reality is only those delusions that we have in common...

Saturday, November 21, 2009

week ending Nov 21

Post-Crisis: What Should Be the Goal of a Fiscal Exit Strategy? – IMFdirect - One obvious fallout of the global financial crisis is a huge deterioration in fiscal conditions, particularly in advanced countries.The numbers are nothing short of staggering. Gross general government debt in the G-20 advanced economies is projected to approach 120 percent of GDP by 2014, up from about 80 percent in 2007, and this is even assuming no renewal of fiscal stimulus beyond 2010. Pretty much everybody agrees that something has to be done about this, and that fiscal policy needs to be tightened once the economic recovery has firmly established. The first step is to stabilize the debt-to-GDP ratio. Even this will not be easy, given trend increases in pension and health spending, often reflecting population aging. But is stabilizing debt ratios at their post-crisis level enough?

The appearance of coordination - One of the most repeated items of the recent gatherings of the different incarnations of the G20 has been the coordination of exit strategies. For example, at the ministerial meeting in London in early September, ministers spoke about the commitment to "develop cooperative and coordinated exit strategies, recognising that the time, scale and sequencing of actions will vary across countries and across the types of policy measures".  This is a sentence that presents several contradictions: how can exit strategies be coordinated while time, scale and sequencing will be different across countries? How can they be cooperative when time, scale and sequencing will vary across types of policy measures? What is the G20 trying to tell us? What does cooperation and coordination mean?

Policy Challenges for the Federal Reserve -  Vice Chairman Donald L. Kohn - text of speech At the Kellogg Distinguished Lecture Series, Kellogg School of Management, Northwestern University

Chicago Fed's Evans: Accommodative Policy Likely Beyond 2010 -  Monetary policy in the U.S. will remain “highly accommodative” for quite some time, and possibly beyond 2010, because of a weak inflation outlook and high unemployment, the head of the Federal Reserve Bank of Chicago said Friday.  “Inflation is underrunning and the economy is underperforming, so an accommodative policy is likely to continue to be appropriate, I would say well into 2010, most likely beyond,”

Fed May Not Increase Rates Until 2012, Bullard Says (Bloomberg) -- Federal Reserve Bank of St. Louis President James Bullard said past experience suggests policy makers may not start to raise rates until early 2012, while facing a “too low for too long” argument that may “weigh heavily” on the central bank. “If you look at the last two recessions, in each case the FOMC waited two and a half to three years before we started our tightening campaign,” Bullard said today in a speech in St. Louis. “If we took that as a benchmark, that would put us in the first half of 2012.”

Fed's Hoenig says significant weakness in economy (Reuters) - A Federal Reserve official said that the U.S. economy still faced "significant weaknesses" and urged policymakers to allow large financial institutions to fail if needed. "We still have significant weaknesses to work through in the economy in the U.S. and coupled with a rapidly rising level ... (of) debt and enormous moral hazard issues, we have a great deal of work ahead of us," said Kansas City Fed President Thomas Hoenig. Data showed last week that U.S. consumer sentiment had soured in early November on grim job prospects while a larger-than-expected trade deficit had analysts scaling back estimates for third-quarter U.S. growth. Turning to regulatory issues, Hoenig said that all financial institutions needed to be allowed to fail, no matter their size

Economists See U.S. Fed on Hold - WSJ - Economists in the latest Wall Street Journal survey, on average, expect the Federal Reserve to raise interest rates around September 2010, a politically sensitive time considering midterm elections will be right around the corner and unemployment is forecast to still be over 9.5%. The 52 surveyed economists—not all of whom answer every question—on average expect the unemployment rate to rise to 10.3% by the end of this year from its current 10.2%, and they expect it to stay above 9.5% through 2010. The respondents expect job growth to return over the next 12 months, but the forecast calls for an average of about 50,000 jobs to be added per month over that period. The economy needs to add about 100,000 jobs a month just to keep up with new entrants to the labor force.

Fed Watch: Should the Fed Be Doing More? - Monetary policy looks to be at a protracted standstill - or even arguably becoming less accommodative as purchases of long dated securities draws to a close - despite incoming information that points toward persistently high unemployment rates and an ongoing disinflationary environment. Is policy stability the consequence of changing economic conditions, a perceived ineffectiveness of nontraditional policy, or a willingness of policymakers to be constrained by conventional policy limitations in the absence of impending financial doom? My sense is that all three elements are in play.

Fed Watch: The Fed in a Corner - Over the years, I have warned a seemingly countless number of undergraduates that Fed's hold on monetary independence was tenuous at best. Independence is not guaranteed by the Constitution. Congress made the Fed, and Congress can unmake the Fed. The Fed could only maintain the privilege of independence if policymakers pursued policy paths that fostered maximum, sustainable growth. Deviating from such paths would have consequences.The Fed is quickly learning the extent of those consequences, as Congress launches an assault on the Fed's independence. Some find the loss of support for the Fed puzzling. Brad DeLong, for example, notes that Bernanke & Co. are doing exactly what they should have done:

In defence of an unconventional monetary policy -  It is worth recalling the circumstances under which these measures were undertaken in late 2008 and earlier this year.  Credit markets were locking up to a degree that was completely unexpected. Asset prices across almost the entire range of investments and countries were moving downwards together.  Interest rates were cut aggressively, but the severity of the shock limited the positive impact in two ways: central banks fast approached the zero bound in their interest rate policies; and the impact of interest rate cuts was greatly diminished because of the dysfunctional financial system. Central banks threw whatever it was they had at the problem: guarantees to various intermediaries and on specific kinds of transactions; facilities to provide liquidity and to discount a wider range of assets for a wider range of counterparties than normal; and reserves to purchase government bonds and private-sector debt instruments in the secondary markets. The goal of all these measures was ultimately to prevent disaster…

A Look Inside the Fed’s Balance Sheet — 11/18/09 Update - WSJ - interactive graphic - The Fed’s balance sheet expanded in the latest week, rising to $2.192 trillion from $2.112 trillion. The bulk of the increase came from more than $71 billion in new purchases of mortgage-backed securities. The Fed also expanded its purchases of Treasurys and agency debt. The central bank started a program in March to ramp up such acquisitions in order to keep long-term interest rates low. The makeup of the balance sheet continues to shift as most emergency facilities to prop up the financial system posted declines. Direct-bank lending increased by about $58 million, but that followed a more than $30 billion decline in the previous week.

Quantitative Easing - Can the Fed do any more to stimulate the economy ? The question is back. The answer is only by making credible promises about the fairly distant future. My view is that this means no. The argument (due to Krugman of course) is that right now the monetary authority can only push on a string. Private agents are willing to hold unlimited amounts of money given the current short term safe interest rate of almost exactly zero. Only when agents want to do something else with their wealth will it be possible to cause inflation by pouring in more money than people are willing to hold at current prices.
The proposal is that the Fed pump huge gigantic amounts of money into the economy (oops it has already) *and* promise not to buy that money back when prices finally start rising. I quote Brad DeLong: Quantitative easing--pouring a whole bunch of cash in the system with the idea of never reversing the money stock expansion could boost spending and employment considerably by creating expectations of inflation and so reducing the spread--but the Federal Reserve is not going there, and regards the idea with horror, shock, and shame.

THE BURDEN OF FIAT MONEY: REAL-TIME DECISIONS - Central bankers are a powerful lot and so it’s an easy to assume that they’re also prescient. When you’re making decisions that affect the livelihoods of millions of people—billions on a global scale—confusing people with their institutional authority can become habit forming. But central bankers are mortal, and therefore prone to mortal decisions, a.k.a. flawed decisions. The monetary policy du jour, as a result, may not be exactly what the macroeconomic gods ordered. A mismatch between the optimal monetary policy and current events is in some sense fate. Working with limited information makes it hard to know if today’s actions will suffice for the uncertainty that arrives tomorrow. As a result, we can talk of monetary policy in terms of its degree of inaccuracy or accuracy.

The madness of the inflation hawks - KRUGMAN - Wow. Matthew Yglesias catches David Ignatius worrying that the Fed may not have enough political support in its efforts to raise interest rates and fight inflation. As Matt correctly notes, this is a remote issue — unemployment is high, inflation is low, and the Fed has no business raising rates any time soon. The Fed has been up against the zero lower bound since the beginning of 2009, roughly when unemployment rose above 11 percent; right now the Taylor rule says that the Fed funds rate should be minus 6.7%.

What Is Money Velocity? - A key feature of the financial crisis was a massive fall in the velocity of money.  But what exactly is "money velocity"?  By definition, V=PY/M.  In English: Velocity=Nominal Income divided by the Money Supply...economists often respond that velocity is the "average turnover" of a dollar. A velocity of 2, for example, means that the average dollar gets spent twice per year.  Except in a world without resale, however, this explanation is incorrect.  Suppose all new production ceased.  Money would still "turnover" as assets change hands, but nominal income would be zero - and velocity would be too. I have a better way to explain velocity.  Forget turnover.  Velocity is the inverse of the percentage of income that people keep in the form of money.  If nominal income is $100B and the money supply is $10B, then velocity is 10 - which means that average money holdings equal 10% of annual income.  Velocity is therefore essentially a measure of income-adjusted money demanded.  The higher velocity, the lower income-adjusted money demand.  When velocity plummets, as in 2008, this means that income-adjusted money demand has spiked.

Why the Federal Reserve should LITERALLY throw money out of helicopters -  It seems to me that what we are seeing is simply the balance sheet consequences of the Fed's decision to take the wholesale money market onto its own balance sheet. Banks (and other entities) that used to lend to one another, are now lending and borrowing through the intermediation of the Fed. This is so not just domestically but also internationally (the huge swap line), since foreign banks used to fund dollar asset holdings in the dollar money market.In this view, inflation seems much less likely. Why not? If the original wholesale money market borrowing and lending was not inflationary, then why should its substitute be inflationary? Indeed, the real question is whether the expansion of the Fed's balance sheet is keeping pace with the contraction of money market credit more generally. If not, then the consequence may be deflationary. The situation has a name in the economic jargon - a liquidity trap.  An American – not a Japanese version of a liquidity trap – but a liquidity trap nonetheless.  No matter how much “money” the Fed supplies the public will want to hold it.  Monetary policy is thus useless. 

Arrogant Fed hasn't learned a thing - MSN Money - Arrogant and incapable of learning." When a teacher uses those words to describe a student, it's an isolated (if regrettable) situation. But the repercussions are widespread when "arrogant and incapable of learning" fits the Federal Reserve like a glove. Still clueless after all these bubbles Frederic Mishkin, a former member of the Fed's board of governors, wrote an article in last Tuesday's Financial Times that displayed that he, and presumably other Fed heads, have learned exactly nothing from the disastrous consequences of their activities in printing money over the past couple of decades. The headline sort of says it all: "Not all bubbles present a risk to the economy." That is completely false. Any genuine bubble poses great risk, which is why they should be avoided

Bernanke offers grim job outlook, help for dollar - Federal Reserve Chairman Ben S. Bernanke waded Monday into the debate among policymakers over the vigor of the economic recovery, offering a sobering view of what lies ahead in his most detailed comments on the economy in months. Bernanke's focus on the weak job market and his opinion that inflation will remain subdued show that he is looking to keep the Fed focused on supporting growth for quite a while longer by leaving interest rates at rock-bottom levels. Financial markets may be soaring and the economy expanding. But, he said, "the best thing we can say about the labor market right now is that it may be getting worse more slowly."

Text of Bernanke’s Speech to Economic Club of New York - WSJ - Economics Blog 

Bernanke Says ‘Not Obvious’ Asset Prices Misaligned - (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said it’s “not obvious” that asset prices in the U.S. are out of line with underlying values after a 64 percent jump in the Standard & Poor’s 500 Index from its March low. “It is inherently extraordinarily difficult to know whether an asset’s price is in line with its fundamental value,” he said today in response to audience questions after a speech in New York. “It’s not obvious to me in any case that there’s any large misalignments currently in the U.S. financial system.”

Ben Bernanke’s Outlook for the Economy - Mark Thoma - A few quick reactions to Ben Bernanke’s speech today where he talks about something of concern recently–namely, how the Fed will view changes in the value of the dollar. If the dollar begins to fall, that will increase the price of imported goods and materials used in production and that, in turn, adds to domestic inflationary pressure. To support the dollar and lower the inflation pressure, the Fed would have to raise interest rates, but that would endanger the recovery of domestic output and employment by raising borrowing costs, and it would also make U.S. exports more expensive to foreign buyers.So, if the dollar starts falling, will the Fed raise interest rates to head off the inflationary pressure, or will it maintain low interest rates in an attempt to stimulate the economy? Bernanke says they will certainly keep an eye on the dollar, but it’s only one part of a larger picture

Balderdash (n) – fiddle-faddle, piffle (trivial nonsense), hokum -  Cassandra - But the sentence that caught my attention most was the following, contained as it was in MM's captured excerpt: When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The question that caused my eyes to blink repeatedly in disbelief and head to uncontrollably nod from side-to-side was: Does The Fed Chairman actual believe this revisionist manure about what occurred?

The absent Fed - the Economist - BEN BERNANKE gave a talk yesterday in New York. He discussed the American labour market: the U.S. economy has lost about 8 million private-sector jobs, and the unemployment rate has risen to more than 10 percent... many employers have reduced hours for the workers they have retained...with minimal wage increases, or even with wage cuts...best thing we can say about the labor market right now is that it may be getting worse more slowly...That sounds grim, doesn't it? Let me remind readers that, according to the Federal Reserve, the Federal Reserve's chief policy mission is: Conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.

Bernanke: No Jobs for You - The good news about this Ben Bernanke speech to the Economic Club of New York is that he shows no sign of wanting to join David Ignatius in tightening monetary policy. The bad news is that he sounds awfully blasé about the prospect of a prolonged period of double digit unemployment. Now if you were just asking my opinion, I’d say something very similar. But Bernanke isn’t just offering an opinion, he’s the country’s top monetary policymaker. Bernanke acknowledges that he has a “dual mandate to foster both maximum employment and price stability” but he’s also acknowledging in this piece that he hasn’t fostered anything close to full employment, and doesn’t think his policies are likely to achieve anything close to full employment any time soon. But then why isn’t he doing more?

Hong Kong to U.S: Please Don’t Blow our Bubbles - The head of the Hong Kong Monetary Authority challenged San Francisco Federal Reserve President Janet Yellen on U.S. monetary policy, suggesting that low interest rates and quantitative easing are creating big headaches for Asian economies.“The question one really has to ask is to what extent quantitative easing is necessary. Is the dosage right, because $2 trillion is a lot of money in the banking system, it’s high power money,” said Norman Chan, monetary authority chief executive. He and Ms. Yellen were at a forum sponsored by the Institute of Regulation & Risk. Ms. Yellen gave a speech that touched on how policymakers should address future asset bubbles.

China slams U.S. Federal Reserve's low interest rates - U.S. gripes about China's currency policy are now matched by Chinese complaints that the Federal Reserve's low interest rates are inflating new asset bubbles.But as President Obama meets Tuesday with Chinese President Hu Jintao, both nations' crisis-fighting policies are having effects far from their own shores. Low U.S. interest rates and the weak dollar invite investors to use borrowed dollars to buy assets in higher-yielding developing countries. And China's decision to link its currency to the dollar costs other developing countries exports.

China Lambastes Dollar “Carry Trade,” Diverting Attention from Its Currency Manipulation - Yves Smith - No one had a problem with Japan having super low interest rates and stoking a global carry trade, nor with the US running overly loose monetary policy that led to a real estate bubble that spread its impact beyond our borders via the creation of toxic mortgage product sold far and wide.  But one difference this time is now the dollar, rather than the yen, looks like the best funding currency, and the dollar is a deeper market, so the scale of potential damage is much greater. Second is that a lot of countries are running loose money policies, but they are at least making some credible noises re tightening (whether they follow through is another matter, of course). The US, by contrast, has made clear that it is keeping things easy-peasey for the foreseeable future. And the US (starting with the Greenspan era) has signaled any hawkish moves well in advance, so the odds that the Fed will have a sudden change of heart are just about zero.

IMF head eyes global currency change, presses on yuan - "BEIJING: The imperative of greater global currency stability means the world can no longer rely, as it has done since the end of the gold standard, on a currency issued by a single country, the head of the IMF said on Tuesday. Dominique Strauss-Kahn, the managing director of the International Monetary Fund, restated his view that a new global currency might evolve out of the Special Drawing Right, the Fund's in-house unit of account. "That probably has to be a basket," Strauss-Kahn said of the eventual replacement for the dollar. "

Bubble Fears Surface At APEC Gathering - The U.S. has limited ability to stop the dollar's recent decline, World Bank President Robert Zoellick said Friday, as he and several Asian leaders expressed concern that global stimulus measures could be inflating asset bubbles. But the head of the International Monetary Fund, Dominique Strauss-Kahn, said he thought the dollar was "incredibly resilient" during the financial crisis and that its recent fall has been within a normal range. The sagging dollar, which is trading near 15-month lows, and the declining Chinese yuan, which is informally linked to the U.S. currency, has been a constant theme of this week's APEC meetings.

Is the Fed Creating New Bubbles? - BusinessWeek - America's super-easy monetary policy has drawn a blast of criticism lately from the high and mighty of Asian finance. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke stand accused of blithely ignoring the risk of new asset bubbles and more economic mayhem. As critics see it, the Fed helped inflate the tech and housing markets over the past decade and is setting up the global economy for another doozy with its near-zero short-term interest rates. Global investors can borrow dollars cheaply and invest the borrowed funds in assets ranging from Indonesian stocks to copper futures contracts, a strategy known as a carry trade. During Obama's recent Asian swing, China Banking Regulatory Commission Chairman Liu Mingkang warned that U.S. monetary policy is creating "new, real, and insurmountable risks to the recovery of the global economy, especially emerging-market economies." Bank of Japan Governor Masaaki Shirakawa and Hong Kong Chief Executive Donald Tsang issued similar warnings.

Goldman: There is no dollar-funded ‘carry bubble’ - Another factor to consider is what Tan refers to as dollar “hedging asymmetries”. Simply put, this refers to the idea that overseas investors who are long US assets currently appear to be FX hedged more than US investors in foreign assets. This means that when risky assets rally, the dollar comes under selling pressure as people realign their hedging ratios.And last on Tan’s list of counter bubble arguments is the idea that it is actually other peoples’ bubbles that are feeding into the behaviour of the dollar. There is, he says, a “difference between a dollar-funded carry bubble, and asset price bubbles from importing loose US monetary policy”.

Are Negative Yield Money Funds Next? -- Seeking Alpha - The U.S. policies have driven short-term interest rates to Japan-like levels, creating “free” money for banks, creating a massive carry-trade speculative investment funds flow, financially crippling low and middle income senior citizens who have historically relied on bank deposits to supplement their meager Social Security checks, and pushing very hard on investors to leave the short-term Treasury “nest” to take flight into riskier assets.The goal, of course, is to rehabilitate the banks; but they are doing so at the expense of taxpayers, at the expense of savers, while forcing cautious investors into risky assets they do not prefer at this time, while creating a massive tool for the carry-trade speculators, and while restoring enormous bonus potential to financial executives whose Boards will reward them for seeming to have solved their company’s problems (when free money will have been the main medicine).Never before, and we hope never again — or Japan move over, here we come...

Asian Nations Threaten To Kill The Dollar Carry Trade - The governments of India, South Korea, and Indonesia are threatening potential capital controls as a tool to limit 'hot money' entering their economies in search of higher returns and non-dollar currency appreciation.While such actions may help keep a lid on Asian currency appreciation, they could be bad news for each nation's local stock market.Bloomberg: Officials from India, South Korea and Indonesia are among those expressing concern over overseas capital stoking stock and real estate prices. Indonesia’s central bank is “seriously” studying a limit on inflows to short-term bills, Senior Deputy Governor Darmin Nasution said yesterday. Taiwan last week banned international investors from placing funds in time deposits.

Wayward on their carry concern? - the Economist - MY WORKING theory of the Obama administration's recent deficit tough talk has been that the powers that be believe any new, deficit-funded stimulative measure would be impossible to get through Congress without some nod toward reining in the growing debt. Paul Krugman seems to have been hearing some things from people who know, and he says that's not it. The administration is worried about something else, and the deficit concern is real. And it would certainly be nice if the administration would elaborate on its concern. I'd like to know exactly what they're thinking, and what they're looking at as evidence.

The jobless rate-interest rate conundrum - Just about everywhere you look these days in the financial media, when the topic of discussion turns to the plunging U.S. dollar, you'll hear someone saying something like, "Unless the Fed raises interest rates , the dollar's got nowhere to go but down". And then someone invariably says, "But the central bank can't raise interest rates. Not with the unemployment rate at over ten percent!" What's a central banker to do? A look at history with the help of the chart below sheds some light on the current jobless rate-interest rate conundrum and, as you might expect, things don't look good for Fed chief Ben Bernanke if he's at all concerned about the value of the nation's currency.

Promising to keep nominal interest rates low for too long - I was lucky enough to be invited to a Bank of Canada conference on Thursday and Friday. The topic was "New Frontiers in Monetary Policy Design". One recurring theme in particular has stuck in my mind: that a credible promise to keep interest rates low for too long can help an economy escape a liquidity trap. It's not a new idea that expected future monetary policy, by raising the expected future price level, and so raising today's expected rate of inflation, can increase aggregate demand today. But expressing that idea in terms of keeping interest rates low for too long does give it a new perspective. We make commitments because by credibly committing to do something we would not otherwise want to do we can influence others' expectations today of our future behaviour. Rules vs. discretion. A central bank that can make credible commitments faces a trade-off between output today and inflation in the future.

What Would a Rout of the Dollar Look Like? - The Washington Post tells us that the decline in the dollar in recent months: "has raised fears that what has been an orderly decline could become a rout." Really? Who has these fears, what would a dollar rout look like? In reality, the story of a dollar rout is absurd. U.S. trading partners would intervene to keep the dollar falling below levels that they considered acceptable to their economies. The dollar rout is simply a scare story that Wall Street people like to circulate for their own ends. The Post should not be repeating this nonsense.

Fed officials play down impact of weak dollar (Reuters) - Federal Reserve officials on Thursday downplayed the consequences of the falling U.S. dollar, underscoring that deflation is still a threat, especially with commercial real estate prices falling.Dallas Fed President Richard Fisher said in an interview with Market News International that the weakening dollar, which hit a 15-month low against major currencies on Monday, is only one of the factors the Fed watches when setting policy."You pay attention to this," Fisher said in reply to a question about the effects of a weaker dollar

THE DAY THE DOLLAR DIED - The following story in italics is a potential fictional time line for the day the dollar died. I hope not to instill fear or loathing but to give everyone some perspective on a POSSIBLE outcome which does not really take much of a reach to come to any conclusion. Despite popular belief and promises from those who wish to rob you of your savings and investments, the collapse of the dollar might just be an event measured in hours, not days as their control is not what it seems…..

Dollar Diplomacy Flip-Flop is a Threat to Free Trade - CFR - Of all the issues that the leaders of the G20 nations agreed in Pittsburgh to confront going forward, none is more consequential than that of global imbalances.  The U.S. and China - "Chimerica", as historian Niall Ferguson has labeled the symbiotic pairing - are at the heart of the adjustment problem.  The other 18 will largely be dragged along for the ride. History tells us that with no change of course by the U.S. or China, financial crises, protectionism, and political conflict are inevitable.

Who’s Afraid Of A Falling Dollar? - Predicting exchange rates is notoriously difficult; there is almost as much chance of the dollar rising next year as of it declining.  But if the dollar were to fall further, should we be concerned? A lower dollar is good news for US exporters and foreign importers and bad news for foreign exporters and US importers.  However, if policymakers respond appropriately, there is no reason to fear overall harm either to the US economy or to foreign economies.  Indeed, a lower dollar could jumpstart the long-overdue rebalancing of the global economy away from excessive US trade deficits and foreign reliance on export-led growth, putting the world on track for a more sustainable expansion.

U.S. trade gap widens even as weak dollar aids exports - A weaker dollar may boost the nation's economy by increasing exports and narrowing the trade gap -- but that won't happen anytime soon.  Instead, the nation's trade deficit rose in September by the largest percentage in a decade as U.S. exports grew for the fifth straight month, but imports rose faster, a government report showed Friday. That trend is likely to continue until the middle of next year, economists said.  Rising oil prices and higher purchases of foreign goods by U.S. companies drove imports higher. So did more purchases of foreign parts by U.S. manufacturers, which are ramping up production in the fledgling economic recovery.

Exxon's Tillerson: weak dollar adds $25 to oil - The top Exxon Mobil executive says a weakening U.S$. has added between $20 and $25 to the price of each barrel of crude oil.Rex Tillerson is chief executive of Irvin, Texas-based Exxon Mobil, the world's biggest oil company. Visiting Singapore, he says the price effects of the weakening U.S$. is creating a "disconnection" between the price and supply and demand levels.Tillerson says oil demand in the U.S. has remained sluggish despite an economic recovery and a jump in crude prices to $82 last month from $32 in December.He says the price of oil would probably be around $55 a barrel if the dollar hadn't depreciated against the euro during the last 18 months.

Falling Dollar Erodes Non-U.S. Investors’ Returns -- Seeking Alpha - With the US dollar falling down a precipice, spare a thought for non-US investors invested in US stocks and bonds.The graph below shows the performance of US 10-year Treasury Notes since the beginning of March in both US dollar terms (red line) and euro terms (blue line). Whereas US investors are showing a poor return of -2.8% for the period, European investors are completely under water to the tune of -17.5%. For the year to date the figures are -4.8% (US dollar) and -10.5% (euro). (Although I am using the euro in this example, the same logic applies to most other non-US dollar currencies.)

The IMF Needs Fresh Thinking on Capital Controls - But now Strauss-Kahn is throwing cold water on proposals to tax international flows of “hot money.” The occasion was Brazil’s decision to impose a 2% tax on short-term capital inflows to prevent a speculative bubble and further appreciation of its currency. When asked about the role of capital controls, Strauss-Kahn said he was not wedded to any rigid ideology on the subject. Nonetheless, according to the Financial Times which reported the IMF chief’s views, “the IMF would not recommend them as a standard prescription either – as they carried costs and were usually ineffective.” Unfortunately, this makes the new IMF sound too much like the old one.

Taiwan Debases Its Own Currency Versus Dollar (Bloomberg) — Taiwan’s central bank intervened inthe foreign-exchange market to slow gains in the local currency,said two traders familiar with the bank’s operations. Theisland’s dollar rose to the highest level in more than a month.The Central Bank of the Republic of China (Taiwan) boughtU.S. dollars, said the traders, who declined to be identified.The monetary authority purchased “large amounts” of the U.S.currency to keep the local dollar weaker than NT$32, the Taipei-based United Evening News reported earlier.

Brazil nuts? The country’s new capital control - Late on Wednesday Brazil announced a further development in its controversial capital controls: BRASILIA—Brazil’s government will apply a tax on Brazilian stocks traded as American depositary receipts, another effort to stem the rapid flow of capital into Brazilian securities that has sent the country’s currency soaring against the U.S. dollar.That move comes just a month after the South American country decided to impose a 2 per cent tax on foreign-exchange inflows, in an effort to rein in the appreciation of its local currency, the real. The new tax — which will apply to ADRs issued as of Thursday — is presumably a fresh effort to restrict the flow of investment into the country and stop it from favouring the (overseas) Brazilian ADR market over the capital-controlled domestic market.

The return of capital controls, Indonesia edition - What’s this?Another country touting the possibility of capital controls in a bid to protect itself from an appreciating currency? SINGAPORE, Nov 18 (Reuters) - The Indonesian rupiah slipped on Wednesday after the central bank threatened to restrict foreign ownership of short-term debt, but the high-yielding currency later pared losses as fears of immediate capital curbs eased. Other Asian currencies were rangebound as the dollar drifted sideways with investors waiting for U.S. inflation data, as well as minutes from the Bank of England’s November meeting for clues on its decision to expand its asset buying scheme.

On Negative T Bills - There was some buzz earlier today about short term T bill rates turning slightly negative. This happened last year too, but for different reasons ...From the Financial Times: Short-term US interest rates turned negative on Thursday as banks frantically stockpiled government securities in order to polish their balance sheets for the end of the year. The scramble has been exacerbated by the fact that all leading US banks will this year close their books at the same time – at the end of December.

As Dollar Tumbles, America Is Up For Grabs - Americans are trading their wealth in return for someone else's goods. In the first nine months of 2009, the United States spent $275-billion (U.S.) more on imported products than they received from exports. Repeat that year after year, decade after decade, and eventually somebody winds up with a whole pile of claims against you. That somebody is China, with its Everest-sized pile of dollar bills and other foreign currencies totalling more than $2-trillion.

America Is An Over Indebted Profligate Spoiled Nation In Decline: The U.S. and other developed countries have lost the discipline they once had and are now trying to borrow and spend their way out from under the mountains of debt they accumulated in recent years. In the process, they're prolonging the agony and moving closer to defaulting. The U.S., at least, won't actually default, but as our situation worsens, the value of credit default swaps (insurance against default) should rise. So Ortel continues to recommend CDSs to his clients. 5-year credit default swaps on U.S. soverign debt currently trade for about 25 basis points (which means it costs $25K per $10M of notional value). How does that compare to other countries or states? Japan = 72 bps; United Kingdom = 56 bps; Germany = 21 bps; California = 177 bps; New York = 85 bps

Balancing fiscal support with fiscal solvency - IMFDirect - As I noted in my last post, government deficits in many countries—particularly in advanced countries—have jumped dramatically in the wake of the global crisis, and government debt has reached levels that could jeopardize longer term macroeconomic stability and growth. These countries will need to tighten fiscal policy significantly sometime down the road, especially where demographic trends are pushing up health and pension spending

Obama eyes domestic spending freeze - The Obama administration has alerted domestic agencies to plan for a freeze or even a 5 percent cut in their budgets, part of an election-year push to rein in record deficits that threaten the economy and Democrats' political prospects next fall. The deficit-cutting drive comes as President Barack Obama traveled to Asia where several nations, especially China, have expressed concerns about the size of U.S. deficits. China is the largest foreign holder of U.S. Treasury securities and policymakers worry that alarm over deficits could push foreigners into cutting back on their purchases of Treasury debt. White House budget director Peter Orszag said Friday that it is imperative to start curbing the flow of red ink in coming years so as not to erode the fledgling economic recovery and raise interest rates

President Obama, deficit terrorism is not the answer! - Oh dear, there he goes again. After sensibly calling for a jobs summit to deal with the problem of rising unemployment, President Obama’s Herbert Hoover-like alter ego has re-emerged again to warn us again about the evils of government deficit spending. According to Politico.com, the President “plans to announce in next year’s State of the Union address that he wants to focus extensively on cutting the federal deficit in 2010 — and will downplay other new domestic spending beyond jobs programs, according to top aides involved in the planning.”The President and his economic advisors are now being driven by the polls, which, in turn, are being driven by the deficit myths of their own creation. It is a case of the blind leading the blind down the rabbit hole. They impose political constraints on their own actions in a manner which is highly destructive in terms of securing their prized legislative goals (like the health care debate, where all decent policy proposals have foundered on the question of “how are we going to make this ‘deficit neutral’”?).

Fiscal Expansion That Is Deficit Neutral in the Long Run - Mark Thoma is alarmed by our president: Economist's View: Obama's Wrong-Headed Thinking on the Deficit: Obama warned the United States' climbing national debt could drag the country into a "double-dip recession," though he said he's still considering additional tax incentives for businesses to reverse the rising unemployment rate. "There may be some tax provisions that can encourage businesses to hire sooner rather than sitting on the sidelines. So we're taking a look at those," "I think it is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession."I hope his economic advisers set him straight, though I suppose there's a chance that this nonsense is coming from them. We needed a larger stimulus package to begin with, and the economy could still use more help, labor markets in particular. Let's hope that this doesn't turn into a call to actually start balancing the budget before the economy has fully recovered as that would increase the chances of the double dip recession that he is so worried about (something we should have learned from the 1937-38 experience where an attempt to balance the budget prematurely plunged the economy back into recession)...One way to interpret this--which may or may not be wrong--is that right now we are really and truly fracked beyond previous imagining. Let's go back to the old ca. 1960 standard macroeconomic diagram, with the interest rate on the vertical axis and the economy's level of spending on the horizontal axis.

Krugman: Invisible bond vigilantes - Right now, however, the bond market seems notably unworried by deficits. Long-term interest rates are low; inflation expectations are contained. No problem, right?  Alas, I’m getting the sense that the Obama administration is intimidated all the same. We’ve got the president telling Fox News that he’s worried about a double-dip recession if he doesn’t reduce the deficit soon — as opposed to the concern I and other have that he’ll have a double dip if he doesn’t provide more support. And the buzz is that admin economic officials are telling him that the bond market needs to be appeased, even though rates are low. This is truly amazing. It’s one thing to be intimidated by bond market vigilantes. It’s another to be intimidated by the fear that bond market vigilantes might show up one of these days, even though you’re currently able to sell long-term bonds at an interest rate of less than 3.5%.

Obama Wants Spending Cuts, He Should Start With Military - Mish - After Democrats lost two Gubernatorial elections, Obama claims to have found fiscal religion. I will believe it when I see it. Please consider Obama wants domestic spending cuts in next budget.Caps and freezes are not the answer. For Christ's sake, the deficit is $1.42 trillion. Raising taxes is not the answer either. Obama is on exactly the wrong path. Small businesses are suffering and will suffer more if health care legislation passes as is. Instead of reducing military spending that does no one any good, he is increasing it. The list goes on and on.

Interest rates: the phantom menace - Krugman - From various bat squeaks I’ve put together a view of what I think lies behind the surprising — and damaging — deficit squeamishness of the Obama administration. So here’s what I think they’re thinking — and why it’s wrong-headed. (Fairly wonkish stuff after the jump). On the face of it, there’s no reason to be worried about interest rates on US debt. Despite large deficits, the Federal government is able to borrow cheaply, at rates that are up from the early post-Lehman period, when market were pricing in a substantial probability of a second Great Depression, but well below the pre-crisis levels

Prose Hack - As I see it, there are only two ways the US can end this depression. One is by deliberately, intentionally, publicly, and resolutely engineering a moderately high inflation rate (in the future) by promising to use whatever monetary policy is necessary to achieve a mercilessly escalating series of price level targets once that policy finally acquires traction. That approach would force people (and businesses) to abandon “safe” investments and start building something that will allow them to take advantage of the inflation by selling the products at higher prices than they cost to create. The other way is to risk (but probably not create) a very high inflation rate (again, in the future, not in the present) by means of massive deficit spending sustained to the point of recklessness. This deficit spending could take the form either of increased government purchases, which stimulate economic activity directly, or of “helicopter drop” tax cuts financed by creating money, which, if done on a sufficiently large scale, will eventually make people (and/or businesses) feel wealthy enough to start spending more.

Krugman: Inflation targeting is first best -- So now Krugman says inflation targeting is the first-best solution to our economic problems. This is consistent with everything he wrote about Japan over a decade ago, and also consistent with a wide majority of non-crazy macro economists across the political spectrum. So why on earth has he not said this a lot more starting a long time ago? He just sees misguided conventional wisdom against inflation as too much to overcome. Huh?  Krugman--the man who boldly, clearly, and effectively challenges establishment views on EVERYTHING--gets weak knees when it comes to inflation targeting? I'm annoyed because I think Krugman is in a unique position to raise the level of debate.  If he wrote about inflation targeting a lot, others would have to agree with him or not.  And those who didn't eventually would have had to back up their positions.

Is dynamic inconsistency the problem with inflation targeting? - I should really heed Brad Delong's two rules regarding Paul Krugman ...But I've already stepped out of my field and way beyond where I have any business spouting off about what the Fed should do.  Maybe I'm just looking for someone to present a better argument for why inflation targeting is infeasible. Besides, I'm actually pitting Krugman against Krugman, since what I know about inflation targeting I learned from reading the one and only PK. So the comments to my earlier post argue that dynamic inconsistency is the reason inflation targeting won't work.  I understand dynamic consistency, backward induction, and all that.  Or at least I hope I do, given I teach those fundamentals to a new crop of PhDs each year

How to tackle a deficit - the Economist - AMERICA has gotten itself into a funny place. Despite the large increase in its debt load associated with the Bush tax cuts, two significant wars, a deep recession, and large fiscal stimulus, the country has managed to avoid trouble with debt markets. There are few signs of a waning appetite for American debt, and neither are interest rates rising as a result of all the red ink. But because the long-term budget picture in America is one of steady growth in the deficit, the issue has resonance in American politics (despite the fact, generally acknowledged, that now is no time to be cutting spending or raising taxes). Looming over every policy debate are questions about deficit impacts. And so to earn themselves a greater level of freedom to make policy (and run deficits) in the present, the current administration and Congress may be unable to avoid taking at least some steps to stem the tide of red ink

The Cretinism of Parliaments, U.S. Congress Class...In the short term, we don't have a deficit problem: as long as unemployment remains highly elevated--certainly as long as the unemployment rate stays above 7%--and as long as interest rates on U.S. Treasuries stay low a bigger federal deficit is a feature not a bug: our short-term deficit problem is that the deficit is too small, not too big. In the long term, our deficit problem is a federal government health spending problem. Unless medical care cost growth is brought under control then excess medical cost growth will lead the federal government health programs to first devour the rest of the social insurance state in the years after 2020 and then devour themselves. In the medium term between 2012 and 2020 we are, current projections tell us, on a sustainable budget path--with a budget deficit "no larger than the average of the past thirty years," with a stable debt-to-GDP ratio as long as output does not grow more slowly than projected and as long as congress observes PAYGO: as long as congress pays for whatever policy changes it makes.

$4.8 trillion - Interest on U.S. debt - More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest. More than half. In fact, $4.8 trillion. If that's hard to grasp, here's another way to look at why that's a problem. In 2015 alone, the estimated interest due - $533 billion - is equal to a third of the federal income taxes expected to be paid that year, said Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group."

Inflation, High Taxation or Default - Knowing that nearly 30 percent of Western countries’ economies are now made of "economic zombies" (financial institutions, companies and even states, whose signs of life are only due to central banks’ liquidity injections), it is possible to confirm the inevitability of the “impossible recovery”. The international and social (within each country) « everyman for himself » rule is beginning to prevail, as well as a general impoverishment of the ex-Western world, United States in the first place. In fact the West is being scuttled by leaders unable to face the reality of a post-crisis world, who keep resorting to methods from yesterday’s world despite their proved inefficiency.

The Surprisingly Easy Medium-Term Budget Fix: This chart is telling us that under current law (the solid lines) the country’s medium-term fiscal trajectory looks not so bad. Those are deficits, but they’re not unsustainably large, and it looks like relatively small tweaks could turn the situation around. The dashed lines, however, represent a “current policy” scenario in which we assume that some of the Bush tax cuts will be extended and also that the AMT threshold will continue to be pushed up.

Fed Presidents, Lawmakers Step Up Clash on Appointment Process - (Bloomberg) -- Federal Reserve regional bank presidents and U.S. lawmakers intensified a clash over giving Congress a greater say in appointing the central bank officials, who are now named in part by private-sector banks. St. Louis Fed President James Bullard said yesterday proposed legislation to subject some officials to Senate confirmation is a “blatant politicization” of the Fed. Separately, seven House Democrats called for an “exploration of possible changes” in how the Fed is governed, saying there’s an “inherent conflict” in the way presidents are named. Proposed legislation in the Senate risks higher inflation if there’s too much political pressure on the Fed to keep interest rates low while the economy rebounds, some former Fed officials say. Lawmakers say private-sector banks have too much influence at the Fed, and that the regional Fed bank presidents focus too much on inflation at the expense of job growth.

Editorial - Another Round of Regulatory Reform - NYTimes - Throughout the fall, lawmakers in the House have been drafting and reworking legislation to reform the financial system. Senate Democrats weighed in last week with a plan that is stronger than the House bills on aspects of derivatives regulation and consumer protection. It also invites healthy debate on other issues, like the role of the Federal Reserve in a reformed system. But the proposal, created by Senator Christopher Dodd, the chairman of the banking committee, is just a draft. Senators will have to stand up to pressure from banking and business lobbies, which surely will try to weaken it

House Panel Backs Plan to Audit the Fed – NYTimes - The House Financial Services Committee approved a measure proposed by Representative Ron Paul of Texas that would allow Congress to order audits of all the Fed’s lending programs as well as of its basic decisions to set monetary policy by raising or lowering interest rates.If the measure becomes law, it would expose the Federal Reserve to far more political pressure than it has faced for decades. Fed officials have adamantly opposed the measure, saying it would undermine the central bank’s political independence and gravely threaten its credibility as a bulwark against inflation.

Auditing the central bank: a jolly good thing! - What is so important about H.R. 1207: the Federal Reserve Transparency Act of 2009 aka the ‘Audit the Fed’ bill? This bill “To amend title 31, United States Code, to reform the manner in which the Board of Governors of the Federal Reserve System is audited by the Comptroller General of the United States and the manner in which such audits are reported, and for other purposes.” may not sound terribly exciting, but in addition to making the Fed accountable for its quasi-fiscal activities, it could well set an important precedent for the enhanced accountability of operationally independent central banks everywhere.

Danger lies in threat to Fed independence - The Fed is extremely unpopular in Congress and is facing hostile and potentially detrimental actions from both sides of the aisle. While the reform proposals put forward by the Treasury Department and by House Financial Services Committee Chairman Barney Frank (D-Mass.) would enhance the Fed's regulatory powers, the draft bill by Senate Banking Committee Chairman Christopher Dodd (D-Conn.) would clip the Fed's regulatory wings substantially. Worse, legislation that just proceeded through the House Financial Services Committee could imperil the Fed's ability to conduct an independent monetary policy. With more than two-thirds of the House co-sponsoring the so-called Paul bill, prospects for floor passage unfortunately look good.

The Dodd Bill: CoCo’s? Fine; Hobble the Fed? Don’t Do It. - CoCos would not go very far in themselves toward comprehensive reform of the financial system, if that is the goal. But then no single policy measure would do that.    I agree with Gillian Tett: “In theory, I think that CoCos certainly could be a useful additional to banks’ tool kits. However, in practice, the contagion risk suggests it would be dangerous to rely too heavily on an exclusive diet of CoCos for any policy ‘fix’ While the 1,000+ page Dodd bill undoubtedly has some good things in it (the CoCos and the principle of a Consumer Protection Agency in lending are probably at the top of the list), I believe it would be very damaging overall.  The major reason is that it would seriously undermine the power of the Fed to set fully-informed monetary policy in normal times and to respond effectively in times of crisis. It seems that Barney Frank understands these things much better.

Dodd: Shareholders Should Nominate Boards Directly - While researching Bailout Nation, I learned one of the causes of the disconnect between financial firms and the subsequent meltdown: Corporate governance. Or the lack there of. Boards of Directors have historically been a collection of business associates, cronies and golfing buddies, with interlocking memberships between companies. Board members are nominated by fellow insiders, effectively disenfranchising shareholders. This allows management to become ensconced, with little in the way of owner input into a company’s direction. Open competition for Board seats is difficult, even for large shareholders.And as we have seen, Board members don’t make the tough calls. They give executives absurd compensation packages. Exec pay packages include rewards for secular trends unrelated to management, for bull markets, low stock prices (via resets) and for volatility. Out-performance versus their peers is hardly considered, relative performance within their sectors is ignored, as is total market action.

Dodd: Bernanke Confirmation “Not Necessarily” a Foregone Conclusion - This video clip is from an interview with blogger Mike Stark. Apologies for the poor sound quality. While Dodd indicates that he is “inclined to be supportive” of Bernanke, he is surprisingly cautious about making a broader statement, a sign of a shift in sentiment.

A big Fed mess -- the Economist - This is what economists seem to believe—that the Fed totally blew it where the housing bubble and oversight of financial markets, pre-crisis, were concerned, but in terms of shepherding the financial system through the crisis, and the economy through recession, Mr Bernanke and company have done a bang up job. But that doesn't really seem to be true. Any world in which the Fed is twiddling its thumbs while prices are flat-to-falling and unemployment is above 10% is not one where Fed policy is "hit[ting] the bull's-eye". And so it's kind of interesting to read the various takes on Congressional measures to increase Fed oversight or alter the composition of the Board of Directors.

What’s Wrong With the Dodd Proposal to Restructure the Fed -  Thoma: A proposal from Senate Banking Committee Chairman Christopher Dodd changes the selection process for key positions within the Federal Reserve system. Unfortunately, this proposal makes the selection process worse, not better. If this proposal is passed into law, it would further concentrate power within the Federal reserve system and politicize the selection process, both of which are the opposite of the where reform should take the system.

Threatening the Fed's independence - The Federal Reserve's performance in this long-running financial and economic crisis deserves separate grades. For the early crisis period, from the summer of 2007 until a few weeks after the Lehman failure in mid-September 2008, the Fed's response was uneven. I would question several decisions. But the Fed deserves extremely high marks for its work since then. It has hit the bull's-eye regularly under very trying circumstances. In academia and in the financial markets, the overwhelming attitude is: Hurrah, and thank goodness, for Ben Bernanke, who gets kudos for his boldness, creativity and smarts. But not in the political world. The Fed is extremely unpopular in Congress and is facing hostile and potentially detrimental actions from both sides of the aisle.

Playing Chicken With The Fed - The more pressure Congress piles on the Fed to “DO SOMETHING!” the more likely it is that anything the Fed does will be interpreted as a response to political pressure, which makes it harder for the Fed to do anything. Then again, any inflationary action the Fed takes may decrease the political pressure on Congress to challenge the Fed’s independence. So a more inflationary policy on the part of the Fed may either signal that independence is either weakening or that it is strengthening, depending on the political feedback loop. One thing is clear though, the more Congress breathes down the Fed’s neck, the harder it is to figure out how to manage expectations and thus determine what the right policy is.

Let the Fed regulate - Politics is trumping common sense in Congress as Republicans and Democrats keep heaping abuse on the Federal Reserve. As a result, they could end up adopting an unworkable, risky overhaul of financial market regulation. Senator Christopher Dodd of Connecticut, chairman of the Senate Banking Committee, is leading the parade with his plan to strip the central bank of virtually all its oversight of commercial banks.  No, the Fed didn’t cover itself with glory in some of its regulation and supervision, but neither did any of the other financial regulatory agencies. Moreover, the most serious failures last year involved investment banks overseen by the Securities and Exchange Commission, not the Fed. But there are three more important reasons to keep the Fed in a major role as a regulator of financial institutions...

Chris Dodd, Bank Reformer, Finally Loses His Mind - Senator Christopher Dodd wants to create the greatest single debacle in the history of US financial market and bank regulation. He will propose putting four authorities into one, combining the Federal Reserve, Federal Deposit Insurance Corp,  Office of Thrift Supervision, and the Comptroller of the Currency. The move would put several dysfunctional agencies into one.  Dodd has failed to look at the practical aspects of rolling up several authorities which have thousands of federal employees and which have performed their current roles for decades. The effort would be so Herculean that it might still be going on after the next presidential election. The daily regulation of the banking industry would certainly suffer due to the confusion that an elimination of some of the agencies would involve.

Too Big to Fail: The Real Choice -- Gillian Tett has an article criticizing the idea that CoCos — contingent convertible bonds — will solve the “too big to fail” problem. Contingent convertible bonds, a.k.a. contingent capital, are the latest fad to hit the optimistic technocracy. A contingent convertible bond is a bond that a bank sells during ordinary times, but that converts into equity when things turn bad, with “bad” defined by some trigger conditions, such as capital falling below a predetermined level. In theory, this means that banks can have the best of both worlds. They can go out and borrow more money today, increasing leverage and profits (which is what they want). But when the crisis hits, the debt will convert into equity; that will dilute existing shareholders, but more importantly it means the debt does not have to be paid back, providing an instant boost to the bank’s capital cushion. In other words, banks can have the additional safety margin as if they had raised more equity today, but without having to raise the equity.

Protecting Grandpa From Investing Peril - Congress wants to help protect seniors who buy complex investment products that they don't understand or may do more harm than good. A little-noticed proposal would set aside $8 million for states that bulk up oversight. It was buried last week in a 1,136-page Senate bill to reshape the financial system. A House bill contains a similar proposal.  States could get as much as $500,000 apiece to investigate and prosecute fraud against seniors, but only if they agree to strengthen their laws to match national consumer protection standards.

The Right Way To Regulate - In the weeks ahead, Congress may finally provide American families with a seat at the financial regulatory table in Washington, D.C. If Congress passes the Consumer Financial Protection Agency (CFPA) Act of 2009, on which the House Financial Services recently reported favorably, it will establish, for the first time, a federal agency whose sole mandate is to evaluate financial products through the lens of consumer fairness. By putting the tools to evaluate loans in the hands of borrowers, it would also give families the chance, as well as the responsibility, to protect themselves.

U.S. House Dems sharpening 'too big to fail' plan (Reuters) - A key U.S. congressional panel moved toward toughening a plan for dealing with "too big to fail" financial firms on Tuesday, while rejecting a Republican alternative backed by Wall Street.The House Financial Services Committee, locked for weeks in debate over financial reforms, voted to kill a Republican measure that would have added a new chapter to the bankruptcy code for large, troubled non-bank financial institutions.The unsuccessful proposal had been offered months ago by Republicans as an alternative to a major Democratic bill that was further debated and amended by the committee on Tuesday. A final committee vote is expected on Thursday.

White House Rebuke: Angry Dems Shut Down Vote - A bloc of African American House Democrats, angry and worried that not enough is being done about high unemployment by the administration, forced the postponement of a much-anticipated vote Thursday on comprehensive financial regulation reform. The Financial Services Committee had finished hearing amendments around 3 p.m. and recessed, planning to return at 4 for a final vote on the package. But during the break, some of the Democrats on the committee pigeonholed Chairman Barney Frank (D-Mass.) and told him they wouldn't vote for the bill because of the deepening problem of unemployment in their districts.

Bankruptcy Experts Challenge Obama’s ‘Too Big To Fail’ Plans - WSJ - Bankruptcy stinks. But it may still be the best way to help unwind the nation’s “Too Big To Fail” institutions when the next financial calamity hits.That was the view, at least, among panelists today at a Washington, D.C., gathering of the American Bankruptcy Institute, all of whom had misgivings about the administration’s proposed regulatory framework that would allow the government to seize firms deemed too big to fail.Under the administration’s proposed plan, a “resolution authority” would be created that would give the government the power to take over and break apart or liquidate big interconnected financial firms.  Instead of letting a company file for bankruptcy and become the debtor in possession, the government would become the “dictator in possession.”

Joe Biden: Even rattlesnakes are more popular than bankers - Biden insisted, however, that if the bankers hadn't been bailed out there would have been a "flat, blown-out depression" and that the "economists all agreed there was no way to let them go under." "What we're doing now is we're trying to get financial reform through the United States Congress," Biden continued. "It was the cowboy mentality on Wall Street playing with your money that allowed us to be in this position. What we're trying to figure out now is ... how you change the regulations by which people can spend your money so there's accountability."

Moneyed Interests Lining Up For Battle Over Accounting Standards - In the midst of what was supposed to be a Congressional push for increased financial regulation and accountability, a powerful coalition of moneyed interests is increasing pressure on Congress to undermine the independence of accounting standards. Banks and major real-estate players are pushing for a system that would actually relax accounting rules in times of economic distress. The group behind the move sent a letter to members of the House Financial Services Committee on Monday, pushing them to back an amendment that will be introduced by Rep. Ed Perlmutter (D-Colo.) and could be voted on as early as Wednesday.

Volcker Criticizes Accounting Proposal - A proposal to give banking regulators authority to block accounting standards is “a terrible idea,” Paul A. Volcker, a former chairman of the Federal Reserve Board, said Monday. Mr. Volcker has been an outspoken critic of “mark to market” accounting that forced banks to take large write-downs in asset values, a position cited by banks earlier this year when they persuaded members of the House Financial Services Committee to demand changes in that rule.But in an interview Monday, two days before a House committee vote on a proposal that would grant bank regulators the power to sidestep accounting standards, Mr. Volcker said he believed that accounting rules had to be set by an independent agency

Another Punt on Tax Reform - This is not a failure of merely Democrats or Republicans. It's a collective failure of all politicans and every voter in this country. Republicans have taken a blood oath to never increase taxes under any circumstances and for any reason whatsoever while Dems are afraid raising taxes means they will lose the next election. So, keep punting . . .Until voters demand that the government fix its fiscal situation, nothing will be done. I anticipate that will happen only upon a fiscal calamity (i.e., defaulting on the debt) before anything is done. That's to be expected with an attitude of: "Why should I pay for these gov't services? Someone else should."

Giant Loophole In Derivatives Regulation Undermines Reform -  The effort to impose new restrictions on the financial system falls short of true reform if there's a gigantic loophole for foreign exchange derivatives, Sen. Maria Cantwell (D-Wash.) said Thursday. "Most people who write about the 'comprehensive reform' -- they're missing the point, which is, you've got to have derivatives regulation," she said in an interview with the Huffington Post.  And indeed, bills being considered in Congress would bring transparency and accountability to the complex and opaque derivatives contracts that nearly brought down the financial markets last year -- by forcing them to be traded through clearing houses or on exchanges. But the bills, based on a proposal put forth by the Obama administration, would exempt foreign exchange derivatives from disclosure requirements.

Task force to take up financial fraud cases - Top Obama administration officials on Tuesday announced a new federal task force to combat financial fraud after deciding that the number and complexity of investigations linked to the economic crisis require a more coordinated response from government agencies. Created by executive order, the Financial Fraud Enforcement Task Force targets fraud related to mortgage lending and modification, securities law, stimulus spending and the government's bailout of the financial sector.

Reducing Financial Complexity: A Different Take on Transaction Taxes - I’m working on a project that involves, among other things, looking at taxes on financial transactions, and I’ve thought myself into an idea that I’d like to float to our skeptical readership. The short version: Tobin taxes, Keynes taxes, and other financial transaction taxes have been sold on the grounds they would reduce price volatility. There is some controversy about this, and the case is not at all clear. I think, however, that increasing transaction costs could have the effect of reducing the complexity of trading strategies, and that might be a very positive thing.

Tough Bank Amendment Passes With Room Nearly Empty - Lobbyists and committee staffers expected that the amendment -- which would mandate that banks essentially could not lend out or invest more than 12 dollars for every dollar they keep in reserve -- would only get a roll call and that it'd be soundly defeated, bounced by a coalition of Republicans and bank-friendly Democrats, who call themselves "New Democrats." Instead, there were barely any lawmakers in their seats when her amendment came up during an all-day debate on comprehensive financial regulatory reform. It passed by a unanimous voice vote.

Hindsight is occasionally blurry the Economist. - BRAD DELONG got himself a lot of links yesterday by writing that efforts to save the banking industry last fall, by eroding public trust in government, increased the odds of a replay of the Great Depression from virtually nothing to 5%. Paul Krugman takes it from there: Brad DeLong says that the loss of public trust due to the kid-gloves treatment of bankers has raised the probability of another Great Depression, because the public won’t support another round of bailouts even if it becomes desperately necessary. I agree — but I think the bigger cost is that we’ve greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. One side of this discussion is whether the government was actually able to handle things differently. Mr Krugman says yes; Economics of Contempt says no.  I'm sympathetic to Mr Contempt's view, but I also think that—as with Lehman—the government could have come with something if it had wanted to. And I agree with Felix Salmon

The Pay at the Top – NYTimes - The compensation research firm Equilar compiled data reflecting pay for 200 chief executives at 198 public companies that filed their annual proxies by March 27 and had revenue of at least $6.3 billion. (table)

Taming the Stock Option Game - Executive compensation is now a central concern of company boards and government regulators.  There is an aspect to this debate, however, that deserves greater scrutiny: the freedom of executives to pick the moment when they can cash out on their equity-based incentives. Standard pay arrangements give executives broad discretion over when they sell shares and exercise options that have been awarded to them. Such discretion is both unnecessary and undesirable.

U.S. watchdog: Need way to unwind troubled firms (Reuters) - The United States needs a credible way to dismantle large troubled financial institutions to squash a belief that some firms will always be rescued, a top U.S. government watchdog said on Friday. "We live in a 'They won't fail' world right now," said Elizabeth Warren, who is in charge of overseeing the U.S. government's $700 billion financial bailout program. The government is using tens of billions of dollars in taxpayer funds to prop up firms that were considered a risk to the financial system. As a result, there is a market perception the government will always step in to prop up large financial firms whose global reach has the potential to destabilize markets

Video: Elizabeth Warren: The Balance Sheet : The New Yorker - James Surowiecki spoke with Elizabeth Warren, a professor at Harvard Law School and the chair of the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP), about the importance of transparency in consumer financing, the future of the regulatory system, and what’s good about capitalism.

Treasury to Auction Off Investments in 3 Banks - NYTimes - A year after the federal government rescued the nation’s financial industry, the Treasury Department announced Thursday that it would auction off its remaining investments in three large banks, freeing the lenders from the federal bailout program. The Treasury will sell warrants that the government received as part of the taxpayer-financed rescue via auctions next month. The sales could raise $1.3 billion to $3.1 billion. The move will free the three banks — JPMorgan Chase, Capital One Financial and TCF Financial — from the Troubled Asset Relief Program, or TARP.

Banks face bond downgrades - Many banks are facing possible multi-notch downgrades to their hybrid bonds following a change in the methodology used by Moody’s Investors Services. The ratings agency on Tuesday said  it would announce within two days which hybrids would be put on review for downgrade following changes in its review system. Moody’s said in June that proposed changes could leave only a quarter of all hybrids with their ratings intact. See also FT Alphaville, here.

TARP Can't Save Some Banks - WSJ - U.S. regulators have seized or threatened at least 27 banks that received capital infusions from the Troubled Asset Relief Program, including some lenders that government officials knew were troubled when they awarded the money. The troubles put taxpayers at risk of losing as much as $5.1 billion invested in the banks since TARP was launched in October 2008. For example, Friday's three bank failures, increasing the 2009 total to 123, included a unit of Pacific Coast National Bancorp, a San Clemente, Calif., bank that sold $4.1 million of preferred shares to the Treasury Department in January."There are going to be more losses…

TARP’s Capital Purchase Program: In With a Bang, Out With a Whimper - WSJ - Treasury Secretary Timothy Geithner said this week that he’s working to put TARP “out of its misery” and the government will move one step closer to that goal on Saturday, when the deadline for banks seeking to access government funds expires. After funneling more than $200 billion into 690 financial institutions, the Treasury will stop taking applications for firms that want government funds. Treasury has extended the deadline in the past but officials believe the markets have strengthened enough that banks in need of capital can now raise it from private sources, rather than the government. Many will likely bid the program good riddance.

Fraud Nation - Consider the fraud in the Wall Street bailout. Here's just one example. This past week, the Inspector General for the TARP $700 billion bailout reported that taxpayers will "almost certainly" lose money on their investments in the "too big to fail" financial institutions.  One reason, it’s safe to say, is contained in Neil Barofsky’s revelation that he is conducting 65 separate investigations of possible fraud involving TARP funds.

Democrats want homeowners and workers to get money from TARP - Congressional Democrats want struggling workers and homeowners to receive money from the $700 billion Wall Street bailout. That conflicts with the Obama administration’s idea of dedicating some of the money toward reducing the deficit. The calls from Capitol Hill to change course on the controversial one-year-old bank bailout, officially known as the Troubled Asset Relief Program (TARP), come as voters hear Wall Street banks announcing record bonuses while the unemployment rate for October hit 10.2 percent — its highest level in decades.

Bailout program could be extended - The Obama administration is poised to extend the life of the highly unpopular $700 billion financial bailout and, to display a commitment to fiscal responsibility, is planning to use much of the leftover funds to reduce the national debt, government sources said. Administration officials are grappling with how best to announce the extension of the Troubled Assets Relief Program at a time when the economy is struggling and the unemployment rate is at its highest point in 26 years. The officials are hoping that by putting roughly $200 billion toward paying down the $12 trillion national debt, they could mitigate the political fallout, the sources said.

Geithner: Some Bailout Funds to Help Lower Debt - (AP) -- Treasury Secretary Timothy Geithner said Thursday the government's $700 billion bailout program will end "as soon as we can," and that part of it will be used to lower the soaring federal debt. During a sometimes contentious Joint Economic Committee hearing that included one lawmaker calling on him to resign, Geithner was pressed to disclose the administration's plan for dealing with the unpopular financial rescue program.

TARP Money Cannot Be Used to Pay Down the Debt! - Arghhhhhhh! TARP is a loan program, not a spending program. Let's explain the difference so that even a Washington Post editor can understand it.  A loan is expected to be paid back. When Congress appropriates money for a loan, it does not add to the deficit. The government lends out money, but it owns a loan that it expects to be paid back. The only cost to the government is either any subsidy implicit in the loan or the losses on loans that are not repaid.

Of Course, Treasury Wants To Hang on to TARP Money - Yves Smith - When has a bureaucrat every wanted to give up on a big slush fund? Particularly one with no strings attached?What is heinous about the discussion of Treasury’s plan to argue that it should have its authority under the TARP extended is the failure to include some of the most basic and troubling issues. First, there is nary a mention of explicitly excluding from any extension (assuming there is one) the Treasury Secretary being beyond the reach of the law. That is unacceptable in a democracy. Second, the debate, at least as represented in the Financial Times, focuses narrowly on the TARP, and misses completely all the games the Treasury played with the Fed to make those funds go much further via using the Fed as an unauthorized, and likely unconstitutional, quasi fiscal agent of the Treasury

Geithner in the doghouse over AIG debacle - Is Timothy Geithner tough enough to be an effective US treasury secretary? The Obama administration's finance man is getting a true kicking today over his role in last year's botched bail-out of AIG in which Wall Street banks seem to have run rings round the government. Geithner was chairman of the New York Federal Reserve which led an $85bn effort to salvage AIG when the insurer was wobbling on the edge of bankruptcy in September last year. The inspector-general appointed to oversee the US government's bail-out efforts, Neil Barofsky, has produced a scathing report today attacking poor negotiation, ineffective contingency planning and a lack of public openness in the handling of this rescue.

Geithner Rejects Call to Resign, Faults Republicans (Bloomberg) -- Treasury Secretary Timothy Geithner defended the Obama administration’s economic record and dismissed a call for his resignation from the senior House Republican on the Joint Economic Committee. Geithner blamed the policies of the Republican party and President George W. Bush for the financial crisis that pushed the nation into the deepest recession since the 1930s. Republicans “gave this president an economy falling off the cliff,” Geithner told Representative Kevin Brady of Texas as the two men interrupted each other during a hearing today. “I can’t take responsibility for the legacy of crises you bequeathed the country.”

What Geithner Got Right - NYTimes - The criticism of his plan to stabilize the financial system came from all directions. House Republicans called it radical. Many liberal economists thought the plan was the product of hapless, zombie thinking and argued that only full bank nationalization would end the crisis. The Wall Street Journal asked 49 economists to grade Geithner. They gave him an F.  Well, the evidence of the past eight months suggests that Geithner was mostly right and his critics were mostly wrong.

White House says Geithner saved U.S. economy "The White House on Thursday voiced its backing for U.S. Treasury Secretary Timothy Geithner after he endured a grilling before Congress over the costly bailout of insurer AIG, and one lawmaker urged him to resign. "Secretary Geithner has helped steer the American economy back from the brink, and is now leading the effort on financial reform,"

The Big Squander - Krugman - NY Times - Earlier this week, the inspector general for the Troubled Asset Relief Program, a k a, the bank bailout fund, released his report on the 2008 rescue of the American International Group, the insurer. The gist of the report is that government officials made no serious attempt to extract concessions from bankers, even though these bankers received huge benefits from the rescue. And more than money was lost. By making what was in effect a multibillion-dollar gift to Wall Street, policy makers undermined their own credibility — and put the broader economy at risk.

Who Was Really Bailed Out? We Still Don’t Know -  NYTimes - Who were the ultimate beneficiaries of the Treasury’s decision to make good on the credit default swaps written by the American International Group? We still don’t know.The report of the special inspector general for TARP on the A.I.G. bailout, details, as Treasury earlier had, the banks that got the money directly. But that is not the complete answer. At least two banks — Goldman Sachs and Merrill Lynch — had purchased protection against an A.I.G. default. It is possible that others had as well, but the inspector general did not ask.

The Coming Private Equity Default Crisis - There’s a book out called “The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis” and before you derisively sneer at what at first sounds like hysterical hyperbole in the subtitle, consider this bit of logic from Josh Kosman writing in today’s New York Post: “You better sit down,” the secretary says. “I’ve got bad news…” The Treasury Secretary is talking about private equity. It’s not the private equity firms themselves but the companies they own that are defaulting.

Geithner Bond Wise Men Bury Warning as Options Rise - (Bloomberg) -- The options market shows investors are growing increasingly wary that U.S. debt sales may push yields higher even as inflation remains in check. The cost to hedge against rising yields on Treasuries as measured by the so-called skew in options on interest-rate swaps is at a record high, according to Barclays Plc data. At more than 37 basis points, the measure is almost 40 times higher than the average before credit markets seized up in August 2007. The 13-member committee of bond dealers and investors that Treasury Secretary Timothy Geithner depends on for advice highlighted the surge on page 36 of a 67-page report on Nov. 3. On the same page, they showed inflation expectations are subdued based on gauges watched by the Federal Reserve.

At Failed Banks, Post-Mortems Disclose Excessive, Yet Obvious, Risk - NYTimes - The coroner’s report left no doubt as to the cause of death: toxic loans.  In what sounds like an episode of “CSI: Wall Street,” dozens of government investigators — the coroners of the financial crisis — are conducting post-mortems on failed lenders across the nation. Their findings paint a striking portrait of management missteps and regulatory lapses. At bank after bank, the examiners are discovering that state and federal regulators knew lenders were engaging in hazardous business practices but failed to act until it was too late.

S&P cuts ratings on $17 bln worth of U.S. CLOs -  (Reuters) - Standard & Poor's on Tuesday lowered ratings on more than $17 billion worth of loan portfolios, signaling that credit deterioration continues despite a broader market recovery. Defaults and rating downgrades of underlying collateral supporting Collateralized Loan Obligation bonds were the main factors in the CLO downgrades, including some rating cuts to the CCC level, which is deep into junk territory and suggests "substantial risk" of default, S&P said.

Global junk bond default rate rises in October -S&P - (Reuters) - The global junk bond default rate rose to 9.7 percent in October from 9.6 percent in September as a spate of risky debt issued during the 2003-2007 credit boom continues to sour, Standard & Poor's said on Monday. Through Nov. 11, some 243 issuers have defaulted this year, the most in any one year since S&P began tracking them in 1981. The dollar volume of worldwide defaults has ballooned to $573 billion so far in 2009 from $433 billion in all of 2008 and $8 billion in 2007, the rating agency said in a report. "Corporate casualties continue to mount, even though economic and financial conditions have improved dramatically in recent months

Bank Regulators "Reign of Terror" on Small Business Loans - In response to Freefall In Small Business Loans I received an email from "ABO" the CEO and owner of a bank.  ABO, who has been in the banking business 30 years, writes:
Mish, I was reading the article you wrote concerning the difficulty of securing small business loans and President Obama promising assistance via the Small Business Administration - SBA.
Most small banks run from the SBA. Reasons are many. Suggesting that the SBA is a solution is naive or dishonest. The problem starts with the government and they only make things worse!

How the tax code encourages debt -- Galbraith wrote that all financial crises are the result of “debt that, in one fashion or another, has become dangerously out of scale.” The recent financial crisis was no exception, with everyone—homeowners, private-equity investors, our biggest banks—taking on enormous amounts of debt. If it’s frustrating that the government is footing the bill to clean up the mess, it’s even worse that the government helped pay for the debt binge that created the mess in the first place, thanks to a tax system that actually subsidizes borrowing. Debt didn’t get dangerously out of scale because the system was broken. It got out of scale, in part, because the system worked.

Notes on This Week’s Column: The Debt Bias - My column this week deals with one of the more important but less commented-on aspects of the American financial system: the way government policy encourages individuals and companies to take on debt. Given that too much debt was at the core of the recent financial crisis (as it’s been at the core of most, if not all, major financial crises), you might think that the fact that the tax system is biased in favor of debt—allowing individuals to write off all of the interest on mortgages up to a million dollars, and allowing companies to write off all interest on their debt, while not allowing them, among other things, to write off dividend payments (which you can think of as a kind of payment for equity)—would be a subject of considerable interest among policymakers. But for the most part, it hasn’t been. One important exception was this recent I.M.F. study (pdf), which looks in detail at the interaction between tax policy and debt (not just in the U.S., but across the globe), and argues, as I do, that the general bias in favor of debt likely “encouraged excessive leveraging and other financial market problems evident in the crisis.”

What are the arguments for privileging debt? - Three cheers to Jim Surowiecki for unambiguously adding his voice to those who would abolish the tax-deductibility of interest payments:  The weird thing for me is that when I start banging this particular drum, I always get exactly the same answer: “yes, great idea, not gonna happen”. But is there any intellectual justification whatsoever for making corporate interest payments tax-deductible? I can see an argument for a carve-out for highly-regulated banks, since their entire business is based on making profits from the spread between the rate at which they lend and the rate at which they borrow. But banks aside, why should companies pay lots of tax on dividends, and no tax at all on bond coupons?

Should Debt Payments Be Deductible? - The American government loves debt.  It offers special tax breaks to interest payments-mortgage interest, if you're a person; all interest, if you're a firm.   This has a number of pernicious effects.  On the personal level, it's a gift to home sellers--as we've seen with the homeowner's tax credit, any special break you give to home buyers tends to end up in the pockets of home sellers, as the buyers bid up the price to their maximum affordable net monthly cost.  On the corporate side, it privileges debt over equity financing.  In both cases, it adds considerable risk, since the fixed debt payment schedule may not match up with the flow of income.

Yow! One In Seven Homeowners With Mortgages Are In Trouble - The Mortgage Bankers Association released a grim report today revealing that nearly one in seven households with mortgages is behind on payments or already in foreclosure.Last year, only one in 10 were behind. Two years ago, the number was just 7.3%.We’re now in what is clearly the second leg downward of the mortgage mess. While the early days of the mortgage crisis were driven largely by people saddled with complex mortgages they couldn’t afford to pay, now even homeowners with relatively sane mortgages are running into trouble as unemployment soars into the double digits.

U.S. Mortgage Delinquencies Reach a Record High - NYTimes - Nearly one in 10 homeowners with mortgages was at least one payment behind in the third quarter, the Mortgage Bankers Association said in its survey. That translates into about five million households. The delinquency figure, and a corresponding rise in the number of those losing their homes to foreclosure, was expected to be bad. Nevertheless, the figures underlined the level of stress on a large segment of the country, a situation that could snuff out the modest recovery in home prices over the last few months and impede any economic rebound.

MBA National Delinquency Survey - The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64 percent of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from the second quarter of 2009, and up 265 basis points from one year ago. The delinquency rate breaks the record set last quarter.  The records are based on MBA data dating back to 1972. The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure.  The percentage of loans in the foreclosure process at the end of the third quarter was 4.47 percent, an increase of 17 basis points from the second quarter of 2009 and 150 basis points from one

Mortgage delinquencies hit another record in 3Q - The pace at which people fell behind on their mortgages slowed during the summer for the third consecutive quarter, but the overall delinquency rate hit another record, a new report shows. For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion. That's up 58 percent from 3.96 percent a year ago. Being two months behind is considered a first step toward foreclosure, because it's so hard to catch up with payments at that point.

Foreclosures Hitting More People with Good Credit - The foreclosure crisis likely will persist well into next year as high unemployment pushes more people out of homes, pulls down housing prices and raises concerns about the broader economic recovery. The latest evidence was a report Thursday that a rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure. That's a shift from last year, when riskier subprime loans drove the housing crisis.

Foreclosures hitting more people with prime loans - Delinquencies and foreclosures set 9th straight record in 3rd quarter as layoffs keep rising (AP) -- A rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure, adding to concerns about the strength of the economic recovery.Driven by rising unemployment, such loans accounted for nearly 33 percent of new foreclosures last quarter. That compares with just 21 percent a year ago, when high-risk subprime loans made during the housing boom were the main reason for default.

Mortgage Applications Plunge To 12-Year Low - This could be the next shoe beginning to drop in the home market...Reuters: U.S. mortgage applications fell last week, with demand for home purchase loans dropping to a 12-year low even as interest rates on 30-year loans fell to their lowest level in six months, data from an industry group showed on Wednesday.Home purchase loan demand fell for a sixth straight week, a trend that does not bode well for the U.S. housing market, which has been showing signs of stabilization after a three-year slump.

America's Newest Land Baron- The FDIC - The financial crisis started with Americans buying homes they couldn't afford. It is ending with the government struggling to sell buildings it never wanted. In the past two years, the FDIC has taken over 150 failed banks. In the process, it has seized more than 5,000 houses, subdivisions, buildings, parcels and other foreclosed assets. The current backlog of property stuck on the agency's books, with an appraised value of $1.8 billion, ranges from an $18,700 clapboard home with stained carpets in Birmingham, Ala., to a $1.7 million mountainside lodge with a heated driveway in Steamboat Springs, Colo.

$29 billion Treasury program to prop up local housing finance agencies - A Treasury Department program aimed at propping up local housing finance agencies will help inject $29 billion into these groups over the next year, according to government data scheduled to be released Tuesday. The program focuses on state and local housing finance agencies, which provide loans to low- and moderate-income borrowers and have struggled in the past year as investors shied away from buying their debt. Under the program, Treasury, along with mortgage financiers Fannie Mae and Freddie Mac, will buy bonds used by housing finance agencies to fund mortgages.

Get ready for more changes in mortgage lending in 2010 - For the first time in more than 30 years, the housing arm of the government, known as HUD (short for Housing and Urban Development), has released the details of the new mortgage reform that will help families shop for the lowest-cost mortgage available and avoid costly and potentially harmful loan offers from predatory lenders. The main focus coming from HUD now will require that all lenders and all mortgage brokers provide you as a potential client a standard Good Faith Estimate. This newly formatted GFE will clearly disclose all of the key loan terms and closing costs. By using this new standard GFE, HUD estimates the savings on a new mortgage loan will be nearly $700 at the closing table.

Breaking Down Fannie Mae's Deed For Lease Program (with graphic) - Fannie Mae recently announced a new program designed to keep mortgage-challenged borrowers in their homes. The Deed for Lease program allows qualified borrowers to relinquish the deed to their property and rent their home at the market rate for 12 months.Our team has broken down the program to show you what to expect for borrowers, tenants and property managers.

Ivy Zelman: “Home prices are going back down” - The Mortgage Bankers Association is reporting that nearly one in ten households with mortgages are at least one payment behind.  That is a record, my friends. And it certainly means we cannot believe house prices have permanently stabilized. Ivy Zelman has the same sinking feeling I do here; we don’t think house prices are necessarily heading up permanently. She even throws in a mixed metaphor to get her point across. She says: I’ve been pretty bearish on this big ugly pig stuck in the python and this cements my view that home prices are going back down.

Have Home Prices Only Fallen 1/4 of the Way to Trend? - Interesting chart to say the least.  Ben is pumping the money buttons so hard that the trend may be realized a bit higher in nominal terms once inflation kicks in. But it may not yet be the best time to buy that new home, unless it is done for a primary residence, and with great care. Read the rest here.

Americans Still Delusional About The Value Of Their Homes - We've seen this over and over again. While Americans seem to recognize that there's been this thing called the housing crash, they don't believe it's happened to them, or at least a lot don't. Zillow: However, the third quarter of 2009 is a different story in both market behavior and homeowner perception. As individual markets behaved very differently (some improving, some flat, many still continuing to decline), homeowner perception was literally all over the map. Nationwide, when asked about their own home’s value over the past year:• 25% think their home’s value has increased• 26% think their home’s value has stayed the same• 49% think their home’s value has decreased

Housing Leads the Economy, Existing Home Sales are Irrelevant - After reading some of the commentary regarding the housing starts report this morning, it might be useful to reiterate these three points:
Residential investment is the best leading indicator for the economy.
Residential investment will not recover rapidly because of the large overhang of existing vacant housing units.
Existing home sales are largely irrelevant for the economy.

The Good, and the Quick ‘n Dirty - You look at the key housing indicators and you’re probably thinking the government’s homeowner support plan has got to be working… mortgage rates at record lows, house prices stabilizing, inventories coming down, new home sales (begrudgingly) crawling upward. Yet, it all depends on how you define “success”… there is "temporary feel good" success… "clean up now, pay later" success… "everything/everyone but the kitchen sink" success… and success as in "targeted help to the neediest" and "permanent solutions to the root problems." I fear that only a teeny portion of taxpayer money has gone towards this latter type of success. To see why, one has to judge whether the government’s measures are geared towards tackling the root problems in the housing sector; whether they are cheaper compared to alternatives; and whether they target the neediest.

Housing starts stage broad retreat in October - In a blow to the optimism that had surrounded the U.S. housing sector in recent months, housing starts fell a sharp 10.6% in October, the Commerce Department reported Wednesday. New construction on housing units dropped to a seasonally adjusted annual rate of 529,000, the lowest level since April. The 10.6% drop was the biggest percentage decline for starts since January.Both single-family homes and multifamily units declined last month.

Housing Starts and Vacant Units: No "V" Shaped Recovery - On Friday I posted a graph showing the historical relationship between housing starts and the unemployment rate (repeated as the 2nd graph below). The graph shows that housing leads the economy both into and out of recessions, and the unemployment rate lags housing by about 12 to 18 months. It appears that housing starts bottomed earlier this year, however I don't think we will see a sharp recovery in housing this time - and I also think unemployment will remain high throughout 2010. As I noted in the earlier post, there is still a large overhang of vacant housing in the United States, and a sharp bounce back in housing starts is unlikely.

Housing Starts Green Shoots Wither On Vine - Mish - After optimists talked up rising housing starts for several months as green shoots, improving conditions, etc., reality came knocking in full force with the New Residential Construction Report For October 2009: Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 552,000. This is 4.0 percent below the revised September rate of 575,000 and is 24.3 percent below the October 2008 estimate of 729,000.

Housing back in the news - Atlanta Fed - Two reports released this week remind us of the difficulties still confronting the residential real estate market. First, the consumer price index (CPI) showed continued moderation. Yes, the overall number was up 3.4 percent on a monthly annualized basis, and even the core measure ticked up 2.2 percent. But over half of the core rise was related to rising new and used car prices following the expiration of the cash-for-clunkers program. The Cleveland Fed's median CPI, which isn't influenced by these outliers, was up only 1.2 percent and still suggestive of some considerable disinflationary pressure.

To The Barkers: Answer This Question - I simply have to ask the pundits and the carnival barkers, of which CNBC is the worst, the following - why do we need any of these programs if in fact the economy is growing again: Zero interest rates from The Fed. Isn't 2%, 3%, 4%, 5% more consistent with economic growth? If indeed the economy is expanding, why do we need "funny money"? $8,000 home-buyer tax credits. FHA underwriting mortgages at 3.5%, their default rate is going parabolic, their reserves are down to well under half of the mandatory minimum and there is no evidence in sight that their performance metrics are improving. The dollar carry trade? Cash for clunkers" ?- 29.9% interest rates on credit cards via "jack-up" letters and other outrageous actions.  Again, is this sort of gouging consistent with economic recovery? Declining consumer credit demand.  I've published the graph before and will reproduce it below.

Home Builders (You Heard That Right) Get a Gift - ON Nov. 6, President Obama signed the Worker, Homeownership and Business Assistance Act of 2009 into law, extending unemployment benefits by 20 weeks and renewing the first-time homebuyer tax credit until next April.  But tucked inside the law was another prize: a tax break that lets big companies offset losses incurred in 2008 and 2009 against profits booked as far back as 2004. The tax cuts will generate corporate refunds or relief worth about $33 billion, according to an administration estimate.

Investors strategize for Fed's exit from MBS market (Reuters) - Investors who reaped robust gains in U.S. mortgage-backed securities by piggy-backing on the Federal Reserve's $1.25 trillion buying program are bracing for the end to the central bank's support -- and positioning themselves for a new round of profits as prices cheapen.The $5 trillion market for bonds backed by the housing finance companies Fannie Mae, Freddie Mac and Ginnie Mae is in for a shock when the Fed stops buying at the end of the 2010 first quarter.To keep market volatility from stripping away gains, investors have either cut their holdings in the bonds the Fed has been buying most, avoided that part of the market altogether, or resorted to hedging their positions.Fed buying, just over $1 trillion so far, has not only played a key role in bringing down mortgage rates and kick-starting the hard-hit housing market, but also boosted returns at some of the world's largest bond funds

With Help of F.H.A., Easy Loans in Most Expensive Areas - NYTimes - In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default. In 2007, the government did not insure a single mortgage in this city, one of the most expensive in the country. Buyers here, as well as in Manhattan, Santa Monica and every other wealthy area, were presumed to be able to handle the steep prices and correspondingly hefty down payments on their own.

TaxVox: Should Government Policies Favor Owners Over Renters? - Those expecting the recently extended and expanded homebuyer tax credit to improve this situation are likely to be disappointed. As I’ve written previously, most people who will receive the tax credit would have bought a house without it. And, of the additional sales spurred by the credit, most are likely to shift renters into owners, which does not help absorb the excess supply of houses. Indeed, the credit may unintentionally be weakening the rental market. The rental vacancy rate for the third quarter was 11.1 percent, which is a historical high. The Consumer Price Index showed a decline in rent by 0.1 percent for October. The weak market was also reflected in the housing starts data, as starts with two or more units fell by 34.6 percent in October.

Fannie, Freddie Woes Threaten Apartments - The deteriorating commercial real-estate market is hitting Fannie Mae and Freddie Mac, the housing-finance giants that were taken over by the government last year after billions of dollars in losses on residential real estate. The firms, which together have taken more than $110 billion in capital infusions from the Treasury, stepped up their lending for apartment buildings as the commercial real-estate market peaked, and they are now facing rapidly rising loan losses.

U.S. Office Vacancies May Approach 20% Next Year -  (Bloomberg) - Office landlords in the U.S. will confront vacancy rates approaching 20 percent next year as employers hold off hiring, commercial property brokers Jones Lang LaSalle Inc. and Grubb & Ellis Co. said today. Jones Lang, the world’s second-biggest publicly traded commercial property firm, predicted vacancies will rise to 19.5 percent late next year, while Grubb & Ellis estimated a peak of 18.7 percent. “The road to economic recovery throughout 2010 will remain turbulent,” Chicago-based Jones Lang said in a report. “While 2010 will be the year a global commercial real estate recovery begins, robust, broad-based growth is not expected until 2011.”

Banks face major commercial real estate storm (Reuters) - Sooner or later, office buildings and other commercial real estate financed during the credit bubble will generate hurricane-scale losses for banks. Banks in recent years have been hammered by losses on home mortgages, buyouts and corporate defaults. Now, lenders face big losses from loans backed by commercial real estate, where a stagnant economy will eventually take its toll, financial services executives told the Reuters Global Finance Summit. The commercial real estate business still has not been marked down. It's not been marked to market

Life Insurers May Lose $22.6 Billion on Commercial Real Estate (Bloomberg) -- U.S. life insurers, a group led by MetLife Inc. and Prudential Financial Inc., may lose as much as $22.6 billion on investments in commercial real estate through 2011, Fitch Ratings said.  Losses on investments in apartment buildings, offices, shopping malls and other commercial real estate will begin to increase in the next 6 months to a year as rents decline and vacancies increase, said Fitch. Life insurer losses on commercial real estate have been “virtually nil”, so far...

Commercial Real Estate Is A "Tsunami Unfolding" - Michael Panzner is bearish, and you should listen. Why? The 25-year veteran of the global stock, bond, and currency markets was one of the few who called the crisis before it happened, with a book aptly titled "Financial Armageddon." Today, Panzner calls a V-shaped recovery "ridiculous," says commercial real estate is a bubble sure to burst, and is fearful that there's far too much speculation on commodities, risky stocks and emerging markets. In short, he says "the world is a riskier place and will continue to stay that way going forward.

Moody's: CRE Prices Off 43% from Peak - From Globe St.: Values Off 43% From 2007 Peak  Prices nationwide have fallen 42.9% from their October 2007 peak, according to the latest Moody’s/REAL Commercial Property Price Index report issued Thursday, while Real Capital Analytics says total transaction volume for 2009 will be the lowest of the decade. The November Moody’s/REAL report ... covers transactions through Sept. 30 ... September’s index represented a 3.9% value decline compared to August. Further price declines are almost certain over the short term,"

Graph of the Week 11/15/09: Capital Spending NRI - National Association for Business Economics - The Graph of the Week is the Capital Spending Net Rising Index from the October 2009 NABE Industry Survey. From the survey: For the first time since October 2008, more respondents reported a rise in capital spending over the prior quarter than a decrease. Expectations for future capital spending improved for the fourth straight quarter and turned positive, on balance, for the first time in a year. As in the past two surveys, expectations were positive for spending on computers and communications equipment but negative for structures.

How A Government Bailout Created Today's Commercial Real Estate Catastrophe - Congress and the smaller banks and thrifts worked out a rescue plan that included deregulating the thrifts and regional banks, allowing them to branch out into other forms of lending. In 1980, Congress passed the Depository Institutions Deregulation and Monetary Control Act and in 1982 the Garn–St. Germain Depository Institutions Act. The combined effect of these was to allow banks small and large to enter into real estate lending big time, especially commercial real estate lending. Real estate quickly came to account for 50 to 60 percent of most banks portfolios

Commercial real estate woes imperil US recovery - Even as some sectors of the US economy see a return to growth, woes in commercial real estate are deepening, raising fears that the fragile recovery could falter.Unlike the US home market, which has shown signs of rebounding, recovery is elusive in commercial real estate, a sector which includes apartments, offices and industrial and retail properties.The Moody's commercial property index fell 3.0 percent in October, and remains 32.8 percent down from a year earlier and 40.3 percent lower than two years ago."Although prices have declined steadily over the past year, the rate of decline has slowed in recent months after falling by about 8.0 percent in both April and May

The not-so-small small bank CRE problem - Last week, the Federal Reserve Bank of Atlanta president Dennis Lockhart spoke of a `feedback loop’ between US commercial real estate, regional banks and unemployment — something so acute it could derail the country’s economic recovery.Thanks to Deutsche Bank’s fixed income team, we can now present the problem in pictorial form.First though, a bit of comment from the FI analysts:. . . Small regional banks have a disproportionate exposure to CRE . . . Moreover, unlike for residential real estate, the best assets have been securitized in CMBS, and banks tend to hold in their loan portfolio the riskiest assets.

Jobless Benefits Set to Expire Unless Congress Acts - About one million laid-off workers will see their unemployment benefits end in January ... The [recently] added federal benefits were built on a series of previous extensions that are slated to end on Dec. 31 ... According to projections released Wednesday by the National Employment Law Project, an advocacy group that worked with state officials to develop the numbers, 474,111 unemployed workers will exhaust their state benefits during January ... An additional 581,000 workers will see their federal benefits end in January

Ahhhh, Now I Get It: - The real reason republicans delayed passage of the unemployment extension benefits was this: Because the bill was held up for so long in the Senate, an end-of-the-year filing deadline will prevent anyone from accessing the final six weeks of benefits, according to state officials and sources on Capitol Hill. On Friday, President Obama signed into law legislation extending jobless benefits by 14 weeks nationwide, with an additional six weeks for those states where unemployment rates top 8.5 percent. Those benefits kicked in on Sunday. But there’s a glitch. The new law treats the 20-week extension as two separate extensions of 14 weeks and six weeks, with participants required to exhaust the first 14 weeks before applying for the next six. However, the current law keeps a Dec. 31 application deadline, roughly seven weeks from now, making collecting the full 20 weeks impossible.

Money Trickles North as Mexicans Help Relatives - Unemployment has hit migrant communities in the United States so hard that a startling new phenomenon has been detected: instead of receiving remittances from relatives in the richest country on earth, some down-and-out Mexican families are scraping together what they can to support their unemployed loved ones in the United States.

Workers of the World, Incorporate - NYTimes - United Steelworkers announced an agreement with Mondragon International to move toward establishment of manufacturing cooperatives in the United States and Canada. It certainly represents a new direction for the American labor movement. The United Steelworkers is the largest industrial union in the United States, with 1.2 million workers.With almost 100,000 workers, the Mondragon Cooperative Corporation (M.C.C.) is the seventh largest business group in Spain and the world’s largest workers’ cooperative.

8 Insane Japanese Robots That Will Take Your Job (And Possibly Your Life) - (incld you tube videos) If you’re a chef, musician, cleaner, model, or just anyone, you should be afraid. Very afraid. You’re about to lose your job – and when robots rule the employment roost, don’t be surprised if you end up losing your life too…Note: the following is pure speculation and may be an example of mass hysteria mongering.

The jobs of tomorrow...? - For the sake of argument, jobs in our future over the next few years or so appear to be in the health care industry and education. Jobs needing less education than a BA are among the fastest growing.  "Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, healthcare is the growth industry of the 21st century. It is a leading sector, which means that expenditures on healthcare will pull forward a wide array of other industries, including manufacturing, education, financial services, communications and construction."

More US Job Hunters Looking For Work In Other Countries - With the nation's unemployment rate at a 26-year-high, more Americans are hunting for, and landing, work overseas.The hottest international job markets include India, China, Brazil, Dubai, and Singapore. International companies are largely seeking candidates in engineering, computer technology, manufacturing, investment banking and consulting.

Recession shows shortcomings in U.S. economic data (Reuters) - The U.S. government is having a tough time guesstimating how many small businesses failed in this recession, casting doubt on the reliability of vital data on employment and economic growth The formula the U.S. Labor Department designed to help it deliver timely, thorough monthly employment reports broke down in the heat of the financial crisis, miscounting the number of jobs by an estimated 824,000 in the year through March. The most likely culprit is the so-called "birth-death" model, which the Labor Department uses to estimate how many companies were created or destroyed."

State, local budget cuts a "time bomb" for jobs - "Budget shortfalls pose a direct threat to millions of U.S. jobs, many in the private sector, as state and local governments lay off workers and cut spending on contracts and other business services, a think tank said on Thursday.  State and local governments will have to raise taxes and cut spending in the current and next two fiscal years to cover shortfalls totaling $469 billion, according to an Economic Policy Institute report."

N.Y. cash crunch worsening, no deal in sight (New York) ALBANY -- Lawmakers left the Capitol Thursday without a deal to close the state's $3.2 billion budget gap, and a report Friday will show that the state's cash crunch is getting even worse." Comptroller Thomas DiNapoli said his office will release a report that shows New York faces a cash-flow deficit of up to $1.4 billion in late December, higher than projections from Gov. David Paterson's budget office. It means the state is running out of money to pay its bills, DiNapoli warned. Paterson's office last month predicted a $1.1 billion cash-flow deficit in late December."

New York Personal Income Tax Collections Fell 21% Last Year (Bloomberg) -- New York state’s personal income tax collections, its largest source of revenue, fell $4.73 billion, or 21 percent, from a year earlier, according to a report issued today by Comptroller Thomas DiNapoli. The decline is the result of 236,000 lost jobs in the last year, which increased the state’s unemployment rate to 8.9 percent from 5.8 percent a year earlier, according to Labor Department reports. Governor David Paterson has called lawmakers to Albany to close this year’s $3.2 billion budget gap with a combination of spending cuts and one-time revenue, such as a tax penalty amnesty.

Gov. David Paterson: Don't blame me for Albany budget mess, it's been like this for three decades - ALBANY - Gov. Paterson said Monday morning he's not only facing a recalcitrant Legislature in trying to cut the budget, but three decades of Albany dysfunction.Paterson went on a six-station radio blitz just hours before the Legislature returns to the Capitol to take another crack at reaching a plan to close a $3.2 billion current year deficit.In a sign a deal to close the gap is not at hand, Paterson complained on WHAM-AM Rochester that he has heard too many "phony" remedies from lawmakers, and not enough serious alternatives to his proposed cuts.

Manhattan Institute Says "New York must declare a financial emergency" - Mish - E.J. McMahon, director at the Manhattan Institute says New York deficits amount to financial - emergency. New York state's huge and growing budget gap requires government to take drastic actions to correct it, said E.J. McMahon, director of the Empire Center for New York State Policy at the Manhattan Institute. McMahon said the state must declare a financial emergency and enact a statutory freeze on public-sector wages for at least three years. State law allows this and enables contracts to be voided, he said. It would save at the rate of $2 billion a year for state, local and school taxpayers.

California faces a projected deficit of $21 billion - Sacramento - Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento, according to a report to be released today by the chief budget analyst.  The new figure -- the nonpartisan analyst's first projection for the coming budget -- threatens to send Sacramento back into budgetary gridlock and force more across-the-board cuts in state programs.

Amid Public Uproar CALPERS To Weigh Tougher Disclosure Rules - Amid a growing public uproar over the way it invests its money, the California Public Employees' Retirement System is expected to toughen its 6-month-old policy requiring outside investment managers to more fully disclose their relationships with the intermediaries who pitch their products. The tougher proposals are to be discussed by the CalPERS board today as the country's largest government pension fund overhauls the way it manages its massive investments, which total $200 billion

Student Fee Hike Fuels Mass Protest At UCLA - where University of California regents approved a hefty student fee increase.  University spokesman Phil Hampton said chains of demonstrators had linked arms to block the exits on Thursday afternoon, with some regents spending up to two hours inside. Demonstrators were confronted by lines of baton-wielding campus police, California Highway Patrol officers and metal barriers. Hampton said he couldn't confirm any injuries, but television footage showed at least one person being treated after being sprayed by an unknown substance.

VA might have to cut $2.9 billion more by '12-- State agencies might need to cut up to $2.9 billion more from core services, such as education, law enforcement and health care, by mid-2012 to accommodate Virginia's financial crisis. The bleak forecast announced Tuesday at a House Appropriations Committee retreat comes on top of nearly $7 billion in reductions to the state's current two-year budget since last year. The forecast reflects a $300 million shortfall in this fiscal year and a $2.6 billion shortfall over the next two fiscal years. The numbers are based on the state receiving less tax revenue than it had anticipated and being required to spend additional money on certain mandatory programs, such as Medicaid.

Florida lawmakers weigh end of stimulus money - As lawmakers grapple with a shortfall for the coming fiscal year that could total as much as $2.7 billion, there’s another financial headache looming on the horizon: The pending expiration of the federal stimulus money that the state used to patch holes in its $66.5 billion spending plan for the current spending year. In education alone, that could cost the state more than $1.2 billion in education funding in the 2011-12 spending year, blowing a larger hole in an already stretched education budget. That’s on top of other areas where a far-from-robust economy is still expected to hamper tax revenues, with the result being a shortfall as high as $5.4 billion.Many lawmakers in both parties still insist that it wasn’t a mistake to take the stimulus funding, if for no other reason than to buy the state time to figure out how to deal with wrenching decisions on the budget for education and other needs.

State budget gap widens (Washington) An additional $760 million in hoped-for state revenue evaporated in the latest economic forecast, and lawmakers began talking up the pros and cons of tax increases to help plug a budget shortfall now estimated at $2.7 billion. "I said last time (that) everything is on the table. I think I need a bigger table now,” Moore said."

Unemployment Rate Increases in 29 States in October - From the BLS: Regional and State Employment and Unemployment Summary: Twenty-nine states and the District of Columbia recorded over-the-month unemployment rate increases, 13 states registered rate decreases, and 8 states had no rate change, the U.S. Bureau of Labor Statistics reported today. Over the year, jobless rates increased in all 50 states and the District of Columbia.

Joblessness Across the U.S.: Unemployment Rates, by State - WSJ - full interactive graphic.

Relief for States and Families Boosts Employment - CBPP - The economy is in a very deep hole and faces a long climb back to full employment. Policymakers can make that climb easier by extending or bolstering key provisions of the American Recovery and Reinvestment Act (ARRA) enacted at the start of the year — particularly those related to unemployment insurance and state fiscal relief, whose scheduled expiration would otherwise exert a job-killing drag on the economy. Unfortunately, it is all too easy for policymakers and pundits to overlook the critical importance of these policies in boosting employment because these policies also serve other purposes and because the jobs that would not be there without them cannot be readily identified through surveys or other direct means.

Push to Add to Stimulus Package Draws Debate - NYTimes - Now that unemployment has topped 10 percent, some liberal-leaning economists see confirmation of their warnings that the $787 billion stimulus package President Obama signed into law last February was way too small. The economy needs a second big infusion, they say. No, some conservative-leaning economists counter, we were right: The package has been wasteful, ineffectual and even harmful to the extent that it adds to the nation’s debt and crowds out private-sector borrowing. These long-running arguments have flared now that the White House and Congressional leaders are talking about a new “jobs bill.”

The Magically Appearing Stimulus Jobs - ABC News’ Rick Klein reports: We’ve long been wondering what taxpayers would get for their $18 million Website redesign at Recovery.gov. ABC’s Jonathan Karl is reporting on one thing we never guessed might have been purchased: Jobs created in congressional districts that do not exist. There’s Arizona’s 15th Congressional District, where 30 jobs have been saved or created with just $761,420 in federal stimulus spending, according to Recovery.gov. Arizona only has eight House seats. So the $34 million that Recovery.gov tells us was spent in the state’s 86th district is equally incredible. Another gem: More than $36 million in stimulus funds spent between the 69th and 99th districts of the Northern Mariana Islands -- a self-governing US territory that gets only one (non-voting) representative in the House.

“Does US need a second stimulus to create jobs?” - Why design inefficient fiscal interventions that have benefitted Wall Street enormously despite the fact they create very little real output or employment and then turn around with this lame story that the Chinese are to blame because our citizens voluntarily buy the junk they make?  What we desperately need to do is to increase our deficit by several percentage points of GDP and offer public sector jobs to all those who want one. Government as Employer of Last Resort is one idea I have been pushing...

How to do a second stimulus - This time will be different, Bernanke said. The recovery might be more L-shaped than V-shaped.   Democrats in Congress were already turning their attention to a new fiscal stimulus — and if Bernanke is right, a second stimulus may indeed be needed. Of course, Congress would rather call it something else. Polls suggest that voters are less than enchanted with the first one. With unemployment at 10.2 percent and rising, many see the $787 billion program already in place as an outright failure. Why throw good money after bad, they ask? Public debt is already on a sharply rising trajectory. Sooner or later, voters know, that will mean higher taxes. Why make this problem even worse, they say, if the extra spending will make no difference on unemployment anyway?

Op-Ed Editorial - NYTimes - Ten months ago, at the beginning of the great stimulus debate, President-elect Barack Obama’s economic advisers produced an unfortunate chart. The chart plotted out two lines. One projected the unemployment rate through 2014 with a stimulus package; the other projected unemployment across the same period without it.  The first line — the hopeful line, the one that was used to sell $800 billion worth of stimulus — showed the rate of joblessness peaking this fall at 8 percent, and dropping swiftly thereafter. The second line — the no-stimulus scenario — showed unemployment peaking at 9 percent, holding there across 2010, and then declining in 2011 and 2012.

Stop the madness now!  - A reader at Naked Capitalism asked us to respond to a recent article from the Christian Science Monitor asking Does US need a second stimulus to create jobs? Marshall Auerback has already done some heavy lifting – and taken all of the heat in the comments. He says emphatically yes. Now I want to take a crack at this. My short answer is no. You have four options: No stimulus. Let the chips fall where they may. Monetary stimulus only. Quantitative easing mania. Monetary and fiscal stimulus.  Full tilt Keynesian. This is the Krugman view. Fiscal stimulus only. Deficit spending. I have been talking up this view. There is no magic bullet here. 

The Great Disconnect Between Stocks and Jobs - Robert Reich - How can the stock market hit new highs at the same time unemployment is hitting new highs? Simple. The market is up because corporate earnings are up. Corporate earnings are up because companies are cutting costs. And the biggest single cost they’re cutting is their payrolls. So they let people go and, presto, their balance sheets look better and their stock prices rise. In the old-fashioned kind of recession decades ago, big companies laid off people with the expectation of rehiring them when the economy turned up. Then a few recessions back, companies started laying off people for good, never rehiring them even when the economy recovered. In the Great Recession of 2008-2009, companies are going a step further. They’re using this sharp downturn to cut payrolls even below where they were when times were good. Outsourcing abroad, setting up shop in China and elsewhere, contracting out, replacing people with software and automated machines – they're doing whatever it takes to get payrolls down so earnings bounce up.

How Washington Can Create Jobs - WSJ - Of course, it's not true that the government has done nothing about jobs. The $787 billion stimulus has doubtless saved many jobs already, and will save many more. So have the numerous financial rescue programs that the electorate abhors.  But saying that it could have been worse doesn't inspire. And Americans take scant comfort that jobs are now disappearing at a slower pace. All this creates a political imperative for action, and the president recently announced a "jobs forum" for next month. But what policies would be effective job creators?

The Case for a Job-Creation Tax Credit - - Last week, President Obama announced that he was convening a jobs summit meeting, where policy makers would discuss how to reduce the country’s high unemployment rate. One idea that has received attention lately is a job-creation tax credit, which would make it cheaper for employers to hire new workers. The federal government has not tried this kind of policy since the 1970s. But the record of that policy gives hope that a temporary tax credit could help solve our unemployment problems today.

Limits of a Knowledge-based Economy - The previous conventional wisdom was that it is too expensive to make anything in the US, so we must concentrate on the high value-adding knowledge-based economy to be competitive. That proved a failure as each time the Fed pumped up the “economy”, i.e. money supply, it only created asset bubbles – not more industrial capacity or real innovation. True innovation and the real knowledge-based industries evolve in fits and starts; therefore they will never be enough to drive an economy as large as the US. Now it’s time to take a step out of fantasyland. The US needs a “core” economy that supports all skill levels, personal spending that matches personal income, and an energy policy that matches consumption with its percentage of the world population and its accesses to resources.

The Employment Problem - WSJ - The Fed has made a credible case that inflation is a remote threat in an economy burdened with high levels of slack. That means it is on track to fulfill half of its dual congressional mandate – stable prices. The other half of the mandate is maximum employment. The economy is nowhere near that and it might not achieve it again for years. Full employment means keeping the unemployment rate in the neighborhood of 5% or 6%. At 10.2%, it is now at its highest level since the 1982 recession and higher than the Fed’s forecast for the end of the year.

Thoma: What Causes Employment to Lag Output in Recoveries? - In a previous post, I showed that after a recession ends, the recovery of employment lags the recovery of output, and that the lag has increased substantially in recent recessions. The delay in the recovery of employment has increased from about one quarter prior to 1990 to more than a year in the past two recessions.What explains the existence of a lag, and why has the time delay between the recovery of output and the recovery of employment been increasing in recent recessions? There are (at least) three factors that come into play...

When All Else Has Failed, Why Not Try Job Creation? - The US continues to hemorrhage jobs even as some purport to see “green shoots”. All plausible projections show that unemployment will rise even if our economy begins to grow. Personally, I think those green shoots will die this winter because the stimulus package is far too small and because the financial system is going to crash again. The longer we wait to actually address the unemployment problem, the worse are the prospects for a real recovery. For discussion and ideas on direct job creation and full employment, go here; here; here; and here

An Urgent Call for Action to Stem the U.S. Jobs Crisis - EPI - Joblessness on this scale creates enormous social and economic problems—and denies millions of families the ability to meet even their most basic needs. It also threatens our nation’s future prosperity by casting millions more children into poverty, foreclosing educational opportunities for many, limiting the investment and innovation that will fuel future growth, and dimming long-term labor market prospects, especially for younger workers

A Stimulus That Could Save Money - White House officials are now looking at creating a new version of cash for clunkers — this time for home weatherization. Doerr calls his proposal, which would give households money to pay for weatherization projects, “cash for caulkers.”... The housing bust has idled contractors and construction workers, who could be put to work insulating homes and caulking air leaks. Many households, meanwhile, would save substantial money — not to mention help the climate — by weatherizing their homes.

'Cash for Caulkers': The Details - I wrote about “cash for caulkers” in my column this week — including some of my reservations about it. But it clearly has a lot of potential, and I didn’t have room to get into all of the details of Mr. Doerr’s proposal (which, he emphasizes, is the product of work by a lot of people — including Steve Cowell and Matt Golden). Here are the basics...

Cash for Caulkers Redux and Anticipating Behavioral Responses to the Embedded Incentives - This blog post on incentives for improving home energy efficiency caught my eye. ..Projects that reduce energy consumption by 20 percent would be eligible for up to $4,000 in incentives, plus $1,500 for every additional 5 percent reduction in energy consumption." If this is the implementation scheme then, rational people will increase their baseline consumption (to make it easier to achieve a 20% reduction) AND they will take steps to minimize their electricity consumption just after the treatment such as moving out of the house and living in a hotel for a week or two to guarantee that their home's electricity consumption falls by 20% during the evaluation month.

The Next Stimulus: "Jobs, jobs, jobs, jobs" - From the WaPo: House shifts focus to 'jobs, jobs, jobs, jobs'  "It's jobs, jobs, jobs, jobs," Rep. John B. Larson (D-Conn.) ... said ... "Members of this caucus feel ... that a jobless recovery is just simply unacceptable to us." And Reuters list some possible items "under consideration": U.S. House plans jobs bill before year end. Why wasn't the the last stimulus package - the one with the inefficient housing tax credit and the "gift" to homebuilders - why wasn't that focused on jobs?

The Worst is yet to Come: Unemployed Americans Should Hunker Down for More Job Losses - Roubini - Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession. Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession. So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.

Fearing pay cuts as The New Normal - What's troubling is the idea that many companies might have little or no incentive to raise pay or benefits in an economic recovery simply because labor worldwide remains in such a surplus. The nightmare scenario for workers would be a race to the bottom in the wages and benefits offered by employers, as the desperate jobless lower their pay expectations and in turn force those still working to accept less.

On Poverty, Interest Rates, and Payday Loans - Megan McArdle - Felix Salmon responds rather pungently to my post on debt.  I certainly didn't mean to imply that Felix's position is unreasonable--it's not, and a lot of people hold it.  I just think it's tricky. It's an odd fact that poor people shun bank accounts at an astonishingly high rate. Rather than pay $10.00 a month for a checking account, they'll pay more than that to a check cashing place.  Of course, it's not like banks are going after those clients, because they're not very profitable--small accounts still have almost all the transaction costs and overhead of large ones.  But why don't the customers go after the banks?

More holiday shoppers may go cash only, no credit cards - The percentage of consumers who will pay for holiday gifts with cash or debit cards instead of credit cards is expected to rise this year, a trend that could further depress holiday sales.About 71% of consumers plan to use cash or debit cards as their primary payment method when buying holiday gifts this year, the highest level since 2005, according to a National Retail Federation survey scheduled for release today. Another survey, by San Antonio-based financial services firm USAA, found that two-thirds of consumers plan to use cash more often for holiday gifts this year than in 2008.

CHART OF THE DAY: Will Holiday Spending Recover This Year? - Holiday sales will be the great test of our recovery. Wall Street analysts and industry insiders are predicting a mild uptick in sales over last year's historic loss. The forecast from the International Council of Shopping Centers is for 1% growth and $242 billion, which seems rather conservative. But what if ICSC is too optimistic? The forecasted number is lower than the peaks of 2006 and 2007 but slightly higher than the $239 billion spent during the holidays in 2005. We're skeptical about the proposition that Americans will spend slightly more this year than they did in 2005. That year unemployment was half of what it is now and median home prices had gone up 13.4%. Are we really ready to spend like we did back then?

If This Is Recovery...- I keep reading about surveys that show that retail sales are up. But as noted above, no one pays extra sales taxes, or decides they need to pay more income taxes. The surest way to measure retail sales is sales taxes. Want to know how incomes are doing? Look at income tax receipts. Let's look at sales taxes first. First off, I can find no single source of recent sales tax information. It is all one-off, but it is consistent. Sales taxes in my home state of Texas are down 12.8% year-over-year, and we're in the fifth straight month of decreases of 11% or more. Projections are for sales taxes to continue to decline into 2010.

Ecommerce Scams: Hundreds Of Well-Known Sites Scam Customers, Report Shows - Background: hundreds of well known ecommerce companies add post transaction marketing offers to consumers immediately after something is purchased on the site. Consumers are usually offered cash back if they just hit a confirmation button. But when they do, their credit card information is automatically passed through to a marketing company that signs them up for a credit card subscription to a package of useless services. The "rebate" is rarely paid.

College Students Hit By High Interest Loans - College degrees are supposed to last a lifetime, but should tuition loan payments? How some schools got away with charging interest rates of up to 18 percent. Consumer advocates see nothing wrong with schools that offer to help finance their students' educations. It's rates as much as 10 percent higher than federal student-loan rates that have them worried. Before the recession and credit crunch hit the student-loan market, it wasn't uncommon to see federally backed loans hovering around 3 percent or even lower. For qualified students, 8 percent bank loans are still common.

Editorial - A Gift to Credit Card Companies - NYTimes - Congress left consumers extremely vulnerable when it gave the credit card industry as long as 15 months to end the deceptive predatory practices outlawed in the spring in the Credit Card Accountability, Responsibility and Disclosure Act. The credit card industry, which clearly wants to make a killing in the Christmas season, used this unnecessarily long grace period to intensify its predations, doubling interest rates on people who pay on time and driving up rates by an industry wide average of about 20 percent. These ravages seemed not to have registered with Senator Thad Cochran, a Republican of Mississippi, who represents the nation’s poorest and most economically vulnerable state. On Wednesday, Mr. Cochran blocked a vote on a bill introduced by Senator Christopher Dodd, a Democrat of Connecticut, that would have immediately frozen credit card interest rates and fees.

Warren Winning Means You Won’t Sell It If You Can’t Explain It -(Bloomberg) -- In Elizabeth Warren’s world, credit card contracts would be so simple a teenager could read and understand them in four minutes. Loans would be as easy to compare as toasters, and online credit scores would be free. “We need a new model: If you can’t explain it, you can’t sell it,” said Warren, 60, a Harvard University law professor who is head of the Congressional Oversight Panel for the Troubled Asset Relief Program, in an interview.

Stickups And Burglaries On The Rise - At Work  - These days thieves are really reaching. As traditional targets for theft have beefed up their security and the recession has driven people to desperate measures, robbers are infiltrating corporate offices. Many of the incidences involve small companies with ground-level offices that offer easy access. And sometimes the perpetrators are armed, heightening fear among office workers who thought their sleepy cubicle farms were safe.

4 in 10 families lack money for essentials when unemployed -- Today the Institute on Assets and Social Policy (IASP) at Brandeis released a new research and policy brief which reports that four in ten U.S. families lack sufficient assets to pay for essential expenses in the face of unemployment.  The IASP research and policy brief also shows that less than half of all U.S. families have sufficient savings to address essential expenses and invest in opportunities for mobility when faced with a job loss. Moreover, many more households of color lack the financial assets to meet their expenses during periods of unemployment. Sixty-six percent are not asset secure, and only 20 percent of households of color have financial assets to invest in opportunities for mobility. While most American families lack sufficient wealth to invest in education, housing, business ventures, or training for better jobs, the dramatic distance that marks families of color is a reflection of the profound, deep, and systematic racial wealth gap.

Pension Benefit Guaranty Corporation Deficit Increases - The Pension Benefit Guaranty Corporation (PBGC) is the federal agency that guarantees pensions for 44 million Americans. The PBGC deficit doubled over the last six months to $22 billion ... but this is only just the beginning as the agency's potential exposure to future losses increased sharply.From the Pension Benefit Guaranty Corporation (PBGC): PBGC Releases Annual Management Report for Fiscal Year 2009 The report also shows that the agency's potential exposure to future pension losses from financially weak companies increased to about $168 billion from the $47 billion booked in fiscal year 2008.

More members of middle class file for bankruptcy - More than 100,000 middle-class families filed for personal bankruptcy every month in 2007, says the report, which was provided to USA TODAY but will be released in a book next year. Those who filed in 2007 were in worse financial shape than those who had filed in 2001."The bankruptcy filings are a warning about the risks now facing middle-class Americans," says Warren, chair of the Congressional Oversight Panel on the Troubled Asset Relief Program (TARP). No longer can they count on a college education, a good job and homeownership to protect them from financial collapse.

Tent City Founders Seeking Help For Homeless Before Winter - There is no reason why a human being should have to freeze to death under a bridge,” said John Joyce, 47, who was homeless when the first tent city was set up in Providence in January, but has since moved into a studio apartment. “There is a solution to the homeless problem here. It’s called affordable housing.” Joyce and Megan Smith, 21, decided to set up the first tent community in Providence after Paul Langlais, 56, was found dead under a bridge in early January.

Hunger In America At 14 Year High - The number of Americans who lacked consistent access to adequate food soared last year, to 49 million, the highest since the government began tracking what it calls “food insecurity” 14 years ago. The increase, of 13 million Americans, was much larger than even the most pessimistic observers of hunger trends had expected and cast an alarming light on the daily hardships caused by the recession's punishing effect on jobs and wages.

Food insecurity in America skyrockets - The US Department of Agriculture highlights how the United States in the last decade, despite increased aggregate wealth, slid back significantly in terms of food insecurity as measure of poverty:  Food insecurity – defined by the USDA as when "food intake … was reduced and their eating patterns were disrupted at times during the year because the household lacked money and other resources for food" – afflicted 14.6% of Americans in 2008. ie, some 50 million people were too poor to guarantee being able to put food on the table. The table below, also from the Guardian, shows where food insecurity is highest. The report said 6.7 million people were defined as having "very low food security" because they regularly lacked sufficient to eat. Among them, 96% reported that the food they bought did not last until they had money to buy more.

Food Banks Struggle Amid Record Demands - (AP) Soup kitchen workers are seeing new faces in line and charities are taking more calls for help as the recession makes for a less-than-bountiful Thanksgiving.
Hunger relief advocates came to Congress on Thursday and painted a bleak picture of a country struggling to meet an increased need for food assistance at a time of high unemployment.
"In our 42-year history, we have never witnessed a demand for our services like we are seeing now,"

U.N.: One billion worldwide face starvation - The United Nations launched an online appeal for individual donations to fight hunger as donor nations tackle an economic crisis and, for the first time in history, more than 1 billion face starvation worldwide. The World Food Programme's "Billion for a Billion" campaign aims to reach 1 billion individuals. The 1 billion number is about 100 million more than last year, the World Food Programme said. To meet the needs, the agency said it has to raise U.S. $6.7 billion

US, Somalia Still Opt Out of Children's Treaty - When the U.N. children's agency (UNICEF) commemorates the 20th anniversary of its landmark international treaty protecting the rights of children next week, there will be two countries skipping the celebrations: the United States and Somalia. "It is embarrassing to find ourselves in the company of Somalia, a lawless land," presidential candidate Barack Obama said last year during his election campaign. The Convention on the Rights of the Child (CRC), which was adopted unanimously by the United Nations back in 1989, will be 20 years old on Nov. 20.

Toddlers insensitive to fear go on to commit crimes - life - - New Scientist - Even at the tender age of 3, children who will go on to be convicted of a crime are less likely to learn to link fear with a certain noise than those who don't. This may mean that an insensitivity to fear could be a driving force behind criminal behaviour. Adult criminals tend to be fearless, but whether this characteristic emerges before or after they commit a crime wasn't clear, says Adrian Raine, a psychologist at the University of Pennsylvania in Philadelphia. To find out, Raine and colleague Yu Gao turned to data from a 1970s study, collected as part of a decades-long project to understand the biological and environmental factors underlying mental illness.

Gun sales shoot up amid America’s fear of rising crime and terrorism - All over America demand for firearms and ammunition is rising amid concerns that rising unemployment, which passed 10 per cent this month, will lead inexorably to higher rates of crime. Fears of terrorism have also helped to lift demand, as have concerns among gun owners that the Obama Administration may introduce restrictions on gun ownership and impose additional taxes. Smith & Wesson is expecting sales to rise by 30 per cent to $102 million (£61 million) in the first quarter of the next financial year, after growing by more than 13 per cent this year to $335 million.At Sturm and Ruger, sales for the third quarter hit $71.2 million, up 70 per cent from the same period last year. At Glock, the leader in law enforcement markets, pistol sales rose by 71 per cent in the first quarter of the financial year for 2010, in comparison with the same period last year.

Qanta Ahmed, MD: From Wall Street to Neverland: The Year America Didn't Sleep - America didn’t just lose money in the Crash -- America lost a lot of sleep. The annual Sleep in America Poll published by the National Sleep Foundation focused on Health and Safety this year. One in three Americans is experiencing a sleep disorder due to economic concerns. Astonishingly, these findings have been little discussed in the professional academe or in the public sphere.

Million Hit By 'Plague Worse Than Swine Flu' - A DEADLY plague could sweep across Europe, doctors fear, after an outbreak of a virus in Ukraine plunged the country and its neighbours into a state of panic. A cocktail of three flu viruses are reported to have mutated into a single pneumonic plague, which it is believed may be far more dangerous than swine flu. The death toll has reached 189 and more than 1 million people have been infected, most of them in the nine regions of Western Ukraine. President of Ukraine Viktor Yushchenko has called in the World Health Organisation and a team of nine specialists are carrying out tests in Kiev and Lviv to identify the virus. Samples have been sent to London for analysis.

Medical workers balk at mandatory flu vaccines (Reuters) - Even as they are forced to wait like everyone else for swine flu vaccines in short supply, thousands of nurses and other front-line healthcare workers are fighting mandatory flu immunization policies being put in place by some U.S. hospitals. An infected nurse or technician can pass on a virus that could be deadly to a frail patient. But data from the U.S. Centers for Disease Control and Prevention show that only about 40 percent of U.S. healthcare workers ever get shots for seasonal influenza. Proponents of the mandatory route, adopted by a growing number of hospitals, say voluntary efforts largely have fallen short.

Without Market Pricing, Kidney Demand Exceeds Supply 6 to 1, And 1000s Needlessly Die Waiting - From the article "White Collar Reset: Kidney for sale?" by Mark Cohen: In my last installment, I entertained the notion of opening a medical marijuana store in the New York City suburb my wife and I call home. This week, while we wait for the New Jersey legislature to finalize the legality of that option and as I begin year two in what is now semi-officially the direst U.S. job market since the Great Depression, I'd like to move on to the next previously taboo plan for recapitalizing our household.
I'm considering selling one of my kidneys.

Uses of Medical Histories Are Curtailed Under a New Law - NYTimes - The most important new antidiscrimination law in two decades — the Genetic Information Nondiscrimination Act — will take effect in the nation’s workplaces next weekend, prohibiting employers from requesting genetic testing or considering someone’s genetic background in hiring, firing or promotions. The act also prohibits health insurers and group plans from requiring such testing or using genetic information — like a family history of heart disease — to deny coverage or set premiums or deductibles.

Drug Makers Raise Prices in Face of Health Care Reform - NYTimes - In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation’s drug bill, which is on track to exceed $300 billion this year. By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992.  The drug trend is distinctly at odds with the direction of the Consumer Price Index, which has fallen by 1.3 percent in the last year.

In House, Many Spoke With One Voice - Lobbyists’ - NYTimes = In the official record of the historic House debate on overhauling health care, the speeches of many lawmakers echo with similarities. Often, that was no accident. Statements by more than a dozen lawmakers were ghostwritten, in whole or in part, by Washington lobbyists working for Genentech, one of the world’s largest biotechnology companies. E-mail messages obtained by The New York Times show that the lobbyists drafted one statement for Democrats and another for Republicans

Busted! The New York Times Verifies Lawmaker’s Speeches Written by Lobbyists - The New York Times has gotten hold of emails proving speeches are written by corporate lobbyists. Now if they would only expose how many bills are as well.Personally I've know this for some time. The public relations techniques of lobbyists are notorious. There are so many lobbyist press kits and white papers, it must look like snow.  Firstly, one sees the same story across over 100 newspapers and TV media, all with the same talking points. Then we have interviews and debates on television, again with the same talking points. Ever wonder why suddenly the public discourse sounds like a chorus of talking parrots? This is why.

Revised Estimate for H.R. 3962, the Affordable Health Care for America Act - CBO has just released a revised estimate of the net budgetary impact of H.R. 3962, the Affordable Health Care for America Act, the health care reform bill that was passed by the House of Representatives on November 7. The revised estimate corrects a mistake that CBO made in its earlier assessment of a provision that would establish the Community Living Assistance Services and Supports (CLASS) program, a federal insurance program for long-term care. 

What Happens After the Public Option Passes? - A few days ago Karl had a back and forth with Ezra Klein, which was prompted by an email I sent Karl. I wondered how Ezra could promise moderation wary liberals that the successful passage of a modest healthcare plan would definitely grow into a more expansive healthcare plan in the future, and also be puzzled when critics worry the public plan will increase the deficit. Ezra countered that “The argument, essentially, rests on an analogy to Medicare and Medicaid. The problem here is that Medicare and Medicaid are entitlements. The public option is not.”

Senate nears first healthcare vote (Reuters) - Democrats in the U.S. Senate geared up for a fierce battle over a new healthcare reform plan on Thursday as Republicans condemned the bill's price tag and tax hikes before the first crucial test vote on Saturday.Senate Democratic leader Harry Reid's 2,074-page blueprint for overhauling the $2.5 trillion healthcare system sparked what promises to be a long and bitter debate over President Barack Obama's top domestic priority.The Senate will vote on Saturday night on whether to move to debate on the legislation -- the first key procedural hurdle for the Senate plan and one that requires 60 votes from the 100-member body.

Conyers Blasts Obama for Health Care Strategy - In a radio interview with Bill Press, Rep. John Conyers (D-MI) ripped into President Obama and White House chief of staff Rahm Emanuel saying they are caving in to "nutty right-wing" proposals just to get a health care bill passed. Said Conyers: "I'm getting tired of saving Obama's can in the White House." Here's the audio clip...

An Impossible Task - I don't think the Chamber of Commerce could possibly hire a "respected economist" because any economist working for this group would lose whatever respect they might have: Health bill foes solicit funds for economic study, Washington Post: The U.S. Chamber of Commerce is collecting money to finance an economic study that could be used to portray the health care legislation as a job killer and threat to the nation's economy, according to an e-mail solicitation from a top Chamber official. The e-mail ... proposes spending $50,000 to hire a "respected economist" to study the impact of health-care legislation ... would have on jobs and the economy.

Economists’ Letter to Obama on Health Care Reform - NYTimes - This afternoon a group of 23 prominent economists — including two Nobel laureates as well as previous members of both Democratic and Republican presidential administrations — sent a letter to President Obama about the priorities for health care reform. The letter appears below.

Health Economists Back Elements of Senate Bill in Letter to Obama - A group of prominent health economists sent a letter to President Barack Obama on Tuesday backing key elements of health-care legislation approved by the Senate Finance Committee, including an excise tax on high-value insurance plans and a commission to promote Medicare’s solvency. The economists said the excise tax will not only raise federal revenues but also create incentives to reduce private-sector health-care costs and help boost workers’ cash wages. The House version of the health bill doesn’t include what is sometimes called the tax on “Cadillac” health plans. It is opposed by unions, which say the tax would hit many plans of middle-income workers.

Supply, Demand, and Healthcare Reform - Let's review some basic principles of supply and demand: If a government policy increases the demand for a service, the price of that service tends to rise. If the government prevents prices from rising, shortages develop. The quantity provided is then determined by supply and not demand. In the presence of such excess demand, the result could be a two-tier market structure. Consumers who can somehow pay more than the government-mandated price will be able to purchase the service, while those paying the controlled price may be unable to find a willing supplier. Those principles lie behind this story from the Washington Post...

Why do employers want to continue providing health-care benefits? - One of my standard questions when I talk to business types is why does your business, or any business, want responsibility for your employees' health-care coverage? After all, businesses aren't interested in their employees' housing decisions, or their choice in cars. Why health care?There are a lot of answers to this question, most of them unsatisfying. But that may be because it's the wrong question. If we were rebuilding capitalism from scratch, employers may well decide to let someone else worry about health care. But the relevant question today is why they want to keep offering health care, rather than embracing one of the alternative proposals on the table.

The Actuary on the House Bill - Keith Hennessey summarizes the actuary's report on the House healthcare reform bill: The bill would mean almost 30 M new people in government-run insurance, more than four times as many as would be newly insured through private coverage.  By far the largest effect of the bill would be to enroll more than 23 M new people in two existing government programs, Medicaid and S-CHIP. Medicaid is today widely regarded as fiscally unsustainable before adding more people. Foster estimates that 18 M people would remain uninsured and have to pay the penalty tax. These people are clearly worse off than they would be under current law.

Commentary - NYTimesThe 18 Million - Obamacare, in whatever form it eventually takes, will pile further regulations, subsidies and perverse incentives atop the existing mess, and probably make our already-dysfunctional system more byzantine and more expensive. But it does promise to make it more equitable along the way. For some people, at least. The trouble is that for millions of uninsured Americans, the reforms will make the system seem more unjust, not less... to my mind the more damning figure is the projection that in 2019, the bill will leave 18 million Americans uninsured and paying a penalty for the privilege. That means that 10 years and hundreds of billions into health care reform, two-thirds of the uninsured will have coverage — but the remainder, 18 million strong, will be paying more and getting exactly nothing in return. We’ll be effectively taxing a third of the uninsured to cover the rest.

House moves to protect doctors from Medicare cuts - The Democratic-controlled House voted Thursday to add more than $200 billion to the deficit to prevent steep Medicare payment cuts to doctors, a move Republicans denounced as a political payoff. The measure, approved on a near party-line vote of 243 to 183, is a top priority for the American Medical Association. The GOP contended that Democrats supported the bill to thank the doctors group for backing President Barack Obama's health care overhaul.

What should we do instead of the Obama health reform bill? - A lot of people think you have no right to criticize a bill unless you propose a better bill.  I don't agree (if the aforementioned bill is bad on net), but in any case I will give this a try.  These are not my first best reforms.  They're my "attempt to work with some of the same moving pieces which are currently on the table" set of reforms.  Keep in mind people, with a "no insurance" penalty of only $750, the current bill isn't going to work (and that's ignoring the massive implicit marginal tax rates on many individuals and families, or the "crowding out" of current low-reimbursement-rate Medicaid patients), so we do need to look for alternatives.

What They Really Believe -  So either the opponents of a serious energy/climate bill with a price on carbon don’t care about our being addicted to oil and dependent on petro-dictators forever or they really believe that we will not be adding 2.5 billion more people who want to live like us, so the price of oil won’t go up very far and, therefore, we shouldn’t raise taxes to stimulate clean, renewable alternatives and energy efficiency.

Hmmmm, I wonder if this has anything to do with mid-term elections* - From Reuters: U.S. President Barack Obama and other world leaders on Sunday supported delaying a legally binding climate pact until 2010 or even later, but European negotiators said the move did not imply weaker action... French Environment Minister Jean-Louis Borloo said it was clear the main obstacle was the United States' slow progress in defining its own potential emissions cuts.

Copenhagen climate summit hopes fade as Obama backs postponement - Barack Obama acknowledged today that time has run out to secure a binding climate deal at Copenhagen and began moving towards a two-stage process that would delay a legal pact until next year at the earliest.During a hastily convened breakfast meeting in Singapore, the US president supported a Danish plan to salvage something from the moribund negotiations by aiming for a broad political agreement and postponing contentious decisions on emissions targets, financing and technology transfer.

Climate Rage - One last chance to save the world — for months, that's how the United Nations summit on climate change in Copenhagen, which starts in early December, was being hyped. That was back in March. Since then, the endless battle over health care reform has robbed much of the president's momentum on climate change. With Copenhagen now likely to begin before Congress has passed even a weak-ass climate bill co-authored by the coal lobby, U.S. politicians have dropped the superhero metaphors and are scrambling to lower expectations

Climate change negotiations: Time to reconsider - The Copenhagen Summit could be crucial for the future of climate change. This column says negotiators should aim to agree on a global emissions target for 2050, the rapid deployment of a satellite system to measure country emissions, a worldwide cap-and-trade system, governance providing incentives to join the agreement, and a subsidiarity principle with permits allocated domestically by the countries themselves. The negotiation for 2015 could then focus on the worldwide allocation of free permits.

The Global Surface Temperature Anomaly - From NOAA's National Climate Data Centerlarger graph From Temperature Anomaly FAQs: The term "temperature anomaly" means a departure from a reference value or long-term average. A positive anomaly indicates that the observed temperature was warmer than the reference value, while a negative anomaly indicates that the observed temperature was cooler than the reference value. The reference value used to create this graph was the average over the 1901-2000 period.

The global distribution of carbon emissions - VoxEU - What is the geographical distribution of CO2 emissions? This column identifies the Earth’s “polluting centre of gravity” since 1970. It is heading east faster than GDP, which suggests that Asian production is getting more carbon-intensive. Note: Yellow markers denote total CO2 anthropogenic emissions (organic carbon excluded); grey circles denote CO2 emissions from industrial processes. (google maps)

Catalysing Low Carbon Growth in Developing Economies: public finance mechanisms to scale up private sector investment in climate solutions - pdf - This report was commissioned by UNEP and partners:

  • UNEP Sustainable Energy Finance Initiative (UNEP SEFI)
  • UNEP Finance Initiative (UNEP FI) under its Climate Change Working Group
  • The Institutional Investors Group on Climate Change (IIGCC)
  • ClimateWise
  • The Investor Network on Climate Risk (INCR)
  • The P8 Group
  • The Principles for Responsible Investment (PRI), an investor initiative in
  • partnership with UNEP FI and The Global Compact, and
  • The UK Department for International Development (DFID)
  • BBC - Earth 'heading for 6C' of warming - Average global temperatures are on course to rise by up to 6C without urgent action to curb CO2 emissions, the lead author of a new analysis says.Emissions rose by 29% between 2000 and 2008, says the Global Carbon Project. All of that growth came in developing countries, but a quarter of it came through production of goods for consumption in industrialised nations. The study comes against a backdrop of mixed messages on the chances of a new deal at next month's UN climate summit.

    Climate change catastrophe took just months - Times Online - Six months is all it took to flip Europe’s climate from warm and sunny into the last ice age, researchers have found.They have discovered that the northern hemisphere was plunged into a big freeze 12,800 years ago by a sudden slowdown of the Gulf Stream that allowed ice to spread hundreds of miles southwards from the Arctic.Previous research had suggested the change might have taken place over a longer period — perhaps about 10 years.The new description, reminiscent of the Hollywood blockbuster The Day After Tomorrow, emerged from one of the most painstaking studies of past climate changes yet attempted.

    No Peak in Oil Before 2030, Study Says – NYTimes - Few topics can inflame oil watchers more than the debate over “peak oil” – that difficult-to-predict moment when the world’s oil production reaches its highest level before beginning a long and irreversible path of decline. In recent years, ominous warnings about peaking production have gained some prominence among traders and some analysts. They helped explain why oil prices soared last year on fears that oil supplies would fail to catch up with the projected growth in consumption. A retired geologist predicted, wrongly it turned out, that global oil production would peak on Thanksgiving Day, 2005. Others believe that the peak in production will happen from 2011 to 2015. In this minefield, IHS Cambridge Energy Research Associates, the consulting firm founded by the oil historian Daniel Yergin, has resolutely been on the optimistic side of the peak oil abyss.

    World Energy Outlook - IEA - The 2009 edition of the World Energy Outlook (WEO), was released on 10 November and it provides updated projections that take into account the implications of the global credit crisis, the economic slowdown and the recent slump in the prices of oil and other forms of energy. It also presents in-depth analysis of three special topics:    Financing energy investment under a post-2012 climate framework  -    Prospects for global natural gas markets   -    Energy trends in Southeast Asia

    The one thing depleting faster than oil is the credibility of those measuring it - I don't know when global oil supplies will start to decline. I do know that another resource has already peaked and gone into free fall: the credibility of the body that's meant to assess them. Last week two whistleblowers from the International Energy Agency alleged that it has deliberately upgraded its estimate of the world's oil supplies in order not to frighten the markets. Three days later, a paper published by researchers at Uppsala University in Sweden showed that the IEA's forecasts must be wrong, because it assumes a rate of extraction that appears to be impossible. .

    Oil Discoveries have been Declining Since 1964 - bar graph

    Oil Prices and Recesssions - 40 year bar graph

    Oil running out far faster than predicted: report - A leading academic institute has urged European governments to review global oil supplies for themselves because of the "politicisation" of the International Energy Agency's figures.Uppsala University in Sweden today published a scathing assessment of the IEA's annual World Energy Outlook, saying some assumptions drastically underplayed the scale of future oil shortages.Kjell Aleklett, professor of physics at Uppsala and co-author of a new report "The Peak of the Oil Age", claims oil production is more likely to be 75m barrels a day by 2030 than the "unrealistic" 105m used by the IEA in its recently published World Energy Outlook 2009. The academic, who runs a Global Energy unit at Uppsala, described the IEA's report as a "political document" developed for consuming countries with a vested interest in low prices.

    Chris Martenson on Energy and Peak Oil...(Video) "Interesting talk by Chris, about 10 minutes long."

    No responsible leader can afford to ignore implosion of US democracy - Defectors from the International Energy Agency at the United Nations have spoken to the British Guardian newspaper revealing how the USA has used every means to prevent accurate reporting of oil production -- we are now at, or more probably, have passed peak oil production. A figure of 82 or 83 million barrels per day seems to be the limit, not the 102 mbd hitherto spoken of as possible.This fact is of cardinal importance to the rational understanding of US policy. Our country is utterly dependent upon unlimited supplies of relatively cheap gasoline. Our population is dispersed and the private automobile is essential to personal existence. We say the US worker works to buy gasoline, and buys gasoline in order to work. This syllogism is now fatally compromised.

    The Oil Drum - A New Geopolitical Jevons Paradox? A Look at Non-OECD Oil Demand - This is part 2 of my post on oil demand. This time I look at the Non-OECD demand and how it may impact global oil demand. Based on data from the 2009 BP Statistical Review, the OECD oil consumption in 2008 decreased by -3.2% while demand within emerging economies increased by +3.1%. The report also indicates that oil production from OECD countries has been declining since 1997 and is now below 23% of the world production.Non-OECD consumption grew from 40% of the world demand in 2004 to 45% in 2009.

    Hubbert's Peak - Join us as we watch the crisis unfolding - I think it unlikely that oil production will ever climb back to the 2005 levels. Production in the first seven months of 2009 is down by about two million barrels per day, with OPEC responsible for most of the reduction. I think it unlikely that oil production will ever climb back to the 2005 levels. A large number of projects have been canceled or postponed. If they ever get reinstated, the older oilfields will have declined more than the postponed projects could produce.The International Energy Agency is still emitting cornucopian forecasts. They are slightly less optimistic than before, but still enormously larger than my predictions.

    Technology Review: The Coming Nuclear Crisis - The world is running out of uranium and nobody seems to have noticed.The world is about to enter a period of unprecedented investment in nuclear power. The combined threats of climate change, energy security and fears over the high prices and dwindling reserves of oil are forcing governments towards the nuclear option. The perception is that nuclear power is a carbon-free technology, that it breaks our reliance on oil and that it gives governments control over their own energy supply. That looks dangerously overoptimistic, says Michael Dittmar, from the Swiss Federal Institute of Technology in Zurich who publishes the final chapter of an impressive four-part analysis of the global nuclear industry on the arXiv today.

    the price of water - In my years in politics, one thing I've learned is Americans have little knowledge of the essential elements necessary for modern life. By essential I mean, if you awoke in the morning and they weren't there, you'd know immediately. Of course, the most recent example is the financial system. To understand the depth of ignorance on this issue, I asked a very knowledgeable friend the other day, "What percentage of economists do you think know how the financial system works?" He replied, "Three percent. Well, maybe five." I'd say three is probably right. Energy is another issue no one understands. If tomorrow there was no gasoline, electricity, or natural gas, you'd know immediately, but no one knows how these systems work. And then there is water. No money, no energy, you might get by, but no water, no life.

    Transgressing Planetary Boundaries -  We are eating ourselves out of house and home. ... The green revolution that made grain production soar gave humanity some breathing space, but the continuing rise in population and demand for meat production is exhausting that buffer. ... Food production accounts for a third of all greenhouse gas emissions... Through the clearing of forestland, food production is also responsible for much of the loss of biodiversity. Chemical fertilizers cause massive depositions of nitrogen and phosphorus, which now destroy estuaries in hundreds of river systems and threaten ocean chemistry. Roughly 70 percent of worldwide water use goes to food production, which is implicated in groundwater depletion and ecologically destructive freshwater consumption from California to the Indo-Gangetic Plain to Central Asia to northern China.

    Searching for a Miracle - THIS REPORT IS INTENDED as a non-technical examination of a basic question: Can any combination of known energy sources successfully supply society’s energy needs at least up to the year 2100? In the end, we are left with the disturbing conclusion that all known energy sources are subject to strict limits of one kind or another. Conventional energy sources such as oil, gas, coal, and nuclear are either at or nearing the limits of their ability to grow in annual supply, and will dwindle as the decades proceed—but in any case they are unacceptably hazardous to the environment. And contrary to the hopes of many, there is no clear practical scenario by which we can replace the energy from today’s conventional sources with sufficient energy from alternative sources to sustain industrial society at its present scale of operations. To achieve such a transition would require (1) a vast financial investment beyond society’s practical abilities, (2) a very long time—too long in practical terms—for build-out, and (3) significant sacrifices in terms of energy quality and reliability

    Warming drives off Cape Cod's namesake - Climate Change - PORTLAND, Maine - Fishermen have known for years that they've had to steam farther and farther from shore to find the cod, haddock and winter flounder that typically fill dinner plates in New England.A new federal study documenting the warming waters of the North Atlantic confirms that they're right — and that the typical meal could eventually change to the Atlantic croaker, red hake and summer flounder normally found to the south."Fishermen are businessmen, so if they have to go farther and deeper to catch the fish that we like to eat, eventually it won't be economical to do that," said Janet Nye, a fishery biologist with the National Oceanic and Atmospheric Administration

    Afloat In The Ocean, Expanding Islands Of Trash - 1,000 miles northeast of Hawaii, in a remote patch of the Pacific Ocean, the detritus of human life is collecting in a swirling current so large that it defies measurement. Light bulbs, bottle caps, toothbrushes, Popsicle sticks and tiny pieces of plastic inhabit the Pacific garbage patch, an area of widely dispersed trash that doubles in size every decade and is now believed to be roughly twice the size of Texas. Scientists say the garbage patch is just one of five that may be caught in giant gyres scattered around the world’s oceans.

    Switching to electric cars could actually speed climate change - The idea that a wholesale switch to electric cars would automatically reduce CO2 emissions and dependence on oil is one of a number of myths dispelled by a major new report conducted on behalf of the Environmental Transport Association (ETA).The report found that whilst there were significant potential environmental benefits to be had from a switch to electric vehicles, these were wholly dependent on changes in the way electricity was generated, energy taxed and CO2 emissions regulated. For example, under the current EU emissions trading system, sales of electric cars are likely to result in higher overall CO2 emissions and oil consumption.

    Barack Obama and Hu Jintao Announce US-China Electric Vehicles Initiative - The Chinese government and many Chinese businesses have been making pretty big bets on electric cars in the past few years. In fact, the richest man in China, Wang Chuanfu (in Chinese: 王传福), owes much of his fortune (at least on paper) to investments in electric cars and their batteries. So it isn't surprising that electric cars were on the agenda during the meeting between Barack Obama and Hu Jintao; what came out of it is the US-China "Electric Vehicles Initiative". here’s the U.S. Department of Energy (pdf)

    Ambient Lead Pollution in China - The LA Times has a sad article today about industrial lead emissions in specific regions in China . The article says that this is direct evidence of the pollution haven hypothesis. As developed countries regulated lead emissions, China grabbed this market and produced lead that is used as an input in making car batteries. The growth in exports scaled up this production and the population is now suffering the public health consequences. If Jessica is right, then a generation of exposed children will have troubled adulthoods and also cause social problems measured in terms of higher crime rates.

    Led by China, CO2 gases rose in 2008 - Pollution typically declines during a recession. Not this time.Despite a global economic slump, worldwide carbon dioxide pollution rose 2 percent last year, most of the increase coming from China, according to a study published online Tuesday.  "The growth in emissions since 2000 is almost entirely driven by the growth in China," said study lead author Corinne Le Quere of the University of East Anglia. "It's China and India and all the developing countries together." The numbers are from the U.S. Department of Energy's Oak Ridge National Laboratory and published in the journal Nature Geoscience.

    On Climate Change Efforts, China Is Key - It is time to accept that the choices of China and India, not the United States, will determine the world’s future carbon emissions. America’s environmental actions will achieve their biggest returns if they influence the future carbon emissions of the billion-plus-person polities of Asia.  Even if education and political institutions remain stronger in the United States and give the average American of the next generation 50 percent more income than the average Chinese, America’s gross domestic product will still only be a third of the G.D.P. of China, assuming population levels stay even.

    Al Jazeera English - Asia-Pacific - No Apec climate change deal reached - A agreement on climate change has not been achieved at the annual Asia Pacific Economic Co-operation (Apec) summit on the final day of talks.It was felt in Singapore on Sunday that no pact would be made ahead of crucial climate change talks in Copenhagen, the Danish capital, next month."There was an assessment by the leaders that it was unrealistic to expect a full, internationally legally binding agreement to be negotiated between now and when Copenhagen starts in 22 days," Mike Froman, the US deputy national security adviser, said.

    Al Jazeera - Apec rejects trade protectionism - Leaders at the annual Asia Pacific Economic Co-operation summit have vowed in a final statement to reject trade protectionism and pursue a new strategy for growth after downturns.The statement on the last day of talks in Singapore on Sunday said that Apec, the acronym by which the grouping is commonly known, rejects "all forms of protectionism".Several Apec leaders have been critical of the imposition of trade restrictions by Washington recently.The statement also stated that Apec nations would work for an "ambitious outcome" at next month's crucial climate-change talks in Copenhagen, the Danish capital.

    China Financial Markets - Lecturing each other on trade - Regular readers know that for me the key source of China’s high savings and trade surplus is the large excess of the growth rate in national income over household income, caused in large part, I believe, by policies that systematically transfer income from the household sector to investment, SOEs and large producers. Until these policies are reversed I do not think it is meaningful to talk about China’s rebalancing.

    Rising Clout Gives China New Muscle At G2 Talks With US - Once upon a time, the visit of a U.S. president would bring concessions from a Beijing leadership grateful for the attention and affirmation. Not any more. This time, as Mr. Jiang's successor Hu Jintao gets set to host Mr. Obama, who arrives in China tomorrow on his first visit as president, Beijing is ready to trade Washington's list of demands for an equally long list of things it wants to see the American administration do.

    China - The Sleeping Lion Awakened - When Obama sets foot in China for the first time, he will confront a dramatically altered balance of power between China and the United States. This seismic shift is driven by China's astonishing economic growth over the past two decades and has accelerated during the global financial crisis. Its 9% to 10% annualized GDP growth rate in the past two and a half decades is unprecedented in world history. In 1992, Chinese gross domestic product (GDP) was less than 7% of America's GDP. By 2000, the figure topped 12%. When Obama won the election in 2008, the Chinese economy had grown to equal more than 30% of U.S. output. New data show that China is on track to grow more than 8% in 2009, driven by high industrial output and retail sales.

    On Inaugural Trip to Asia, Obama Calls Himself 'America's First Pacific President' - President Obama struck a conciliatory note in his first address in Asia Saturday. Calling himself "America's first Pacific president," the Hawaii native discussed his birthplace and the years he spent growing up in Indonesia. "The Pacific rim has helped shape my view of the world," Obama said. His wide-ranging speech contained soothing words for both Japan and rival China. He assured his Tokyo audience that the United States continues to value its longstanding alliance with Japan but said his country is not threatened by the emergence of China as a global power and a "deeper relationship with China" does not mean weaker bilateral alliances. "In an interconnected world, power does not need to be a zero-sum game, and nations need not fear the success of another

    Obama says Washington not trying to contain China (Reuters) - U.S. President Barack Obama told Chinese students on Monday he did not fear their nation's rise, ahead of talks on trade imbalances and currency strains that underline the sometimes tense embrace between the two giants.Testy exchanges between the world's biggest and third biggest economies have continued even after Obama began his first visit to China on Sunday. A Chinese government spokesman rebuffed calls for the yuan currency to appreciate, a step Obama has urged to correct imbalances in the global economy.But the U.S. president held to a reassuring, sometimes folksy tone at a forum of students in Shanghai, with the mostly gentle questions providing little scope for political hardball

    Obama assures Asia that US borrowing will not spiral out of control - The assurance comes amid growing doubts across the world over the wisdom of White House spending plans. The US Congressional Budget Office expects the deficit to remain around $1.8 trillion (£600bn) as far ahead as 2019 under current plans, pushing the US national debt into the danger zone. China, Japan, and other Asian states with large holdings of US Treasury debt fear that Washington may be embarking on a course that will lead to "stealth default" through dollar debasement and creeping inflation. The public mood in the US has also been shifting as the Republicans score points with calls for a return to fiscal rectitude

    Obama Says U.S.-China Trade Spurs Prosperity for Both - (Bloomberg) -- President Barack Obama said a deeper relationship between the U.S. and China is critical to the economic prosperity of both countries and essential to confronting global issues such as climate change. The U.S. president, addressing students at a forum in Shanghai, also brought up the issue of human rights, saying political and religious freedoms should be “universal” and available to all people and groups “whether they are in the United States, China or any other nation.”

    Obama prods China on yuan but Hu silent (Reuters) - U.S. President Barack Obama on Tuesday urged a reluctant China to let its yuan currency rise in value at a summit where strains over trade between the two giants crept into proclamations of goodwill. Standing beside Obama after their summit, Chinese President Hu Jintao avoided mentioning the yuan or the dollar. Instead, Hu emphasized during a joint media appearance the need to avoid trade protectionism in a thinly veiled reference to China's irritation over new U.S. tariffs on Chinese-made tires, steel pipes and other products. With the U.S. unemployment rate at 10.2 percent, one of Obama's top priorities during his three-day trip to China is pressing Beijing over the huge trade imbalance between the two countries

    China Quashes Talk Of Letting Yuan Strengthen - The Chinese government has sought to distance itself from speculation surrounding a central bank statement earlier this week that was interpreted as a shift in currency policy towards a stronger yuan. In its third-quarter monetary policy report, the People's Bank of China left out a standard phrase pledging to maintain the stability of the yuan and said that it would consider major currencies, not just the dollar, in guiding exchange rates. This prompted speculation that the government was about to allow its currency to strengthen against the dollar, after having pegged it to the US currency for more than a year.  However, a report by Xinhua, the state-controlled Chinese news agency said that the government would not allow the currency to gain against the dollar in the short term.

    Ministry: Renminbi exchange rate “not related” to imbalance - People’s Daily - Chinese government believes that it would be important to create a stable environment for the export sector by stabilizing macro policies and Renminbi exchange rate, said Yao Jian, spokesman of China's Ministry of Commerce November 16. Falling export and trade surplus have provided China with a chance to keep Renminbi exchange rate stable. However, the U.S. allowed the dollar to depreciate while requiring other countries to let their currencies appreciate. "This will do no good to the world recovery and is also unfair," commented Yao.

    China rounds on U.S. rates as global economic risk (Reuters) - Ultra-low interest rates in the United States are fuelling speculation in overseas asset markets and threatening the global economic recovery, a senior Chinese official said on Sunday. In unusually blunt criticism of U.S. monetary policy on the day that President Barack Obama arrives in China for a visit, Chinese banking regulator Liu Mingkang said the Federal Reserve's pledge to hold down borrowing costs and the weak dollar had emerged as a "new systemic risk.""This situation has already encouraged a huge dollar carry trade and had a massive impact on global asset prices," he said in a speech at a financial forum in Beijing."It is boosting speculative investment in stock and property markets and will pose new, insurmountable risks to the global recovery and, particularly, to the recovery in emerging markets," Liu, chairman of the China Banking Regulatory Commission, said

    The Great Wallop - NYTimes - A few years ago we came up with the term “Chimerica” to describe the combination of the Chinese and American economies, which together had become the key driver of the global economy. With a combined 13 percent of the world’s land surface and around a quarter of its population, Chimerica nevertheless accounted for a third of global economic output and two-fifths of worldwide growth from 1998 to 2007. We called it Chimerica for a reason: we believed this relationship was a chimera — a monstrous hybrid like the part-lion, part-goat, part-snake of legend. Now we may be witnessing the death throes of the monster.

    China has now become the biggest risk to the world economy - "The inherent problems of the international economic system have not been fully addressed," said China's president Hu Jintao. Indeed not. China is still exporting overcapacity to the rest of us on a grand scale, with deflationary consequences.  While some fret about liquidity-driven inflation, Justin Lin, World Bank chief economist, said the greater danger is that record levels of idle plant almost everywhere will feed a downward spiral of job cuts and corporate busts. "I'm more worried about deflation," he said.

    China Poses A Grave Threat To The World Economy - The entire world is now pestering China over its currency policies, specifically its decision to peg the yuan at an artificially low level, rather than let it float higher. The latest is Ambrose Evans-Prichard at UK's The Telegraph, who basically accuses the country of playing havoc with the world economy and "exporting overcapacity to the rest of us on a grand scale."By holding the yuan to 6.83 to the dollar to boost exports, Beijing is dumping its unemployment abroad – "stealing American jobs", says Nobel laureate Paul Krugman. As long as China does it, other tigers must do it too. Western capitalists are complicit, of course. They rent cheap workers and cheap plant in Guangdong, then lobby Capitol Hill to prevent Congress doing anything about it. This is labour arbitrage.

    Now The IMF Says China Is Enemy #1 - If the last crisis was blamed on the U.S. financial system, the next one will likely be blamed on China given the building cacophony of yuan-dollar peg criticism. Earlier it was Ambrose Evans-Pritchard. Now the International Monetary Fund chimes in: AFP: In a speech to a finance forum focused on rebalancing the world economy, Strauss-Kahn highlighted China's efforts to boost private consumption, and said a stronger currency was "part of the package of necessary reforms"."Allowing the renminbi and other Asian currencies to rise would help increase the purchasing power of households, raise the labor share of income, and provide the right incentives to reorient investment," he said.

    China and the American Jobs Machine, by Robert Reich - WSJ: President Barack Obama says he wants to "rebalance" the economic relationship between China and the U.S. as part of his plan to restart the American jobs machine. "We cannot go back," he said in September, "to an era where the Chinese . . . just are selling everything to us, we're taking out a bunch of credit-card debt or home equity loans, but we're not selling anything to them." He hopes that hundreds of millions of Chinese consumers will make up for the inability of American consumers to return to debt-binge spending. This is wishful thinking. True, the Chinese market is huge and growing fast. ... But in fact China is heading in the opposite direction of "rebalancing." Its productive capacity keeps soaring, but Chinese consumers are taking home a shrinking proportion of the total economy. Last year, personal consumption in China amounted to only 35% of the Chinese economy; 10 years ago consumption was almost 50%. Capital investment, by contrast, rose to 44% from 35% over the decade. ...

    “Should America Kowtow to China?” - Today’s Wall Street Journal reports:, “China’s top banking regulator issued a sharp critique of U.S. financial management only hours before President Barack Obama commenced his first visit to the Asian giant, highlighting economic and trade tensions that threaten to overshadow the trip.”According to Liu Mingkang, chairman of the China Banking Regulatory Commission, a weak U.S. dollar and low U.S. interest rates had led to “massive speculation” that was inflating asset bubbles around the world. It has created “unavoidable risks for the recovery of the global economy, especially emerging economies,” Mr. Liu said. The situation is “seriously impacting global asset prices and encouraging speculation in stock and property markets.” Well, “them’s fightin’ words”, as we say over here. And of course, the President and his advisors are supposed to accept this criticism mildly because in the words of the NY Times, the US has assumed “the role of profligate spender coming to pay his respects to his banker.” The Times actually does believe this to be true.

    Get tough with China how? - PAUL KRUGMAN'S column today makes a point I brought up not long ago—that there's a real danger to the global trade system of having high American unemployment figures juxtaposed against headlines on China's trade surplus for months on end. That way protectionism lies. But Mr Krugman concludes his column by saying: Unfortunately, the Chinese don’t seem to get it: rather than face up to the need to change their currency policy, they’ve taken to lecturing the United States, telling us to raise interest rates and curb fiscal deficits — that is, to make our unemployment problem even worse.

    Piling on China - Inspired no doubt by President Obama’s visit to China, American editorial writers and columnists are seizing on the opportunity to pile on China. In his column today Paul Krugman takes China to task over its policy on its currency. I think that Dr. Krugman is right about this and further believe that the asset inflation that has put us into the fix that we’re in right now can be traced to China’s decision to establish an effective peg of the yuan to the dollar by using the earnings it derived from its export to buy dollars and dollar-denominated securities. This decision followed a recession in China which underscored for them their problems in controlling their currency in the absence of such a peg.

    The Blame Asia Meme - There seems to be a blame game making the rounds in policy circles these days in which Asia is at fault for the credit crisis and economic downturn. The meme goes like this: Everything was fine until the Asians started manipulating their currencies and creating excess savings to export to the West. This mercantalist policy of low domestic demand, high savings, and an export-oriented economy set up huge macro imbalances that created the debt bubble and recession we see today. Asians need to save less and buy more — and stop manipulating their currency. Do you buy this line of argument? I don’t.

    Grim truths Obama should have told Hu - The agenda was long, covering the world economy, climate change and non-proliferation of nuclear weapons. The last two are the most important, over the long run. But the first is the most urgent. If we do not achieve a healthy global economic recovery, hope of a co-operative relationship is likely to prove vain. Yet such a recovery is far from ensured. Worse, some of what is now happening – particularly China’s decision to depreciate the renminbi along with the dollar – makes healthy recovery less likely.

    Is the US the appropriate renminbi critic? - Free Exchange has observed over the past few days that the blogosphere, financial press, and political punditry have put forth a plethora of opinions about Chinese economic policy. Let's take a look at some of the latest...The Economist asks the obvious, namely, what is China thinking? If China's currency policy is putting the world economy on a collision course with itself via beggar thy neighbor trade agendas and aggravated imbalances, why persist in holding down the renminbi?  There are two reasons. First, renminbi depreciation isn't especially severe when looked over a broader time frame. Second, renminbi appreciation will do little to fix the trade balance between China and America, as the US in unlikely to begin producing much of what it imports from China. Instead, it may lead to inflation

    China, the Renminbi, and Global Imbalances View - Econbrowser - President Obama's trip to China has returned to scrutiny the role of China's currency and macroeconomic policies in perpetuating global imbalances. [0] [1] [2] Various observers have continued to ascribe a central role to real RMB appreciation to effect global rebalancing. I think it's useful to remember that, given a Chinese trade balance in excess of 260 billion USD, appreciation can only have a certain impact. (charts & analysis)

    China's currency: A yuan-sided argument - The Economist - Nevertheless, in the long run, a stronger yuan would benefit China’s economy—and the world’s—by helping shift growth from investment and exports towards consumption. It would boost consumers’ purchasing power and squeeze corporate profits, which have accounted for most of the increase in China’s excessive domestic saving in recent years. China will probably allow the yuan to start rising again early next year. This will not be the result of foreign lobbying—indeed, China is more likely to change its policy if foreign policymakers shut up. But by early next year China’s exports should be growing again, its year-on-year GDP growth could be close to 10%, and its inflation rate will have turned positive. The arguments in favour of revaluation will then loom much larger.

    Will China's Consumers Save The World Economy? - As debt-laden consumers in the U.S. retrench, increasingly wealthy Chinese consumers could become one of the most important sources of growth for the global economy. Shoppers in China are opening their newly stuffed wallets wider than ever. Passenger car sales surged 76% in October from a year earlier, while overall retail sales jumped 16.2%. Such spending has contributed to China's robust recovery from the global economic crisis.

    China vs United States by the Numbers (NYTimes Graphic)

    China, U.S. eye pact to help troubled banks: sources - (Reuters) - Chinese and U.S. regulators are negotiating a pact aimed at encouraging Chinese financial institutions to buy into small and medium-sized banks in the United States, bankers briefed on the plan said on Tuesday. Chinese bankers have complained that it's been difficult for them to set up branches or invest in banks in the world's leading economy, due partly to U.S. regulators' tough supervision and strict approval process for financial deals. But the global financial landscape has been revamped by the credit crisis, and cash-rich Chinese banks are now bigger players on the world scene and are scouting around for investment targets.

    China Faces Asset-Bubble Risk, PBOC Adviser Fan Says (Bloomberg) China is among the emerging markets facing risks of property and commodity market bubbles, central bank adviser Fan Gang said, joining officials from the region in expressing concern about surging asset prices. “The real risk is really asset bubbles,” Fan, who heads the National Institute of Economic Research, said at a business conference in Hong Kong today. A “Chinese asset bubble would be something very dangerous, that would cause the overheating” elsewhere as well, he said. Low interest rates sustained by the Federal Reserve, a weakening dollar and capital inflows to emerging markets have added to the dangers

    Riding on China’s coat-tails - The key challenge for China over the next five to  ten years will be restructuring the financial sector so that capital allocation becomes more efficient and lays the groundwork for consumption-led growth, One of the major problems is that the cost of capital is too low, making it too easy to invest and leading to the overheating of the property sector While Chinese GDP growth will be around 8 per cent, from an Australian point of view it will feel like 12 or 13 per cent, as 95 per cent of that growth is coming from fixed asset investment

    It’s Not When to Exit, But Who - Investors are getting antsy about the timing of central banks’ exit from their accommodating monetary policies and extraordinary asset-purchase programs. Increasingly one hears commentary warning of inflation, although with unemployment still rising and consumer demand still falling, it is hard to imagine much near-term inflation in the United States, Europe or Japan.  Commentators are on firmer ground when they warn that dangerous asset bubbles are developing in emerging Asia and in China in particular.  And it is not only independent critics: the World Bank, in its recent semi-annual report on East Asia, warned darkly of unsustainable asset-market conditions.  Asset prices are frothy.  Property prices are booming, especially in the big cities.  All this is alarmingly reminiscent of the United States in 2006.

    Say’s Law in China - Is China producing too much of everything? Say’s Law says that’s impossible. Then how about too much housing? Perhaps, but here are some relevant estimates (or I should say guesstimates, as I had trouble finding data):1. When I visited in 2006 the Chinese media indicated that the average urban apartment had increased from about 85 sq feet in 1980 to somewhere around 250 sq feet. By now I imagine it is well over 300 sq feet.2. Much of the urban housing is very substandard, and should be torn down at some point.3. In a modern economy housing units are up closer to 1000 square feet.4. Somewhere around 60% of Chinese residents (750 million people) live in rural areas.5. In the next few decades China will become overwhelmingly urban and middle class.6. China’s population will grow by at least another 100 million

    Five Things The US Can Learn From China - Time - Could the world's lone but weary superpower actually learn something from China? It's a politically incorrect question, of course. Still, this is a moment of humility for the U.S., and China is doing some important things right. If the U.S. were to ask the Chinese what it could learn from their example, it might gain some insight into what it's doing right and wrong. Here are five lessons from China's success story:

    China plans to set up dedicated India fund - China will explore the possibility of setting up a dedicated India infrastructure development fund to strengthen its economic and trade ties with this country, a top official of The People’s Bank of China (PBC) told Financial Chronicle in an exclusive interview. Referring to the proposal for a dedicated India fund, Ma Delun, deputy governor of the Chinese central bank said, “As central bank of China, we will support anything that is facilitating economic and financial cooperation between India and China

    China-India tensions rising - The Japan Times Online - The India-China relationship has entered choppy waters due to a perceptible hardening in the Chinese stance. Anti-India rhetoric in the state-run Chinese media has intensified, even as China has stepped up military pressure along the disputed Himalayan frontier through cross-border incursions. Beijing also has resurrected its long-dormant claim to the northeastern Indian state of Arunachal Pradesh, nearly three times as large as Taiwan.The more muscular Chinese stance clearly is tied to the new U.S.-India strategic partnership, symbolized by the nuclear deal and deepening military cooperation. As President George W. Bush declared in his valedictory speech, "We opened a new historic and strategic partnership with India."

    India as #1 - Since I’ve been making a fool of myself with all these contrarian posts, I might as well get it all out of my system. When Tyler Cowen asked me for my most absurd belief, one idea that I came up with was that India will have the world’s largest economy in the year 2109. First let’s ask ourselves why most people would find this prediction a bit far-fetched. Most of us have never even visited India, but we have seen media images that often show a very crowded and underdeveloped country. It is very hard to imagine how India’s economy could ever surpass the US. More astute observers might notice that India does have nearly 4 times the US population, and it is not that hard to imagine that their per capita GDP might eventually reach 30% of US levels. But the population advantage of India raises an even greater hurtle. Right now China has a per capita GDP that is twice as high as India’s. Even worse, China is growing more rapidly. And China’s total population is larger than India’s. So how could India possibly overtake China within the next 100 years?

    Asia-Pacific Trade and Investment Report 2009 : Trade-led Recovery and Beyond - UN ESCAP - The Asia-Pacific Trade and Investment Report is an annual publication prepared by staff of the Trade and Investment Division as a full in-house publication. The Report replaces the Asia-Pacific Trade and Investment Review with its first issue in 2009. The theme of APTIR 2009 is: "trade-led recovery and beyond". This issue analyses the impact of the global economic crisis on trade and investment flows in and to the region and implications for trade policy. It provides a conceptual framework for trade policy which should contribute to achieving inclusive and sustainable development. It makes a case for the multilateral trading system as the prime international trade governance system and gives an overview of the latest developments in the Doha Round. This issue of the Report also calls for an expansion of intraregional trade and deeper regional integration for that purpose and discusses the role of regional trade agreements in that regard. The Report also emphasizes the role of trade facilitation and needs for trade finance and explores issues related to business survival and development in time of crisis and beyond, including the development of regional value chains and the need for business to adopt principles related to corporate social responsibility

    Africa is Rich - At home, we don’t value people around us only by their numerical income – we also recognize courtesy, classiness, intelligence, loyalty, familial devotion, community dedication, spirituality, peacefulness, creativity, beauty, style, kindness, athleticism, artistry, and many other dimensions. So why do we insist on defining Africans only on the dimension in which Africa looks worst – material income – when on some other dimensions Africa compares well to the West?  Wouldn’t it be a lot less patronizing if we recognized the riches as well as the poverty of Africa?

    International Trade Statistics - WTO - 2009 - International Trade Statistics 2009 offers a comprehensive overview of the latest developments in world trade, covering the details of merchandise trade by product and trade in commercial services by category.

    Global Wage Report 2008/09: Minimum wages and collective bargaining: Towards policy coherence - International Labor Organization - pdf 1830 KB -

    Executive summary of the Global Wage Report 2008/09 - [pdf 62 KB]

    Improving Effectiveness and Outcomes for the Poor in Health, Nutrition and Population - World Bank - IEG - Full Report - Executive Summary - Management Response Summary

    Global Report on Human Settlements 2009: Planning Sustainable Cities - UN Habitat - Planning Sustainable Cities reviews recent urban planning practices and approaches, discusses constraints and conflicts therein, and identifies innovative approaches that are more responsive to current challenges of urbanization. It notes that traditional approaches to urban planning (particularly in developing countries) have largely failed to promote equitable, efficient and sustainable human settlements and to address twenty-first century challenges, including rapid urbanization, shrinking cities and ageing, climate change and related disasters, urban sprawl and unplanned peri-urbanization, as well as urbanization of poverty and informality. It concludes that new approaches to planning can only be meaningful, and have a greater chance of succeeding, if they effectively address all of these challenges, are participatory and inclusive, as well as linked to contextual socio-political processes.

    Human development report 2009 - Overcoming barriers: Human mobility and development - Human development is about putting people at the centre of development. It is about people realizing their potential, increasing their choices and enjoying the freedom to lead lives they value. Since 1990, annual Human Development Reports have explored challenges including poverty, gender, democracy, human rights, cultural liberty, globalization, water scarcity and climate change.

    Fiscal Challenges Facing Cities: Implications for Economic Recovery - Brookings -  
    The current economic crisis is not only a national crisis; it is also a metropolitan crisis. And soon the downturn will bring a local government fiscal crisis. Given the normal lag time of 18–24 months between changes in the economic cycle and its impact on city fiscal conditions, local officials anticipate that the next year or two will bring large-scale city government layoffs, deep cuts to local government services, and halted or delayed capital projects. Just as federal stimulus package spending trails off, city fiscal dynamics could well place a serious drag on economic recovery.


    The Arab knowledge report 2009: towards productive intercommunication for knowledge
    - 332 page pdf

    2 comments:

    TomCat said...

    Amazing collection, RJ!! One of these years, I'll actually have the time to sit down and read one of these.

    rjs said...

    you think im getting a little obsessed?