Capital Island provides a economic insight into current world events, and how they affect the world economically on different scales. To keep up to date and see their full newsletter, subscribe to the Capital Island newsletter for free via this link: https://mailchi.mp/9bd340b91de5/capital-island-signup. This weeks newsletter is authored by: Jeremy Man 12F (Microeconomics), Nicholas Tsai 12W (Macroeconomics), and Aarav Soni (Global Economy).
Microeconomics: Trump announces a 10% cap on credit card interest rates
On January 11th 2026, the Trump administration called for a 10% cap on credit card interest rates. This was done to provide relief to consumers struggling with debt, and has the potential to save $100 million USD worth of interest for Americans a year.
However this announcement has received major pushback from the credit card industry and bank lobbyists, arguing that placing such a price ceiling would affect the market equilibrium. This would cause a contraction in supply of credit availability, especially for high-risk lenders, such as low income citizens and younger borrowers. As a result of the supply shortage, Americans may lean towards less-regulated and expensive alternatives such as payday loans and pawnshops. Moreover, banks have started considering cutting and scaling back credit card benefits and perks in order to alleviate lost profit.
However, supporters of this interest rate cap argue that the policy would not severely hamper the operations of the banking sector, as credit card companies already earn a majority of their income from alternative revenue streams such as fees charged to merchants. According to Brian Shearer, director of competition and regulatory policy at the Vanderbilt Policy Accelerator, “the few large banks that dominate the credit card market are making absolutely massive profits on customers at all income levels.”
| IGCSE Syllabus Concepts 1.2.3 Demand 1.2.6 Price Determination 1.4.2 Government intervention 1.3.1 Market failure IB Syllabus Concepts 2.5 Price controls 2.6 Market outcomes and welfare 2.7 Market failure |
Macroeconomics: Are South Korea’s low birthrate challenges beyond saving?
In 2025 the South Korean Government, in an increasingly urgent and desperate attempt to address their longstanding low birthrate, introduced a whole host of fiscal policies to reduce the financial burden of supporting a child and make it more attractive for young South Koreans to have children. For example, a national child birth grant of 2 million won was introduced for the first child. Housing policies were also revised to prioritise childbirth houses making it easier for young adults to raise children. The government is even going as far as to set up city backed dating events.
For the 4th year in a row South Korea’s population has declined and their GDP per capita recently fell behind Taiwan to 5th. Despite nearly $300 billion dollars of government investment into pro childbirth policies since 2004 the birthrate has continued to fall until recently.
In September 2025, births in South Korea rose for the 15th straight month. However analysts warn that this spurt in births is likely due to women born in the mid 1990s in their early 30s and one of the last large birth cohorts in the country.
Despite the extensive government attention and the number of policies the South Korean government has implemented to ease this problem, the largest hurdle in South Korea turning its low birthrate around is the country’s culture : South Korea is a high pressure, high cost society. Many still say that bearing a child is financially unfeasible for them even with birth incentives in place. For monumental change to occur, broad social reform must occur that makes raising a child an attractive and realistic proposition.
| IGCSE Syllabus Concepts 1.2.5 The labour market 2.1.1 Macroeconomic objectives 2.1.2 Government policies IB Syllabus Concepts 3.1 Measures of economic activity and the business cycle 3.2 Unemployment 3.4 Fiscal and supply‑side policies 3.5 Economic growth |
Global Economy: What are the overall effects of the seizure of Venezuelan oil reserves by the USA on the economy?
The U.S. operation, “Operation Absolute Resolve,” which led to the seizure of Venezuelan oil reserves, is reshaping global energy dynamics. While the invasion has sparked major oil companies like Chevron and ExxonMobil to prepare the necessary oil production infrastructure, the immediate market reaction has been volatility. An initial downward pressure on crude prices is expected to drive a generally lower price trend throughout 2026, primarily due to the anticipation of new supply in an already oversupplied market.
The capture of Venezuela’s heavy-sour crude will particularly impact the diesel market. This crude oil is optimally suited for diesel production. While an influx of this oil into U.S. refineries could eventually stabilize prices, any short-term export disruptions would significantly spike global diesel prices. Due to diesel’s critical role in construction and agriculture, higher costs could lead to direct increases in construction and food prices.
The Organisation of the Petroleum Exporting Countries (OPEC), the world’s leading oil cartel faces significant challenges. Firstly, the U.S. command over Venezuelan production translates into a loss of production autonomy for OPEC, as a major global oil source moves outside their coordinated market management.
However, the reality of restoring production is currently dampening immediate market fears. Decades of infrastructure decay in Venezuela mean the industry operates at a fraction of its capacity. Achieving the former peak of 3 million barrels per day would require an estimated $183 billion and up to 15 years of sustained investment. This challenging timeline, coupled with lingering investor caution over political and legal risks, makes a rapid recovery of Venezuelan oil output a highly unlikely scenario.
| IGCSE Syllabus Concepts 1.1.3 Demand, supply and market equilibrium 1.2.4 Business competition (OPEC as cartel, large oil MNCs) 2.2.1 Globalisation (MNCs like Chevron, ExxonMobil; FDI into Venezuela). 2.2.2 International trade (oil exports, diesel trade, impact on other countries). IB Syllabus Concepts 3.2 Variations in economic activity 4.1 Benefits of international trade (global crude and diesel trade flows). 4.2 Types of trade protection 4.3 arguments for/against (sanctions, export controls). 4.4 Economic integration (OPEC coordination; impact on other blocs). 4.5 Exchange rates 4.6 Balance of payments 4.7 Sustainable development 4.10 growth/development strategies |
Keywords
Price Ceiling – A government-imposed price control, or limit, on how high a price is charged for a product, commodity, or service. In this context, it refers to the 10% limit on interest rates.
Market Equilibrium – A market state where the supply in the market is equal to the demand in the market. Lobbyists argue the cap disrupts this balance.
Supply Contraction – A decrease in the overall supply of a good or service (in this case, credit availability) usually caused by an increase in cost or a decrease in price/profitability for the supplier.
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