The Global Implications of a Rising US Dollar

There are a lot of great things to be said about the United States economy right now. As US markets celebrate their longest ever growth streak, economically, a lot of Americans are satisfied with their financial well-being. Unemployment fell to a 50-year low, falling from 3.9 to 3.7 percent in September, as the US economy added another 134,000 jobs and companies have been steadily announcing payroll increases. In the third quarter, wages grew 3.4 percent, the fastest pace in over a decade. Amazon shocked the country by announcing its new $15 minimum wage for US workers, a policy that will go into effect next month, and is yet another sign of the best labor market in over a decade.

In the midst of this positive growth, the US Dollar continues to perform well as we enter the fourth quarter. US treasury yields are their highest since 2011, the dollar hit an 11-month high against the yen, and even the pound slipped to below $1.30 as the Dollar continues to sneak up. This means many Americans will enter the holiday season not only more eager to spend, but perhaps more eager to travel, as the Dollar’s value continues to rise globally. While spelling great news for US citizens, what does this mean for others around the world? Specifically, emerging markets across the globe are very aware of the recent trend of the Dollar, and in many cases, are facing potentially severe implications if the rapid growth continues to be a trend.

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Currency exchange rate sign in downtown Buenos Aires, Argentina, where the Argentine peso has fell significantly in 2018.

One key indicator of economic and monetary prosperity is the Federal Reserve benchmark interest rate. The Fed tends to raise rates during a strong economy to contain excesses and make sure the economy continues to grow stably, and tends to lower rates in times of economic struggle, in an effort to boost spending and borrowing. Currently sitting at a range between 2% and 2.25%, the Fed raised the rate for the third time in late September, and plans to raise it again sometime in December, and the plans don’t stop there. In June, when the Fed laid out its long-term objectives, it tentatively planned three more interest rate increases for 2019, and one more for 2020. The rates can also help ensure inflation rates are steady. The current inflation rate of 1.9% is very close to the Fed’s target of 2%. This is a very significant outline, as it tells us that the Fed predicts the US’s growth to continue through 2020.

 While signaling stability for the US Dollar, the Fed’s interest rate increases can negatively affect foreign markets, especially those who have borrowed heavily in US Dollars. As it stands, the US is still, by far, the dominant global reserve currency, accounting for 63% of global reserves. Many countries around the world issue Dollar-denominated debt, and debt levels become exaggerated with the rise of the Dollar. While interest rate increases work in strong economies such as the US’s, the same increases constrain countries where economies are not doing as well. It hurts policy options in regions with tight financial conditions and high trade tensions. While the US market enjoys a growth streak, the markets of emerging countries have on average been declining throughout 2018.

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The Indian Rupee hit an all-time low this year vs. the US Dollar.

Emerging markets, which often rely heavily on foreign investment, will be hurting the most. In emerging Asian markets, the Indonesian rupiah hit a 20 year low in 2018, and the Indian Rupee hit an all-time low vs the Dollar, hitting 73.77. In South America, the Argentine Peso, which was placed at 18 vs the US Dollar in 2017 and was relatively stable, rose to over 40 in 2018. The Brazilian Real hit 4.15 this year, while being in the low 3s during 2017. In the Middle East, the Turkish Lira, which has been in the 3s for the last half decade, has reached above 6, and in Africa, the South African Rand has increased to over 15 despite being as low as just 11 last year. While these are some of the more extreme examples worldwide, and while there are plenty of other internal issues at play, it still marks a global trend of struggle against the US Dollar. The reality is, foreign investors are crucial to the success of emerging economies, and investors become more and more reluctant to invest abroad in times of such volatility.

This brings up an intriguing ethical debate, that is, should we, as Americans, really care about the economic struggles abroad? After all, with turbulence abroad, investors have turned to the relative stability and strength of the US markets, increasing investment in 2018. With our government’s “America First” policy, jobs have finally been increasing again over the past few years. Despite this, I worry about the tough implications that emerging economies are facing right now. Worldwide market collaboration and investment drives innovation and success and can move different people and cultures together forward Of course, the reality is a lot more complicated, but I still see success, especially in emerging markets, as a positive thing, and it is important to keep in mind that US markets affect these markets more than we think.

 

 

Sources:

https://www.cnbc.com/2018/08/31/argentina-peso-sell-off-stops-as-investors-await-governmnet-plan.html

https://www.thenational.ae/business/economy/us-dollar-here-to-stay-as-main-reserve-currency-says-moody-s-1.770003

https://www.thenational.ae/business/money/us-dollar-takes-centre-stage-in-the-financial-universe-1.728368

https://www.indiatimes.com/news/india/indian-rupee-is-not-alone-here-are-5-worst-performing-currencies-in-the-world-352157.html

https://www.wsj.com/articles/the-tricky-part-of-the-feds-next-rate-increase-1536831001

https://www.businessinsider.com/how-the-fed-raises-interest-rates-2017-12

https://www.ft.com/content/bcfa7bf0-b4a1-11e8-bbc3-ccd7de085ffe

https://www.scmp.com/comment/insight-opinion/united-states/article/2167616/how-stronger-us-dollar-and-higher-crude-prices

https://www.theguardian.com/business/2018/oct/04/soaring-us-dollar-threatens-trouble-for-emerging-markets

China’s Import Ban Greatly Impacts America’s Recycling Market

Recycling has been a growing phenomenon ever since environmentalists persuaded the government to implement more sustainable means when dealing with household waste. Growing up in a suburb of Philadelphia, my elementary school teachers frequently instructed us on the proper ways to recycle, whether that was looking at the bottom of various recyclables like milk or egg cartons to see whether they had the proper number in the “recycle logo” that indicated if we should or not should place them in the blue recycling bins.

Back then, there was more of a stress on the “three-bin system” that separated trash, recyclables, and compost. We learned of the three R’s and sang in unison the catchy phrase, “reduce, reuse, recycle.” Although many people and businesses are becoming more environmentally friendly, it seems senseless to ask where exactly all of our recyclables end up.

Surprisingly, for years, merchants in China have been buying American recyclables to sift through the heaping pounds of trash to collect scrap paper and cardboard for packaging purposes. Thus, all of the trash Americans put in their blue bins on their curbs are being compressed into 1-ton bales and sold to other countries overseas.

Going against this “three-bin system”, America has recently been trying to place as much recyclables into one bin and then shipping the waste to China. The responsibility then falls onto China to sort out the waste. This service cultivated “third world-like sorting operations,” and thousands of poor, rural migrants were employed to filter through the enormous piles of waste to recover the usable materials and throw away the rest.

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Once the packing boxes are repurposed, they are then shipped back to the United States filled with Chinese-manufactured goods. China benefited greatly from business with America over the years because it is much cheaper to make cardboard or plastic using recycled material rather than making it from scratch.

To what extent does China impose on the importation of America’s recyclables? While the U.S. exports 30% of all recycled material, half of that 30% goes to China. According to the Institute of Scrap Recycling Industries Inc., China imported 17 million tons for about $5.5 billion, in 2016. Although many regions of the U.S. export varying amounts to China, western states make up a large portion of China’s market in the exportation of recycled waste.

This repetitive cycle and synergistic relationship between China and the U.S. has been going on for years. Thus, it came as a shock to the U.S. in July of 2017 when Beijing notified the WTO of their plan to stop importing of “foreign garbage.” The ban would commence at the beginning of 2018.

The main reason for this regulation was that “large amounts of dirty wastes or even hazardous wastes [were being] mixed in [with] the solid waste that [could] be used as raw materials.” Ultimately, China has been trying to reduce their pollution rates by  implementing programs that will clean up their environment. The importing of America’s waste was causing a negative impact on China’s air with the large amounts of hazardous waste incorporated with the recyclable material.

Before the ban, most of the waste China imported was being thrown away in landfills. Thus, many of the recyclables that America believed were being reused were ultimately thrown away by China. Although many people have been recycling for years now, there is still a misconception as to what trash can be recycled and what cannot. Some materials that are found in recycling bins but should not be placed in them include: plastic grocery bags, grease-stained pizza boxes, and wax-coated frozen-food packages.

Speculations emerged saying China implemented this ban because Beijing “hopes to tap into its own growing consumer base as the foundation of its recycled materials industry.” A way for China to not experience the same environmental hazards when sifting through America’s waste is by implementing a rigorous program of inspecting piles of waste and sifting out the contaminated trash, food waste, or even materials with moisture in reject bales.

America has been highly dependent on China’s business in buying their “unwanted” materials. However, most Americans today have been unaware of these large exchanges with China throughout the years.

Consequentially, China’s import ban on America’s waste has caused the U.S. to frantically find a new market to purchase the recyclables. In the meantime, however, a large portion of the waste are being thrown away into landfills. This operation is the exact opposite of what recycling is supposed to do for the environment. It is astounding to know that in all of these years of recycling that China, not America, was the country reusing material for manufacturing. I assumed, while growing up, that America used their own facilities to operate on repurposing waste in hopes of being a more sustainable society. Sadly, I was wrong.

It is not uncommon for many organizations to have their products manufactured in China and then shipped back to America. One notable company is Hallmark, a manufacturer of greeting cards, based in Kansas City. Due to an increase in competition from the Internet, Hallmark has been “outsourcing its workforce overseas for the past decade.”

For any special occasions, Hallmark offers greeting cards that are made from 100% recycled material. These cards are much cheaper compared to other Hallmark cards. If one were to look at the back of these eco-friendly cards, one would most likely see the phrase: “Made in China.” It would not surprise me that Hallmark has been manufacturing many of their products abroad because of China’s large operations with repurposing cardboard and plastics. It will be interesting to see if China’s ban on the importation of America’s recyclables will have any impact on Hallmark.

America, a modernized country that is highly innovative in technology, has a societal duty to protect the environment. Therefore, the United States will have to put in more energy and attention to this issue of recycling in finding safer and cleaner ways of reusing material other than relying on countries overseas. Because the U.S. government has been in charge of this trade with China, I speculate that the government will try to find the easiest and cheapest way in disposing of our recyclables. I am certain that most Americans are unaware of these operations with China. Thus, I hope more people will learn about what really happens to their waste and support the need for the U.S. to actually recycle instead of throwing away the recyclables in landfills or exporting the remains to other countries.

 

Sources:

https://www.usnews.com/news/national-news/articles/2018-03-27/china-doesnt-want-your-trash

https://www.pitch.com/news/article/20601279/hallmark-cares-enough-to-send-the-very-best-jobs-to-china

https://www.smithsonianmag.com/science-nature/recycling-you-may-be-doing-it-wrong-180951192/

 

Startups and Streaming: An Interview with the Founders of Beathey

The startup culture in Argentina is still growing, but Julian Sorsaburu, CEO and one of the founders of Beathey, feels they are entering at just the right time. Based in Buenos Aires, Argentina, Beathey is a music streaming service, record label, and booking agent for emerging electronic music artists in Argentina. I have been interning with Beathey for a few weeks now here in Argentina, and I recently had the chance to sit down with the three founders, Gabriel Santana, Miguel Warlies, and Sorsaburu, to discuss not only the company’s objectives, but also the music culture and startup culture that is rapidly expanding in Argentina.

Beathey was born in 2017, and each founder stressed that it is a company tailored towards the artists. Sorsaburu feels that for music artists today, Beathey offers unique services. “Today music is more accessible, and there are more opportunities for artists to be discovered,” Sorsaburu said, adding, “There is a need for the music industry to change, and to reinvent itself, which is good for emerging artists.”

A Changing Industry

In recent years, the music industry in both Argentina and the United States has seen positive growth, with most people pointing to music streaming as a main driver of this growth. Cary Sherman, CEO of Recording Industry Association of America (RIAA), expressed similar sentiments as Sorsaburu, saying, “The pace of change embraced by record labels is staggering. Just two years ago, digital downloads was the largest format, and streaming was only beginning to take hold. Fast forward a few short years, and the business is already dramatically different.”

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Argentina music streaming saw $43.7 million (USD) revenue in 2017, and 2018 revenue is expected to exceed $50 million. Average revenue per user was $5.78 last year and will likely exceed $6 this year. While this is a far way off from US streaming numbers, which by far leads the world with a staggering $6.4 billion in expected revenue for 2018, both predicted growth rates are nearly identical, with Argentina at 5.4% and the US at 5.5% for 2018-2022.

What do these numbers mean for music? For one, it means upcoming artists are more likely to be discovered. Today, streaming service users have access to millions of songs, with many of them offering clever algorithms to help you discover new music that you’ll like. Despite this, the Beathey team feels that their model helps upcoming artists in a way that the bigger streaming services cannot.

Beathey: Fostering the Music Community

I asked the founders of Beathey to describe their company, and Miguel Warlies said, “Beathey is a streaming platform for emerging electronic music artists. This year we launched ‘Beathey Recordings’ because of the possibility to find new talents, and to bring these talents to the world.” Beathey Recordings is expected to have 30 tracks by September, all from the most talented artists discovered on the streaming platform. Sorsaburu added that Beathey also produces events and is a booking agent for artists as well. Incredibly, Beathey’s model allows its artists to retain 100% of the music rights and 100% of income from music sales.

I asked how their services differ from those of a traditional music streaming site, and Sorsaburu explained, saying, “The major difference is that the majority of music platforms for artists require you to be a recording artist. If not, you have to work with an organizer to be added to platforms or events. Here, the artist can have a channel to increase his or her material, and to be able to keep all the rights. The artist can work with our system to have the possibility for other people to know them and support them, without the intervention of a middleman.” An emerging artist at Beathey can not only be discovered easier but has more opportunities. Traditional record labels in the music industry typically only discover new artists with big investments and with a big team, whereas Beathey’s platform supports any artist.

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For non-artists, listeners can stream music for free, or, subscribe to Premium for $10 a month. This allows users to participate in their Vinyl Contest. The Vinyl Contest allows users to vote for their favorite electronic tracks, and the top 4 songs with the most votes every 4 months will have their own vinyl produced by Beathey, and all Premium members will receive copies. Premium members also receive benefits at events and on their online store. Of course, you must also be Premium to be able to post your own tracks to the site. Currently, over 850 tracks have been uploaded to Beathey, and there are over 1,000 registered users and 250 subscribers.

The thing the Beathey team seemed most proud of was their sense of community and collaboration. “We are a community that is talking about collaborative concepts, because the community that we have can begin to decide who has potential,” Sosaburu added. He feels the existing music industry is not as collaborative, and that they can use the community they have formed to analyze information and detect talent.

A Rich Platform for Electronic Music Culture

To find out more about this music community and why Beathey specializes in electronic music, I talked to Beathey artist and contributor Nico Beldi. Beldi described electronic music in Argentina as massive, and that it has a “very rich platform,” although he also acknowledged that “maybe there is a connection that lacks culture, that lacks information.” He feels that Beathey enters into the industry well “because it is not just a record label, it is a community where artists can get to know each other and collaborate.” He has investigated the scene for a long time and says that with Beathey you will see a different community.

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The Startup Culture in Argentina

Of course, in its current state, Beathey is still just a startup. I spoke to Beathey investor Antonio Macadam about startups in Argentina, and he expressed a lot of optimism, but did say the system is still being constructed and needs more time. “There are events in the world that are happening in Latin America for the first time,” Macadam said, adding, “but there is a long way to go.” He said that lots of businesses here are advancing quickly, and he has seen a lot of projects like Beathey that have created a big impact. To help startups in Argentina, Sanguinetti said the number of people and the level of investment needs to be broadened. He also added that contributing what you can helps a lot, saying, “there is always the power to contribute something.” Warlies had similar thoughts, commenting, “There are more advanced systems with investment and more possibilities for startups here.”

Luckily for startups and entrepreneurs in Argentina, the Argentine Senate passed the ‘Entrepreneur’s Law’ last year, designed to open up the country’s economy and place the country back on the global market by providing new approval and financial procedures. This included measures aimed to increase investment activity, providing reasonable tax breaks for those hoping to invest in startups. It also makes crowdfunding platforms easier to register, which should help, as Sanguinetti highlighted the importance of crowdfunding to startups in the area and around the world.

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I also had the chance to ask the General Coordinator, who for publicity reasons cannot be named, of IncuBAte, the official incubation program of Buenos Aires City Government to which Beathey is a member of, a few questions about new and innovative businesses in Argentina. IncuBAte today has ten distinct categories such as Social, Design, and Technology and can offer new businesses benefits such as financial assistance, mentors and advisors, networking, and in some cases a working space. I asked what the most common problem is for these new businesses, to which they said, “the most common from my point of view have to do with prioritizing and focusing on which questions to start answering, and the link to market.”

IncuBAte is a program that lasts eleven months, but the idea, according to the Coordinator, is to stay connected, saying, “we consider this to be very valuable for networking.” For now, IncuBAte is still growing, but they said, “in the future we will see IncuBAte as a great community where lots of businesses are included.”

IncuBAte has seen many examples of businesses, such as Beathey, that have grown a lot under the program. Fivi, another IncuBAte startup, provides “virtual lines” for businesses that can alert clients when the product is ready. Initially believing restaurants were their target, during the incubation process they realized it was banks and medical clinics. IncuBAte validated the proposal and helped Fivi define these clients. Today they have evolved into a much larger company and work with two medical clinics.

The Coordinator says IncuBAte works as a multiplicator. “We believe in great team founders with concrete and scalable projects that resolve actual problems aligned to the sustainable development goals, and we help them thrive.” However, they acknowledged some difficulties, saying, “As a public incubator, we are in the first stage, where risk is the highest.”

The community and family culture is the major difference between Argentina’s IncuBAte and the United States’ Small Business Association (SBA). While on the surface, SBA provides the same services; capital, information, and assistance, it lacks the true ability to connect people with similar ideas together. While admittedly there are plenty of other incubation programs in the United States, none are funded by the US government. That being said, SBA was founded in 1953 and is well established, and IncuBAte is still relatively new, so it will be interesting to follow its growth.

While the cultures of Argentina and the United States may be different, I have seen that both countries have people with brilliant ideas trying to take the next step forward amidst similar challenges. While the current US government appears to be more protectionist at the moment, I hope to see more collaboration with other countries such as Argentina in the future.

 

If you are interested in learning more about Beathey, you can visit their website at beathey.com/en or find them on Facebook and Instagram at @RevolucionBeathey.

 

Sources:

https://medium.com/@RIAA/the-state-of-music-mid-way-through-2017-7e90cad298f9

https://www.forbes.com/sites/hughmcintyre/2017/09/21/streaming-continues-to-power-the-music-industrys-growth-at-2017s-halfway-point/#1975ec1a404e

https://www.statista.com/outlook/209/114/music-streaming/argentina#

https://techcrunch.com/2017/06/21/argentinas-government-is-wooing-entrepreneurs-with-a-new-law/