Duy starts with a series of statements by Fed governors and bank presidents indicating “hawkishness,” which in central banker jargon means caring primarily about inflation, not economic growth. (”Doves” are those who care more about economic growth and jobs) Hawks also like to talk a lot about “credibility,” which means a reputation for being willing to fight inflation. People use the word credibility in this context because the conventional wisdom used to be that national governments would not be willing to take tough steps. Now that our Fed governors and bank presidents are accountable to just about no one, beating on their chests and proclaiming how willing they are to be tough in the face of the political winds rings a little hollow...
Rift Emerges in Fed Over When to Tighten Money - NYTimes — Fissures are developing among policy makers at the Federal Reserve as they debate how and when to start raising the benchmark interest rate from its current level just above zero. With Fed officials forecasting that unemployment will average 9.8 percent in 2010, nobody appears to be arguing that monetary policy should be tightened anytime soon. The central bank’s official mantra continues to be that the overnight federal funds rate will remain “exceptionally low” for “an extended period.”
Fed Needs Goldilocks for Roach Motel Check-Out (Bloomberg) -- If only the moderator had called on me, I might have gotten an answer to my questions and left with more confidence in the Federal Reserve’s ability to pull off its exit strategy without a hitch. In fairy-tale land, Goldilocks may be able to tell when the porridge is “too hot” or “too cold,” but how do a handful of humans know when it’s “just right?” That’s a tough call in any environment; the difficulty is compounded when the discerner is also the distorter-in-chief. (with a record for being wrong)
Cash Binge to End as Central Banks Jive to Exit: Mark Gilbert - For bingers who claim that they’re not ready to leave the party yet, central bankers are jiving hard to convince us that they know where the exits are. My bet is that they’ll bail sooner than financial markets think. But hey, what a swell party this is! Official interest rates at or near record lows almost everywhere; bond yields signaling a benign inflation outlook; equity markets roaring ahead; emerging markets on fire; and commodity prices pointing to a V-shaped recovery that seemed impossible as the year started. Cheers!
Paul Krugman: Beware the dollar hawks - Although I poked fun at the WSJ in my last post, the buzz about the dollar — the growing clamor to do something about its decline — is coming from a number of people. And it has me worried, because it’s part of the groundswell of demands that we begin an exit strategy from loose monetary policy now now now, even though nothing in the actual economic situation warrants such action.
Answering Your Questions on the Economy - Krugman - NYTimes - Readers have sent Paul hundreds of questions about the economy. He addresses some of them, in a few takes, here.
New York Fed’s Dudley: Fed Won’t Raise Rates Soon - The Federal Reserve Bank of New York’s Bill Dudley is hitting the wires this evening, from the Fordham Corporate Law Center, with a clear message for investors worried about the Fed raising interest rates: The economic picture is mixed and deflation is still a threat, meaning that even though the Fed is TALKING about its exit strategy, it won’t actually be raising interest rates any time soon. (key passages follow)
Bernanke Ready to Tighten When Recovery Sufficient (Update1) - (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the central bank will be prepared to tighten monetary policy when the outlook for the economy “has improved sufficiently.” “My colleagues at the Federal Reserve and I believe that accommodative policies will likely be warranted for an extended period,” Bernanke said at a Board of Governors conference
Stiglitz Deflation Threat Pushes Fed to Stay at Zero (Bloomberg) - The U.S. faces the possibility of deflation for the first time since the Eisenhower administration, a threat that may prompt the Federal Reserve to keep interest rates near zero through next year. Such a spiral led to Japan’s “lost decade” of slow economic growth in the 1990s. A more vicious version in the U.S. helped create the Great Depression six decades earlier. Bond investors are forecasting retreating consumer prices, as shown by the yield they demand to hold a one-year bond versus a similar inflation-protected bond.
The Amazing Resilience of the Fed's Inflation-Fighting Credibility - historical analysis - What is even more amazing to me is that the Fed's inflation-fighting credibility has not been harmed by recent developments. The forecasters continue to predict a stable long-term trend inflation rate of 2.5%, roughly the same value that it has been since 1998. Given all the talk about the Fed blowing up its balance sheet and the potential of monetizing the debt this result is nothing less than amazing. It should also give pause to those inflation hawks who only see trouble on the horizon.
How the Fed Can Avoid the Next Bubble - Bremmer & Roubini - WSJ- Ben Bernanke and the Federal Reserve face a number of very difficult challenges in the years ahead. They include:
• Resisting pressure to monetize deficits
• Implementing an exit strategy from the massive monetary easing of the past year.
• Maintaining the Fed's independence
• Properly calculating asset prices and the risk of asset bubbles
• Supervising and regulating the financial system more effectively, particularly in the role of "systemic risk" regulator.
Is The Next Bubble Unavoidable? - The Federal Reserve is now faced with a challenge that is akin to threading a needle by throwing a spool of thread across a football field.It is attempting to keep loose money and quantitative easing policies in place long enough not to stymie the nascent recovery while pulling them back in time to avoid massive inflation. It's a Hail Mary pass with an impossibly small target while facing a blitz.
The Next Financial Crisis - We have seen this spectacle--the Fed saving us from one crisis only to instigate another--many times before. And, over the past few decades, the problem has become significantly more dire. The fault, to be sure, doesn’t lie entirely with the Fed. Bernanke is a prisoner of a financial system with serious built-in flaws. The decisions he made during the recent crisis weren’t necessarily the wrong decisions; indeed, they were, in many respects, the decisions he had to make. It is a debilitating, vicious cycle. And at the center of this cycle is the Fed.
After subverting bank insolvency, our leaders are now about to make a mess of liquidity - "Unless there is a major change of direction among global economic and financial officialdom, we are at risk of ending up with a world in which liquidity provision is privatised and insolvency risk for banks is socialised. This would be the exact opposite of what makes sense: solvency is (or should be) a private good and liquidity is (or should be) a public good."
The "Real" Economy Is Dying Q4 "Going to Be a Bloodbath" Whalen Says: But all is not right in either the economy or the banking sector, according to Christopher Whalen, managing director at Institutional Risk Analytics. In fact, Whalen says most observers are drawing the wrong economic conclusions from the stock market's robust rally. "Why is liquidity going into the financial sector? It's because the real economy is dying [and] everyone is fleeing into the stocks and bonds because they're liquid at the moment," Whalen says. "That's not a good sign."
A Short Question For Senior Officials Of The New York Fed - At the height of the financial panic last fall Goldman Sachs became a bank holding company, which enabled it to borrow directly from the Federal Reserve. It also became subject to supervision by the Federal Reserve Board (with the NY Fed on point). Goldman is also currently engaged in private equity investments in nonfinancial firms around the world. US banks or bank holding companies would not generally be allowed to undertake such transactions - in fact, it is annoyed bankers who have asked me to take this up. Would someone from the NY Fed kindly explain the precise nature of the waiver that has been granted to Goldman so that it can operate in this fashion?
IMF Catapults From Shunned Agency to Global Central Bank - A year ago nobody wanted to know the International Monetary Fund. Now it’s the organiser for the international stimulus package which has been sold as a stimulus package for poor countries.”The IMF may have catapulted to a more exalted status than that. The unannounced purpose of last week’s G20 Summit was that “the IMF is being anointed as the global central bank.” the plan is for the IMF to issue a global reserve currency that can replace the dollar. They’ve issued debt for the first time in history They’re issuing SDRs. When I say issuing, it’s printing money; there’s nothing behind these SDRs.”
BRIC demand bigger share of IMF votes (Reuters) - The leading emerging BRIC nations maintain their demand for a 7 percent shift in voting power to developing countries at the International Monetary Fund, Brazil's Finance Minister Guido Mantega said on Saturday.
He was speaking a week after the G20 meeting of leading world economies where the BRICs had agreed the shift to developing countries should be 5 percent.
"What was agreed is just the start of a bigger change," Mantega told reporters after meeting with his BRIC counterparts at the semi-annual meeting of the IMF in Istanbul.
Realtime: The G-20, the IMF, and Legitimacy - Strong advocates of our new G-20 process are convinced that it will bring legitimacy to international economic policy discussions, rule-making, and crisis interventions. Certainly, it’s better than the G-7/G-8 pretending to run things—after all, who elected them? But who elected the G-20? The answer is: no one. And, in case you were wondering, there is no application form to join the G-20. The G-20 members have appointed themselves as the world’s “economic governing council”. Is this a good idea?Not really—
US economic power ‘is declining’ - US economic power is declining as a result of the financial crisis, the head of the World Bank has said. "One of the legacies of this crisis may be a recognition of changed economic power relations," said World Bank president Robert Zoellick. The US, the world's biggest economy, has been in recession for almost two years, while emerging economies like China and Brazil have grown. This may help bring about a long-term rebalancing of the world economy.
Dollar Share of Reserves Drops as Euro Reaches Record – (Bloomberg) -- The dollar’s share of global currency reserves fell in the second quarter to the lowest level in a decade as the holdings of euros rose to a record, according to the International Monetary Fund. The U.S. currency’s portion dropped to 62.8 percent in the period ended June 30, from 65 percent in the prior quarter and 62.9 percent a year earlier. The euro’s share rose to a record 27.5 percent from 25.9 percent while the pound and yen gained.
Dollar's Slide Gives Rise to Calls for New Reserve - The U.S. dollar continued its six-month slide Tuesday amid a growing international chorus that wants the dollar replaced -- or at least supplemented -- as the world's reserve currency, a move that would end the greenback's six decades of global dominance. The dollar has come under attack from abroad as the economic crisis has played out, thanks to the Federal Reserve's decision to flood a seized-up financial system with liquidity last fall. The central bank's moves likely staved off deflation, but the massive influx of new dollars has devalued existing ones.
The Dollar in Doubt? - I've found it puzzling that there's all this talk about the prospects for the dollar, in the wake of the G-20 meetings, and more recently World Bank President Zoellick's comments about the primacy of the dollar as a reserve currency. As I've noted on previous occasions  , Jeff Frankel and I [pdf] have outlined the conditions under which the dollar could lose primary reserve currency status. In short, calamitously bad policies that induce rapid currency depreciation, or high inflation, would do the trick. Our results, last updated in early 2008 [pdf], might seem somewhat out of date given all the turmoil that has occurred in the meantime. But it's important to realize that it's the relative performance that matters, and I see no greater reason to believe that the conditions are in place for a drastic "reversal of fortune" than before.
Investors in Treasuries, Dollars Defy Common Sense (Bloomberg) -- The U.S. should lose its golden credit rating. Bankers and investors around the world should dump dollars. Read any economics textbook and you come to that conclusion. Massive government spending and money creation to rescue the nation from the Great Recession have deluged the U.S. Treasury market with new securities -- exacerbating the country’s already massive debt load. Classic economics theory says supply should overwhelm demand in both markets. Treasuries should no longer be considered free of risk. The dollar should no longer be the key global currency.
Geithner warns of ‘possible hazards’: report - US Treasury Secretary Timothy Geithner warned of "many possible hazards" still facing the global economy. "There are many possible hazards that lie ahead of us. The most dangerous? That people feel too good too soon. Remember the problems that we had a year ago," Geithner was quoted as saying. Europe has been quietly pressing the United States to encourage a strengthening of the greenback against the euro, and Geithner reiterated his position that Washington "was in favour of a strong dollar"
The Looming Deficit Disaster, Modeled - Yale's Ray Fair, well-known for his economic model predicting the outcome of presidential elections, has a new forecast out on the macroeconomic effects of large budget deficits -- and it's not pretty...
The Alignment of Asset Reflation and a Collapsed Economy - It is asset reflation that hints at the singular and doomed strategy of our monetary policy, and its overlay on our collapsed economy - Just so that I’m clear: there is no macroeconomic recovery occurring in the United States. What’s unfolding currently is snap-back from last year’s crash, which led us to the bottom of a spider-hole. The positive bits of macro data, dribbling out here and there, are really just about getting us back to zero. A kind of steady-state, expected to carry on for some time to come. And that’s a best-case scenario.
Three Government Reports Point to Fiscal Doomsday… - When our leaders have no awareness of the disastrous consequences of their actions, they can claim ignorance and take no action. Or when our leaders have no hard evidence as to what might happen in the future, they can at least claim uncertainty. But when they have full knowledge of an impending disaster… they have proof of its inevitability in ANY scenario… and they so declare in their official reports… but STILL don’t lift a finger to change course… then they have only one remaining claim: INSANITY!
Greenspan: Deficit Means Tax Increase Must Be Considered - WSJ - The U.S. federal budget deficit is so large that the nation must consider tax increases, including a value-added tax, former Federal Reserve Board Chairman Alan Greenspan said Friday “I don’t like the value-added tax, but it’s the least worst way” to raise revenue, Greenspan said at forum sponsored by the Atlantic magazine and the Aspen Institute. He said introduction of a VAT, or national sales tax, could be paired with broader tax reform and cuts in federal spending.
UN calls for new reserve currency - The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the "privilege" of building a huge trade deficit. "Important progress in managing imbalances can be made by reducing the reserve currency countrys 'privilege' to run external deficits in order to provide international liquidity," UN undersecretary-general Sha Zukang, said. "Greater use of a truly global reserve currency, such as the IMF?s special drawing rights (SDRs), enables the seigniorage gained to be deployed for development purposes," he said.
The demise of the dollar - In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The world and the dollar reacts to Robert Fisk - As we reported earlier, The Independent appears to have rocked the world on Tuesday with its Robert Fisk exclusive exposing a secret plot by international central banks to topple the US dollar. (a sampling of reactions)
Whodunit? Sneak attack on U.S. dollar - For American officials, the possibility of the dollar losing its long-term dominance in global commerce is a nightmare scenario because it would likely mean sharply higher interest rates at home and a declining ability to finance the U.S. debt. No one believes it could really happen right now, but stories like the British report this week make it seem incrementally more likely.
Death of the Petro-Dollar, Told Ya So - The story hit like a thief in the night, even bearing Biblical proportions. The end of the exlusive sale of MidEast oil in USDollars, the rise of Russian and Chinese influence in the Persian Gulf, the rise in importance for the Intl Monetary Fund basket of currencies, the final clarion call for the free ride by Americans on the Dollar Credit Card, and hidden implications that the Saudis must shop for a new security lord in the region with broad military might, these are revolutionary steps with profound geopolitical implications
USD, Oil pricing and Currencies - Why is pricing so important ? Well, if you don’t control the pricing of your product then speculators will eat your lunch. Then, later, you will have to go as a beggar to the counter-party which has already consumed your work and your product to try and get value from all of those “pricing units” (generally thought of as currencies but any IOU is the same thing) that they gave you. Surrendering control of your “pricing unit” is the “Greater Fool” theory of investment at the level of nations. Why is the USD a particularly dangerous “pricing unit” ? The answer is simple : The USD is worth less than nothing. I’ll repeat that : it’s not worth nothing. It’s worth less than nothing.
Will a Basket of Currencies Replace the Dollar?- Robert Fisk of the Independent wrote yesterday that the Middle Eastern oil producers, plus China, Japan and France have all agreed to start trading oil using a basket of currencies - including the yen, yuan, euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council instead of the dollar. I have repeatedly pointed out that the signs of moving towards a basket of currencies involving SDRs are numerous. And Examiner.com provided a good summary of the issue in April...
Gulf region to stay with dollar for oil: UAE central bank source - Reuters - Gulf Arab oil exporters will stay with the dollar as the currency for trading crude, a source in the United Arab Emirates central bank said on Tuesday."They are going to stay with the dollar," the source told Reuters, asking not to be named. "For so long oil pricing is in dollars and it would be difficult for producing countries to change."
Kremlin aide sees value in possible non-dollar oil payments - A Kremlin aide said on Thursday it could be advantageous to switch to non-dollar oil payments, but that he had not heard of any discussions on the issue. "We have long been saying that there is some sense in creating the conditions for making ruble payments, including for oil, attractive," Arkady Dvorkovich said. "The subject is worth discussing, but I do not know if specific talks on the issue are underway."
Is the Dollar in Trouble and Does it Even Matter? - Remember, it was the great results of the rigged Stress Tests that really ignited the rally. So what if all this confidence was built on a sham? It sounded good at the time, so why bother going back? Is the Dollar in Trouble? Does it matter? Dollar discussion was all over the place and heated to a boiling point. In one day I read that the dollar is dead, it will be stronger than ever, reserve status is vital, reserve status is no big deal, pricing things in dollars is not needed, and pricing things in dollars makes a big difference.
Big Deficit Bob Rubin and the Strong Dollar - CEPR - The logic was straightforward: a lower dollar would improve the U.S. trade deficit. If the dollar falls relative to the euro, yen, and other currencies, then it is more expensive for people in the United States to buy imported goods. Therefore they buy domestically produced goods instead. Similarly, if the dollar falls in price relative to other currencies, then it is cheaper for people living in other countries to buy U.S. exports. This will increase U.S. exports, thereby further reducing the trade deficit. A lower valued dollar was in fact supposed to be one of the main dividends of the deficit reduction policy that President Clinton pursued from the start of his presidency. The argument was that lower deficits would lead to lower interest rates in the United States.
The end of the dollar spells the rise of a new order - Last autumn's global financial crisis set off an economic earthquake. The latest sign of the ground shifting beneath our feet is our report today of plans by Gulf states, China, Russia, France and Japan to end their practice of conducting oil deals in US dollars, switching instead to a diverse basket of currencies. It is not hard to see the motivation for oil exporters to move away from the dollar. The value of the US currency has fallen sharply since last year's meltdown. And fears are growing, in the light of a spiralling US government deficit, that a further depreciation is likely. They do not want to sell their wares in return for a currency with an uncertain future.
What Not Being Able To Buy Oil In Dollars Means - Buying oil in dollars is one of the foundations of the dollar’s role as the world’s primary reserve currency. Because the the dollar is the world’s primary reserve currency Americans have been able to borrow money for significantly less than other countries are able to. This has both made America more prosperous, and through the perverse incentives of cheap money, helped lead to the high indebtedness of American citizens and the financial crisis. In addition, buying oil in dollars is one of the things which allowed strong dollar policies to drive the price of oil down.
The Chinese have a massive dollar problem – Kenneth Rogoff - When will China finally realize that it cannot accumulate dollars forever? It already has more than $2 trillion. Do the Chinese really want to be sitting on $4 trillion in another five to 10 years? With the U.S. government staring at the long-term costs of the financial bailout, as well as inexorably rising entitlement costs, shouldn’t the Chinese worry about a repeat of Europe’s experience from the 1970s?
I-Believe-in-Strong-Dollar Turns Relic as China Begs (Bloomberg) -- More than a decade after former Treasury Secretary Robert Rubin made the “strong dollar” national policy, currency traders say the same words coming from the Obama administration have little meaning. Timothy Geithner, the current Treasury secretary, has tolerated the greenback’s 12 percent slide from its peak this year in March as measured by the Federal Reserve’s trade- weighted Real Major Currencies Dollar Index. While he said as recently as Oct. 3 that “it is very important to the United States that we continue to have a strong dollar,” the last time the U.S. intervened in markets to support its currency was 1995.
China calls time on dollar hegemony - PWA - You can date the end of dollar hegemony from China’s decision last month to sell its first batch of sovereign bonds in Chinese yuan to foreigners. Beijing does not need to raise money abroad since it has $2 trillion (£1.26 trillion) in reserves. The sole purpose is to prepare the way for the emergence of the yuan as a full-fledged global currency.
Obama's Secret Jobs Plan - The Daily Beast - The dollar plunges! How scared should we be? Economist Simon Johnson says not as much as you think—it’s part of Obama's plan to restart the manufacturing sector and win the midterm elections.
Why Would Anyone Want To Hold Dollars? - Mish - The question is actually moot. The US runs a trade deficit. As explained in How Will China Handle The Yuan? holding dollars is a purely mathematical result of trade deficits. The US runs a trade deficit with China. That means China must accumulate US assets. China does not have a choice in the matter; it is purely a mathematical function. When the US runs a deficit, mathematically someone must run a surplus.
Inexorable but not sudden (Reuters) - An article in Britain’s Independent newspaper on Tuesday rightly attracted a lot of market attention with its provocative heading “The demise of the dollar.” While subsequent and almost co-ordinated denials from numerous capitals have taken the steam out of the story, the dollar’s role is again under scrutiny. Alarmist conclusions that the dollar is on a swift road to ruin are wide of the mark. The road will be long and at its end the dollar will not be ruined, but it will be less important.
Dollar Hysteria: Is the Sky Really Falling? - Reports of the dollar's demise are greatly exaggerated. The dollar may fall, but it won't crash. And, in the short-term, it's bound to strengthen as the equities market reenters the earth's gravitational field after a 6 month-long ride through outer-space. Bet on it. So why all this bilge about Middle Eastern men huddled in "secret meetings" stroking their beards while plotting against the empire? Yes, the dollar will fall, (eventually) but not for the reasons that most people think. It's true that the surge in deficit spending has foreign dollar-holders worried. (but) The real reason the dollar will lose its role as the world's reserve currency is because US markets, which until recently provided up to 25 percent of global demand, are in sharp decline.
World Bank could 'run out of money' within 12 months - Telegraph - The World Bank is close to 'running out of money', its president, Robert Zoellick, has disclosed. The Bank, whose job it is to support low-income countries, has had to hand out so much cash in the wake of the financial crisis that it faces a shortfall in what it can spare for new projects within 12 months. “By the middle of next year we will face serious constraints,” he said, launching a major campaign to persuade rich nations to pour more money into the Washington-based institution.
United States calls for rigorous IMF surveillance Reuters (Reuters) - U.S. Treasury Secretary Timothy Geithner on Tuesday called on the International Monetary Fund to provide rigorous surveillance to spot new investment bubbles and keep country foreign exchange policies in line with goals to rebalance the global economy. Geithner said the IMF needed to help police economic and currency policies among the Group of 20 developed and emerging countries.
Don't Blame China - Rather Than Point Fingers, U.S. Needs to Overhaul Its Own Financial System -- The time is here for our nation to actually do something about the recent financial crisis -- that is, do something to prevent it from happening again. But instead, many people are finding it easier to pass the buck than to, say, regulate the financial sector effectively. The recent Group of 20 conference was replete with talk about "global imbalances," which means "blame China!"
Yow! Number of Banks Not Making TARP Payments Skyrockets! - The number of banks that didn't make their monthly dividend payments on TARP funds skyrocketed to 29 in August, up from 18 in May. Banks can choose not to make payments during a given month, allowing the dividends owed to accumulate unpaid. Failure to pay may be a sign of financial distress. Obviously banks that are short of capital may decide to retain funds rather than pay off the TARP. (incl the complete list of banks that didn't pay in August)
Soros Says ‘Basically Bankrupt’ Banks Restrain U.S. (Bloomberg) -- Billionaire investor George Soros said the U.S. economic recovery will be sluggish as “basically bankrupt” financial companies and indebted consumers impede it. “The U.S. will be very slow in recovery,” Soros said in a panel discussion in Istanbul, at the annual meetings of the International Monetary Fund and World Bank. “The United States has a long way to go.” Soros signaled a stronger rebound in Europe, a view at odds with the IMF.
Banking Lessons We Should Have Learned - NYTimes - Banks need to: (i) absorb the lingering impact on bank assets’ values caused by the bursting of the most widespread financial asset bubble in modern history;(ii) sufficiently cushion their operations in a manner that reasonably assures they do not pose meaningful systemic or depository insurance risks in the future;(iii) resume fulfilling their principal function in the economy — that of capital formation and allocation.
The elusive leverage ratio (Reuters) - Of all the reforms proposed by global financial regulators over the past 12 months, none looks as appealingly straightforward as the leverage ratio. What could be simpler than linking the total amount of assets a bank can hold to the amount of capital it has to absorb losses it makes on them? Alas, such a task is more difficult than it appears. There is little international agreement about how to calculate banks’ assets or capital, let alone what the ratio between the two should be.
Financial Innovation as a Tax - I’ve been silent for much on much of the financial innovation debate. What confused me was the notion that firms could be generating excess profits in what appeared to be a highly competitive market. Yet its not that firms refuse to compete by providing consumers the best products – its that they cannot compete because consumers will naturally gravitate towards products which are bad for them...if you are offering a product that is just the same as the standard vanilla product but has some hidden tail risk then you can necessarily offer it a lower price...
John Thain comes clean - Financial News has a quote from John Thain, at a speech this month: “To model correctly one tranche of one CDO took about three hours on one of the fastest computers in the United States. There is no chance that pretty much anybody understood what they were doing with these securities. Creating things that you don’t understand is really not a good idea no matter who owns it.”
Wall Street on Geithner's Speed Dial - WSJ - Treasury Secretary Timothy Geithner has kept frequent contact with an exclusive group of Wall Street executives since taking the helm at the Treasury, speaking most often with top officials from Goldman Sachs Group Inc., J.P. Morgan Chase & Co., Citigroup Inc. and BlackRock Inc. Calendars released by the Treasury Department in response to a Wall Street Journal Freedom of Information Act request show more than 80 contacts between Mr. Geithner and financial titans such as Lloyd Blankfein of Goldman Sachs, James Dimon of J.P. Morgan, Citigroup Chairman Richard Parsons and Laurence Fink of BlackRock from January through July.
Too Connected To Fail - We now have some financial institutions (and perhaps nonfinancial firms also) that have such strong and deep political connections, they will not be allowed to go bankrupt. This is a reality we must face. Assuming that we can address such a deep political problem with a tweak of our regulatory arrangements is a dangerous illusion. And it is less than convincing to assert that central bank “independence” offers either a model for regulators or even something that works well at present on its own terms.
Too Politically Connected To Fail In Any Crisis - Over the past 30 years Wall Street captured the thinking of official Washington, persuading policymakers on both sides of the aisle not to regulate (derivatives), to deregulate (Gramm-Leach-Bliley), not enforce existing safety and soundness regulations (VaR), and to stand idly by while millions of consumers were misled into life-ruining financial decisions (Alan Greenspan). This was pervasive cultural capture or, to be blunter, mind control.
Chamber Of Commerce Gets What It Wants On Tax Dodger Ban From Senate Committee - The U.S. Chamber of Commerce lobbied for the Senate Appropriations Committee to weaken a ban on government contracts with "inverted corporations," reports The Hill on Wednesday. Inverted corporations are domestic companies that set up nominal overseas headquarters to dodge U.S. taxes. On Tuesday, the U.S. Public Interest Research Group raised hell about "a big corporate loophole" that found its way into the Senate version of an appropriations bill.
Lobbyists Stew After Being Bounced From Boards - A tide of anger and dismay is rippling down K Street as the Obama administration implements a new policy limiting the roles of lobbyists on federal advisory committees. The policy change, described by the White House as the next step in President Barack Obama’s drive to limit influence-peddling in Washington, could affect hundreds of lobbyists who serve on the panels, which were created by Congress in the 1970s to provide private-sector advice to the government.
Financial Follies 2.0 - One year after the global economic collapse, the United States has yet to adopt any legislation to change the way it oversees or regulates financial industries. Banks that received bail-out money still don't have any restrictions placed on the way they spend the government's cash, and although President Obama wants Congress to create a new consumer financial protection agency to act as a watch dog against unfair lending practices and confusing credit card contracts, the idea has met massive resistance from Washington’s well-funded business lobbyists.
Stiglitz Urges Tax on Finance to Make Economy’s ‘Polluters’ Pay - (Bloomberg) -- Financial markets should be subject to new taxes that will discourage “dysfunctional” trading and help pay for the damage the global crisis inflicted on poorer countries, Nobel Prize-winning economist Joseph Stiglitz said. “The financial sector polluted the global economy with toxic assets and now they ought to clean out,” Stiglitz told reporters. He said a tax is “much more feasible today” than in the past.
Radical Reform of Executive Pay - To correctly link pay to performance, we need two key ingredients: a reasonably well-functioning labor market for talent and an accurate measure of performance. If either of these inputs is missing or broken, compensation levels can easily get out of whack, disrupting several industries as employers and workers respond to potentially misleading wage differentials.
The nature of wealth - The Economist - AT THE heart of the current crisis is a fundamental confusion about the nature of wealth. Financial assets are not “wealth” but a claim on real wealth. If those claims multiply or rise in price, that does not mean aggregate wealth has increased. If a pizza is cut into eight instead of four slices, there is no more food to eat. If everyone sitting at the table is given shares in the pizza and the share price rises from $1 to $2, the meal will still be no bigger.
Expert on Structured Finance and Derivatives: Rampant Fraud and Ponzi Scheme Caused Crisis - Janet Tavakoli is one of the foremost experts on structured finance and derivatives.Tavakoli made an outstanding presentation to the IMF last week on the fraud which led to the financial crisis. Tavakoli was kind enough to send me a summary of the IMF presentation (and to give me permission to reprint the summary). (also see 60 minute video of interview of Tavakoli)
Cash for Trash: Better Never than Late - The U.S. government does few thing better than create debt. After a year of talking about it, the government is going to have the chance to throw their good debt, Treasury bills notes and bonds, after bad, non-performing toxic loans and securities. The Federal Deposit Insurance Corporation (FDIC) and the U.S. Treasury are going their separate ways on their cash for trash schemes at this point. Accountants and investors should be wary of the big prices they see coming from the FDIC’s auctions, but taxpayers should be afraid of the U.S. Treasury’s efforts to re-inflate the securitization bubble.
The Sound of One Hand Clapping - What Deflationists May Be Missing - Our choices now are to either evolve a new economic model that is compatible with limited physical resources, or to risk a catastrophic failure of our monetary system, and with it the basis for civilization as we know it today. In order to understand why, we must start at the beginning. While it was operating well, our monetary system was a great system, one that fostered incredible technological innovation and advances in standards of living, two characteristics that I fervently wish to continue. But every system has its pros and its cons, and our monetary system has a doozy of a flaw.
It is this: Our monetary system must continually expand, forever.
Chris Whalen: Bank Losses To Continue At High Levels Well Into 2010 -- More and more real-world data and forecasts are conflicting with the “green shoots-surely things are getting better” story. Institutional Risk Analytics’ Chris Whalen suggests that banks are far from out of the woods. Although he believes that damage will not be as bad as that of the 1930s, he generally concurs with the IMF’s observation, that US banks are only partway through recognizing their losses (the IMF believes US banks have taken only 60% of their total writeoffs, and European banks, a mere 40%). Whalen sees the crisis extending at least several more quarters, and possibly into 2011.
Sheila Bair has strong words for secured creditors - On Monday, FDIC chair Sheila Bair proposed forcing the secured creditors of any failed US banks to take a 20 per cent haircut on their exposure to said institution. According to a Reuters report, Bair believes having secured creditors take a hit when a financial institution fails “could help rein in excessive risk-taking and strengthen the financial system”.
Fiddling with accounting rules won’t fix the banks - VoxEU - The financial crisis has reinvigorated a debate on the effectiveness of our accounting and regulatory frameworks. This column shows that banks, hoping to preserve their book capital, use accounting discretion to systematically understate the impairment of their real-estate-related assets. But the accounting reforms announced thus far are exacerbating the gap between book and market values.
Debt-Securitization Markets Remain “Paralyzed” - It may be hard to get a loan — but don’t blame banks, says the NYT. Frozen debt-securitization markets are to blame: “The continued disarray in debt-securitization markets, which in recent years were the source of roughly 60 percent of all credit in the United States, is making loans scarce and threatening to slow the economic recovery. Many of these markets are operating only because the government is propping them up . . .The debt-securitization markets finance corporate loans, home mortgages, student loans and more. In good times, they enabled banks to package their loans into securities and resell them to investors. That process, known as securitization, freed banks to lend even more money.
Paralysis in the Debt Markets Is Deepening the Credit Drought - NYTimes - The continued disarray in debt-securitization markets, which in recent years were the source of roughly 60 percent of all credit in the United States, is making loans scarce and threatening to slow the economic recovery. Many of these markets are operating only because the government is propping them up. But now the Federal Reserve has put these markets on notice that it plans to withdraw its support for them. Policy makers hope private investors will return to the markets, which imploded during the financial crisis.
Defaults to Soar By Year-End Before Tailing Off, Moody’s Says - (Bloomberg) -- Defaults on speculative-grade company debt will rise to a peak in the fourth quarter before declining in a year’s time, according to Moody’s Investors Service. The global default rate will climb to 12.5 percent before year-end and drop to 4.5 percent by September next year, Moody’s said in a report today. The rate was at 12 percent at the end of the third quarter, up from 10.6 percent in the previous three- month period, the New York-based ratings firm said, and 2.8 percent a year ago.
Recession Spells End for Many Family Businesses - An estimated 90% of U.S. businesses are family-owned or controlled, from traditional small businesses to a third of Fortune 500 firms, according to the Small Business Administration. Hard data are hard to come by on the number of small family-controlled enterprises that have closed in this recession, but experts say the prolonged slump has hurt a significant number. About 4.3 million businesses with 19 or fewer employees closed during the fourth quarter of 2007 through the fourth quarter of 2008, according to the Bureau of Labor Statistics.
Prospects for a small business-fueled employment recovery - Atlanta Fed blog - William Dudley, the president of the Federal Reserve Bank of New York: "For small business borrowers, there are three problems. First, the fundamentals of their businesses have often deteriorated because of the length and severity of the recession—making many less creditworthy. Second, some sources of funding for small businesses—credit card borrowing and home equity loans—have dried up . Third, small businesses have few alternative sources of funds. They are too small to borrow in the capital markets and the Small Business Administration programs are not large enough."
Fed Starting To Freak Out Over Commercial Real Estate - Hey Federal Reserve, welcome to the party. WSJ: Banks in the U.S. "are slow" to take losses on their commercial real-estate loans being battered by slumping property values and rental payments, according to a Federal Reserve presentation to banking regulators last month.The remarks suggest that banking regulators are girding for a rerun of the housing-related losses now slamming thousands of banks that failed to set aside enough capital during the boom to cushion themselves when the bubble burst. "Banks will be slow to recognize the severity of the loss -- just as they were in residential," according to the Fed presentation.
Office Rents Dive as Vacancies Rise - (WSJ) - Rent for office space is falling at the fastest pace in more than a decade as vacancies create a glut and landlords slash prices to attract tenants. Nationwide, effective office rents fell 8.5% in the third quarter compared with the same period a year ago, the steepest year-over-year decline since 1995, according to Reis Inc., a New York real-estate research firm. The vacancy rate, meanwhile, hit 16.5%, a five-year high, according to Reis.
CHART OF THE DAY: Besides The Fed, Nobody Is Buying Agency Debt - Where would we be without the Fed and its printing press? There's been a lot of debate about the appetite of foreign investors of our debt -- Treasury auctions continue to be strong, even as noises emanate from overseas about wanting to dump the dollar.But here's a stark fact, via the Council on Foreign Relations: Only the Fed is buying agency debt. Foreign buyers, who once consumed it voraciously, have been net sellers so far this year.
Fannie and Freddie Continue to Struggle, Lawmakers Told - NYTimes - In the year since the government stepped in to rescue the collapsing mortgage giants Fannie Mae and Freddie Mac, the agencies have taken $96 billion from the Treasury, and may still need more.T hat was the somber assessment delivered Thursday by the federal agency charged with overseeing the government-controlled Fannie and Freddie, which have lost a combined $165 billion since July 2007 as their bets on the housing market went bad. “The short-term outlook for the enterprises remains troubled,” said DeMarco, in testimony before the Senate Banking Committee.
Concerns Grow About Another Mortgage Giant - NYTimes - Problems at the Federal Housing Administration, which guarantees mortgages with low down payments, are becoming so acute that some experts warn the agency might need a federal bailout. Running questions about the F.H.A.’s future — underscored by interviews with policy makers, analysts and home buyers — came to the fore on Thursday on Capitol Hill. In testimony before a House subcommittee, the F.H.A. commissioner, David H. Stevens, assured lawmakers that his agency would not need a bailout and that it was managing its risks.
Housing Chief Rebuts Warning of FHA Bailout - Agency Says It Can Meet Future LossesA former Fannie Mae executive warned a House panel Thursday that the Federal Housing Administration is destined for a multibillion-dollar taxpayer bailout in 24 to 36 months, an analysis that the agency's top official immediately dismissed as "completely unfounded."
Home Sellers in U.S. Cut Prices by $28.4 Billion, Trulia Says - (Bloomberg) -- U.S. home sellers cut their asking prices by a total of $28.4 billion to attract buyers as the real estate recovery stalled, Trulia Inc. said. The average discount was 10 percent as of Oct. 1, the San Francisco-based real estate data provider said today. Homes listed for more than $2 million were cut the most, with owners taking an average of 14 percent off the original price. Luxury homes accounted for 25 percent of all of the reductions.Roubini says housing market hasn't bottomed (Reuters) - U.S. housing prices may still fall more than 10 percent, killing an incipient recovery, as demand from first-time home buyers fades, leading economist Nouriel Roubini said on Thursday. Roubini, one of the few economists who accurately predicted the magnitude of the financial crisis, said massive losses in commercial real estate loans will add to the problem, forcing banks to raise more capital."The stress is moving from residential mortgages that are still in deep trouble, to commercial real estate, where they are just starting to recognize that they're going to have massive, massive losses"
The Impact of the Declining Homeownership Rate - From 1995 to 2005, the U.S. homeownership rate climbed from 64% to 69%, or about 0.5% per year. The first graph shows the homeownership rate since 1965. The second graph shows the number of occupied (blue) and vacant (red) rental units in the U.S. Since 2004 there has been a surge in rental units. Most of this increase is not new apartment buildings, rather a combination of investors buying REOs for cash flow, condo "reconversions", builders changing the intent of new construction (started as condos but became rentals), flippers becoming landlords, or homeowners renting their previous homes or 2nd homes instead of selling.. The third graph shows New Home Sales for the last 45 years.
Apartment Vacancy Rate at 23 Year High - From Reuters: US apartment vacancy rate hits 23-year high-report "The U.S. apartment vacancy rate rose to 7.8 percent in the third quarter, its highest since 1986, ... according to Reis.Note: the Reis numbers are for cities. The overall vacancy rate from the Census Bureau was at a record 10.6% in Q2 2009. Rising vacancies. Falling Rents. Here comes the Fed's nightmare.
Plunging Rents Will Drag House Prices Down With Them - The vacancy rate for rental apartments in the U.S. is now 7.8% and climbing, says the Wall Street Journal. This is the highest vacancy rate in 23 years. Worse, the vacancy rate is expected to keep climbing through the winter, ultimately hitting the highest rate on record. This is good news for renters and bad news for landlords. It's also bad news for anyone who owns and would like to sell a house. Because rising vacancies put pressure on rents, as landlords have to cut prices to woo a smaller pool of tenants. As rents drop, meanwhile, one of the key measures of house-price value--the price-to-rent ratio--also changes, and not for the good.
Case Shiller CPI At Negative 5.1% - Case-Shiller CPI is formulated by substituting the Case-Shiller housing index for Owner's Equivalent Rent in the CPI. For a complete description of the reasons and methodology, please see What's the Real CPI? The chart and commentary below is courtesy of my friend "TC"...
Go Ahead, Walk Away - There is nothing immoral about ditching your mortgage. Last month a study from the credit reporting agency Experian and consulting outfit Oliver Wyman estimated that close to a fifth of troubled mortgages involved borrowers who were “strategically” defaulting—walking away from mortgages they could pay but decided not to because they owed more than their houses were worth. Self-assigned guardians of financial ethics see the willingness of borrowers to abandon their mortgage debts as a sign of the “erosion of social and moral standards.” The aim of these critics is to shame debtors into sticking with their mortgages.
Another Mortgage Mess In The Making? A national consumer advocacy organization added its voice Tuesday to a growing chorus of concerns about the rapidly growing popularity of reverse mortgages, comparing the loan product’s potential pitfalls to subprime mortgages.
The National Consumer Law Center said the aggressive marketing techniques being used to sell a complicated financial product to potentially vulnerable senior citizens requires the adoption of new consumer safeguards and industry standards.
“These problems are eerily similar to those that drove the subprime boom,” “This market could be another financial fiasco.”
Editorial - Another Kind of Foreclosure Crisis - NYTimes = The foreclosure crisis is being made substantially worse by a shortage of lawyers for people whose homes are at risk. According to a new study, an overwhelming number of homeowners who face foreclosure do not have legal help in protecting their rights. As a result, people are losing their homes who do not need to.
Anti-foreclosure programs are not enough: watchdog (Reuters) - Government programs to fight the U.S. home foreclosure crisis look increasingly inadequate and should be reworked, expanded and supplemented with new ideas, a congressional watchdog said in a report on Friday. With a foreclosure filing occurring every 13 seconds, the United States is mired in a housing slump that is destroying billions of dollars in property values and threatening to choke off the economy's recovery from a stubborn recession The foreclosure crisis has moved beyond subprime mortgages into the prime mortgage market, said the Congressional Oversight Panel for the Troubled Asset Relief Program, the $700 billion bailout launched under the Bush administration.
Despite Housing Slump, Mortgage Lenders Making Record Profits From Fees - Never ones to let an opportunity go unexploited, mortgage lenders are taking advantage of a market fueled by low interest rates and massive government subsidies to turn record profits. Their secret: The return of "junk fees."The Mortgage Bankers Association recently announced that independent mortgage lenders made an average profit of about $1,100 per loan originated in the first quarter of the year, an astonishing 635 percent increase from the previous quarter
Schumer and Cornyn – “We Agree on Tax Credit” - When Schumer says, ”We have to extend the housing tax credit” Cornyn says, “Chuck and I agree”...they went on to make a plug for Senator Isakson’s (R.GA.) bill. This would expand the $8,000 tax credit to $15,000. It would also make it available to all comers. The existing bill is only for first time buyers. This program will have the same effect as the Clunkers program. The existing housing tax credit has been very successful. It is reasonable to assume that a larger, broader program would also bring results. But as with Clunkers, when the music stops demand stops as well. There will be a great sucking noise in the months that follow the end of this and the other ‘fixes’. We will not QE ourselves out of that one. The sucking noise will be heard around the world.
How Congress Can Improve The Inefficient, Expensive Homebuyer Tax Credit - Momentum is building in Congress to extend and possibly expand an $8,000 first-time homebuyer’s tax credit that is set to expire on Nov. 30. Actually, the jury is still out on how effective this tax credit is in aiding housing prices, but one thing is for certain: it’s wildly expensive. The credit has already cost $15 billion, more than twice its original estimate, and for that price, about 1.9 million homes were purchased that wouldn’t have been bought anyway, for a final cost of $43,000 per additional buyer.
Let Home Buyer Tax Credit Die a Natural Death - The powers that be need to let this program die with dignity when its time comes rather than letting it linger. As anyone buying or selling a home knows, the government will give you a tax credit of 10 percent of the home's purchase price up to $8,000, provided neither you nor your spouse has owned a home in the past three years. This incentive was launched by the government earlier this year and is set to expire Nov. 30. But if the real estate and construction industries have their way, the program will go on life support until at least next year and perhaps indefinitely.
The Jobs News Gets Worse – NYTimes - When the United States economy fell into recession at the beginning of 2008, many economists, including those at the Federal Reserve, refused to believe it was happening. They pointed to the employment numbers, which showed only mild job losses for the first half of that year. Recessions, they said, do not come with such mild job losses. They were right. Unfortunately, it was the job numbers that were wrong.
On Friday, the Bureau of Labor Statistics delivered its latest revelation that the jobs picture was far worse than it had previously reported. Using newly available data, the bureau now estimates that during the 12 months ended last March, the economy lost 5.6 million jobs, 824,000 more than the 4.8 million previously reported.
Birth Death Adjustment Coming Under Fire - One of our favorite bugaboos is finally getting its due: The horrifically misleading Birth Death adjustment. It is finally being recognized in the mainstream as the massive data distorter that it is. The latest BLS analysis and data revision shows that during 2008, the Birth Death adjustment caused NFP payrolls to be significantly under reported.NYT’s Floyd Norris: “It now appears that during the first half of 2008, when the recession was getting under way, job losses averaged 146,000 per month. That is nearly three times the average of 49,000 jobs shown in the initial estimates. How did the government get it so wrong?
The Economy Loses 824,000 Jobs and the Post Doesn't Notice - BLS includes an imputation every month for jobs created in new firms and jobs lost in firms that have gone out business. Economists who follow the data closely noted that the monthly imputations from this model had been running at about the same level or even slightly higher during this downturn than in the corresponding months of the prior year. (The imputations are not seasonally adjusted so it is necessary to measure January against January, etc.) Since it was absurd to imagine that new firms were creating as many jobs in the six months when the economy was in a free fall (October, 2008-March, 2009) as in the corresponding months of the prior year, it was virtually certain that the imputation was leading to a substantial overstatement of job growth.
Comparing Employment Recessions including Revision - Here is a graph with an estimate of the impact of the preliminary estimate of the annual benchmark revision. Even before the annual revision, the current employment recession was already the worst recession since WWII in terms of percent of job losses. The benchmark revision shows this recession was even deeper. The revision will be reported in February ... just something to remember over the next few months.
CHART OF THE DAY: UNEMPLOYMENT NOW LASTS LONGER THAN BENEFITS For the first, the average amount of time it takes fired employees to find a new job exceeds the length of their standard unemployment benefits. The CHART OF THE DAY shows the average duration of unemployment is now 26.2 weeks, longer than the 26 weeks of state benefits normally provided to workers who lose their jobs. It’s the first time that has occurred since the Bureau of Labor Statistics began keeping records in 1948.
Does Obama Get It? - NYTimes - The big question on the domestic front right now is whether President Obama understands the gravity of the employment crisis facing the country. The Beltway crowd and the Einsteins of high finance who never saw this economic collapse coming are now telling us with their usual breezy arrogance that the Great Recession is probably over. Their focus, of course, is on data, abstractions like the gross domestic product, not the continued suffering of living, breathing human beings struggling with the nightmare of joblessness.
Senate Democrats debate over extending unemployment benefits - The House passed a bill last month lengthening benefits by 13 weeks for those in high-unemployment states. While Senate leaders said at the time they would act soon, the proposal has languished as Democrats argue over the terms. Meanwhile, 400,000 people ran out of benefits in September and another 208,000 are set to lose them this month, according to the National Employment Law Project
As Layoffs Persist, Good Jobs Go Unfilled - In a brutal job market, here's a task that might sound easy: Fill jobs in nursing, engineering and energy research that pay $55,000 to $60,000, plus benefits. Yet even with 15 million people hunting for work, even with the unemployment rate nearing 10 percent, some employers can't find enough qualified people for good-paying career jobs.
Fed’s Rosengren: ‘Unemployment Rate Will Remain Elevated’ - Unemployment in the U.S. is likely to remain elevated for the next two of years, but over time the country will return to “full employment,” Federal Reserve Bank of Boston President and Chief Executive Eric Rosengren said Friday. Rosengren’s comments came as the U.S. Labor Department reported that employers shed many more jobs than expected last month, boosting the unemployment rate and underscoring that joblessness remains a big issue even as the economy shows signs of life.
Tracking the recovery: One in four households has suffered a layoff over the past year - The official unemployment rate hovers near 10%, suggesting that one in 10 American workers is out of work. But that figure masks the extent to which unemployment has devastated American families. Almost one in four families say they have been hit by a job loss over the past year, a new survey finds, and 44% have suffered either the loss of a job or a reduction in wages or hours worked. Those are some of the findings contained in a new survey, Tracking the Recovery: Voters’ Views on the Recession, Jobs, and the Deficit, which examines voters’ thoughts about the state of the economy and the government’s response to the recession.
Unemployment to Rise Through Most of 2010: Roubini - High unemployment and a lack of stimulus for private demand by countries like Japan and Germany could slow down the world recovery, famous bear Nouriel Roubini, chairman of RGE Monitor, told CNBC Monday. "I see the unemployment rate rising through most of 2010," Roubini told CNBC. "Not just is going to go above 10 percent but the risk is it's going to stay above this level and return to more normal
only more gradually".
EPI report on the long term consequences of unemployment - There is a new Economic Policy Institute report on the long term negative consequences of recession and unemployment. I have attached the report, A Economic Scarring: The long-term impacts of the recession by John Irons, to this post. The highlights are here
U.S. Suffering Permanent Destruction of Jobs - America is suffering a permanent destruction of jobs. JPMorgan Chase’s Chief Economist Bruce Kasman told Bloomberg: [We've had a] permanent destruction of hundreds of thousands of jobs in industries from housing to finance.
The chief economists for Wells Fargo, John Silvia, says: Companies “really have diminished their willingness to hire labor for any production level. It’s really a strategic change,” where companies will be keeping fewer employees for any particular level of sales, in good times and bad, he said. And David Rosenberg writes: The number of people not on temporary layoff surged 220,000 in August and the level continues to reach new highs, now at 8.1 million. This accounts for 53.9% of the unemployed — again a record high — and this is a proxy for permanent job loss, in other words, these jobs are not coming back.
26 million unemployed: guess who got it right about the stimulus and guess who didn’t (hint: they aren’t in the administration) - No fast recovery in sight. Paul Krugman and Brad DeLong were right, as usual. Good thing that the administration ignored him and instead chose to go with corporate cronyists, Larry Summers and Tim Geithner.
More Spending Is Necessary to Clean Up The Economic Mess - Someone who is laid off for a few weeks may have to postpone a vacation. Someone who is out of work for several months may miss a car payment. But people who are out of work for more than six months are likely to see their life become unhinged. The number of people who were looking for work in September but had been out of a job for more than 27 weeks increased by 450,000 to 5.4 million.
After the Stimulus, Unemployment Looms Large - Eight months after enacting a massive economic stimulus package, the Obama administration is facing rising pressure from some congressional Democrats to move more aggressively to jump-start the moribund job market and try to spur a housing recovery. For the lawmakers, the imperative is clear: to get the job market back on track before midterm congressional elections in November 2010.
A simple recalculation story about the stimulus - Let's say a real estate agent is laid off and, at some point, needs to start working elsewhere in the economy.One scenario is that the former agent searches for twelve months and finds a job in the health care sector. The economy loses twelve months' worth of output from that individual. A second scenario is that the former agent is reemployed immediately, improving the energy efficiency of school buildings, and he is paid by stimulus funds.Two years later, that stimulus money ends. The former real estate agent then searches for twelve months and finds a job in the health care sector.
Rebuilding employment - To grow employment in a region there are only a couple of possibilities: to expand employment in existing companies, to stimulate the creation of new businesses, and to recruit relocation of existing businesses from other regions. In each case the business owner or entrepreneur needs to be confident that he/she can add marginal revenue to the company by hiring the additional worker. This requires that the worker has knowledge and skills whose use will contribute to a saleable product. The product needs to have features of quality and utility that consumers want. Finding the workers who have the right kinds of talent, skill, and knowledge is a key challenge for the business owner. And availability of talented prospective workers is a key aspect of the company's decision to locate or grow in the region.
Support Builds for a Tax Credit for Creating Jobs - NYTimes - The idea of a tax credit for companies that create new jobs, something the federal government has not tried since the 1970s, is gaining support among economists and Washington officials grappling with the highest unemployment in a generation. The proposal has some bipartisan appeal among politicians eager both to help their unemployed constituents and to encourage small-business development. Legislators and President Obama’s team have been quietly researching the policy for several weeks.
A Tax Credit for New Hiring? - A Tax Credit for New Hiring? The New York Times reports that the some of our leaders in DC are considering a tax credit for companies that create new jobs. This is one of those ideas that pops up regularly when the economy is in recession. The devil is in the details, however, and the more one studies those details, the less attractive the proposal looks.
Older workers retiring early or working more? The Economist - FOR much of the recession the trend story in America has been the effect of declining wealth on the expected retirement date of older workers. A month ago, the New York Times was on the matter. But there is likely to be an offsetting effect. While lost savings may lead older workers to delay retirement, depressing labour market conditions may force them to give up on working again: When the unemployment rate rises, more workers between ages 62 and 69 retire, particularly those with less education.
How The Recession Is Accelerating Retirement Plans - While the impact of falling stock prices on older workers' retirement decisions has received a lot of attention this downturn, the more important driver of retirement rates appears to be unemployment, according to new research. When the unemployment rate rises, more workers between ages 62 and 69 retire, particularly those with less education. Workers between ages 55 and 61 are not found to be responsive to either type of market fluctuation. Individuals do not seem to respond to fluctuations in the housing market regardless of their age. "On net, we predict that the increase in retirement brought about [by] the recent rise in unemployment will be almost 50 percent larger than the decrease in retirement brought about by the stock market crash."
Teen Unemployment Hits 25.9%, Congress Lends an Ear The unemployment rate for 16 to 19-year-olds hit 25.9% in September, the highest rate recorded since at least 1948 (the earliest data the Labor Department supplies).Lately, their plight hasn’t been falling on deaf ears. The House Education and Labor Committee held a hearing earlier this week to address low unemployment among young people.
Jobless rates rise in all U.S. cities in August (Reuters) - Unemployment rates rose in all cities across the United States in August from a year earlier, with 16 recording jobless rates of 15 percent or higher, according to the Labor Department.
At the same time, only 11 metropolitan areas said they had gained jobs in August, while 356 had lost positions. For the eighth consecutive month, all 372 cities that the department surveys had year-on-year increases in jobless rates. The largest rise was in Detroit, where the rate rose by 7.9 percentage points
Paul Romer on Charter Cities -- The concept of a charter city is very flexible. The key elements that all the different versions share are an unoccupied piece of land and a charter. The land could be in a rich or a poor country. The charter could take many forms. The human, material, and financial resources needed to build a new city will follow, attracted by the chance to work together under the good rules that the charter specifies. Action by one or more existing governments is required to create a charter city. One government provides land, and one or more governments grant the charter and stand ready to enforce it.
Consumer Credit Crumbles - EconomPic - (chart) Consumer credit pulled back for the seventh straight month in August, led by a steep decline in credit card usage, a government report said Wednesday, as unemployment soared and cash-strapped consumers continued to limit spending. The total amount of credit outstanding fell by $12 billion, or 5.8%, to $2.463 trillion in August, according to the Federal Reserve. Economists predicted total borrowing would dwindle by $10 billion in August..
CHART OF THE DAY: Consumer Credit Collapse - Hoping for a consumer-led recovery? Don't hold your breath. The latest data from the Federal Reserve shows that the year-over-year decline in total consumer credit is collapsing at an accelerating rate. God forbid consumers go back to living within their means.
Is the Economic Storm Over? Consumers Weigh in on the “New Frugality” - Nielsen Wire surveyed more than 2,500 consumers, including 500 households that saw their personal financial institution impacted by a takeover or acquisition. What we found was that while the intensity of the economic panic had subsided since 2008, concerns persist and new habits in spending and saving are solidifying. Similar to what we’re seeing with the outlook to the upcoming holiday season, the majority of consumers are saying this is just not the time to buy. When posed with a very simple fill-in-the-blank prompt: “At this moment, the time to buy the things you want and need is…” the panel responded heavily with “not so good.”
That Sucking Sound Is All The Buying Power Leaving Consumers' Pockets _ It's really hard to imagine the consumer bouncing back, with credit continuing to shrink violently, which is exactly what's going on. The Fed's latest stats on August are ugly. Total credit was down 5.8% (year-over-year), while revolving credit was down over 13%
Will consumer spending really stay down? - The assumption that consumers have fundamentally changed is understandable. Personal spending is down sharply from 2007, while the national savings rate, which dipped below zero a few years ago, went above six per cent earlier this year. But although analysts point to the numbers as proof of a new mind-set, you don’t need psychology to explain what’s happened: simply put, Americans have been spending less because they have less money to spend. After all, in the past two years, nearly seven million jobs have been lost and wage growth for people who have kept their jobs has been anemic. At the same time, the housing crash and the stock-market meltdown erased, conservatively speaking, about thirteen trillion dollars in household wealth.
U.S. bank card delinquencies hit record high - Reuters - Delinquencies in U.S. bank cards rose in the second quarter to 5 percent of all accounts, while delinquencies in direct auto loans showed improvement, dropping to 2.46 percent, the American Bankers Association said on Thursday. Job losses, shorter work weeks and drops in incomes drove up consumer delinquencies during the quarter, with record highs reported in home equity loans, home equity lines of credit, and bank cards, the ABA said."The picture won't change until the labor market improves and the economy picks up steam. This is going to take time,"
Consumers Keep Paying Off Credit Cards, Building Up Savings - Consumers continued to retrench in August, with borrowers reducing their credit card debt for the 11th consecutive month, according to figures released by the Federal Reserve on Wednesday. Revolving credit debt, mostly through credit cards with balances that are not paid off immediately, dropped by an annual rate of 13.1 percent in August to $899.4 billion, the Federal Reserve reported. Non-revolving credit debt, such as auto loans and student loans, dropped slightly by an annual rate of 1.6 percent to about $1.56 trillion.
More Dependent on the Consumer than Ever - America's over-reliance on consumer spending helped create the mess we are in. To finance our spendthrift ways, we borrowed more than we could afford. We also saved less than necessary and bet that rising home and stock prices would make up the difference. In addition, our willingness to consume more than we produce led to unhealthy imbalances with nations like China. Well, guess what? The latest data reveals that America is more dependent on the consumer than ever.
Will consumer spending really stay down? : The New Yorker - For all the uncertainty about the current state of the economy, everyone is sure of one thing: this recession has permanently remade American consumers, turning them from spendthrifts into tightwads. From cover stories on “The New Frugality” to stories about cheapness as a new status symbol and pundits’ repeated analogies to the lessons inculcated by the Great Depression, the message is the same: there has been a fundamental change in American consumer behavior, one that will endure after the recession ends, returning us, as one economist put it, to “the days of ‘Leave It to Beaver.’ ”
An end to the bidding war - Did a rise in prices for "necessities" cause Americans to increase borrowing? Or did easy credit cause Americans to bid up the price of necessities? My guess is the latter, which means that the resolution is deflation, which is scheduled to pick up over the next year. When less money (or credit) is available for certain goods or services, those goods or services will decrease in price. Of course, the government "solution" will be to further subsidize health care, education, vehicles, etc to fight the natural drops in price, and we will continue to pay large portions of our income for these items via taxes (or via increased public debt burdens to be paid off by inflation once that is again a viable option).
Rethinking the American consumer - the Economist - ONE thing that's worth remembering as we discuss the recovery (something I often have to remind myself) is that American spending on consumption was primarily directed toward what one might call necessities. Writers focus on the growth of the share of consumption in output over time, and the seemingly irresponsible behaviour of American consumers—borrowing heavily against homes to finance consumption—and frame these purchases as retail spending; but it does not appear that such spending is what drove rising consumption or increased consumer indebtedness. Instead, as James Surowiecki reminds us, rising consumer outlays largely went to things like housing, where costs have steadily increased, and health care.
Consumer bankruptcy filings top 1 million - (CNN) -- Personal bankruptcies topped the 1 million mark in the first nine months of the year, the first time it has done so in four years, according to an industry research firm released Friday.The personal bankruptcies were up 35% from the same period in 2008, according to the report from the American Bankruptcy Institute (ABI). Bankruptcy filings continue to climb as consumers look to shelter themselves from the effects of rising unemployment rates and housing debt.
Overdraft-Fee Revenue Up 35 Percent, Study Says - The revenue that banks and credit unions generate by letting customers overspend their accounts, then charging them a fee, increased 35 percent in two years, the Center for Responsible Lending reports in a study released Tuesday. Culling figures gathered by the Federal Deposit Insurance Corp., the consumer advocacy group found that customers paid $23.7 billion in overdraft fees in 2008, up $6.2 billion from two years before.
For Gun-Shy Consumers, Debit Is Replacing Credit - The recession has cooled the American ardor for living on credit. After years of saying "Charge it," consumers are more often paying with their debit cards instead. Worry about jobs, fear of fluctuating interest rates on credit cards and wariness about spending too much are contributing to the change.
The Card Game - Prepaid, but Not Prepared for Debit Card Fees - NYTimes - Buying a prepaid debit card these days is just about as easy as picking up a bottle of shampoo or a candy bar. Walk into a Wal-Mart or almost any major drugstore, and rows of plastic worth $25, $100 and even $500 beckon from kiosks alongside prepaid phone cards and gift cards for retailers. For many people who do not have bank accounts, or cannot get a credit card, the appeal is irresistible, making the reloadable cards among the consumer banking industry’s fastest-growing products. But their convenience comes with a catch: fees, often hidden in the fine print.
Editorial - Bleeding Holders of Debit Cards Dry - NYTimes - Last month, some major banks announced minor changes in their overdraft policies. They were hoping to head off new federal regulation of a business that is designed to ambush ordinary people and siphon off as much money as possible. We were unimpressed with those steps at the time, and a recent study by a nonpartisan research group confirms that the banks have grown addicted to the easy billions they reap from these policies.
Overdraft fees are gaining attention in Washington - A new battle is brewing in Congress, riding the same populist wave that pitted banks against consumers on credit card fees earlier this year. Momentum is gaining behind a proposed crack down on overdraft fees -- the big penalties banks charge when customers spend more than they have in their accounts. More than 75% of banks automatically sign customers up for overdraft programs, according to a study by the Federal Deposit Insurance Corp.
Bankers Association Claims Customers Are ‘Glad’ To Pay Exorbitant Overdraft Fees - This is an awful mess, and according to a report released today by the Center for Responsible Lending, at least 50 million Americans overdraw their accounts over the course of a twelve month period, 27 million of which incur five or more fees. Banks and credit unions collected $24 billion in overdraft fees in 2008, a whopping 69 percent of total bank fees. Shockingly, the Center noted that Americans spend more on overdraft fees annually than they do on fresh vegetables.
Why Banks Should Charge Hefty Overdraft Fees - Newsweek - Lately the papers have been full of terrible stories about folks getting charged $35 or more without warning every time they overdraw their checking accounts, and Congress is outraged and plans to fix this problem. Legislation has already been introduced. These stories make me crazy angry—I have to count to 10 and remember to breathe slowly whenever I think about it. Congress has it all wrong. In their wisdom, lawmakers want to help people by lowering these fees when what they should be doing is raising them much, much higher.
Heating aid could fall short of needs - Record numbers of low-income people and senior citizens who can't afford to heat their homes are applying for help, say some local agencies that distribute aid and struggle with the recession's fallout. Funding for Low Income Home Energy Assistance Program (LIHEAP) is expected to be about $5.1 billion for fiscal year 2010 — the same as in 2009.
NY Times: Retailers Expect No Growth in Holiday Spending - From the NY Times: Retailers Expect Flat Christmas Sales This Year - " taking surveys to test the mood of the American consumer, and deciding that this Christmas will be as bad as last — which is to say, one of the worst on record.Retailers are relieved to hear that prediction. Flat sales this holiday season would at least mean that things had stopped getting worse" And that suggests that seasonal retail hiring will be weak too. Here is a repeat of a graph from a post a couple weeks ago: Seasonal Retail Hiring. This graph really shows the collapse in retail hiring in 2008.
New York Income Tax Revenue Falls 36% in Year, Paterson Says (Bloomberg) -- New York State’s income tax revenue has dropped 36 percent from the same period in 2008, Governor David Paterson said, “frustrating” his attempt to close a projected $2.1 billion budget deficit.
“We added personal income tax, which we thought would make the falloff 10 percent to 15 percent. This is what is so frustrating. It’s still 36 percent, meaning our revenues fell more in 2009 than they did in 2008.”
A Smarter (and Cost-Efficient) Way to Fight Crime - NYTimes - One of every 100 adults in the United States is now behind bars; many are serving lengthy sentences. The crimes they committed clearly did not “pay” in any objective sense of the term. Why, then, did they commit them? The short answer is that most criminals are not the dispassionate rational actors who populate standard economic models. They are more like impulsive children, blinded by the temptation of immediate reward and largely untroubled by the possibility of delayed or uncertain punishment.
States Resist Medicaid Growth - Governors Fear For Their Budgets The nation's governors are emerging as a formidable lobbying force as health-care reform moves through Congress and states overburdened by the recession brace for the daunting prospect of providing coverage to millions of low-income residents. The legislation the Senate Finance Committee is expected to approve this week calls for the biggest expansion of Medicaid since its creation in 1965. Under the Senate bill and a similar House proposal, a patchwork state-federal insurance program targeted mainly at children, pregnant women and disabled people would effectively become a Medicare for the poor, a health-care safety net for all people with an annual income below $14,404
U.S. states suffer “unbelievable” revenue shortages (Reuters) – The U.S. economy may be creeping toward recovery after the worst slowdown since the Great Depression, but many states see no end in sight to their diving tax revenues. Tax revenues used to pay teachers and fuel police cars continue to trail even the most pessimistic expectations, despite the cash from the economic stimulus plan pouring into state coffers.
New billion-dollar hole in California's budget - State revenue has already fallen more than $1 billion short of assumptions in the budget lawmakers passed less than three months ago, according to a new report from the state controller. Disappointing income tax receipts are the main culprit, falling 11% below what lawmakers and Gov. Arnold Schwarzenegger expected when they agreed on a patchwork budget during the summer, halting the state’s issuance of IOUs. Sales and corporate taxes have also slid below projections.
Boomers seen driving $10 trillion wealth management shift (Reuters) - U.S. financial advisors are due for upheaval as baby boomers, controlling $10 trillion in assets, reach retirement age and shift their investment priorities, said a senior executive at asset manager BlackRock Inc. Baby boomers will move the industry's main client goal from one from accumulation -- investing in assets that create the most value over time -- to one of "decumulation," Instead of a focus on building wealth and a retirement nest egg, those clients will soon focus on making the money last.
Rebel without a car? - Is the love affair between cars and young people starting to cool? That could be the case, according to a new study of auto-related online commentary among teens and young adults by J.D. Power and Associates. Between January and August, the market research firm analyzed hundreds of thousands of “conversations” on auto-related sites such as Autoblog, personal blogs and social networks such as Twitter and Facebook.
The Uneducated American - NYTimes - If you had to explain America’s economic success with one word, that word would be “education.” In the 19th century, America led the way in universal basic education. Then, as other nations followed suit, the “high school revolution” of the early 20th century took us to a whole new level. And in the years after World War II, America established a commanding position in higher education. But that was then. The rise of American education was, overwhelmingly, the rise of public education — but for the past 30 years our political scene has been dominated by the view that any and all government spending is a waste of taxpayer dollars.
Prepaid College Savings Plans Might Not Cover All Costs In the last two decades, more than a million families around the country have invested in state funds that pledged to cover the cost of attending their state’s public colleges and universities, regardless of how much tuition increased. But in the last year, the stock market slump and rising college costs have combined to drive all but two of the nation’s 18 such funds, known as prepaid college savings plans, into the red, jeopardizing those pledges.
Waves of new fund cuts imperil US nursing homes - The nation's nursing homes are perilously close to laying off workers, cutting services — possibly even closing — because of a perfect storm wallop from the recession and deep federal and state government spending cuts, industry experts say. A Medicare rate adjustment that cuts an estimated $16 billion in nursing home funding over the next 10 years was enacted at week's end by the federal Centers for Medicare and Medicaid Services — on top of state-level cuts or flat-funding that already had the industry reeling. And Congress is debating slashing billions more in Medicare funding as part of health care reform. Add it all up, and the nursing home industry is headed for a crisis, industry officials say.
Americans Cutting Back on Health Care to Save Money - Many Americans have been putting off doctors' visits, forgoing medical tests and taking expired medications to save money over the past year, according to a new poll by Consumers Union. The survey by the nonpartisan organization found that 51 percent of Americans have "faced difficult health care choices in the past year." Despite overwhelming concern about how to pay for health care, however, there's still no clear public or political consensus on how to overhaul the system.
Democrats Try to Balance Cost and Coverage in Health Plan - NYTimes - As Democrats prepare to take up health care legislation on the floor of the Senate and the House, they are facing tough choices about two competing priorities. They want people to pay affordable prices for health insurance policies, but they want those policies to offer comprehensive health benefits.
That tension between keeping costs low and improving coverage is just one of many challenges facing Congress and the Obama administration as they head toward the final stages of the effort to pass health care legislation.
Insurer Admits Industry Could Circumvent Proposed Regulations - During today’s Michigan Business and Legislative Forum, which the Wonk Room attended, a representative of Blue Cross Blue Shield of Michigan admitted that insurers could circumvent the market regulations proposed as part of health care reform. In a separate conversation with the Wonk Room, Cook agreed that that despite industry concessions to accept applicants with pre-existing conditions, existing health reform measures would not prevent insurers from designing benefit packages that excluded sicker populations
Windfall Profits Tax on Health Insurers Is Being Considered, Pelosi Says - (Bloomberg) -- House Speaker Nancy Pelosi said Democratic lawmakers are considering a windfall profits tax on health insurers to help finance an overhaul of the nation’s health-care system. Pelosi told reporters today the idea was “very preliminary” and that she was asking Ways and Means Committee Chairman Charles Rangel of New York to study it. Insurance companies and other parts of the health-care industry such as drugmakers have “much more they can put on the table to bring down the cost,” said Pelosi.
Director’s Blog - Preliminary Analysis of the Senate Finance Committee Chairman’s Markup - CBO and the staff of the Joint Committee on Taxation (JCT) have just issued a preliminary analysis of the Senate Finance Committee Chairman’s mark for the America’s Healthy Future Act of 2009, incorporating the amendments that have been adopted to date by the committee. That analysis reflects the specifications posted on the committee’s Web site on October 2, 2009, corrections posted on October 5, and additional clarifications provided by the staff of the committee through October 6. CBO and JCT’s analysis is preliminary in large part because the Chairman’s mark, as amended, has not yet been embodied in legislative language.
THE BEHIND-THE-SCENES LOBBYING FOR A PUBLIC OPTION.... We learned over the weekend that, at this point in the process, President Obama "strongly" supports a public option and has launched "an intensifying behind-the-scenes campaign" in the hopes of getting the provision included in the reform bill. (The LA Times ran a big story on this today, and it's getting lots of attention, but it's the same piece the Chicago Tribune ran yesterday.) According to the report, "senior administration officials are holding private meetings almost daily at the Capitol with senior Democratic staff to discuss ways to include a version of the public plan in the health care bill."
Dems' Health Plan Half As Costly As Bush Tax Cuts: Report - The Democrats' health care plan costs half as much as the two major tax cuts pushed by the George W. Bush administration, according to a report issued Tuesday.Enacted in 2001 and 2003, the Bush tax cuts are projected to cost about $2.1 trillion in lost revenue in the 10 years since they were first passed, according to Citizens for Tax Justice, a liberal-leaning research group in Washington, D.C. About $979 billion of that would have come from the richest five percent of taxpayers. By comparison, the health care plan advocated by House Democrats is projected to cost about $1 trillion through its first decade (2010-2019), according to estimates from the Congressional Budget Office
Budget Report: Senate Finance Panel's Health-Care Bill Wouldn't Raise Deficit - Congressional budget analysts gave an important political boost Wednesday to a Senate panel's health-care overhaul, projecting that the $829 billion measure would dramatically shrink the ranks of the uninsured and keep President Obama's pledge that doing so would not add "one dime" to federal budget deficits.
GOP leaders to Michael Steele: Back off - GOP leaders, in a private meeting last month, delivered a blunt and at times heated message to RNC Chairman Michael Steele: quit meddling in policy. The congressional leaders were particularly miffed that Steele had in late August unveiled a seniors’ “health care bill of rights” without consulting with them. The statement of health care principles, outlined in a Washington Post op-ed, began with a robust defense of Medicare that puzzled some in a party not known for its attachment to entitlements.
Former GOP Majority Leader Bill Frist on Senate health legislation: I’d vote for it. - In an interview today with Time, former Republican Senate Majority Leader Dr. Bill Frist dismissed the GOP’s balking over health care legislation. Underscoring how much Republicans have become the “party of no” and how much the Senate Finance Committee legislation has been watered-down, Frist said that if he were still in office, he would vote for the bill. “I would end up voting for it,” he said. “As leader, I would take heat for it. … That’s what leadership is all about.”
The Work-Up - Health Insurance Exchanges - Will They Work? - NYTimes - Despite all the disagreement in Washington, every proposal now before Congress to overhaul the nation’s health care system includes creation of an insurance “exchange” — a marketplace that would operate something like a Travelocity Web site for insurance policies. In theory at least, the exchange would fix a fundamental flaw in the present system by giving small businesses and individuals a broad choice of insurance policies at competitive prices. Right now, such buyers typically have few affordable options.
An ACORN Amendment for Pfizer The Nation - In response to the Defund ACORN Act, which seeks to prohibit federal funds to the community group, Minnesota Democrat Betty McCollum, a member of the House Appropriations Committee, introduced an ACORN act of her own. It is titled the "Against Corporations Organizing to Rip-off the Nation Act of 2009," also referred to simply as the ACORN Act. HR 3679 seeks to "prohibit the Federal Government from awarding contracts, grants, or other agreements to, providing any other Federal funds to, or engaging in activities that promote certain corporations or companies guilty of certain felony convictions."
Let Congress Go Without Insurance - NYTimes - It may be that the lulling effect of having very fine health insurance leaves members of Congress insensitive to the dysfunction of our existing insurance system. So what better way to attune our leaders to the needs of their constituents than to put them in the same position? About 15 percent of Americans have no health insurance, according to the Census Bureau. Another 8 percent are underinsured, according to the Commonwealth Fund, a health policy research group. So I propose that if health reform fails this year, 15 percent of members of Congress, along with their families, randomly lose all health insurance and another 8 percent receive inadequate coverage
Donate Kidney, Never Get Insurance Again - So what would you do if your mom or dad, or perhaps your sister or brother, needed a kidney donation and you were the one best positioned to donate? Most of us would worry a little and then step forward. But not so fast. Because of our dysfunctional health insurance system, a disgrace that nearly half of all members of Congress seem determined to cling to, stepping up to save a loved one can ruin your own chance of ever getting health insurance. That wrenching trade-off is another reminder of the moral bankruptcy of our existing insurance system. It’s one more reason to pass robust reform this year.
Health Care and the 'Predator State' - WSJ - The government becomes a "predator" when it adopts the agenda of the private sector, when it comes under the control of business interests...these interests seek to "control the state partly in order to prevent the assertion of public purpose and partly to poach on the lines of activity that past public purpose has established." It is corporate power, not the government, that we need to worry about.
Health Care and the Long-Run Budget Deficit - The CBPP did an interesting analysis of the long-term budget deficit issue yesterday that reformulated the familiar point about health care costs and deficits by observing that there’s a revenue-side impact here too.
Making the ‘public option’ a simple one - Congress could achieve the cost-control objective of the of the public option by considering the practical operation of the proposed mandate for all individuals to obtain health insurance . Under most proposals before Congress, the key to implementing an individual mandate is a Connector - sometimes called an exchange - a government-run board that would act as a group purchasing agent for all the uninsured in the relevant area
The Public Imperative – NYTimes - Back from another trip to Europe, this time Germany, where the same dismay as in France prevails over the U.S. health care debate. Europeans don’t get why Americans don’t agree that universal health coverage is a fundamental contract to which the citizens of any developed society have a right. I don’t get it either. Or rather I do, but I don’t think the debate is about health. There can be no doubt that U.S. health care is expensive and wasteful. Tens of millions of people are uninsured by a system that devours a far bigger slice of national output — and that’s the sum of all Americans’ collective energies — than in any other wealthy society.
Is the Swiss Health Care System a Good Model for US? – The Swiss health care system has several important properties that I (and many others) have been advocating should be incorporated into any reform of the US health care system. One major advantage of the Swiss system is that employer-provided health care does not receive any special tax breaks, whereas the US system is built on these tax breaks. As a result, only a rather a small fraction of Swiss health care is obtained through employment. Mainly, Swiss families buy health care on their own, so that, unlike in the US, their health insurance does not reduce their incentives to change jobs because job changes do not endanger their health coverage.
A cool look at the current deficit hysteria - The British political classes are going through one of their occasional bouts of masochism, with party leaders vying with each other on the theme of who can cut public spending faster and more effectively. Spice is added by talk of leaks and secret plans; and ideology by arguing about the balance between tax increases and spending curbs. My own bottom line is that all this is in response to a largely imaginary budget crisis. If we have a normal economic recovery the red ink will diminish remarkably quickly. If we don’t, it won’t and won’t need to.
Britain snatches the financial crown from the US - Times Online = Britain has toppled the United States as the world’s leading financial centre, according to the latest league table from the World Economic Forum (WEF), but the gloss was tarnished as the UK scored worse than Nigeria, Panama and Bangladesh for financial stability.
Diverging deficits could fracture the eurozone - The underlying problem is a policy divergence between France, Spain, Italy, Portugal and Greece on one side, and Germany, Finland, Austria, and the Netherlands on the other. The policy divide between France and Germany is the most damaging. Paris dropped a bombshell last week when it said it no longer aimed to reduce the French budget deficit to under 3 per cent of gross domestic product by 2012. This is the limit set by the Maastricht treaty. Even on optimistic growth assumptions, France will not hit the target until 2015 at the earliest. By then the country’s debt-to-GDP ratio will have reached more than 90 per cent.
E.C.B. Balances Support for Recovery With Demands of Its Master - NYTimes - As the world economy claws its way out of recession, the European Central Bank is coming eye-to-eye with the challenge of staying true to its inflation-fighting mandate without crimping the upswing in Europe or endangering the shaken financial system’s newly restored stability.In the United States, the Federal Reserve has said it will keep rates low for “an extended period,” an assurance designed to support the shaky U.S. economy, which is still shedding jobs at a fast clip. But the Fed’s counterpart in Frankfurt, which raised interest rates only a month before Lehman Brothers’ bankruptcy, is offering no such promise — a sign it may be willing to swallow a lower growth rate if the alternative is higher inflation.
Economic crisis in Europe: Cause, consequences, and responses - VoxEU - A report by the European Commission - The European economy is in its deepest recession since the 1930s. This column says that swift policy response avoided a financial meltdown, but turning the ongoing recovery into sustained growth requires action on five challenges: boosting potential output, enhancing labour market flexibility, preparing fiscal consolidation, facilitating intra-EU adjustment, and unwinding global imbalances. Europe also needs an improved crisis-management framework, lest this happen again.
Japanese Moratorium Will Postpone Collection of Principal and Interest on Consumer and Business Loans - It's important to remember that no matter how nutty things have gotten during this credit bust, even nuttier solutions are waiting in the wings. The Japanese Minister of Finance has proven that in spades by proposing a debt moratorium to individuals as well as firms. The moratorium would postpone repayment of principal and interest on loans, in an effort to spur more bank lending.H2SO4 – LEI? - We use sulfuric acid in just about everything we consume. It is used in batteries, paint, fertilizer, ore processing, steel production and water treatment. It is a building block for a number of products like nylon, we pickle our food with it. By volume, it is the largest industrial chemical produced in the US. There is no futures market that tracks this important commodity. This graph is of selling levels for bulk delivery at Gulf ports.
Paul Krugman: In Trade, ‘It’s Not the Great Depression — It’s Worse’ - WSJ - “When it comes to international trade, actually it’s not the Great Depression, it’s worse,” he said, presenting charts showing the decline in global trade activity falling much more steeply in the current downturn than during the Depression. “The scale of the collapse of world trade has been so large that it has produced a degree of international linkage that surpasses what even the pessimists imagined,” he said. “World trade acted as a transmission mechanism,” spreading economic distress “even to those countries that had relatively healthy financial systems,” such as Germany.
Krugman on the end of trade - summary of his wonkish speech at the World Business Forum
Trade Procyclicality in the Current Recession: The View from the US -- Krugman recently characterized the current pace of trade activity as worse than that during the Great Depression. And indeed, graphs from Eichengreen and O'Rourke have been diligent in illustrating how this is the case, most recently in this September VoxEU post. Caroline Freund ([pdf] here) as well as the IMF in its most recent World Economic Outlook (Box 1.1) atrribute the sharp drop-off in world trade to high income elasticities, in part associated with the high degree of vertical integration that characterizes the globalized world economy. I want to examine that explanation from the perspective of the US data. This follows up on several of my recent posts on the subject.    
The United States Trade Deficit Shrank in August - NYTimes - No matter how much economists and political leaders warned about huge global trade imbalances and the astronomical foreign debt of the United States, American consumers kept buying more and borrowing more from the rest of the world.Until the financial crisis, that is.
In a striking case of shock therapy, global trade imbalances have declined by almost half since the financial system nearly collapsed one year ago.
Trade Picture Worsens in August - BW - Yes, the headline number on this morning’s trade report improved. But that was misleading. In fact, the non-oil trade deficit widened for the second straight month (19.8 billion in June, 23.6 billion in July, 24.3 billion in August). That’s not a good thing. It means that the fundamental imbalances in the global economy are reasserting themselves. What’s worse, our trade deficit in advanced technology products is actually worse than it was a year ago, before the crisis hit. That’s a sign of a fundamental problem in what should be a U.S. strength
Chicontepec work may be halted - Mexico's recently formed oil industry regulator wants state energy company Pemex to suspend work at its technically complex Chicontepec oilfield due to poor results, local reports said. Pemex has spent more than $3.4 billion so far on Chicontepec, whose large reserves promised to lift Mexico's oil output from near 20-year lows, but production has lagged its targets. Juan Carlos Zepeda, head of the National Hydrocarbons Commission, told an industry event the field needs a new and exhaustive development plan to improve drilling techniques and boost output.
Energy Will Lead the Next Commodity Shortage -- Seeking Alpha - In 2008, prices of oil, natural gas, gold, silver, copper, corn, wheat, and most other commodities reached multi-year, and in some cases multi-decade, highs. They’ve fallen sharply since then, but commodities aren’t going out of business. Another peak is coming, and it will be far higher, especially for oil.
Deutsche: the end is nigh for the Age of Oil - FT - “This is the end of the 20th Century of Oil; we are entering the 21st Century of Electricity,” say analysts at Deutsche Bank in a major new report warning of high price volatility for both fuels as the leadership baton is passed. “Obama’s environmental agenda, the bankruptcy of the US auto industry, the war in Iraq, and global oil supply challenges have dovetailed to spell the end of the oil era,” Deutsche argues that “oil will never run out, rather we will become more efficient,” and predicts that hybrid and electric cars will have a far greater positive impact on oil efficiency than the market currently expects.
Saudis ask for aid if world cuts dependence on oil - There are plenty of needy countries at the U.N. climate talks in Bangkok that make the case they need financial assistance to adapt to the impacts of global warming. Then there are the Saudis.Saudi Arabia has led a quiet campaign during these and other negotiations — demanding behind closed doors that oil-producing nations get special financial assistance if a new climate pact calls for substantial reductions in the use of fossil fuels.
China will overtake America, the only question is when - Few things would be more powerfully symbolic of the shift in the balance of global economic power than to have oil traded in the Chinese renminbi rather than the American dollar. True, no one is going to price a barrel of West Texas Intermediate Crude in renminbi tomorrow. But you can see how that could change. Oil is traded in dollars for economic reasons – not sentimental ones. The oil business pretty much started in the US, the giant oil companies are still mostly American, and the US has long been the world's largest consumer, importer and one of the largest producers of oil. And the dollar is easily the most traded currency in the world. As such, it made sense to trade oil in dollars.
The Great 'Shift' - China and the West - The shift that we are witnessing is the move of economic power from the West to the East. It is a well worn theme on Cynicus Economicus, that we are seeing the rise of China, and the fall of the US, and the process is now accelerating. Alongside the fall of the US, we are also seeing further declines in countries like the UK.
Q&A: World Bank’s Lin on Why China Stimulus Is More Effective - WSJ - The difference is that the stimulus in China has a very large leverage effect. From January to now, the growth in investment is 30% higher than last year. If you look at the composition, part came from government fiscal stimulus, and a larger part came from expansion of bank lending. That is because China is a low-to-middle income country. China has a larger deficit in infrastructure. There is strong demand for those kinds of investments.That also creates jobs. Income increased, household employment increased, consumption increased.The U.S., though, is a high-income country so the scope of that type of investment is smaller. The fiscal stimulus does not come with large bank lending to support it, so the leverage effect in the U.S. is smaller.
Can China Lead a Recovery? - One year after the global economy went into a tailspin, many economists are wondering whether Chinese consumers, once a thrifty lot, will lead the world out of the recession. Last week, the International Monetary Fund said China would do just that, thanks in part to the government's $600 billion stimulus package and a flood of bank lending. The IMF increased its forecast of Chinese growth to 8.5 percent in 2009 while lowering its forecast for the U.S. economy, which it said would shrink 2.7 percent.
China’s Next Stage: Spreading the Wealth - NYTimes Forum - Is China, 30 years after its opening to the West, becoming a consumer society? What policies might drive that transformation, and what are the consequences for other nations? forum includes:
Amar Bhidé, author, “The Venturesome Economy”
Michael Pettis, professor of finance, Peking University
Yasheng Huang, professor of political economy
Daniel A. Bell, professor of political theory, Tsinghua University
Gordon G. Chang, author and columnist
Chinese welfare reform key to stability, says Roach – Morgan Stanley Asia chairman Stephen Roach argues that the only way to put Asian growth models on a sustainable footing is to introduce social safety nets. "It's been relatively easy for most Asian governments to ignore welfare needs, because they have been busy growing their economies." All of this needs to change -- and very quickly -- if Asian countries are to sustain their impressive rates of economic growth.
Two Million Slum Children Die Every Year as India Booms - India’s growing status as an economic superpower is masking a failure to stem a shocking rate of infant deaths among its poorest people. Nearly two million children under five die every year in India – one every 15 seconds – the highest number anywhere in the world. More than half die in the month after birth and 400,000 in their first 24 hours. A devastating report by Save the Children, due out on Monday, reveals that the poor are disproportionately affected
AFP: Climate change hits poor countries hardest: The developing world will suffer about 80 percent of the damage from climate change despite accounting for only around a third of greenhouse gases in the atmosphere, the World Bank said on Sunday."The damage of climate change, about 75 to 80 percent, will be suffered by developing countries although they only contribute about one third of greenhouse gases," World Bank chief economist Justin Lin told reporters.
While We're Off Fighting Terror, The Planet's Crumbling - While we remain virtually hypnotized by terrorism, humanity is quietly destroying the biosphere in which we live, ourselves and our future along with it. Just since 9/11, 25 million children died from preventable causes, the world's population grew by 200 million people and thousands of species went extinct. Also, 250,000 square miles of forest were lost, 50,000 square miles of arable land turned to desert, 8 billion tons of carbon were added to the atmosphere and air pollution claimed more than 4 million lives.Our boat is sinking, we know the causes and consequences, and we know how to solve the problem. Yet policy-makers keep rearranging the deck chairs.
Major non-OECD must halt CO2 growth by 2020: IEA - (Reuters) - Carbon emissions from a group of richer emerging economies including Russia, China and the Middle East must stop growing by 2020 to control global warming, the International Energy Agency said on Tuesday.Developing countries appeared far from committing to that, however, at Sept 28-Oct 9 talks in Thailand meant to drive agreement on a new climate pact in Copenhagen in December.Rich countries must lead the way in a global effort to stop growth in carbon emissions from burning oil, coal and gas to produce energy, the IEA said on the sidelines of the U.N.-led talks in Bangkok.
US threatens to derail climate talks by refusing to include Kyoto targets - uk guardian - The US threatened to derail a deal on global climate change today in a public showdown with China by expressing deep opposition to the existing Kyoto protocol. The US team also urged other rich countries to join it in setting up a new legal agreement which would, unlike Kyoto, force all countries to reduce emissions.In a further development, the EU sided strongly with the US in seeking a new agreement, but said that it hoped the best elements of Kyoto could be kept. China and many developing countries immediately hit back stating that the protocol was "not negotiable".
C.I.A. Climate Center Irks Barrasso - NYTimes - Senator John Barrasso, a conservative freshman Republican from Wyoming, said on Tuesday that he would try to stop the Central Intelligence Agency from opening a new climate change center by choking off its funding. The agency announced late last month that it was creating a Center on Climate Change and National Security to look at how droughts, rising seas, mass migrations and competition for resources could affect the nation’s military and economic priorities.
The U.S. Must Prioritize Its Carbon Strategy - The House of Representatives passed the American Climate and Energy Security Act in June and sent it to the Senate. The House bill, running to 1,428 pages, aspires in one breathtaking stroke to take on renewable energy, carbon capture and sequestration (CCS), nuclear power, electric vehicles, carbon cap-and-trade, power transmission, energy efficiency and climate adaptation. What’s missing in this sprawling draft is prioritization. The insecurity of global oil supply lines, the growing global scarcity of conventional fossil fuels and the urgency to reduce carbon emissions all point to the need for a fundamental energy overhaul. Yet to accomplish such a worldwide, fundamental energy overhaul, we will need to keep our eye on the big picture—the technology systems that will make a large and lasting difference—and not get mired in excruciating details.
Cap-and-Trade versus the Alternatives for U.S. Climate Policy - Let’s address the key substantive questions which Senator Murkowski raises, because they are important questions: Is cap-and-trade the most effective way of addressing climate change? And are there other approaches capable of achieving the same results at lower cost? From my perspective, as a card-carrying environmental economist, these are indeed the key questions.
Obama orders federal government to cut emissions (Reuters) - President Obama ordered federal agencies on Monday to set a goal within 90 days for cutting their greenhouse gas emissions by 2020, the White House said, aiming to "lead by example" in fighting climate change.The new executive order, signed by the president, mandates agencies across the federal government to "measure, manage, and reduce greenhouse gas emissions toward agency-defined targets," the White House said in a statement. Other environmental measures such as reducing petroleum use in vehicle fleets by 30 percent by 2020, improving efficiency of water usage by 2020, and increasing rates of recycling by 2015 were also included in the order.
Saving Ourselves By Saving The Forests - According to the World Resources Institute, the razing of forests from Indonesia to Brazil is responsible for the release of five billion tons of carbon dioxide a year, which amounts to 12 percent of global greenhouse gas emissions — more than all the cars and trucks in the world. The international effort to comprehensively fund forest protection as part of a new climate treaty is known as reducing emissions from deforestation and degradation (REDD). Experts estimate that an investment of about $10 to $20 billion a year will cut deforestation by half, if properly implemented. This is one of the cheapest routes to cutting global warming pollution, even ignoring the $4.5 to $5 trillion in benefits of saving the world’s tropical forests.
The Cost of Curtailing Global Warming - The NYT told readers that the investments needed to curtail global warming would cost the world $10 trillion over the years from 2010 to 2030. It would have been helpful to also note that global GDP will be around $1500 trillion over this period, so that the estimated cost of these measures would be equal to approximately 0.7 percent of GDP. This means that they would impose approximately one sixth as much of a burden on the world economy as the defense department budget does on the U.S. economy.
Chamber To Apple: You Don’t Understand Our ’21st Century Approach To Climate Change’ - U.S. Chamber of Commerce President Tom Donohue, who last year called for further “scientific inquiry” into climate science because of a “cooling trend,” today rebuked Apple for leaving his organization, claiming they did not understand the Chamber’s “21st century approach to climate changeApple — recognized as the most innovative company in the world — had criticized the Chamber for not having a “more progressive stance” on climate change, saying, “We strongly object to the Chamber’s comments opposing the EPA’s efforts to limit greenhouse gases.”
American Companies Tell The Senate: ‘We Can Lead’ On Clean Energy Hundreds of business executives are descending on Washington this week in support of a clean energy economy. Calling for investment in American jobs instead of global warming pollution, the CEOs participating in the Business Advocacy Day for Jobs & Competitiveness — an effort organized by the new We Can Lead coalition — will tell the Senate to take action with strong climate legislation like the Clean Energy Jobs Act introduced last week by Sens. John Kerry (D-MA) and Barbara Boxer (D-CA). Several of these companies have written a public letter to Congress and the administration calling for “comprehensive legislation to cut carbon pollution.
Our low-carbon growth future -- A global deal on climate change is urgently needed. Concentrations of carbon dioxide and other greenhouse gases in the atmosphere have reached 435 parts per million (ppm) of CO2-equivalent, compared with about 280 ppm before industrialisation in the 19th century. If we continue with business-as-usual emissions from activities such as burning fossil fuels and cutting down forests, concentrations could reach 750 ppm by the end of the century. Should that happen, the probable rise in global average temperature relative to pre-industrial times will be 5C or more.
Study: Fossils Suggest Ancient CO2-Climate-Change Link - TIME - Samples of ancient air extracted from deep inside the Antarctic and Greenland ice caps make it clear that CO2 is scarce in the atmosphere during ice ages and relatively abundant during warmer interglacial periods — like the one we're in now..during the Miocene Climatic Optimum, which occurred 15 million years ago, the global temperature was high enough to make sea levels between 80 ft. and 130 ft. higher than they are today. According to the new study, CO2 levels in the atmosphere at that time hovered at from 390 to 430 parts per million (p.p.m.). Today's CO2 level: 387 p.p.m. and rising.
New Analysis Brings Dire Global Warming Prediction - Climate researchers now predict the planet will warm by 6.3 degrees Fahrenheit by the end of the century even if the world's leaders fulfill their most ambitious climate pledges, a much faster and broader scale of change than forecast just two years ago, according to a report released Thursday by the United Nations Environment Program.
Arctic seas turn to acid, putting vital food chain at risk - Carbon-dioxide emissions are turning the waters of the Arctic Ocean into acid at an unprecedented rate, scientists have discovered. Research carried out in the archipelago of Svalbard has shown in many regions around the north pole seawater is likely to reach corrosive levels within 10 years. The water will then start to dissolve the shells of mussels and other shellfish and cause major disruption to the food chain. By the end of the century, the entire Arctic Ocean will be corrosively acidic.
Could Food Shortages Bring Down Civilization? - In early 2008, Saudi Arabia announced that, after being self-sufficient in wheat for over 20 years, the non-replenishable aquifer it had been pumping for irrigation was largely depleted. In response, officials said they would reduce their wheat harvest by one eighth each year until production would cease entirely in 2016. The Saudis then plan to use their oil wealth to import virtually all the grain consumed by their Canada-sized population of nearly 30 million people. "The Saudis are unique in being so wholly dependent on irrigation,” says Brown in Plan B 4.0. But other, far larger, grain producers such as India and China are facing irrigation water losses and could face grain production declines.
WWIII Population Wars: A 12-bomb equation - MarketWatch - So what's the biggest time-bomb for Obama, America, capitalism, the world? No, not global warming. Not poverty. Not even peak oil. What is the absolute biggest, one like the trigger mechanism on a nuclear bomb, one that'll throw a wrench in global economic growth, ending capitalism, even destroying modern civilization? The one that -- if not solved soon -- renders all efforts to solve all the other problems in the world, irrelevant, futile and virtually impossible? The world's biggest time-bomb? Overpopulation, say the billionaires.
Excreted Tamiflu Found in Rivers - The premier flu-fighting drug is contaminating rivers downstream of sewage-treatment facilities, researchers in Japan confirm. The source: urinary excretion by people taking oseltamivir phosphate, best known as Tamiflu. Concerns are now building that birds, which are natural influenza carriers, are being exposed to waterborne residues of Tamiflu’s active form and might develop and spread drug-resistant strains of seasonal and avian flu.
Systemic Collapse: The Basics - Systemic collapse, societal collapse, the coming dark age, the great transformation, the coming crash, the post-industrial age, the long emergency, socioeconomic collapse, the die-off, the tribulation, the coming anarchy, perhaps even resource wars (to the extent that this is not an oxymoron, since wars themselves require resources) ― there are many names, and they do not all correspond to exactly the same thing, but there is a widespread belief that something immense and ominous is happening. Unlike those of the Aquarian Age, the heralds of this new era often have impressive academic credentials: they include scientists, engineers, and historians.