would also mean an increase in unemployment, as firms need fewer employees since there is less work to be done. In order to stimulate growth and inflation, expansionary monetary policy can be adopted, decreasing the interest rate and increasing the money supply. Increasing the money supply will create higher inflation rates and stimulate economic activity, Continued on Page 8

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Japan’s aggressive quantitative easing to combat which in turn increases consumption as people see their wages rising and encourages consumption before the retail price increases. Decreasing the interest rates of the central bank would allow banks to lend at lower rates, meaning people are more likely to take out a loan and so more likely to spend this extra money. However, Japan’s short-term interest rates are either at 0% to 0.1% , so normal monetary policy can no longer lower interest rates. Thus, there is a need for Quantitative Easing (QE) instead of a standard expansionary monetary policy. Quantitative easing is an unconventional monetary policy used by central banks to stimulate the national economy when standard monetary policy has become ineffective. It involves buying financial assets from commercial banks and other private institutions, increasing the monetary base. With QE, the Bank of Japan is buying long-term rather than short-term bonds, unlike Expansionary monetary policy, and it has a money supply target rather than an interest rate target. Mr. Hamada said “BoJ is seeking to double the amount of money it pumps into the economy in two years mainly by doubling purchases of government bonds, have already pushed up asset prices. And by the end of this year, he says the real economy, including employment conditions, should be well on its way to improvement as well.” In evaluation, in order to promote long-term inflation, the quantitative easing should be managed with an expansionary fiscal policy, involving increasing government spending and cutting taxes. The IMF said, "For (the BoJ) to be successful and achieve two percent inflation within two years, easing must be accompanied by ambitious growth and fiscal reforms to ensure a sustainable recovery and

Keynesian Theory / © The TeenBiz reduce fiscal risks." The desired effect of this can be shown using Keynesian Theory, as seen in Diagram 3. The Keynesian view is more appropriate in this situation because it believes that in a short-run, economic output is strongly influenced by aggregate demand, and that it requires active government policy, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, in order to stabilize output over the business cycle. Despite the measures that are being taken, it seems likely that inflation rates for the Japan will stay very low (if deflation doesn’t continue) for the shortrun since the problem of the credit crunch continues; credit crunch is an economic condition in which investment capital is difficult to obtain. Banks and investors become wary of lending funds to corporations, which drives up the price of debt products for borrowers. This means consumer confidence will stay low and aggregate demand would not be sufficient to end deflation. Another problem with the aggressive quantitative easing is it results in Japanese currency becoming weaker. The Japanese currency has lost about 20% of its value against the US

dollar since November. The exports have been boosted as it being used to be 80 yen per dollar has increased to 100 per dollar. According to Wolfgang Koester, FiREapps Chairman and CEO, as the yen weakens, U.S. investors receive less revenue when doing business in Japan. Mr. Kuroda, on April 4, stated, “the policy is not aimed at weakening the currency; it is a domestically oriented policy designed to achieve a 2% inflation target as early as possible, with a two-year horizon in mind.” Even if it does work, Japan will be left with even more public debt. Japan’s debt is currently 214% of GDP with a quarter of the country’s budget going to the debt. "What is worrisome is that the debt-to-GDP ratio will continue to rise, reaching 255 percent of GDP in 2018", IMF said. It is estimated that nominal GDP would have to grow by more than 6% just to keep the debt load from increasing, and this size of growth, according to economists, is unsustainable over the long term.

This Month’s Writers: Thank you for your contribution. Byeongchan Gil, Minjee Kim, Janie Ha, Sung Mo Koo, Seungjun Kim, Annie (Yeon Jae) Song, Sung Bin Kang, Yong Jin Lee

Looking for Student Writers, Translators and Photographers! Please visit our website. www.globalconnectionkorea.org

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