The Federal Reserve said Monday that it would begin testing its strategy to shrink its trillion-dollar portfolio of mortgage-backed securities and eventually unwind its biggest program to prop up financial markets. The central bank emphasized that the move was strictly an exercise in operational preparedness and did not signal a tightening of monetary policy or an effort to begin raising interest rates.Indeed, Fed officials announced in October that they were exploring the use of so-called reverse repo agreements as a tool for carrying out their “exit strategy” from emergency measures adopted during the financial crisis. But the move did demonstrate that the Federal Reserve’s preparations were becoming more concrete, and it highlighted the delicate task of bringing monetary policy back to normal without disrupting financial markets.
Fed: This Is Just A Test - Atlantic Business - Yesterday, the Federal Reserve announced it would begin testing a way to reduce its large portfolio of mortgage-backed securities (MBS). It had previously said that it would purchase MBS through next March. The Fed is emphatically stating that this plan isn't changing and that this test doesn't signal anything about their exit strategy timing. Really, it's just a test. Still, I think even a test has significance. In short, the Fed means business. This test shows that it's moving forward with developing its exit strategy, so it really does intend to shrink its balance sheet when it feels the time is right. It's nice to see the Fed being proactive about ensuring that it knows how to reduce its assets while making as few waves in the market as possible.
Philly Fed’s Plosser Calls for Rate Increases Sooner Rather Than Later - WSJ - Federal Reserve Bank of Philadelphia President Charles Plosser reiterated Tuesday that the Fed must act preemptively to withdraw its extraordinary monetary stimulus in order to protect its credibility and anchor price expectations. “Since expectations play an important role in the dynamics of inflation, it is important that policy act in a manner that keeps expectations well-anchored near the Fed’s inflation objective,” Plosser said. “If expectations do become unanchored, then the Fed will have lost its credibility and either inflation or deflation could arise…So, anticipation and forward-looking policy are essential if the Fed is to achieve its goal of low and stable inflation.” In making this argument, the Philadelphia Fed president referred to his concern about flaws in the commonly held view that “slack” in the economy means that inflation is not a real risk.
Uncertainty and the Fed - There’s a strange view out there that with unemployment above ten percent, and inflation nascent, the Fed should be thinking about raising interest rates.Yesterday Philadelphia Fed President Charles Plosser attempted to explain his view: "… several empirical studies have shown that economic slack is difficult to measure with any accuracy. So making policy decisions based on measures of such slack and particularly on forecasts of slack many quarters ahead becomes problematic." Plosser is right that there’s uncertainty about the exact degree of slack. But his conclusion — that this builds the case for raising interest rates sooner rather than later — just doesn’t follow
The incredible, credible Fed - HERE is Real Time Economics on the latest inflation scare-mongering out of a Fed leader: Federal Reserve Bank of Philadelphia President Charles Plosser reiterated Tuesday that the Fed must act preemptively to withdraw its extraordinary monetary stimulus in order to protect its credibility Of course, one might point out that if the Fed's credibility on inflation were at all in danger, then "extraordinary monetary stimulus" would be generating inflation right this very minute. Instead, core prices are nearly flat, long-term interest rates are at absurdly low levels, and banks and households generally feel no qualms at all about holding on to their greenbacks. It is the Fed's inordinate credibility as an inflation fighting central bank that has prevented its extraordinary monetary stimulus from being more stimulative. Oddly, Mr Plosser doesn't seem to recognise this. Perhaps stranger still, Mr Plosser seems to think that the Fed, by withdrawing monetary stimulus while unemployment is above 10%, will reduce the likelihood of a bout of deflation.
Uh-Oh: One By One, The Fed's Inflation Hawks Are Speaking Up - In a speech before the Charlotte Chamber of Commerce, Lacker stated: "The perception of inflation risk could be particularly pertinent to the current recovery, given the massive and unprecedented expansion in bank reserves that has occurred, and the widespread market commentary expressing uncertainty over whether the Federal Reserve is willing and able to promptly reverse that expansion... If we hope to keep inflation in check, we cannot be paralyzed by patches of lingering weakness, which could persist well into the recovery. In assessing when we will need to begin taking monetary stimulus out, I will be looking for the time at which economic growth is strong enough and well-enough established, even if it is not yet especially vigorous. Although it is hard to predict when that will occur, I can confidently predict that monetary policy will remain particularly challenging for some time to come."
Fed Officials Indicate Central Bank Unlikely to Alter Policy Soon - WSJ - Two Federal Reserve officials indicated that the central bank isn’t likely to take its foot off the gas pedal soon. Federal Reserve Bank of Philadelphia President Charles Plosser said Friday he welcomes the improvement in hiring seen in November, but added he wants to see more improvement before concluding the economy has turned the corner. Separately, Federal Reserve Bank of St. Louis President James Bullard made the case again Friday to keep the central bank’s asset buying program alive beyond the first quarter of next year, to give the Fed extra flexibility in dealing with the economy.
Does the world need more monetary ease? My view is that the Fed should explicitly target a return of nominal expenditure to the trend growth path of the Great Moderation, with a slight modification--3% nominal growth starting from third quarter 2008 and forward. The target should be about $16.1 trillion for the fourth quarter of 2010, about 11% higher than the third quarter of 2009. How to achieve this? First, make the commitment. Second, stop paying interest on reserve balances at the Fed. And finally, make a commitment to significant quantitative easing. On Free Exchange, a post describes a specific proposal by Joseph Gagnon of the Peterson Institute to implement significant quantitative easing. Namely: buy an additional $2 trillion in government bonds, with an average maturity of 7 years...
A roadmap for more Fed easing -- Joseph Gagnon at the Peterson Institute (and a former senior staffer for Mr Bernanke at the Fed) has a new paper (PDF) that offers very specific advice on what more the Fed can do. Namely: buy an additional $2 trillion in government bonds, with an average maturity of 7 years. That would be in addition to the $1.75 trillion of Treasury and mortgage-related debt it has already almost finished buying. Mr Gagnon, extrapolating from the reaction to the current purchase programme, estimates the additional $2 trillion would lower Treasury yields about 0.75 percentage points. That, he reckons, would lower private borrowing rates, boost stock prices 13%, and lower the dollar by 5%. The combined stimulative impact would equal a 1.75 percentage point cut in the federal funds rate, and lift GDP by 3% after two years.
Central banks vs. governments - It is becoming increasingly clear that politicians around the world are beginning to wake up to the lasting scars of the financial and economic crisis, wish it had never occurred, and are seeking someone else to blame. In many countries, that someone is the central bank. The days of imperious central banking are gone. That is probably one step forward. But having central banks under constant pressure from politicians, or unable to do or say what they feel is right represents two steps back. Examples abound, globally...
The ECB’s Continuing Deflationary Bias - The European Central Bank’s decision-making is very hard to understand. As Willem Buiter noted in October, the ECB’s attitude seems to be that it should switch between focusing on core and non-core inflation according to which metric will justify tighter policy. Thus in 2008 when we had high headline inflation but low core inflation, they raised rates. But then in early 2009, they say there was no need to move to a Zero Interest Rate Policy because core inflation was still positive, albeit below the target level and heading downward. Now that energy prices are on the rise, this becomes a reason to stand pat even though core inflation continues its downward trend and both core and non-core inflation are below the ECB’s target.
Quantitative easing is not the cure to what ails Europe - Obviously, Evans-Pritchard in both this article and the German article thinks a monetarist solution of quantitative easing will alleviate the problem. There are significant constraints to more government spending, especially in the Eurozone where governments can’t just print money. Greece is the most flagrant example. But is quantitative easing really going to work? On the first of this very month last year, Marshall Auerback gave a balanced view of the first experiment with QE in a note on Japan’s experiment with quantitative easing...And given the last post I wrote on AmTrust Financial, you know I expect more writedowns and further reluctance to lend in the U.S. Evans-Pritchard’s article points out the same obstacles in Europe. So I do not share Evans-Pritchard’s views that QE is the route to sustained economic recovery. Had we seen quantitative easing in conjunction with increased private-sector savings and deleveraging in March 2008, it may have worked. But, I believe that QE now is fuelling an asset bubble everywhere. A recent article by Bloomberg’s Caroline Baum expressing scepticism about the dollar carry trade also shed light on what is happening with all the extra money in the system
Bernanke May Use Rates To Pop Bubbles - Federal Reserve Chairman Ben S. Bernanke said he doesn't rule out using monetary policy to pop asset-price bubbles, while stressing that financial regulation is his preferred approach. "Supervision, regulation of the financial system is the strongest, most effective" way to deal with bubbles, he said in response to a question at a Senate Banking Committee hearing considering his nomination to a second term. "I do not rule out using monetary policy if necessary, if that situation does become worrisome and threatening." Bernanke said he sees no sign of "extreme misvaluations" in U.S. markets. Fed policy makers said for the first time last month that their decision to cut interest rates to zero may be fueling undue financial-market speculation, according to minutes of their Nov. 3-4 meeting released last week.
Fed: We Will Pop Future Bubbles -"The best approach here if at all possible is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset price bubble bursts in the future.” -Ben Bernanke, Federal Reserve Chairman >Ben Bernanke, it seems, is changing his spots. He is now trying to prove that he is not Alan Greenspan. The technique? Spotting and popping asset bubbles before they do too much damage. This is a major change for the Fed Chairman. Bernanke made his Fed bones, so to speak, back in 1999, when he presented a paper to Fed officials at their annual Jackson Hole meeting, arguing against the Fed popping bubbles. His argument? The Fed should focus on controlling inflation, not trying to manage the cycle of booms and busts.
Fed Debates New Role: Bubble Fighter - WSJ - Not so long ago, Federal Reserve officials were confident they knew what to do when they saw bubbles building in prices of stocks, houses or other assets: Nothing. Now, as Fed Chairman Ben Bernanke faces a confirmation hearing Thursday on a second four-year term, he and others at the central bank are rethinking the hands-off approach they've followed over the past decade. On the heels of a burst housing-and-credit bubble, Mr. Bernanke now calls financial booms "perhaps the most difficult problem for monetary policy this decade."
Fed Watch: Bubbles and Policy - The Wall Street Journal carried a front page article today detailing changing views at the Federal Reserve regarding the policy treatment of emerging bubbles of speculative activity. Much of the ground has been well tread. Is monetary policy or regulatory policy the best mechanism to address bubbles? I tend to favor the latter category, should we have a regulatory environment that is not essentially captured by those policymakers are supposed to regulate. Interest rate policy is a rather blunt weapon that kills indiscriminately.
Bank of England demands new tools to curb excess - Interest rates alone can't prevent the formation of dangerous bubbles in financial markets, the Bank of England warns in a discussion paper today. Rates would have had to be hiked to between 6pc and 19pc earlier this decade to stop the explosion in lending and the property-price explosion, its analysis showed. That would have torpedoed the economy and triggered a painful spike in unemployment. Instead, the Old Lady is calling for new policy instruments to be added to policy makers' armoury. These could take the form of ' surcharges' on bank balance sheets, quelling excessive lending growth and forcing firms to build up larger safety buffers. The paper comes as concerns begin to re-emerge over the buildup of new bubbles in asset markets, fuelled by ultra-low interest rates and money-printing programmes. paper: The role of macroprudential policy Bank of England
Money versus Credit - McTeer - NCPA - I just want to make a simple, but important, point about money and credit that is being overlooked by just about everybody. Normally, focusing on the liabilities or money side of bank balance sheets is fine. Credit is following along. They move together. However, credit is also created outside the commercial banking system when the counterpart is not counted as part of the money supply. As long as the relationship between money and credit remains pretty much unchanged, watching money only creates no problem. However, during the financial crisis over the past year, credit created outside the banking system—commercial paper, for example—has shrunk. The Fed has tried to counter that shrinkage by buying commercial paper directly, but credit has still shrunk. I repeat: credit has shrunk; not only bank credit that has a counterpart in the money measures, but non-bank credit as well
Bernanke Warns of Risks in Push to Revamp Fed -- NYTimes - The Federal Reserve’s chairman, Ben S. Bernanke, warned bluntly over the weekend that provisions in financial legislation before the House and Senate would “seriously impair” the Fed as it struggled to maintain financial and economic stability. In an article on the op-ed page of The Washington Post, Mr. Bernanke sharply criticized a Senate provision that he said “would strip the Fed of all its bank regulatory powers” and a House provision to repeal a 30-year-old law “to protect monetary policy from short-term political influence.” The Federal Reserve’s jurisdiction to regulate banks has come under increasing attack in Congress in recent months, reflecting the anger of voters at the huge taxpayer costs of the bailout of Wall Street.Mr. Bernanke repeated, as he has many times before, that while some of the measures in response to the financial crisis were “distasteful and unfair,” they were necessary.
What responsibilities should the Fed have? - Vincent Reinhart opines: Apparently, the argument runs, there are hidden synergies that make expertise in examining banks and writing consumer protection regulations useful in setting monetary policy. There is an easily verifiable test. The arm of the Fed that sets monetary policy, the Federal Open Market Committee (FOMC), has scrupulously kept transcripts of its meetings over the decades. (I should know, as I was the FOMC secretary for a time.) After a lag of five years, this record is released to the public. If the FOMC made materially better decisions because of the Fed's role in supervision, there should be instances of informed discussion of the linkages. Anyone making the case for beneficial spillovers should be asked to produce numerous relevant excerpts from that historical resource. I don't think they will be able to do so.
Q&A: Former Fed Official Poole on Bernanke and Politics - RTE @ WSJ - During his time as president of the Federal Reserve Bank of St. Louis, William Poole was known for saying what was on his mind. He did so in late July when he concluded that Fed Chairman Ben Bernanke had risked the central bank’s political independence through his policy actions and therefore “does not deserve reappointment.” Now Mr. Poole, who stepped down from the Fed in March 2008, says he’s worried about measures in Congress that would curtail the central bank’s independence on monetary policy. We talked with him about some of the heat on the Fed and Senate Democrats’ proposal to alter the governance of the 12 regional Fed banks. Excerpts...
Bernanke May Not Remember That the Fed Brought the Economy to the Brink of Collapse, but Reporters Should - Yes, it was way back in the fall of 2008, but we do know that the economy was on the brink of economic collapse. We know that the Fed brought the economy to the brink of collapse because that it is what Federal Reserve Board Chairman Ben Bernanke told Congress when he was trying to get to approve the $700 billion TARP program. Mr. Bernanke's memory may not extend back to last year, but the memory of the reporters who cover the Fed should. This means that when Bernanke warns that taking away regulatory powers from the Fed could lead to stability, reporters should provide this crucial piece of background as ridicule. Mr. Bernanke's concern over the Fed's role in maintaining financial stability is a bit like Hormel expressing concern over the treatment of cattle.
Yves Smith: Bernanke Tries to Defend the Fed - In a sign that the Federal Reserve is circling the wagons, chairman Ben Bernanke has an op-ed in the Washington Post that attempts to defend the central bank’s role. What is interesting is how much the tables have turned. The Obama effort to make the Fed into the uber bank regulator has become a rout, with decent odds that the Fed will have its powers reduced, and an increasing possibility that Bernanke might not be reconfirmed (which is frankly the right outcome, no CEO who presided over a similar disaster would still be in charge). This piece has so many artful finesses that I must limit myself to the most salient points.
A Reader’s Guide to Bernanke’s Preemptive Attack - Ben Bernanke is taking no chances. With his confirmation hearing for continuation as chairman of the Federal Reserve System only days away, he has written an op-ed for publication in Sunday’s Washington Post. We may interpret this article as a preemptive attack on his congressional critics, some of whom will no doubt take the opportunity afforded by next Thursday’s hearing to attack his management of the Fed and, indeed, the Fed itself. Monetary-policy propaganda is a high art, and lay readers of Bernanke’s article may well be taken in by its artful formulation. Therefore, as a public service, I offer the following brief commentary, interweaved with CNN’s Saturday report on Bernanke’s Sunday op-ed.
Changing My Mind on Bernanke - I think it's pretty obvious that I'm a big supporter of the Obama administration. But I'm surprised at how little I find myself caring about whether Bernanke is reappointed. If you had asked me a month ago, I probably would've given Bernanke my full-throated support. The only thing that's changed in the past month is that I started to think more carefully about how Bernanke, personally, has performed. Bernanke deserves credit for not repeating the mistakes the Fed made during the Great Depression. But let's be honest: no Fed-Chair-worthy economist would have repeated the mistakes of the Depression-era Fed. What about all those "creative emergency lending facilities" like the PDCF and the CPFF that the Fed implemented, and that Bernanke is always getting so much credit for? Those were in reality designed largely by the NY Fed's Markets Group (headed at the time by William Dudley, who's now the NY Fed President), not Bernanke. If you think about it, two of the decisions that Bernanke actually did have significant influence over were in hindsight pretty terrible decisions.
Fed under fire - I’ve been talking to some longtime Fed watchers ahead of Bernanke’s re-confirmation hearing on Thursday and I’m struck by how bad Fed-Congress relations are. Meltzer - the unofficial historian of the US central bank - tells me the situation is worse than at any point in the Fed’s history. There is real concern that some of the proposals before Congress to curtail the power of the Fed and curtail its independence will end up becoming law. This is a tragedy not just because some of these proposals (not all) could do real harm, but because the desire to cut the Fed down to size is forestalling discussion of issues I think should be high on the post-crisis agenda for the institution.
Bernanke Defends the Fed in Confirmation Hearing - NYTimes Under fire from Democrats and Republicans alike, Ben S. Bernanke on Thursday defended his record as chairman of the Federal Reserve but conceded that the central bank’s lapses contributed to the financial crisis. “I did not anticipate a crisis of this magnitude,” Mr. Bernanke acknowledged in an occasionally contentious hearing on his nomination for a second term as Fed chairman.Mr. Bernanke volunteered that the Fed had been “slow” in protecting consumers from high-risk mortgages during the housing bubble and that it should have forced banks to hold more capital for all the risks they were taking on.“In the area where we had responsibility, the bank holding companies, we should have done more,” he told lawmakers. “That is a mistake we won’t make again.” As he faced the Senate banking committee on Thursday morning, Mr. Bernanke still seemed to have enough support to win approval for a second term.
The Bad Ben Bernanke Bet - As expected, Fed head Ben Bernanke got a rough ride today at his pre-confirmation confirmation hearing. While he wasn't accused of having had anything to do with the Lindbergh kidnapping, he was soundly pounded for pretty much everything else he could conceivably be blamed for having done wrong, whether directly or by simply being alive at the same time. I'm fine with that, of course. Because even though I am not in the conspiracy theorist camp that has the Fed in league with everyone except for the Association of Australian Interior Decorators in a scheme to cause the U.S. to violate its constitution, become wet and socialist, and print exa-dollars every minute as it debases the currency on the path to becoming Argentina (less Eva Peron), I am of the view that Bernanke is mostly toxic.
Bernanke Channels Willie Sutton In Assault On Social Security: 'That's Where The Money Is' - Ben Bernanke has overseen the greatest expansion of the Federal Reserve's balance sheet in its history, pouring trillions of dollars into Wall Street firms at roughly zero interest rates. His generosity, however, has a limit. In testimony before the Senate Banking Committee today, where he's seeking re-appointment as the Fed's chairman, Bernanke called for cutbacks in Medicare and Social Security even as unemployment rises and the middle class is endangered.Citing legendary bank robber Willie Sutton, Bernanke said of the retirement and health care funds that are the legacy of the New Deal: "That's where the money is."
Bernanke’s Plan for Unemployment: Do Nothing - The Federal Reserve, not the elected officials in Congress and the White House, is the public institution with the largest influence over employment levels. So at his hearings either Bernanke might publicly discuss his determination to do more to lower the unemployment rate, or else he might confess his lack of confidence in the ability of monetary policy to do more to lower the unemployment rate and call for more fiscal measures. But he didn’t do either. Instead, as David Dayen recounts, he just said we should cut Social Security benefits to reduce the long-term deficit even though this clearly had nothing one way or another to do with the current labor market situation:No second stimulus, no jobs bill, no public investment to deal with the worst hiring crisis since the Depression, no relief for a jobless recovery, but yes to cutting people’s meager Social Security benefit and their health care in their old age.And this is what he’s saying when he WANTS his job back. What will it be if he gets it?
Bernanke May Get Second Term at Fed Shorn of Bank Supervision -(Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke left a Senate confirmation hearing with support for a second term heading a central bank that may be shorn of its powers to supervise financial firms. Banking Committee Chairman Christopher Dodd of Connecticut backed Bernanke yesterday and said he’s likely to be confirmed by the full Senate. Dodd credited Bernanke with preventing a financial meltdown, even though the Fed’s oversight of banks leading up to the crisis was an “abysmal failure.” Bernanke told the committee that the Fed’s ability to maintain a stable financial system and conduct monetary policy is “critically dependent” on its supervision powers. He got no assurances that the Fed’s authority would remain intact as Congress considers an overhaul of financial regulations in a bid to prevent a repeat of the worst crisis since the 1930s.
Proposed Fed reforms worse than useless - Ever since its creation in 1913, the Federal Reserve has grappled with a daunting political contradiction. The Fed is charged with preventing the collapse of the banking and financial system, whose health is essential for the "real economy" of production and jobs. But financial bailouts usually occur when mistakes or misdeeds by bankers and investment professionals make them public pariahs. To do its job, then, the Fed protects -- or seems to protect -- an unpopular, disgraced and undeserving group. We are now witnessing this contradiction in full bloom. The Fed backlash is bipartisan. Lost in this politically charged climate is the reality that the Fed, more than any other government agency, arguably stopped last fall's financial panic from becoming a global depression.
Martin Mayer: Audit the Fed! Ben Bernanke: Beneath the Banksters - The last sentence of Mayer's 2002 book, The Fed, reads: "The tragedy for all of us would be if the Fed's and the Treasury's and the Congress's reverence for people who make a lot of money left us unprotected against some sudden revelation of the truth that becomes obvious only in hindsight, that a lot of them don't know what they're doing." Mayer's comments on auditing the Fed are below, followed by our thoughts on the start of Ben Bernanke's Senate confirmation process. As this issue of The IRA goes to press, several members of the Senate have stated that they do not know if there are sufficient votes to confirm Bernanke for a second term as Fed Chairman.
Fed must have a key role in banking reforms - Although the Federal Reserve has much work to do to ensure such intervention is never needed again, it would be unwise to make the central bank more subject to congressional oversight. Monetary policy, in particular, must operate free of the political calculations of elected officials.Chastened by its failures, the Fed has pledged to establish new policies and tougher oversight for major financial firms. Bernanke said this approach will make it clear that no institution is “too big to fail,” and that the costs of failure will be borne by the industry and not by taxpayers. Bernanke’s pledges deserve close scrutiny by Congress at his confirmation hearing. But the Fed should retain its regulatory authority; its longtime supervision of banking and monetary policy put it in the best position to know how oversight should be reformed and how it can be enforced.
The Right Reform for the Fed - A fiat money system cannot control inflation without controlling credit. Bank regulatory powers natively belong to the Fed as a result. Rather than remove the regulation powers, give them to the Fed exclusively, so that we can watch them fail at the task without any charges of banks choosing their regulators. There should only be one regulator of banks. Let it be the Fed. What the Fed did not do in the past it recommends now, that bankrupt institutions be taken through bankruptcy. The failure to regulate properly is systematic. There needs to be a change at the top of the Fed if it is to have a chance of regulating properly.
Questions for Bernanke - Based on the public statements of committee members, Mr. Bernanke already appears to have enough votes. But Thursday’s hearing and the subsequent floor debate are an important opportunity for senators to raise issues about how the Fed will operate. This is more than a ritual. Questioning (the monetary) authority and politely insisting on a coherent answer is a crucial part of our political governance structure — and something that was sorely lacking during the Alan Greenspan era. There are three possible lines of inquiry that could draw Mr. Bernanke out. These questions could be separate or part of a sequence...
Live Blog: Bernanke Under Fire in the Senate - Real Time Economics – WSJ - Federal Reserve Chairman Ben Bernanke will today face his longest series of repeated attacks from members of the Senate Banking Committee in his confirmation hearing for another four-year term.Mr. Bernanke is widely expected to garner the 60 votes needed in the full Senate to be cleared. The big question is how many bruises he will have in the end, and how much further the Fed’s stature is diminished. We follow the proceedings starting at 10 a.m. once the hearing begins.
If Bernanke Did Not Know the Fed's Mission, Would That Be News? - Not at the WSJ, nor it seems anywhere else. Yesterday, Federal Reserve Board Chairman Ben Bernanke referred to the "our dual mandate, which is growth and inflation." In fact, the dual mandate is full employment (defined as 4.0 percent unemployment) and price stability. Presumably Bernanke had unemployment in mind when he said "growth," but it striking that he would not use the right term. The two are of course not synonymous.
Bernanke, Pro and Con - Should Ben Bernanke be reappointed the chairman of the Federal Reserve? The Senate Banking Committee is considering the question this week. Here’s a quick summary of the debate, with arguments from both the con and pro camps:
“Fed Needs To ‘Start Giving A Red Hot Damn About The American Public,’ Says Sen. Whitehouse - The Fed is required by law to keep inflation low and to maximize employment. But, according to Sen. Sheldon Whitehouse (D-R.I.), the Fed only seems interested in performing one of those tasks. High unemployment keeps wages down. Wage growth is seen by the Fed as a sign of inflation and something that should be kept down. Before voting to confirm Bernanke, Whitehouse told HuffPost he wants to hear "[t]hat they're willing to take their eyes off an exclusive gaze on the welfare of Wall Street and start giving a red hot damn about the American public."
10 Reasons Bernanke Should Be Fired - Ben Bernanke is before the Senate today in a bid to be reconfirmed as Fed chief. From his muddled message on transparency to his failure to anticipate the crisis, Nomi Prins has 10 good reasons for the Senate to turn him down
Most Senators “Have Fingers in the Wind” on Bernanke - Yves Smith - This came via e-mail from a legitimate source: As a former staffer for one of these Senators [on the Banking Committee], I’ll just point out the obvious: most of them have their fingers in the wind right now. they’re leaning to confirm BB, because they don’t want to be out on a limb, and there’s a lot of talk coming from Wall Street that continuity is absolutely necessary to maintain investor confidence, and that BB is critical in this regard. On the other hand, they recognize that the Fed is very unpopular.If they see signs of strong sentiment against the Fed, they may vote against him, but this is all about politics right now.
What Should Senators Ask Bernanke? Economists Weigh In – WSJ - David Wessel, in reporting his column this week, asked a few economists what they would have the Senate Banking Committee ask Ben Bernanke at Thursday’s confirmation hearing. A sampling..
Americans Don't Have Jobs, Will Ben Keep His? - You want to do something about jobs? Well, considering a different Fed Chairman might be a good place to start. Nothing would more clearly display the inability of our leaders to deal with the disastrous state of our economy than easily reconfirming Ben Bernanke for another round at the Fed on the same day that they hold a "job summit" in a harebrained attempt to try to figure out how to create jobs in this country.So far in his tenure, Chairman Bernanke has already told us that housing prices won't go down, the subprime market will be "contained", unemployment won't get to 10% and that instead of regulation, those responsible Wall Streeters who used credit derivative swaps could just be trusted to use them "properly". Of course, he thinks this performance should be rewarded with more power and utter secrecy.
Progress on “No on Bernanke,” Including Sanders Putting Hold on Confirmation -- Yves Smith - The efforts to block Bernanke’s confirmation are getting some traction. First, Bernie Sanders of Vermont said he is putting a hold on Bernanke’s confirmation. A hold (in lay terms) is a threat to filibuster. This is actually pretty serious and seldom done. It takes 60 votes to beat one back. Second, a Rasmussen poll (hat tip reader Andrew) released today found that only 21% of Americans favor Bernanke’s reappointment. This is significant not simply due to the lousy results, but that Rasmussen bothered to run the poll at all. This says that the calls to Senators are making a difference. This is a shot across the bow as far as Wall Street friendly policies are concerned. It puts the Congress and Administration on notice that the public is aware of how badly they have been had and are continuing to be bled on the financial front and sees the conduct of economic policy as important.
Good Bye! The reappointment of Bernanke is too much to bear - Taleb - What I am seeing and hearing on the news -- the reappointment of Bernanke -- is too hard for me to bear. I cannot believe that we, in the 21st century, can accept living in such a society. I am not blaming Bernanke (he doesn't even know he doesn't understand how things work or that the tools he uses are not empirical); it is the Senators appointing him who are totally irresponsible -- as if we promoted every doctor who caused malpractice. The world has never, never been as fragile. Economics make homeopath and alternative healers look empirical and scientific.
Zombie Capitalism: Bernanke “Marching Ignorantly Forward” - Mish - In dynamic terms, the ratio of debt to GDP tells you how many years it would take to reduce debt to zero if all income was devoted to debt repayment. That is an extremely valid indicator of the degree of financial stress a society (or an individual) is under. I find that members of the general public understand this easily. Only economists seem to have any trouble comprehending it–not because it is difficult but because their own training pays almost no attention to dynamic analysis. With such ignorance about the dynamics of debt, academic economists and Central Banks around the world are hoping that the crisis is behind them, even though the cause of it–excessive levels of private debt–has not been addressed. They are recommending winding back the government stimulus packages in the belief that the economy can now return to normal
Is The Fed Facing Margin Calls From European Banks? - Buried in the depths of page 26 of the Office of the Special Inspector General for the Troubled Asset Relief Program's (SIGTARP's) November 17, 2009 report "Factors Affecting Efforts to Limit Payments to AIG Counterparties" hidden in footnotes 33 and 34 is something of a mystery. It might be the beginning of an interconnected financial chain involving Dubai, the Federal Reserve, AIG, Basel I, Eastern Europe and even Switzerland and which, even if it doesn't worry you, probably should.
Credit booms gone bust - Economists' Forum - Are credit bubbles dangerous? Long-run historical data reveal that important changes have taken place in the financial system over the past decades, setting in train an unprecedented expansion in the role of credit in the macroeconomy. It is mishap of history that just at the time when credit mattered more than ever before, the reigning doctrine had sentenced it to playing no constructive role in central bank policies. Over the past 140 years, episodes of financial instability were often the result of “credit booms gone wrong”.
Reckless Myopia We face two possible states of the world. One is a world in which our economic problems are largely solved, profits are on the mend, and things will soon be back to normal, except for a lot of unemployed people whose fate is, let's face it, of no concern to Wall Street. The other is a world that has enjoyed a brief intermission prior to a terrific second act in which an even larger share of credit losses will be taken, and in which the range of policy choices will be more restricted because we've already issued more government liabilities than a banana republic, and will steeply debase our currency if we do it again. It is not at all clear that the recent data have removed any uncertainty as to which world we are in
“In the Eye of the Storm: Updating the Economics of Global Turbulence” - Yves Smith - The Asia-Pacific Journal features the Introduction to an updated version of Robert Brenner’s Into the Eye of the Storm. I have to make the guilty confession that I’m not familiar with Brenner’s work, and I am kicking myself for that. It dovetails very well with some ground I cover in my book, particularly the idea that what we are in the midst of is a paradigm breakdown. It would have been nice to have fleshed that out a bit more with Brenner’s help. He sees the period we are going through now as a protracted and fundamental transition, as significant as the one between feudalism and capitalism.
An Empire at Risk - For the smaller countries, the financial losses arising from this crisis are a great deal larger in relation to their gross domestic product than they are for the United States. Yet the stakes are higher in the American case. In the great scheme of things—let's be frank—it does not matter much if Iceland teeters on the brink of fiscal collapse, or Ireland, for that matter. The locals suffer, but the world goes on much as usual. But if the United States succumbs to a fiscal crisis, as an increasing number of economic experts fear it may, then the entire balance of global economic power could shift. Military experts talk as if the president's decision about whether to send an additional 40,000 troops to Afghanistan is a make-or-break moment. In reality, his indecision about the deficit could matter much more for the country's long-term national security.
Dubai – The First Credit Crisis Since March Market Recovery - Dubai’s sovereign credit default swaps (CDS) are soaring in the wake of the news that Dubai World wants a standstill agreement on roughly $60 billion of debt. Even though Dubai World is a corporation seeking the agreement, the markets are clearly treating this as a sovereign debt issue... this is causing a “contagion” among the credit worthiness of other gulf soverign debt. It appears this is the first credit crisis since financial markets began their recovery. So while many are trying to dissect the particulars of this case (Dubai gets its money from Abu Dhabi who will eventually bail them out), they are missing the larger issue. As we have been arguing for months, markets have been rallying non-stop on the back of cheap money. This carry trade has led to many bubbles in the markets. A solvency issue causes the dollar to rally (not good for the carry trade) and investors to “blink” from risk markets. This is not good when financing your entire position at 0%.
The intrinsic unimportance of Dubai World and the important wider message it conveys - Dubai is not systemically significant. If its troubles open our eyes to the likely imminence of the start of the final leg of the journey from household default through bank default to sovereign default, it may do some systemic good, by alerting fiscal policy makers to the vulnerability of their nations’ fiscal-financial positions, and by educating citizens and voters to the urgency of deep fiscal burden sharing.
Debts mount as global concern -- It has become increasingly hard to find a country without a debt crisis looming, economists said. In the wake of Dubai's $59 billion debt crisis announcement Wednesday, Harvard economics Professor Kenneth Rogoff said he expects a new flurry of defaults to occur in about two years, The New York Times reported Tuesday. Pierre Cailleteau, managing director of sovereign risk at Moody's said, "I see very good reasons to be worried … because governments realize they can't afford to guarantee the debts" of companies that are now enjoying the largess of government protection."
A World Awash In Debt - Consider this: If the U.S. government was to slip into neutral today, allowing Bush-era tax cuts to expire and inflation to push many of the middle class into higher tax brackets, the country's debt would climb to about 300 per cent of gross domestic product over the next seven decades, according to the Congressional Budget Office. Tweak that forecast for the political and demographic reality – the extensions of many of those tax cuts and higher payments to doctors as the population ages – and the CBO's model predicts the debt-to-GDP ratio would approach an astonishing 800 per cent over the lifetime of an American born this year.
Big savers got us into this mess, as well as big spenders - The world is trapped in a global savings glut. It is both the source of our economic woes and an obstacle to the task of pulling ourselves out of the ditch. Worse yet, the glut's continued existence will feed a succession of asset bubbles until we confront it, head on, and find ways to soak up the excess. Yes, we can blame the City and Wall Street for turning the global savings glut into fissile material. But that's like saying, "hyenas do what hyenas do". Given extraordinarily lax regulation and a flood of money to play with, bankers were just acting according to their incentive schemes. They merely took advantage of the opportunities the glut presented. The real culprits are thrifty Germans, and state-owned enterprises in China – along with governments of other countries, of course, turning a blind eye to the escalating problems.
A reminder in race against time to tackle global mountains of debt - Either the inability of the debt-ridden Dubai World, a state-owned corporation, to meet its interest payments represents a minor detour on the road to recovery. Or the moment when investor concern about governments going bust triggers the second leg of a double-dip recession.But it's not just a case of looking for the usual suspects, emerging countries, such as Russia, with big debts and a history of default. Many countries – Britain included – have seen budget deficits explode and debt levels rise. The debts that hobbled banks at the start of the credit crunch have not disappeared: they have, in effect, been nationalised.
How Much Debt Is Too Much? - My colleague Graham Bowley and I have an article today about which countries — besides Dubai — are considered vulnerable to debt problems in the near future. Latvia and Greece, for example, are two countries that economic analysts say may be at risk for default in the coming years. How can you tell which countries are really in trouble? You might look to the country’s ratio of government debt to gross domestic product, one significant indicator for vulnerability to default that Graham and I mentioned in the article. So how much debt is too much debt? The magic number varies by country, based on a whole host of factors including the strength of a country’s institutional structures (can politicians make the hard decisions on where to cut spending and how to raise revenue?) and its prior track record on debt repayment.
After Dubai, Wondering Where the Next Debt Bombs Lurk - NYTimes - As Dubai, that one-time wonderland in the desert, struggles to pay its bills, a troubling question hangs over the financial world: Is this latest financial crisis an isolated event, or a harbinger of still more debt shocks?For the moment, at least, global investors seem to be taking Dubai’s sinking fortunes in their stride. On Monday, the American stock market rose modestly, even as share prices plunged throughout the Persian Gulf. But the travails of Dubai, a boomtown that, with its palm-shaped islands and indoor ski slope became a potent symbol of hyperwealth, nonetheless have some economists wondering where other debt bombs might be lurking — and just how dangerous they might turn out to be.
Does Dubai Matter? Ask Ireland - Presumably the rulers of Dubai and Abu Dhabi are currently locked in negotiations regarding the exact terms that will be attached to a “bailout” for Dubai World. We’ll never know the details but if, as seems likely, the final deal involves creditors taking some sort of hit (perhaps getting 75 cents in the dollar, at the end of the day) However, there is a worrying impact on Ireland. The credit default swap spreads for Irish banks have widened signficantly — even relative to HSBC, with its direct Dubai involvement. In part, this is hedge funds betting that others will want to insure against the rising risk of an Irish default, but what’s the connection? The thinking is that a partial bailout – with creditor losses – for Dubai from Abu Dhabi implies something about how Ireland will be treated within the European Union (and the same reasoning is also more vaguely in the air for Greece).
Morgan Stanley fears UK sovereign debt crisis in 2010 - The US investment bank said there is a danger Britain’s toxic mix of problems will come to a head as soon as next year, triggered by fears that Westminster may prove unable to restore fiscal credibility. “Growing fears over a hung parliament would likely weigh on both the currency and gilt yields as it would represent something of a leap into the unknown, and would increase the probability that some of the rating agencies remove the UK's AAA status,” said the report, written by the bank’s European investment team
Is America's addiction to debt like its Civil War era addiction to slavery? - Amazingly, our country is making 21st century mistakes as serious as ones leading up to our Civil War. Where are the large cuts to the federal deficit that Obama promised six months ago? The $500 billion structural deficit of a few years ago is now a trillion dollar structural deficit. We are as addicted to debt now as this nation was trapped by slavery back then. In both cases the subsidy of injustice is unsustainable. In both cases the redemption payment will be profound.
Benign neglect may turn the dollar from a safe haven to a dangerous place to be - Telegraph - The trade deficit of the world's biggest economy also remains huge. How much longer can the dollar defy gravity? The dollar's weakness is based on fundamentals – not least America's jaw-dropping debt. It's a long-term trend. From the start of 2002 until the middle of last year, the dollar lost 30pc on a trade-weighted basis.
Wither the US dollar? (Al Jazeera) It is true that the treasury's Exchange Stabilisation Fund (ESF) can be used to prop up the dollar, but it has never really been used for that purpose. The ESF, which right now has about $50bn, was originally created by the Roosevelt administration in the early 1930s to deal with currency upheavals as the Gold Standard was being dismantled. The US Federal Reserve is also unlikely to be defending the dollar any time soon. To prop up the currency, the Fed would have to buy back dollars which would require that the US offer euros, British pounds and Japanese yens in exchange. The Fed does not have much foreign currencies in stock because the US has been running trade deficits continuously for a long time now.
Why a run on the U.S. dollar will start soon - Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that's not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That's an amount equal to nearly 30% of our entire GDP. And we're the world's biggest economy. Where will the money come from? Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that's when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.
We must get ready for a weak-dollar world - - The two most significant structural consequences of the recent financial debacle are the massive deficits and debts of the US and the shift of economic power from west to east. There is only one effective way for governments to address the combined impact of both: press for a sea change in currency relationships, especially a permanently and greatly weakened dollar. It would take a miracle if America’s political system – one rife with vicious partisanship and riddled with well-financed special interests – could do either, let alone both. Washington will therefore have little choice but to take the time-honoured course for big-time debtors: print more dollars, devalue the currency and service debt in ever cheaper greenbacks. In other words, the US will have to camouflage a slow-motion default because politically it is the easiest way out. The big question: what kind of monetary system will best serve the world given deep-seated changes in the balance of economic power, and what process can be followed to develop it?
Remarkably Naïve … - PWA - In “Economists: Wrong Again,” I highlighted a major flaw in the logic of those Keynesian Kool-Aid drinkers who believe current low yields and stable markets can be seen as validation of Washington’s aggressive policy of spending and borrowing to “rescue” the crisis-hit U.S. economy. This is not the only reason to be skeptical. As I noted in Financial Armageddon and in posts like “The Real Threat to Financial Economic Stability,” the U.S. already has far more obligations relative to resources than it can reasonably afford once you factor in the value of social safety net obligations (e.g., Medicare and Social Security) and implicit and explicit financial guarantees...This kind of problem gets messier, not neater, the longer you put it off. And that’s why you might not want to assume that an apparent free snack can be scaled up to an unlimited feast.
US's Geithner says need to cut budget deficit (Reuters) - Treasury Secretary Timothy Geithner on Thursday said it was vital to get U.S. budget deficits down in order to spur private-sector growth that creates jobs and predicted it will begin happening in 2011.But first the financial system must be stabilized."You cannot address those long-term deficits, you cannot put the government of the United States in a position that we can go back to living within our means, unless you repair the damage done to this economy and to its revenue base," he said on CNBC television.The budget deficit hit a record $1.4 trillion in fiscal 2009 that ended Sept. 30 and is forecast to be in the same range next year, fostering doubt in global markets about the dollar's value because of huge U.S. borrowing needs
What Makes Deficit Reduction “Undemocratic”? - A group of over 30 national, “progressive” organizations released this statement (and sent to the President, key Administration officials, and every member of Congress) on Wednesday, decrying the idea of a bipartisan deficit-reduction commission as “undemocratic.” The suggestion from these groups is always that those who claim they want to “fix” the fiscal sustainability of the entitlement programs actually want to undermine and destroy the programs. The groups that signed this statement don’t want to see entitlement benefits cut–not in any way, not even by cutting only those benefits that go to those who don’t need them (such as the very rich). So now I’m anticipating a conservative equivalent to this statement where a very different bunch attacks the deficit-reduction commission for its “undemocratic” tax increases.
The deficit is a problem. What next? - JAMES HAMILTON has written a good post on the issue of the American government deficit: [T]he question before us is, what will the situation be another two years down the road, when the government will need to go back to bond markets to roll over the debt it issued on Monday along with new debt to cover the several trillion added to the federal debt between now and then? I agree with Krugman that the long-term treasury yields are hard to reconcile with a market worried about the solvency risk. But I would add that the run-ups we've seen in commodity prices are hard to reconcile with a market sold on the deflation scare. Is it possible that some time within the next five years, the U.S. Treasury will run an auction in which there are not enough bids to roll over the debt? My answer is yes.
Dollar Carry Trade: Alive and Well - A few weeks ago I agreed with Nouriel Roubini's notion that a dollar carry trade is forming, which faces an inevitable bust. Heiko Hesse from the IMF has tested Roubini's thesis, and finds evidence that the dollar carry trade most likely exists. The proof is in the reverse correlation between the dollar's value and major asset prices, such as oil
Best Buy, Krugman and the Carry Trade - I looked at the Best Buy (BBY) Black Friday ads and compared them to last year's. Look how they stretched the interest free financing period: For BBY to double the term of interest free financing to three years is just an effort to increase top line sales. This is an example of the “Carry Trade”. We normally think of this in purely financial transactions.....On ABC Paul Krugman remarked: “The cost of the deficit is only 1.2% real rate of interest (less inflation) at the Federal level.” In response, George Will made the point: "In ten years the interest cost of servicing the debt will go to $700 billion per year!" Mr. Krugman responded: In ten years GDP will be $20 trillion, debt service would still be 3.5%.That doesn’t sound too bad”. “Mr. Krugman believes in the ultimate carry trade. His view is that growth will come from affordable (cheap) debt capital. He thinks that the US can go to 100% Debt/GDP without upsetting the applecart. I think he is dead wrong.
Ten Ways to Move the Budget Back Toward a Sustainable Path -The National Journal asks “How would you alter taxes and spending to achieve (or at least pursue) that goal? ” Here are my ten proposals to move the budget back to a sustainable path (like the one it was on until January 2001): First, auction off most greenhouse gas emission permits, rather than giving them away.. Second, raise the gas tax. ..Third, cut agricultural subsidies to rich farmers and agribusiness . Fourth, continue to cut expensive weapons systems that the military doesn’t want, but are kept only because the suppliers are in the districts of influential congressmen. Fifth, end manned space exploration. Spend half the money on useful science instead, Sixth, let the George W. Bush tax cuts for the rich expire as under current law. Seventh, encourage hospitals to standardize around national best-practice medicine – to avoiding unnecessary tests and procedures – using levers such as making Medicare payments conditional on best practices. This is another part of the Obama plan. (Don’t follow the logic of radio show propaganda that labells even modest government involvement in health care “socialism,” because that would certainly require dismantling veteran’s hospitals, which provide good medical care relatively efficiently, even before it would require dismantling Medicare.) Eighth, limit or eliminate the tax-exemption for employer-paid health insurance Ninth, eliminate the tax deductibility of mortgage interest too. Tenth, to save Social Security, raise the retirement age (just a little), tax higher incomes (just a little), and progressively index benefits for future retirees to price inflation
Hoarding international reserves: Lessons from the crisis - VoxEU - The spectacular increase in hoarding of international reserves by emerging markets since the East Asian crisis has been one of the defining features of global imbalances. This column explores lessons from the crisis regarding alternatives to massive hoarding. It says that the crisis validates the need for external debt management policy and that the presence of fire-sale externalities associated with deleveraging, optimal external borrowing-tax cum international reserves hoarding-subsidy reduces the cost and the scale of hoarding international reserves.
CHART OF THE DAY: The Rest Of The World Owns Us - As this chart shows, foreign appetite for the debt of the Federal government has not been diminished by our recession.Pessimists might say that we're increasingly reliant on international investors to fund our government. But we can just about squint our eyes up and see this as a vast improvement from the old "we owe it to ourselves" reassurance about government debt.We owe it to them and we're too big to fail.
Chinese Premier: China hopes world's major reserve currency will maintain stable (Xinhua) -- China hopes the world's major reserve currency will maintain stable, said Chinese Premier Wen Jiabao here Sunday when meeting with three Euro Group leaders. He was speaking with Euro Group President and Luxembourg Prime Minister Jean-Claude Juncker, European Central Bank President Jean-Claude Trichet and European Union Economic and Monetary Affairs Commissioner Joaquin Almunia ahead of the 12th EU-China summit.
China's Wen Jiabao hits out at 'brazen protectionism' in yuan row with Europe - Telegraph - His comments came at the end of a difficult EU-China trade summit at which attempts by European leaders to push China into allowing its currency to strengthen were firmly rebuffed by Beijing. “Some countries, on the one hand, want the Renminbi to appreciate but, on the other hand, engage in brazen trade protectionism against China,” said Mr Wen, “This is unfair. In fact, it amounts to restricting China's development.”
Rethinking the Chinese Yuan’s Re-Peg to the Dollar - For the last few years, China has monotonously and rather unhelpfully told the outside world that it runs a “managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies.” The central bank has never explained what basket of currencies it is actually referencing when it sets the exchange rate for the yuan, which is also called the renminbi. And for all China’s talk of currency stability, the yuan has not been particularly stable against a basket of its trading partners’ currencies. According to the Bank of International Settlements, the yuan’s nominal effective exchange rate has fallen 9% since March, after rising 14% over all of 2008. Both the surge and the subsequent fall seem to have happened because what China calls a managed float has turned into a simple peg to the U.S. dollar.
China Hints Sticking to Dollar Despite Worries (Reuters) - China has maintained a consistent allocation of its foreign exchange reserves across different currencies, a senior official said on Friday, suggesting that any diversification away from the dollar has been gradual. Wang Xiaoyi, deputy head of the State Administration of Foreign Exchange, which manages China's $2.3 trillion of currency reserves, also said the weakening of the dollar was a long-term trend, not a near-term worry.
China Minister: World Should Focus On Dollar, Not Yuan - The world should focus on the stability of the U.S. dollar rather than the yuan exchange rate, China's commerce minister said in comments posted on the ministry's Web site Wednesday. "The amount of the two currencies and their impact on the world's economy are totally different", Chen Deming said, according to a transcript of an interview with Reuters and the International Herald Tribune posted on the Web site.The dollar needs to be relatively stable since it's the world's main payment and reserve currency and the global economy remains fragile, Chen said. "
China Fund: Reform Should Ease Reliance On One Currency - Xinhua - WSJ--The head of China's pension fund said Tuesday reform of the world financial system ought to focus on reducing the system's reliance on one nation's currency as the reserve currency, state-run Xinhua News Agency reported. "The core of the reform should be to change the monopoly one nation's currency has in terms of reserve currencies," the report cited National Social Security Fund Chairman Dai Xianglong as saying at a conference. Dai, who was once a central bank governor, also said China should improve the composition of its foreign-exchange reserves and increase the investment returns on those reserves.
China looks to foreigners to manage FX reserves - (Reuters) - China has kicked off its first global hiring campaign for money managers to help invest its $2.3 trillion of foreign exchange reserves, the world's largest stockpile, an official said.The State Administration of Foreign Exchange is seeking to improve returns on its bulging reserves and it recognises that the tumult in global financial markets has left many bankers looking for new jobs, a SAFE official told Reuters."It is time for us to hunt talent from overseas financial markets, as the post-crisis economic outlook becomes clear to financial professionals and their institutions," the official said. He declined to be named because he was not authorised to speak to media.
Kamei Says Japan Should Seek Joint Intervention (Bloomberg) -- Japan should ask the U.S. and Europe to take coordinated action to weaken the yen, Financial Services Minister Shizuka Kamei said. “We need international coordination,” Kamei, 73, said in an interview in Tokyo today. Asked what action he had in mind, Kamei said Japan should “call for international intervention” in the currency markets. “Japan has lent the U.S. about 200 trillion yen ($2.3 trillion), and that could become waste paper,” Kamei said. “It’s not just currencies. Each country has to take economic stimulus steps too.”
BOJ Offers ‘Minimum’ Deflation Response for Hatoyama (Bloomberg) -- The Bank of Japan accommodated demands by the government to combat deflation with a 10 trillion yen ($115 billion) program that economists said was insufficient to spark domestic demand. The central bank yesterday said it will offer three-month loans to commercial banks at 0.1 percent under the new facility. Governor Masaaki Shirakawa stopped short of boosting the monthly target for government-bond purchases from 1.8 trillion yen, a step analysts said may be taken within months. The decision followed escalating warnings from Prime Minister Yukio Hatoyama’s government about the danger of prolonged consumer-price declines, exacerbated by the surge in the yen to a 14-year high.
How the monetary easing measure will work - The Japan Times -The Bank of Japan plans to pump around ¥10 trillion into the banking system to rein in deflation and the surging yen. Here are some questions and answers about the ramifications:
When real is nominal and nominal real: the world of falling prices | The Japan Times - A newspaper headline tells me 'Pace of growth picks up in Japan." The actual figures bear out the statement. Japan's real GDP registered a quarter-on-quarter increase of 1.2 percent in the July-September quarter. The Japanese economy is expanding. But is it? Take a look at the nominal GDP figures and one finds that by this measure, the quarter-on-quarter growth rate was a negative 0.1 percent. It's a tiny figure, admittedly, but clearly a shrinkage nonetheless.So what is happening? Is the Japanese economy growing or isn't it? Are the real figures unreal? Are the nominal figures not nominal? Is it that the real is nominal and that the nominal is real?
Iran plans to use rial in int'l transactions (Xinhua) -- Iran is planning to use its own rial as the currency in international transactions, the local satellite Press TV reported on Sunday. Iran has started discussions with other countries concerning the use of its national currency in international transactions, Iranian banking official Mahmoud Reza Khavari said."Some countries have agreed to use the Iranian rial for payment in some transactions," Khavari, president of Bank Melli Iran, was quoted as saying.
This is not the start of currency trade wars - One big fear in international circles is that if China continues to peg the renminbi to the sliding US dollar, other Asian economies will retaliate by devaluing their currencies against both. This would signal the start of a trade war by currency manipulation. With this in mind, today’s 5 per cent devaluation of Vietnam’s dong appears an ominous sign, but Vietnam is a special case.It is plagued by downward pressure on its currency, not upward, unlike many other emerging Asian economies. It has struggled to preserve foreign currency reserves.
Roubini’s Bubbles Float on Flimsy Credit Source: Caroline Baum - (Bloomberg) -- Zero percent interest rates started it. A weak dollar fueled it. Speculators fanned it. And famed forecasters see it everywhere they look. There’s only one problem with the claims that the dollar- carry trade -- borrowing dollars cheaply to invest in higher- yielding assets abroad -- is inflating bubbles across the globe: There is no visible credit expansion, at least in the U.S., to support them. U.S. banks are hoarding all the reserves the Fed creates when it buys securities outright or lends to various banks and institutions. Currently, the banks are sitting on $1 trillion of excess reserves, the amount of cash over and above what they are required to hold against their demand deposits. Prior to the crisis, excess reserves of commercial banks in the U.S. averaged $1 billion to $2 billion. The crisis put a renewed premium on cash, even as the rate paid to hold it fell, as a protection against deposit flight and insurance against government interference.
Making TBTF Policy Work: Prompt Corrective Action - In my earlier post on TBTF policy, I started to discuss why "prompt corrective action" (PCA) is the key to making TBTF policy work, and I want to expand on that here. Done right, I really do think PCA could be the glue that holds TBTF policy together. The resolution authority is clearly the most important aspect of TBTF policy, since "too big to fail" just means "too systematically important to put into Chapter 11." Give us a resolution authority that can wind down systematically important nonbank financial firms without causing a financial crisis, and suddenly no firm would be TBTF anymore — the TBTF problem would instantly vanish. The trick is obviously to design such a resolution authority. Easier said than done. One of the biggest problems is that there are no trial runs — we won't know whether the resolution authority we end up with actually works until we use it during a crisis, which policymakers will be loath to do the first time because it'll still be untested. But that's where PCA should come in.
The Mother Of All CDOs - Remember CDOs? Of course, you do...although no one is trading these monsters anymore they continue to wreak havoc to the global economy. Hang on a second. Have they really disappeared? I'm not so sure they have. What's that recent deal that the UK Treasury has just done with RBS? It looks scarily familiar...something to do with $325 billion of toxic assets (no doubt including a few CDOs and CDO^2s) and divvying up different levels of risk? The balance sheet of RBS is £2.3 trillion. In return for £6.5 billion in some dodgy non-voting shares the UK Treasury is going to be insuring some of that £2.3 trillion. The first £19.5 billion is RBS's responsibility, after that the taxpayer takes care of 90% of the rest of the $325 billion. Sound familiar? Yes, the UK Treasury has just got itself the mezzanine tranche of a CDO!
Just Like That, The Financial Industry Is Dominating The Economy Again - It looked like the financial crisis would finally bring the financial sector down to a reasonable size relative to the rest of the economy.But, the government stepped in, and just like that, finance has resumed its outsize role.This chart from Deutsche Bank shows it quite vividly. There was a brief reversion to the mean, and then BOOM, it came back.
Those dangerous yet well-capitalized banks - David Reilly has a good column today about bank health and capital ratios, honing in on the crucial fact that having a fair amount of capital is not in and of itself sufficient to reassure investors — or even the FDIC — that a bank is healthy. 96% of banks are well-capitalized, according to the FDIC, but 7% of banks are on its problem list, which means that there are dozens of at-risk banks which are also adequately capitalized. That makes perfect sense to anybody who remembers Lehman Brothers or even Washington Mutual
Coordinated Capital Controls: A Further Elaboration - Paul Krugman, in his Friday column for the New York Times, endorsed a tax on financial transactions, proposed recently by Adair Turner, Britain’s top financial regulator. It is important to distinguish this Turner proposal from the original Tobin tax on international flows and these two taxes in turn from the kind of coordinated capital controls I proposed in this blog post two weeks ago.Tobin’s original idea was to discourage speculation by taxing flows of international capital. The Turner variant is to tax all financial transactions, domestic and international. What they have in common is that both are seen as structural measures to be applied regardless of the state of the macroeconomic cycle.In contrast, the capital controls that are now being proposed are more in the spirit of “macroprudential” measures, to be taken in response to surges in international capital flows (and not to steady and permanent flows) to emerging markets that have the potential of creating bubbles in asset prices, including exchange rates. Such measures are therefore intended to be taken during the upswing of the cycle and not at all times.
Taxing Wall Street Transactions Today Wins Support for Keynes Idea of 1936 (Bloomberg) -- John Maynard Keynes proposed a tax on financial transactions in the middle of the Great Depression, and another economist, James Tobin, revived the idea in the 1970s as a way to counter currency market speculation. Neither effort gained much acceptance. Now, a growing number of economists and politicians argue that it’s time for a levy on trading stocks, bonds, currencies and derivatives. U.K. Prime Minister Gordon Brown said that a transaction tax might compensate for the billions of dollars that the public has spent on bank bailouts. Government officials in France, Germany and Austria have voiced their backing. U.S. Treasury Secretary Timothy Geithner answered Brown a day later, saying the tax was not something the U.S. would support. Even if political consensus on a transaction tax is lacking the idea is attracting supporters worldwide.
My Comments on the Trader Tax - I’m going to step through several points in which any reasonable citizen will see the lack of logic and morality behind the bill. As I am a speculator by profession, I would like to note that I do have a bias regarding this legislation, but the points remain solid regardless.
- The Legislation is Not implementable
- This Legislation Removes Liquidity
- The Underlying Blame Implied by this Legislation is False
- The Legislation is Immoral
Moving in House, Financial Overhaul Struggles in Senate - NYTimes - Moments after the Senate cast its final vote on a health care bill before recessing on a recent Saturday evening, Senator Christopher J. Dodd convened an unpublicized meeting of the members of the Senate banking committee. His goal was to try to resurrect legislation overhauling the financial regulatory system, which had suffered a setback only a few days earlier when a handful of Democrats joined all of the Republicans in raising sharp questions about it. At the Saturday evening meeting, Mr. Dodd announced a new plan, assigning one Democrat and one Republican to each of the main chapters of the legislation in the hopes of forging compromises and reviving the measure
Regulators ask if faster is better on Wall Street (Reuters) - Alarm bells are ringing in Washington amid a sudden realization that lightning-fast computer programs and anonymous venues are dominating trading on U.S. equity markets. Is there really a new threat of a financial Armageddon on Wall Street? Is the next market meltdown going to begin with a 25-year-old math whiz creating stock-trading programs that go rogue and create massive systemic risk?It is certainly the case that banks, hedge funds and proprietary firms have been using high-frequency trading to exploit minute movements in stock prices and quickly trade huge blocks of stock through complex computer algorithms.The fast trades now account for as much as 60 percent of U.S. equity trading, and there is growing concern that the structure of the market is set up to benefit sophisticated players and computers
Senator wants to use gambling laws on Wall Street - This is such a simple and obvious idea, I don't know why no one thought of it before.Sen. Maria Cantwell wants to use state gambling laws to regulate parts of Wall Street, saying someone needs to police financial markets where "casino capitalism" involving highly speculative trades she likens to sophisticated betting continue unabated and threaten to create yet another financial crisis. "She's going for their jugular," Michael Greenberger, a University of Maryland law professor, said of the effort by Cantwell, a Washington state Democrat. Cantwell wants to repeal parts of a 2000 law that barred states from using their gambling laws to help rein in the nearly $600 trillion derivatives market.
Too risky to regulate? Not with proper verification - In an ideal world, the government would differentiate between entities that would receive public support under a limited set of circumstances and unprotected firms that would never be bailed out. These smaller, unprotected entities could be lightly regulated and would enjoy the advantages that accrue from unfettered innovation. The harder question is how to limit inordinate risk-taking by the protected financial firms, especially given the difficulties in evaluating the risk in their portfolios. Ideally, bigger firms that enjoy some sort of public guarantee should pay a “public insurance premium,’’ which would be a function of capital levels and risk.But the daunting problem in either charging such a premium, or enforcing plain old capital requirements, is measuring risk-weighted assets. Each new transaction means a change in a firm’s risk profile. Regulators can’t assess the risk transferred in each credit default swap.
Financial oversight package heads to House floor next week - A key congressional committee approved the final pieces of sweeping legislation Wednesday to overhaul the nation's financial regulatory system, setting the stage for a vote in the House of Representatives next week on one of President Obama's top priorities. The approval of two bills by the House Financial Services Committee marked a significant, if incremental, victory for the administration, which has implored lawmakers to act with urgency in fixing regulatory flaws that contributed to the economic crisis.
Bankers: Financial Overhaul Bill ‘Over-reacts to the Crisis’ - A trade group of the nation’s largest banks sent a letter to each member of the House Financial Services Committee on Sunday urging them to vote against a bill that would give the government more power to break up a failing financial services firm. ( Read letter to HFSC.) Amendments to the bill would also allow the government to potentially break up healthy financial company, if the government determined its potential collapse could imperil the broader economy. The House panel is scheduled to vote on the bill Wednesday.The letter says “the bill damages the ability of financial institutions, especially larger financial institutions, to finance the economic recovery and facilitate long-term economic growth.”
The Corporatocracy: A New Economic System for the Connected Banking Sector and Political Elites. Providing the new Serfdom Massive Debt Servitude. The typical American family is struggling with the current recession and is having a hard time pinpointing the nexus of the problem. Some try to argue the failures of capitalism but our current system is more of a corporatocracy. A system designed for the few by the few. Even Adam Smith argued that society would need to be vigilant against monopolies and charlatans. Yet somehow we arrive at our current time with gigantic investment banks pulling on political strings and operating under Darwinian economics where the overall health of the economy is only an afterthought. We are a very long way from the capitalism Adam Smith advocated.
Matt Taibbi Exposes Obama's Wall Street's Inner Circle, Pays Particular Homage To Robert Rubin (video) Matt Taibbi gives an in-depth presentation unmasking the Wall Street crony advisors that whisper in the President's ear daily, the political push-pull that ended up gifting Tim Geithner his current job, as well as an analysis of the brains behind it all- former Goldmanite, Robert Rubin.
Feudal Lords Of Finance - In some influential circles, these questions are now asked: What’s wrong with high levels of inequality in general, and with having very rich bankers in particular. After all, human societies have survived the presence of extremely wealthy individuals in the past – in fact, some now argue, the presence of such a “new aristocracy” can finance growth and spur innovation. This argument is deeply flawed along three dimensions...When the Bank of England’s Andrew Haldane speaks of a “doom loop,” he is describing the declining future for our middle class. Powerful financiers, by and large, did just fine during the Great Depression
The Wall Street Journal Can Blow Eliot Spitzer - “I don’t think The Wall Street Journal has the foggiest idea of what capitalism is all about. They don’t understand what markets are and how they work. I believe that for markets to work, you need a government that brings enforcement actions and sets parameters the way we were trying to when I was AG. It was part of a much more nuanced argument that I was trying to make when I was governor about what government should do. But populism, which is driven by anger, isn’t going to get us to the point where we actually create jobs or wealth for people. It’s a visceral response. What we need is a more sophisticated understanding of how the economy really works-and the caricature that’s put forth on The Wall Street Journal’s editorial page is just as wrong as the one put forth by the angry populists.”
Geithner says $700B bailout program will end soon - Treasury Secretary Timothy Geithner affirmed Wednesday the administration's intent to soon end the $700 billion financial bailout program. Geithner did not provide details, but said the government is close to the point at which "we can wind down this program" and end it. Some lawmakers have been agitating for an exit from the politically unpopular bailout program, approved by Congress at the height of the financial crisis in October 2008 as a way to supply banks with fresh capital.Geithner also said legislation to bring transparency to the global, unregulated $600 trillion derivatives market was needed soon to restore confidence in the U.S. financial system.
Wallison: Timmy!’s Nose is Growing - In an oped in today’s WSJ, Peter Wallison notes a fundamental inconsistency in the government’s defense of the AIG bailout: Since last September, the government’s case for bailing out AIG has rested on the notion that the company was too big to fail. If AIG hadn’t been rescued, the argument goes, its credit default swap (CDS) obligations would have caused huge losses to its counterparties—and thus provoked a financial collapse.Last week’s news that this was not in fact the motive for AIG’s rescue has implications that go well beyond the Obama administration’s efforts to regulate CDSs and other derivatives. It’s one more example that the administration may be using the financial crisis as a pretext to extend Washington’s control of the financial sector.The truth about the credit default swaps came out last week in a report by TARP Special Inspector General Neil Barofsky. It says that Treasury Secretary Tim Geithner, then president of the New York Federal Reserve Bank, did not believe that the financial condition of AIG’s credit default swap counterparties was “a relevant factor” in the decision to bail out the company. This contradicts the conventional assumption, never denied by the Federal Reserve or the Treasury, that AIG’s failure would have had a devastating effect. Wallison is exactly right: Geithner cannot run around Washington, using arguendo ad AIG to justify (a) the bailouts, and (b) the need for mandatory clearing, more draconian capital requirements, and restrictions on derivatives, while at the same time saying that the financial condition of counterparties was an irrelevancy in the decision to assume AIG’s obligations. These claims are impossible to reconcile logically. If one is true, the other is not. Period.
Treasury Secretary Tim Geithner under fire - (CNN) -- Despite recent calls for him to resign coming from both the right and the left, Treasury Secretary Tim Geithner isn't likely to lose his job. The bigger question is how much the recent criticism limits his ability to do his job. And that's an important question. Geithner will be in the lead in many issues about to break into the forefront for the Obama administration. He'll be at the center of the debate over what to do with $300 billion left in the Troubled Asset Relief Program, and whether TARP should be extended beyond Dec. 31.He'll be involved in debates over what additional stimulus should be passed to try to help the still-battered job market.He's also the administration's point man in efforts to reform the regulation of Wall Street and banking. But Geithner heads into these battles under fire for continued job losses and an unemployment rate of 10.2%, much worse than the administration forecast earlier this year when it was rounding up votes for the stimulus package.
Who Cares Vampire Squid? - "Goldman Sachs Group Inc. Chairman and Chief Executive Lloyd Blankfein, defending the investment bank from public criticism over pay and profitability, said most of the bank's risk has been taken at clients' request to facilitate their activities. ... 'We are not lounging around in our sunglasses, basking in our certain future, he said. 'We stay very close to our clients.' ... Mr. Blankfein was in the public eye over the weekend when the Times of London quoted him as saying he was just a banker 'doing God's work'," I'm sure Lloyd Antoinette Blankfein (LAB) does "God's work". Mammon's. LAB, I have no problem with Vampire Squid (VS) taking risk at its clients' behest. The problem is: VS pawns off the risk on Joe Schmoe. What can't you with two Harvard degrees understand?
Geithner Rejects Goldman Sachs Assertion It Didn't Need U.S. Help - (Bloomberg) -- Treasury Secretary Timothy Geithner disputed claims by Goldman Sachs Group Inc. executives that the bank could have survived the financial crisis without government help and said it and other Wall Street firms should show some restraint in handing out bonuses this year. “It is very important that we change the way these executives are paid, the form of compensation, this year,” Geithner said in an interview yesterday for Bloomberg Television’s “Political Capital with Al Hunt,” which is being aired throughout the weekend. “We have to end that era of irresponsibly high bonuses.”
Capital One Warrant Auction May Mean Less TARP Profit - Bloomberg -- Capital One Financial Corp. warrants held by the U.S. government’s bank bailout program sold for $146.5 million, signaling taxpayers may get less reward than some analysts had predicted for rescuing the financial system. Linus Wilson, an assistant finance professor at the University of Louisiana at Lafayette, had estimated the Capital One warrants were worth $227 million to $376 million.
FT - Thirty financial groups on systemic risk list - Thirty global financial institutions make up a list that regulators are earmarking for cross-border supervision exercises, the Financial Times has learnt.The list has been drawn up by regulators under the auspices of the Financial Stability Board, in an effort to pre-empt systemic risks from spreading around the world in any future financial crisis.Insurers are considered systemically important for a variety of reasons: they might, for example, have a large lending arm, such as Aviva, or a complex financial engineering business, akin to that of Swiss Re.
“Bank Profits Mirage” - Yves Smith - There is a great and troubling little post up at Annaly which confirms that all is far from well in bank-land. This story is consistent with the negative readings coming from bank maven Chris Whalen, whose latest proprietary stress ratings based on FDIC call reports found that : the far worse result for our Stress Index survey vs. Q2 suggests that levels of stress in FDIC insured banks are continuing to build, from multiple factors, even as the subsidies that make the large banks look less risky are being withdrawn. The issue it focuses on is the profits-goosing strategies employed by banks, namely underreserving...
Big Bank Bonuses Make Failure More Likely - Are bankers uniquely talented? No. If RBS got rid of the million-pound traders it could actually be more profitable - If the Royal Bank of Scotland’s board have genuinely threatened to resign over the right to pay £1.5 billion of bonuses, they should be asked to do so immediately.Their mass resignation would offer the Government a golden opportunity to correct all the managerial mistakes it made when it took over RBS and the other banks in the heat of last year’s crisis.
How to take moral hazard out of banking - In a recent speech in Edinburgh, Mervyn King, the governor of the Bank of England, called for “utility banking”, which would limit banks to their legitimate purpose – financial intermediation and payment facilitation – as opposed to gambling with taxpayers’ money. The question is not whether we need utility banking, but what form it should take. Some in the US favour a new Glass-Steagall Act to separate commercial from investment banks. The former would behave themselves and be protected, while the latter could do as they pleased but without government help. Others favour narrow banking, which fully backs deposits but leaves the rest of the system on its own. Thus, Glass-Steagall and narrow banking treat only a part of our financial tumour, leaving the rest to metastasize. Limited purpose banking (LPB) is the only credible cure. It transforms all financial companies with limited liability, including insurance corporations, into pass-through mutual fund companies. Limited purpose banks would process securities and sell them to mutual funds. They would not be permitted to borrow to invest. Hence, they would never face a run and never fail. Risk-taking would be done by us, the people, via our purchase of more or less risky mutual funds. Under LPB people would be able to use cheques, debit cards and ATMs to draw on their cash mutual funds. Insurance mutual funds would permit people to diversify individual and share aggregate risks.
Worse Than Enron - Enron got away with their illegalities so long because their financials were so complicated that not even the analysts paid to monitor them could cogently explain how they were making so much money. After 2 wks sifting through over 1000 pages of SEC filings for the largest banks, I have the same concerns. The nation’s biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game.
Red Ink: Not an Illusion - Since the crisis began, banks and other financial institutions worldwide have written off or lost a staggering $1.7 trillion, though the losses have been cushioned by capital-raising to the tune of $1.5 trillion. However, that $200 billion differential -- which doesn’t include current-quarter losses or red ink hidden from view by "flexible" accounting treatments -- could easily widen out to far more troublesome levels amid a renewed downturn in the economy and an abrupt return to reality in the stock market (which would, of course, make it difficult to raise capital by selling shares). In fact, I think it is going to be a very long time before the financial sector is (legitimately) profitable or in financial good health, regardless of whatever those firms say in their quarterly and annual reports.
Buyers Take a Pass on Some Failed Banks - WSJ - Last Monday's change of plans by the Bridgeport, Conn., bank-holding company underscores a problem with the growing pile of terminally ill U.S. banks being wrestled with by the Federal Deposit Insurance Corp. Some are in such bad shape that potential buyers won't touch them at any price, even if the government agrees to eat losses on the failed bank's bad loans. In addition to their depleted capital, many seized banks operate in areas with sluggish growth prospects, are puny and are loaded with expensive deposits gathered through brokers that are likely to leave when the acquiring bank reins in interest rates, some bankers complain.
What Lurks on the Books of Banks - BusinessWeek - At first glance, banks seem to be recovering nicely from the financial crisis. But investors cheered by optimistic earnings reports could soon face a painful surprise. Many banks appear to be postponing inevitable losses on home-equity loans and commercial mortgages. Others face new trouble in consumer banking, especially credit cards. "Banks know they've got big holes on their balance sheets," says Paul Miller, an analyst for FBR Capital Markets.
Commercial property weighs on banks - Fed official (Reuters) - U.S. banks continue to face significant challenges, particularly from rising delinquencies in commercial real estate and commercial loans, a Federal Reserve official said on Monday. "Credit losses at banking organizations continue to rise, and banks face risks of sizable additional credit losses given the outlook for production and employment," said Jon Greenlee, associate director of the division of bank supervision and regulation."
Jobs and commercial real estate: Still keeping us up at night - While we at the Atlanta Fed agree that the recession has likely ended, we wish we could feel as optimistic about the current jobs outlook. We've catalogued those concerns before—here, for example—but we continue to look for reasons to believe that our pessimism is unwarranted.As was noted in a recent speech by Chairman Ben Bernanke, weak bank lending remains one potentially significant headwind impeding the jobs recovery. One area where bank loan losses are potentially high and uncertain is commercial real estate (CRE). As highlighted in a macroblog post from October, if the CRE problem falls disproportionately on financial institutions that also finance small business activity, we will be all the more worried that "the post-recession employment boost [small] firms typically provide may be less robust than in previous recoveries."Over time, CRE loans have become increasingly concentrated in those banks whose CRE lending activity is high relative to their available capital. As of June 2009, banks with CRE loan books more than three times their Tier 1 capital level accounted for 52 percent of the $1.6 trillion of CRE loans in bank portfolios
Commercial Mortgage Defaults in U.S. Bank Portfolios Reach 3.4% - (Bloomberg) -- The commercial mortgage default rate on loans held by U.S. banks more than doubled to 3.4 percent in the third quarter as vacancies rose and rents declined, Real Estate Econometrics LLC said. Defaults climbed from 1.37 percent a year earlier and from 2.88 percent in the second quarter, the property research firm said today in a report." Default rates in the first three quarters of 2009 have been the highest since 1993, the firm said. “Mortgages originated in 2006 and 2007 are experiencing the most significant shortfalls in current cash flow relative to current debt-service obligations,”
Global office rents in downward spiral - Office rents around the globe are falling at an unprecedented pace as recession-battered tenants abandon space just as construction wraps up on new buildings that were started before the recession began. The average cost to lease space fell by 7.7 per cent in the past year as companies around the world slashed staff and consolidated offices. Calgary was among the worst performing markets, with a 21-per-cent fall. Kiev, the capital of Ukraine, saw the steepest drop at 64 per cent.
Ross: Commercial Real Estate Crash Is Here - All of the components of real estate value are going in the wrong direction simultaneously,” Ross, CEO of WL Ross & Co, told Bloomberg. “Occupancy rates are going down. Rent rates are going down, and the capitalization rate – the return that investors are demanding to buy a property – is going up.” U.S. commercial property sales will hit the lowest level in almost 20 years, estimates research firm Real Capital Analytics Inc. Already, the Moody’s/REAL Commercial Property Price Indices have dropped 40 percent over the last two years. Ross told Bloomberg he will exercise extreme caution before putting money into commercial real estate, especially office buildings. That’s because tenants are deserting office space in droves.
Hotel CMBS Defaults Worst of All CRE: Fitch - With hotel property values and occupancy rates on the decline, commercial mortgage-backed securities (CMBS) backed by hotel loans have a 60-day delinquency rate of 6.81%, according to recently released research by Fitch Ratings.The delinquency rate of hotel loans is the highest among all major commercial real estate (CRE) types and is nearly double the overall CMBS delinquency rate of 3.86%, Fitch said. While the overall CMBS rate is projected to peak at 12% by 2012, hotel CMBS delinquency rates are expected to exceed that, Fitch added. In October alone, 26 hotel loans worth $1.1bn became newly delinquent.
$1trn in Commercial Real Estate Equity Lost, Say Analysts - Property values are down 40% and about $1trn commercial real estate (CRE) equity was lost since the sector peaked in 2007, according to research by Keefe, Bruyette & Woods.CRE prices are now at their mid-2003 prices, and this deterioration is primarily driven by a sharp decline in property prices, increased commercial mortgage delinquencies and reduced cash flow from lower rents, analysts Bose George and Jade Rahmani wrote.The analysts added the “primary story” in the commercial mortgage market in the coming years will be upcoming maturities, initially in the CRE market and later, in the commercial mortgage-backed securitization (CMBS) market.
Caifornia tops U.S. in delinquent mortgages - Delinquencies in the commercial mortgage-backed securities market skyrocketed more than 500 percent in October from a year ago, with California reportedly topping the U.S. Numbers released Monday by RealPoint Research show more than to $32.6 billion worth of loans are in default compared to $5.4 billion in October 2008. The total unpaid balance for the CMBS market for October 2009 was $810.9 billion, up from $805 billion in September, according to the Horsham, Penn.-based research firm.
Loan Defaults Could Top 5% in 2010 - Real Estate Econometrics says an analysis of FDIC data shows that the national default rate for commercial real estate mortgages held by depository institutions rose from 2.88% in the second quarter of 2009 to 3.4% in the third quarter. During that same period, multifamily mortgage defaults increased by 44 basis points, rising from 3.14% to 3.58%. And it’s a trend that’s expected to continue for two more years. By Q4 of this year, commercial mortgage defaults are expected to rise to 4%, nosing up further to 5.2% by the end of 2010, and then finally topping out at 5.3% in 2011.
Construction Spending Flat in October - It appears residential construction spending may have bottomed, although any growth in spending will probably be sluggish until the large overhang of existing inventory is reduced. And the collapse in non-residential construction spending continues, and there will be further declines as projects are completed. The first graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted. The second graph shows the year-over-year change for private residential and nonresidential construction spending. Nonresidential spending is off 20.6% on a year-over-year basis. Residential construction spending is still off 23.6% from a year ago, although the negative YoY change will get smaller going forward.
Systemic risk and Fannie Mae - Stiglitz and Orszag wrote a paper with the droll title, "Implications of the New Fannie Mae and Freddie Mac Risk-Based Capital Standard."We won't keep you in suspense. The paper, written the year after Joseph Stiglitz won the Nobel Prize for economics, concludes that "on the basis of historical experience, the risk to the government from a potential default on GSE debt is effectively zero." Their analysis has recently been making the rounds on the Web to a chorus of chortles.But the real lesson of the paper is not that Mr. Stiglitz, or Peter Orszag, the current White House budget director are dupes or rubes. The paper is notable because it represents the almost universally held view of the two government-sponsored mortgage giants at the time and for years afterward.
Mortgage giants quietly shop $250 billion in bad loans - This could be one of the biggest bad-debt sales in history — Paul Muolo of National Mortgage News writes: Every so gingerly, Fannie Mae and Freddie Mac are beginning to contemplate selling their nonperforming mortgages — roughly $250 billion worth of single-family product — in the open market. But will it ever happen? And if so, who will step up to the plate with cash?Investment bankers who play in the nonperforming loan market say the two have quietly begun talking to Wall Street firms and several hedge funds about how they might unload their bad assets. The buyers, I’m told, would presumably be hedge funds and investment partnerships with certain Wall Street trading desks — Goldman Sachs and Morgan Stanley — acting as middlemen.“There’s been lots of meetings and they’re talking to a lot of people about it,” said one veteran investment banker, requesting his name not be used because of the sensitivity of the matter, “but they’re a long way away from doing anything yet.”
White House Was Told Multiple Times Fannie, Freddie Had No Watchdog - Whose fault is it that the agency that oversees $5 trillion dollars in mortgages hasn't had an independent inspector general for months? Not ours, say Federal Housing Finance Agency officials, insisting that they notified Congress and pressed the Obama administration multiple times to appoint someone to the position tasked with rooting out wrongdoing at Fannie, Freddie, and the Federal Home Loan Bank.
Treasury Sets Guidelines to simplify "short sales" - (Reuters) - The U.S. Treasury on Monday set long-awaited guidance on a plan for mortgage companies to speed "short sales" of homes and other loan modification alternatives to stem a rising tide of foreclosures. The Home Affordable Foreclosure Alternatives Program provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed, according to an announcement on the Treasury's website.Guidelines address barriers that have often sidelined short sales by setting limits on the time it takes a bank to approve an offer, freeing borrowers from debt and capping claims of subordinate lenders
Treasury steps up pressure on lenders to modify more mortgages - Treasury threatens public shame - The Obama administration on Monday promised tougher scrutiny of lenders participating in its marquee foreclosure-prevention effort and threatened to penalize companies that don't do enough to help struggling homeowners. The move is aimed at breaking a bottleneck in the Making Home Affordable program, which was launched in March but has been slow to reach many borrowers. Most of the 650,000 homeowners enrolled in the program are stuck in its initial phase and still must prove that they qualify for reduced mortgage payments. Moving those borrowers from trial modifications into permanent ones is a key test of the effort's effectiveness.
Why The Loan Modification Program Isn't Working - The Obama Administration is gearing up to play hardball with mortgage companies that only temporarily lower struggling homeowners' monthly payments. But as the drive to make more loan modifications permanent kicks off, there's a weightier question to ask: Can the government's $50 billion foreclosure-prevention initiative deal with the crisis as it now exists? The major difficulty now is the weak economy and rising joblessness. Under the U.S. government's plan, a modified loan payment must not account for more than 31% of a family's income. With unemployment north of 10%, in a growing number of cases, the mortgage isn't the problem — the lack of a paycheck is.
FHA proposes tighter rules for lenders - The Federal Housing Administration on Monday formally proposed stricter rules for lenders, aimed at reducing its risk and ensuring that it can cover future losses. The FHA has insured nearly a quarter of all new loans made this year, and about 80 percent of that business is from first-time home buyers. But delinquencies on these mortgages are rising. As of the end of September, about 18 percent of FHA borrowers were at least one payment behind or in foreclosure, compared with 14 percent for all loans, according to the Mortgage Bankers Association. The FHA proposes requiring lenders to have a net worth of at least $1 million in the first year and $2.5 million within three years. That's up from the original requirement of $250,000
FHA to toughen rules for borrowers - The Federal Housing Administration is proposing to increase the up-front cash paid by borrowers as part of an effort to shore up the agency's finances, which have been staggered by rising defaults in its flagship mortgage insurance program, according to FHA officials. The changes also include raising minimum credit scores for borrowers who receive FHA-backed mortgages and limiting the amount of money sellers can kick in, including paying closing costs or giving free upgrades. These measures are designed to increase the amount borrowers invest in the homes they buy, thereby making it less attractive for them to default on loans and walk away from properties, as many people have done during the current housing crisis.
Lend America Closes Down After FHA Cancels Approval The FHA is expected to announce steps today to raise reserves, tighten standards and crack down on poor performing lenders. For Lend America (aka Ideal Mortgage Bankers), there were allegations of submitting false documents, but I expect further approval cancellations just for poor performance. From Newsday: Mass layoff at LI home lender amid federal probe.According to the FHA Neighborhood Watch, Lend America (listed as Ideal Mortgage Bankers) originated 11,559 loans over the last 24 months (November 01, 2007 and October 31, 2009) and 11.47% are already in default. The national average for FHA insured loans during that period is 5.02%..There are 302 FHA lenders on the FHA list with default rates already over 10%, accounting for 163,590 loan originations over the last two years. The FHA could probably start with that list.
Fed's Sack: MBS Purchases Lowered Mortgage Rates by 100 bps - From the WSJ Real Time Economics: The Fed’s Market’s Guy Eyes Asset Sales and Rate Increases Brian Sack, who runs the markets group of the Federal Reserve Bank of New York, spoke to the Money Marketeers of New York University ...Mr. Sack’s group estimates that the Fed’s purchases of $300 billion in long-term Treasury securities earlier this year helped to push yields on 10-year Treasury notes down by about half a percentage point. ... Purchases of mortgage backed securities, he says, pushed those rates down by a full percentage point.
Moody's: Option ARMs Show "Dismal Performance - [The Option ARM] sector shows “dismal” performance, with more than 40% of borrowers 60 or more days past due on payments. And many of these loans have yet to experience a recast event, when initial minimum monthly payments jump as much as 60%, according to sources interviewed by HousingWire for an upcoming issue. “Even though borrowers with Option ARM loans have the option to make monthly payments typically lower than the accruing interest on the loan, many borrowers are choosing a different option–not making any payment at all.”
Junk Mortgages: It Just Gets Worse - Back two years ago when the mortgage meltdown was heating up, we wrote an article called "Junk Mortgages Under the Microscope" dissecting a particularly wretched mortgage-backed securities issue peddled by Goldman Sachs.We wanted to show how these complex securities really worked and how Moody's and S&P, the rating agencies, aided and abetted the process by giving two-thirds of an issue backed by ultra-risky second mortgages the same safety rating they gave to U.S. Treasury securities. We thought this was a cautionary tale -- but it's turned into a horror story. All the tranches of this issue, GSAMP-2006 S3, that were originally rated below AAA have defaulted.
If You Think Home Prices Are Rising, Think Again - CNBC - I know recent monthly data has everyone thinking that the freefall in home prices is over. I don't buy it. I've said it before, and I'll say it now. Until the foreclosure crisis gets better, not worse, home prices will not improve overall.This today from Lender Processing Services:The November Mortgage Monitor report, released by Lender Processing Services, Inc. (NYSE: LPS), reveals a nationwide loan deterioration ratio higher than 3:1 - indicating that for every one loan improved, three more loans are deteriorating. and what's worse:Foreclosure sales jumped in October, with the rate at 5.6 percent of foreclosures in inventory. The number of foreclosures on the market continues to stall as foreclosure timelines extend. Nearly 30 percent of properties that have been in foreclosure for 12 months have not yet been put on the market for sale - twice the level of the prior year
U.S. housing market meltdown not over yet: Zandi (Reuters) - The meltdown of the U.S. housing market is not over yet, and home prices will soon start trekking downward again as a flood of foreclosures looms, a well-known economist said on Wednesday. Mark Zandi, chief economist at Moody's, said in an interview with Reuters home prices will resume their decline by early next year as foreclosure sales pick up again.Home prices, as measured by the Standard & Poor's/Case-Shiller U.S. National Home Price Index, will trough in the third quarter of 2010 after declining 38 percent, Zandi said
Professor advises underwater homeowners to walk away from mortgages - Go ahead. Break the chains. Stop paying on your mortgage if you owe more than the house is worth. And most important: Don't feel guilty about it. Don't think you're doing something morally wrong. Doing so, Brent T. White, a University of Arizona law school professor suggests, could save some of them hundreds of thousands of dollars that they "have no reasonable prospect of recouping" in the years ahead. Plus the penalties are nowhere near as painful or long-lasting as they might assume, he says.
Norms and the Case for Key Mail - I mentioned this paper - Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis - in passing earlier, but it really deserves a closer read. The idea? That societal norms cause people to act against their best interests – and disfavor them versus lenders in mortgager/mortgagee relationships – by preventing them from sending in “key mail” when they owe more on their mortgage than their house is worth.Here is the abstract, but the essence is that societal fear and shame create a behavioral bias preventing people from acting in their best interests. The same norms do not exist for companies holding the mortgages.
The Housing Crisis and Wall Street Shame - Robert Reich - The scourge of unemployment is splitting America into three groups: (1) the third just mentioned, whose households are in danger of losing their homes and whose kids are surviving on food stamps (that's up to one in four children in America today); (2) the vast majority of Americans who are managing but worried about keeping their jobs and homes; and (3) a small number who are taking home even more winnings than they did in the boom year 2007.
US personal bankruptcy reform exacerbated the housing crisis - VoxEU - Did US bankruptcy laws exacerbate the housing crisis? This column says that a 2005 reform that made declaring personal bankruptcy more difficult increased mortgage defaults and home foreclosures. It recommends reversing that legislation to reduce the number of foreclosures, which have high social costs.
New Law Would Give Foreclosure Protection To All In NY - Last year, a new law was put into place in NY to help protect subprime mortgage borrowers from foreclosure. Now the state is on the verge of extending similar protections to prime borrowers, too. A bill passed by the State Legislature this month would require, among other things, that lenders give all borrowers 90 days’ warning before starting foreclosure proceedings and that they take part in settlement conferences with borrowers before proceeding with a foreclosure action. The bill also covers co-op owners.
Gov. Paterson makes $1.1B in budget cuts and 'juggles' bills to cover state's costs Gov. Paterson swung his own budget ax Sunday - implementing $1.1 billion in cuts and savings as weekend talks with legislators dead-ended with no deficit fix in sight. Paterson has warned that New York is going broke, struggling under a projected $3.2 billion deficit. The state has now resorted to "juggling" its bills, Paterson said, and is moving money around to cover costs in the absence of a deal with the Legislature. "We are out of time," Paterson said yesterday. "This is a fiscal emergency."
Is New York Headed for Bankruptcy? New York’s cash reserve is dwindling quickly, and the state faces a crisis if it doesn’t address its budget woes soon. If the government can’t reach a budget agreement by Dec. 31, the state’s cash reserve will total only $36 million, and that’s only if the state dips to the bottom of its emergency reserve. New York’s budget deficit totals $3.2 billion. Democratic Gov. David Paterson has urged the legislature to deal with the gap. But with public support for him virtually non-existent, his words carry little weight.
California Hemorrhaging Money At Record Pace - "We're broke and the hole is getting bigger," said Loree Levy of the Employment Development Department. Levy explained that California's unemployment insurance fund is now $7.4 billion in the red. California is spending an average of $20 million more each day than it is taking in. And those numbers are likely to get worse, climbing to an estimated $18 billion deficit next year, while ballooning to $27 billion in the hole by 2011. California is in fact, so broke, the state has had to borrow money from the federal government to pay unemployed workers. Levy noted, "We're going to owe the federal government a lot of money."
State finances floundering, but bankruptcy isn't answer - By most measures, Illinois is broke. The state can't pay its bills on time. It is poised to top the $3 billion mark in the amount of money it will borrow this year to stay afloat. Programs are being cut and there is talk of selling off assets to help pay bills. But don't expect the state to declare bankruptcy anytime soon. It can't. Individuals, businesses and even local governments can file for reorganization under federal bankruptcy laws. But, that doesn't cover state governments."
Pennsylvania Bond Funds Are Drained, Officer Says (Bloomberg) -- Pennsylvania, the sixth-largest U.S. state by population, is running out of bond proceeds to fund capital projects and can’t make $375 million in payments owed to contractors, Budget Secretary Mary Soderberg said. A $15 million per-month program that helps local governments with redevelopment has been suspended because it has less than $200 on hand, while a bridge improvement program that also spends $15 million monthly has a balance of $3.5 million, Soderberg said in a letter to lawmakers today. More than 1,000 ongoing projects across the state, including construction at the Philadelphia Museum of Art and hospital expansions, will run out of funds unless lawmakers authorize $775 million in general obligation bonds by next week, she said. Failure to pass the measure already forced the state to defer $375 million in payments to contractors and municipalities for completed work, she said.
Revenue shortfall threatens state budget - PA -It's too early to panic, but a second straight difficult budget year could be shaping up for Gov. Ed Rendell and the state Legislature. For the fourth month in a row, the state Revenue Department said yesterday, revenue collections for fiscal 2009-10 have fallen below projections.Last month, the state collected $1.6 billion in General Fund revenue, or almost $57 million less than expected. For the first four months of the current fiscal year (July-November), revenue totalled $10.4 billion, which is $217 million below estimates."
State budget: 'Looming disaster' - Florida's finances have become grim and grimmer. Sales tax revenues have fallen into such an abyss -- down 11.5 percent -- that legislators fear their 2010 budget of $66.5 billion will only be able to fund basic human services and public safety. State Rep. William Proctor, R-St. Augustine, said Wednesday that lawmakers expect a $2.65 billion deficit for 2010, a $5.473 billion deficit for 2011 and a $5.228 billion deficit for 2012. "There's no widespread public understanding of the depth of this," Proctor said. "We're going to have to cut across the board. Everybody's going to be cut somewhere. There will be cries to raise taxes."
NJ debt climbs to $33.9 bln in FY09-report (Reuters) - New Jersey's official state debt rose to $33.9 billion in the fiscal year ended June 30, from $31.86 billion in the previous year, according to an official report obtained on Tuesday.The annual Debt Report by the state Treasury shows that when obligations such as pensions and health benefits are included, the state's total debt load increased to $51.25 billion at the end of fiscal 2009 from $44.5 billion a year earlier
Iowa tax receipts continue to fall - The red ink continued to flow in the state treasury last month. The Legislative Services Agency’s monthly revenue report indicates that net state tax receipts fell by 7.9 percent in November. That marked the 11th monthly decline over the past 12 months and the 10th straight monthly decline. The nearly $2.32 billion collected so far this year in state taxes is 7.9 percent below the same five-month period a year ago
Minnesota deficit projected at $1.2 billion - Minnesota will face a $1.2 billion projected deficit in 2010-11 that could mushroom to $5.4 billion in 2012-13, according to a comprehensive economic forecast that will be released later this morning. That budget gap is the latest sign that the financial turmoil gripping the nation still has a firm hold on Minnesota. The grim outlook is part of a two-year skid for the state that has resulted in billions of dollars in cuts to programs and services.
State retirement system's debt grows $4.8B - BATON ROUGE — The state's public retirement system debt has grown to nearly $17 billion, increasing $4.8 billion during the past year amid the national recession, according to information provided to the House and Senate retirement committees. The committees, which met Tuesday, are considering possible changes to the pension programs to curb costs.
Health uninsured ranks to rise - A new wave of formerly employed Americans, including many in Alabama, will soon join the growing ranks of people without health insurance. Tuesday, many of the millions of laid off workers and their dependents who received federal subsidies to pay for extended health coverage began losing that help. Without the assistance - a product of the American Recovery and Reinvestment Act that began in March - Nationwide COBRA premiums for family coverage will consume the lion's share of their unemployment income. In nine states, including Alabama, COBRA premiums will exceed monthly unemployment income assistance, leaving most families no other choice but to drop health coverage.
NC likely to owe $2 billion by end of year as it borrows to pay unemployment claims (AP) — North Carolina owes nearly $1.5 billion to the federal government to pay unemployment claims and that number continues to rise. The News & Observer of Raleigh reported Tuesday that the state has borrowed money for the claims since February, sometimes as much as $20 million a day. David Clegg with the North Carolina Employment Security Commission says the debt will rise to at least $2 billion by the end of the year. During the last recession, the state borrowed just $270 million for its unemployment insurance trust fund.
K-12 funding on table as cuts loom - Gov. Tim Kaine said Monday he might look at alternatives on funding some parts of public education and other steps to handle the next round of budget cuts. The state is facing a possible budget gap of at least $3.6 billion over the last six months of the current fiscal year and the following two years, Kaine said in an interview Monday in Martinsville. That will be the gap if he takes the entire 2010 budget, which includes $6 billion he already has cut, and does not increase any spending except what is required for rising Medicaid enrollments, debt payments and other necessities, or account for inflation, he said. Despite the budget gaps, Virginia is in better shape than most states, Kaine said
Va. to borrow $1.26 billion for depleted unemployment funds - As Virginia wrestles with ways to replenish its depleted fund for unemployment benefits, Hampton Roads employers expressed concern about the impact that higher unemployment taxes could have on the health of their businesses. The sorts of tax increases described by the Virginia Employment Commission earlier this fall may be difficult for some small businesses to absorb without job cuts, "For small retailers, the financial pressure from weak sales and higher unemployment taxes could be intense, Miller said. "You've got to have someone in the store, and if you're down to one person in the store, you can't cut any more."
US states move to make cuts permanent - A growing number of states are responding to their worst-ever budget crises by enacting permanent cuts to spending on social programs and education and by laying off and furloughing workers. For the first time ever, the collective spending by state governments has declined for two consecutive years. It fell 4 percent this year and 4.8 percent in the last fiscal year according to the National Association of State Budget Officers. The worst is yet to come. States estimate that their most severe shortfalls will come in the 2011 fiscal year. The National Conference of State Legislatures predicts a combined deficit among the states of $110 billion for the next two years. It is generally accepted that state budgets will remain in the red until 2013 at the earliest, while “some predict state revenues will not rebound until late in the next decade,” according to Stateline.org.
How Far Will States Go to Raise More Lottery Revenue? - Last December I wrote a blog post titled "Does Lottery Revenue Rise or Fall during Economic Hardship?." We now have our answer: Although it initially seemed to be recession proof, lottery revenue has finally fallen slightly. According to a report from the Rockefeller Institute of Government (PDF), state revenues from all sources of authorized gambling fell 2.8 percent in FY2009, and lottery revenue, the largest source of state gambling revenue, fell 2.6 percent. The revenue decrease comes at a time when some policymakers are more determined than ever to use state-run lotteries or other state-run gambling to help compensate for budget shortfalls.
Taxes, taxes everywhere (CNN Money) Strapped states hike taxes and fees by $24 billion for fiscal 2010. Residents pay more for speeding, entering horses in races and digital downloads. These measures are part of a record $23.9 billion in tax and fee hikes and $7.7 billion in other revenue increases enacted by states in fiscal 2010, according to a report released this week. This is a massive jump over the $8.1 billion in revenue hikes instituted the previous year. "These are the highest tax increases ever," said Scott Pattison, executive director of the National Association of State Budget Officers, which co-produced the semi-annual report with the National Governors Association.And more taxes increases are likely on the way, experts said.
The economics of credit card debt - You’re a bank, and one of your customers owes you $2,000 on her credit card. You have two choices: (a) You cut off her credit, convert the $2,000 to a loan, and she pays it off with 6% interest over four years. (b) You keep the credit card open, she struggles to pay back the balance at 30%, and eventually declares bankruptcy with a principal balance of $1,205 outstanding, which you never collect a penny on. Which of the two do you choose? Mike Konczal has run the numbers, and it turns out that option (b) — driving the poor customer into bankruptcy — is actually more the more profitable of the two.
U.S. Looks to Australia on Curbing Credit Card Fees - NYTimes - The 5.6% charges were the consequence of changes in credit card rules in Australia that were aimed, in part, at reducing the cost of hidden fees for using plastic. But the law, passed six years ago, also allowed merchants to tack on new charges, and many have done just that, in some cases with fees that exceed the old ones. Now, as Congress debates how to rein in credit and debit card companies in the United States, Australia’s experience is being pointed to as an example of just how tricky that can be: for one thing, if regulators limit one fee or rate, banks are likely to find another way to keep revenue flowing. In the United States, the GAO last week issued a report showing that consumers who did not use credit cards “may be made worse off by paying higher prices for goods and services, as merchants pass on their increasing card acceptance costs to their customers.”
Credit-Card Delinquencies Climbed in October - Real Time Economics – WSJ - U.S. credit-card delinquencies continued their climb in October to near record highs, as charge-off rates are expected to continue rising, Fitch Ratings said Wednesday.“Consumer credit quality remains under significant strain as a result of the persistent weakness in the labor markets,” noted managing director Michael Dean. The Labor Department will report unemployment data Friday; the jobless rate is expected to hold steady at 10.2%, the highest level in decades, while the decline in payrolls is seen mitigating from the previous month.All types of consumer lending have worsened the past several years, with borrowers falling increasingly behind and lenders writing off many billions of dollars of owed loans.Fitch’s credit-card performance indexes show late payments rising to their highest levels in five months and indicate higher charge-offs in the months to come.
Card Firms Add Inactivity Fees to Slow Default Losses - Credit card issuers, facing the highest level of delinquencies since April, according to Moody’s Investors Service, are reviving inactivity charges and reworking other fees in an effort to stem declining revenue. Inactivity fees have been used before, said Linda Sherry, director of national priorities with Consumer Action in Washington, who conducts the group’s annual survey of credit- card fees. Often they’ve been waived if the consumer used the card periodically, Sherry said. “If you’re keeping the card in a drawer because of the safety it provides, use it a few times in a year,” Sherry said.
U.S. credit card offers pick up for select few (Reuters) - U.S. credit card companies are targeting affluent consumers in a resurgence of marketing campaigns, as they recover from massive defaults by subprime borrowers in the past year. "We have seen almost the entire mailbox skew toward prime and superprime consumers," said Andrew Davidson, senior vice president of research company Mintel Comperemedia.
Unemployment Plateaus, But So Has Consumption - The pace of US job cuts has slowed, but hiring hasn’t resumed, two surveys released Wednesday show.Challenger Gray & Christmas, a Chicago-based executive placement firm, says planned layoffs fell 72% in November to 50,349 from 181,671 for the same month a year ago. ADP Employer Services says US companies slashed an estimated 169,000 jobs in November, down from 195,000 in October. But fewer planned or actual job cuts than previous months doesn’t signal a turnaround in the job market and job losses will almost certainly extend into next year. “Layoffs are coming to an end, but companies haven’t starting hiring,”
Why it is hard to imagine consumption reigniting - A graph making the rounds uses the Federal Flow of Funds data to look at the ratio of Household Debt to GDP--the ratio rose from around 60 percent as recently as 15 years ago to more than 100 percent now. If households begin reducing their leverage back toward the long-term average, it will depress consumption for three reasons: Debt service payments will rise when interest rates rise, and so discretionary income will be lower than it was when households had less leverage ( we are getting some relief right now because of very low interest rates on debt tied to LIBOR or the prime rate). Households will not take on new borrowing to support spending. Households will in fact be amortizing their current debt (meaning they won't spend).
Will Consumption Growth Return to Its Pre-Recession Level? - This graph compares the movements in aggregate real consumption during and after the onset of the current and three most recent recessions. The graphs show the first month of a recession as defined by the NBER — normalized to 1.0 to facilitate cross-recession comparisons — and the subsequent 22 months after the recession begins (for a total of 23 months, the length of time since the current recession began). There are several differences between the pattern of real consumption in the current recession as compared to the three other recent recessions shown in the diagram.
False idols: are US consumers really over leveraged? - If there is one axiom of today’s Pigovian pessimism it is the idea that after decades of decadent reliance on debt to goose up consumption, US consumers are structurally over leveraged. And that it may take a decade or more of pain to unwind the damage, during which time US consumption and GDP growth will be pitifully slow.Arguably this is the most overbought idea to come out of the current crisisOne reality check we like on affordability is the proportion of disposable income absorbed by all non-discretionary payments including debt service, food and other shelter and transport costs.Now it is in the bottom third of its range over the past 30 years or so.
Trouble with Charts: Debt/Income and Retail Sales - The following two charts are hugely appealing to my inner contrarian. One “shows” that the U.S. is less reliant on retail sales than commonly supposed; the other “shows” that debt loads of U.S. consumers by income decile isn’t altogether troubling. I like both arguments and find them intriguing, but the graphs don’t do it for me. Here is the first one, from Bloomberg. The trouble with it, as must be obvious, is the y-axis. Seen properly, retail sales as a percentage of GDP has essentially flat-lined over the period, moving up or down around one percent. Granted, one percent either way of a $13-trillion economy is a sizable number, but the axis choice makes the variation seem much larger than it is. And here is the second, from Credit Suisse. On this one I have a couple of issues. First, there are overlapping deciles/quintiles, which is an odd decision. Second, it’s not clear whether these are income and household quintiles. In a subsequent discussion a CS analyst said that they are are household, but the graph makes it tough to tell and generally creates a confused story – even if an intriguing one.
17 Million Americans Have No Bank Account - And another 18% that do still use non-traditional banking services like pawn shops and payday lenders, according to FDIC survey. Perhaps one of the biggest revelations of the study was that approximately 7.7% of all U.S. households, or 17 million Americans, were considered "unbanked," meaning they did not have any sort of a checking or savings account. The most common reason cited, according to the study, was a lack of funds. More than a third of those considered "unbanked" said they did not have enough cash to warrant having a bank account.
America Without A Middle Class - Elizabeth Warren - Can you imagine an America without a strong middle class? If you can, would it still be America as we know it? Today, one in five Americans is unemployed, underemployed or just plain out of work. One in nine families can't make the minimum payment on their credit cards. One in eight mortgages is in default or foreclosure. One in eight Americans is on food stamps. More than 120,000 families are filing for bankruptcy every month. The economic crisis has wiped more than $5 trillion from pensions and savings, has left family balance sheets upside down, and threatens to put ten million homeowners out on the street.
Andy Kroll, The Illusion of Recovery - If you happened to be at the Cow Palace that Saturday, the daily news about the very financial players who had fueled the subprime debacle and the global economic collapse returning to their risky, overleveraged ways could seem little short of surreal. Here, after all, was a reasonable selection of what the media likes to call “Main Street” mired in debt, clinging to homes at the edge of foreclosure, struggling through a jobless “recovery.”
Could you get by after losing 40% of your pay? --Could you live with a 40 percent pay cut? That's likely what many Americans are doing as they return to work but suffer huge reductions in pay, said Kenneth Couch, an economics professor at the University of Connecticut."It is a pretty good guess that displaced workers are currently experiencing immediate pay cuts of around 40 percent," said Couch, who based the estimate on his own research.Couch found that workers who lose jobs during a recession suffer earnings losses of at least 20 percent six years later, compared with being continuously employed. That assumes the worker held the original job for at least three years.With dramatically less income, finding ways to earn more money is a priority. But in the short term, many re-employed Americans will have to survive by cutting spending.
A Lost Decade for Private Sector Jobs - To mark this week’s focus on the dismal state of the U.S. job market, check out the following chart, which shows the trajectory of private sector U.S. employment since 1998. It tells a story of a lost decade for U.S. workers. The U.S. now produces fewer private sector jobs than it did a decade ago. This been the case since August, and it’s getting worse. In October, private sector companies employed 108.401 million U.S. workers, a million fewer than in October 1999, when they employed 109.487 million. Not since the Labor Department began tracking payroll employment in 1939 has there been such a stretch with no net job gains.
Job Cuts Loom as Stimulus Fades - Highway-construction companies around the country, having completed the mostly small projects paid for by the federal economic-stimulus package, are starting to see their business run aground, an ominous sign for the nation’s weak employment picture. Tim Word, vice president of Dean Word Co., a heavy-construction company in New Braunfels, Texas, said his income is now coming mostly from projects that are winding up. He said that in normal times he has about $100 million of signed contracts in hand. But that number has fallen to $30 million, and the pipeline is empty...
TrimTabs: The Government Is Grossly Miscalculating Employment - Just about every time the monthly jobs numbers comes out, economic research firm TrimTabs comes out and slams the government's methodology, usually honing in on the Birth/Death model of new businesses entering the market.This week is no exception. TrimTabs employment analysis, which uses real-time daily income tax deposits from all U.S. taxpayers to compute employment growth, estimated that the U.S. economy shed 255,000 jobs in November. This past month’s results were an improvement of only 10.2% from the 284,000 jobs lost in October.Meanwhile, the Bureau of Labor Statistics (BLS) reported that the U.S. economy lost an astonishingly better than expected 11,000 jobs in November. Frankly, we're not sure what to make of their arguments. We've been hearing about this Birth-Death issue for a long time, but unless you believe they're changing their methodology from month to month, then that issue only goes so far.
The Real Unemployment Rate in the U.S. is Now 22% - To clarify why the discrepancy between U6 and the SGS Alternate rate of 22%, I contacted the BLS and received the following answer to my question about the change in discouraged worker designation during the Clinton Administration: "As a result of the greater specificity introduced in 1994, the number of discouraged workers was cut approximately in half, from about 1.1 million in 1993 to 500,000 in 1994.” About 600,000 people were removed from the unemployment calculations in 1994, so if you merely add those 600,000 to the current U6 number, the rate of unemployment would be much higher than 17.5% and would more accurately be reflected in the SGS Alternate unemployment rate of 22%.
Jobless Peak Has Passed, One Reliable Indicator Shows - NYTimes - The peak in unemployment in the United States has probably passed, according to one economic indicator that has proved reliable in all 10 previous recessions since World War II. That indicator is part of the monthly survey done by the Institute for Supply Management, in which manufacturing companies are asked if their business is getting better or worse. The data was released earlier this week, before the government reported on Friday that the unemployment rate had fallen to 10 percent in November, from 10.2 percent the previous month. If the indicator is accurate, the October figure will prove to be the high rate for this cycle.
CNBC Responds To Jobs Report By Advocating Stimulus Cancellation - Yesterday, the Department of Labor reported that the unemployment rate dropped to 10 percent in November, and the U.S. economy lost a much lower than expected 11,000 jobs last month, which is the fewest since the recession began in December 2007. The wider measure of underemployment also fell to 17.2 percent, from 17.5 percent. Everyone (aside from the Republican National Committee, which still used the new numbers to bash the Obama administration) seems to be looking at the report with cautious optimism. But CNBC’s Trish Regan concluded that the report means the government should cancel the rest of the American Recovery and Reinvestment Act (i.e. the stimulus package) because we are now on “the road to recovery”
Good news is bad news - Paul Krugman Blog – NYTimes - Today’s unemployment report was good news. But in a real sense good news is bad news, because this month’s not-too-bad number deflates the sense of urgency.The fact remains that realistic projections show unemployment staying disastrously high for many years. And what are we going to do about it? The de facto consensus is, not much — that we can’t and/or shouldn’t take any significant further action. It’s a tragedy, wrapped in a weird complacency.
Unemployment Worsens, Climbs In Nearly Half Of U.S. Metro Areas - Unemployment worsened or stayed the same in most metro areas in October, the Labor Department said Wednesday, as jobs remained scarce nationwide.The report comes a day before the Obama administration is to hold a "jobs summit" at the White House that will gather economists, academics and corporate executives to consider how the government can spur job creation.The jobless rate rose in 162 of the 372 metro areas tracked by the Labor Department. The rate was unchanged in 42 areas. It dropped in 168 areas.
15 cities top 15% unemployment - October's unemployment rate topped 15% in 15 metro areas -- nine in California, three in Michigan and one each in Florida, Illinois and Arizona. And despite its 30% jobless rate -- the nation's worst -- the situation in El Centro, Calif., actually improved from 32.2% in September, as it did in 168 of the 372 metro areas tracked by the U.S. Department of Labor. Compared with a year ago, not a single metro area showed an improvement.The agency released October data for cities and states Wednesday. The more detailed city and state data typically lag national data by several weeks.
States May Shed Another 1 Million Jobs - On the eve of President Barack Obama’s White House Summit on Jobs, labor leaders yesterday issued a dire warning: Unless Congress and Obama create a “bold jobs program,” state and local governments could shed almost a million jobs next year, further worsening our national unemployment rate. “The budget crisis that they face is dire,” Thea Lee, chief of staff of the labor federation AFL-CIO, told a conference call with journalists."“If we don’t help state and local governments,” she said, they will “cut off vital services to people who are struggling at the worst possible moment, whether it’s community safety, fire fighting, or health care.”
NFIB Jobs Statement: Expect Coal in Small Business Stockings - “It now looks unlikely that job creation will cross the ‘0’ line by the end of the year. Small business owners in November reported a decline in average employment per firm of 0.58 workers (seasonally adjusted) during the prior three months, about the same as October’s loss of .52 jobs but down from a loss of 1.26 workers per firm in May. Nine percent of the owners increased employment by an average of 2.3 workers per firm, but 21 percent reduced employment an average of 4.2 workers per firm (seasonally adjusted). “The job generating machine is still in reverse as November’s report represents the 22nd consecutive month with more small business owners reporting employment declines than employment increases. Sales are not picking up, so survival requires continuous attention to costs – and labor costs loom large.
Goldman Forecast: Unemployment to Peak in 2011- James Pethokoukis at Reuters provides excerpts from the most recent Goldman Sachs forecast and writes about the political implications, but the economic implications are also significant. From Goldman: The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011. You read that right. 2011.
Americans May Face Leaner Workplaces for Years – Newsweek - In the current economy, many Americans have had to lower their expectations for their career and work lives. Like Krostoski, they've taken pay cuts to secure new jobs. They've postponed retirement to help struggling family members, and millions of Americans remain underemployed, working part-time or low-wage jobs to pay the bills. "There's a reluctance to settle," says Andrew Gledhill, an economist with Moody's. "In these once-in-a-generation types of recessions, you don't have a choice"
College Graduates Facing Mounting Debt, Rising Unemployment - College graduates face record high levels of debt and unemployment, according to a report released this morning from the Project on Student Debt. The nonprofit reports that average debt for college seniors who graduated with loans in 2008 rose to $23,200 in 2008, up from $18,650 in 2004. Roughly two-thirds of students graduate with student loans, government surveys show. Lauren Asher, president of the Project and co-author of the paper, says the growing debts show a “systemic change in the way our higher education system is financed.”
Black Women Outnumer Black Men 2:1 for Degrees - I've written before about the huge and growing female-male "college degree gap" see posts here, here and here. Women now dominate men at every level of higher education, in terms of degrees conferred. Here's the breakdown for graduates of the Class of 2009 (Department of Education data here):
Associate's Degrees: 167 for women for every 100 for men.
Bachelor's Degrees: 142 for women for every 100 for men.
Master's Degrees: 159 for women for every 100 for men.
Professional Degrees: 104 for women for every 100 for men.
Doctoral Degrees: 107 for women for every 100 for men.
California Education Crisis Sign of Things to Come - Whether you're an oppressive foreign dictatorship or an American state in the process of committing fiscal suicide, you know you're losing the public relations battle when encounters between armor-clad riot police with truncheons and college students are broadcast on TV. That's the sad situation California found itself in last week, after the University of California Board of Regents announced a staggering 32 percent midsemester tuition hike. Students responded by demonstrating, chanting, and occupying administration buildings. Things got unruly, law enforcement was called, and within hours it was every spin doctor's nightmare, replayed endlessly on YouTube and cable news.
The Consequences of Underemployment -- Americans, no matter how dire the situation may have appeared in the past, have always forged ahead on the assumption that their lot would improve through their own efforts. I’m not certain that hopeful outlook prevails any longer and to the extent that it has diminished the door is being opened to radical social change. People with little faith in the future, particularly those who feel that something has been taken from them, are most prone to favor radical social reordering. How that plays out is a question open to a lot of speculation.The situation with underemployment did not arise solely from the recession. It is the product of a conscious decision of a large portion of corporate America to outsource jobs to less expensive locals. On its face, it made business sense at least from a short-term perspective. Long-term, it may turn out to be a decision of colossally negative implications for those who profited including the political class that traded its obligation to protect the populace for campaign cash.
New Analysis Points to $1 Trillion Wage Loss through 2012 - "From the standpoint of jobs - the economic variable that most concerns Americans - we are not even one third of the way through the recession," said John Schmitt, a senior economist at CEPR and an author of the new study. "Unemployment will cost workers more in terms of lost wages and salaries in 2010 and 2011 than they have this year." The report, "The $1 Trillion Wage Deficit," estimates the earnings loss of Americans from the beginning of the recession through 2012. The findings show that U.S. workers will lose a total of over $1 trillion in wages and salaries as a result of the Great Recession and the economy will continue to shed hundreds of thousands of jobs over the next three years under current policy.
Unemployment Rates Higher For Each Group Now Than in 1982 - But lower overall. From the Wall Street Journal: Is the current economic slump worse than the recession of the early 1980s?Measured by unemployment, the answer appears to be no, or at least not yet. The jobless rate was 10.2% in October, compared with a peak of 10.8% in November and December of 1982. But viewed another way, the current recession looks worse, not better. The unemployment rate among college graduates is higher than during the 1980s recession. Ditto for workers with some college, high-school graduates and high-school dropouts. "It's the magic of weighted averages.”
Unemployed U.S.-born workers seek day-labor jobs - Growing ranks of U.S. citizens are heading to street corners and home improvement store parking lots to find day-labor work usually done by illegal immigrants. The trend is most pronounced in regions where hot construction markets have collapsed, "You had many, many unemployed construction workers who found themselves without any permanent or stable work," he says. "Some of them have gone on to seek employment by standing on street corners alongside immigrant workers." Day laborers gather at high-traffic spots such as busy intersections and home improvement stores, looking for pick-up work such as painting, laying bricks or landscaping. Contractors and homeowners describe the jobs and negotiate pay on the spot.
Hourly Tips Drop From Last Year - Bucks Blog - NYTimes - Hourly gratuities have dropped on average, and for workers in some jobs they have fallen as much as 50 percent this year compared with last, according to an annual year-end tipping study released Wednesday by PayScale Inc. which tracks employee compensation data.This year’s study, developed with the Cornell University School of Hotel Administration, found that on average across the 80 jobs tracked, hourly tips dropped 5 percent from last year.In particular, the researchers found that employees in several jobs that rely on tips experienced a decrease in their take-home income. Total take-home pay for waiters and waitresses, for instance, fell 10 percent from last year, with the median hourly tips down to $8.60, according to the study and as shown in the cart below.
Calling in sick not an option for most low-paid workers - Concerns over the rapid spread of the H1N1 flu have highlighted the fact that many American workers have no paid sick leave. U.S. employers, unlike those in many other industrialized countries, are not legally required to give workers any time off for illness, or to care for a sick family member. While some employers do provide paid sick leave, it is rarely offered to the lowest-paid workers. While 61% of all private-sector workers have some paid sick leave, only 21% of those earning wages in the bottom 10% of the wage scale have sick leave. By contrast, 81% of the highest-paid workers have some paid sick leave.
New $100 billion safety net for jobless in works - As unemployment spikes, the cost of compassion is going up too. By as much as $100 billion. That's the potential price of a push by Democrats in Congress to continue providing extra help to the jobless beyond the core 26-week unemployment insurance package provided under permanent law. The jaw-dropping numbers combine the approximately $85 billion cost of continuing emergency benefits through 2010 for the long-term unemployed — jobless more than six months — plus an estimated $15 billion to continue subsidies to help pay health insurance premiums. Even before the last new round of extended benefits in November, the cost of unemployment compensation was estimated by the White House to exceed $140 billion for fiscal 2010 which began in October.
Millionaires on Unemployment - As Jackie Calmes reports in this morning's New York Times, a top priority for this Congress is to extend unemployment benefits before year end. For millions of families that depend on these benefits this will be welcome holiday news. But not all recipients of unemployment benefits deserve our sympathy. According to IRS data 1,972 Americans with incomes above $1 million received unemployment benefits in 2006. (Comparable data for later years are not available.)In 2006 a total of $2.5 billion in unemployment benefits were paid to households with incomes over $100,000. In 2007 the comparable figure was $2.8 billion. More recent data are available from the Bureau of Labor Statistics. Since 2007, along with the unemployment rate, total unemployment benefits have skyrocketed--from $32 billion to an estimated $81 billion for 2009 (estimate based on data through October).Like social security, unemployment benefits are not means-tested. Anybody who earns a salary pays a small unemployment tax and is eligible for benefits when the job goes out the window.
Americans say forget about works programs and go for protectionism - The most recent Gallup Poll on what Americans think is the best way to create jobs is a bit disheartening because it flies in the face of basic economics. Protectionism is the number one way Americans believe more jobs can be created. This was true for Republicans, Independents and Democrats. The data suggest that the Obama Administration is in touch with what people want as the President has certainly shown protectionist mettle
Congress' next trick: Pull jobs out of a hat - Whatever Congress decides, no single measure will be a panacea. Here are some of the leading ideas being discussed. Offer a payroll tax holiday; Temporarily suspending the payroll tax - which is a 12.4% tax on workers' first $106,800 of wages - could accomplish two goals, supporters say.Create a new jobs hiring credit; The idea behind a hiring credit is to offer employers a sweetener if they bite the bullet and hire more people. Help close state and local budget shortfalls: With jobless rates rising in many states, revenue has fallen, leaving many states with yawning budget deficits. And this could cause the loss of up to 900,000 jobs in 2010 alone Offer public-service employment: Blinder and others have suggested the federal government put money towards creating new public-service jobs.
Debate on Creating Jobs, Without Raising Deficit - NYTimes - As Democrats renew their push to create jobs, they are at odds over the timing, cost and scope of additional measures, with the White House’s concern about high budget deficits pitted against the eagerness of many in Congress to spur hiring before next year’s elections. After months in which his focus has been on a health care overhaul and foreign policy issues, President Obama will pivot later this week to the economy, convening a White House forum on Thursday to discuss ideas for job creation. Congressional Democrats return intent on packaging new proposals for tax incentives and construction projects to promote employment, with the House, where every member is up for re-election next year, on a much faster track than the Senate or the White House
Using Unspent TARP Money Is the Same as Appropriating New Money - The NYT reports on plans to use unspent TARP money to pay jobless benefits and other purposes. The TARP money was appropriated as loans, not expenditures. The Congressional Budget Office assumed that the vast majority of this money would be repaid and therefore returned to the Treasury. If some of this money is instead spent on unemployment benefits or other purposes, it has the same impact on the budget as if new money was appropriated for these purposes. Reporters should point out this fact.
As Obama opens jobs summit, he faces limited options for growth - Creating jobs is a political and economic imperative for President Obama, who is holding a high-profile jobs summit Thursday that aides hope will demonstrate his concern for the plight of everyday Americans. But options are limited, as the administration already has signaled that it is unwilling to make any investments that would add significantly to the nation's ballooning deficit.
Obama Turns to Job Creation, but Warns of Limited Funds - NYTimes - At a White House forum, scheduled for the day before the government releases unemployment and job loss figures for November, Mr. Obama sought new ideas from business executives, labor leaders, economists and others. Confronted with concern that his own ambitious agenda and the uncertain climate it has created among employers have slowed hiring, the president defended his policies.Mr. Obama said he would entertain “every demonstrably good idea” for creating jobs, but he cautioned that “our resources are limited.”The president said he would announce some new ideas of his own next week. One of those, he indicated when he participated in a discussion group on clean energy, would be a program of weatherization incentives for homeowners and small businesses modeled on the popular “cash for clunkers” program.
Jobs – A Solution at Hand? - Big job confab at the White House today. Some very smart folks are in attendance. No doubt but that there will be some good recommendations made. The question is can we afford to implement any of them? I am as certain as I can be that one of the suggestions that will be put forward would work. The National Federation of Independent Business’s (NFIB) has recommended that payroll taxes be eliminated for at least one-year. Take a closer look at the implications of this. It is my estimate that 2010 calendar year payroll taxes will be $680 billion. This is a massive amount of money. If the tax were suspended for a year a portion of this pile of money would go directly into the pockets of America’s 90 million+ workers. It would equally go into their employer’s coffers. The primary beneficiaries would be small businesses. In other words, this would go right to where it is most needed. At roughly $700 mmm this would be a size equal to the entire two-year stimulus program of February 2009. But its impact would be multiples of that in terms of increased demand in the economy.
Barack Obama Is On Message..."We have a structural deficit that is real and growing, apart from the financial crisis. We inherited it. We're spending about 23 percent of GDP and we take in 18 percent of GDP and that gap is growing because health care costs, Medicare and Medicaid in particular, are growing. And we've got to do something about that.You then layer on top of that the huge loss of tax revenue as a consequence of the financial crisis and the greater demands for unemployment insurance and so forth. That's another layer. Probably the smallest layer is actually what we did in terms of the Recovery Act. I mean, I think there's a misperception out there that somehow the Recovery Act caused these deficits.No, I mean, we had -- we've got a 9-point-something trillion- dollar deficit, maybe a trillion dollars of it can be attributed to both the Recovery Act as well as the cleanup work that we had to do in terms of the banks. In turns out actually TARP, as wildly unpopular as it has been, has been much cheaper than any of us anticipated. So that's not what's contributing to the deficit. We've got a long- term structural deficit that is primarily being driven by health care costs, and our long-term entitlement programs. All right? So that's the baseline. Now, if we can't grow our economy, then it is going to be that much harder for us to reduce the deficit. The single most important thing we could do right now for deficit reduction is to spark strong economic growth, which means that people who've got jobs are paying taxes and businesses that are making profits have taxes -- are paying taxes. That's the most important thing we can do. The last thing we would want to do in the midst of what is a weak recovery is us to essentially take more money out of the system either by raising taxes or by drastically slashing spending. And frankly, because state and local governments generally don't have the capacity to engage in deficit spending, some of that obligation falls on the federal government.
Jobs Summit Charade: Is the government out of money, or is Obama completely misguided? - The government of the largest economy has run short of money. At least that is what Mr. Obama sought to convey at his “jobs summit” yesterday. The President said he would entertain “every demonstrably good idea” for creating jobs, but he cautioned that “our resources are limited.” What a confidence-inspiring notion. How can we possibly solve the problem of unemployment in these circumstances? The preposterousness of the statement is only matched by the paucity of economic understanding that it manifests.For the millionth time, Mr. President, a government which issues its own sovereign currency cannot go broke. It cannot “run out of dollars”.
Dean Baker: Statement on President Obama's Job Summit - Press Release - There are four steps that can be taken to reduce the unemployment rate quickly:
1. Flexible employment credits to allow employers to shorten work hours instead of laying off workers 2. Support for education, health care and other vital state and local government services 3. Direct job creation: There are parts of the country where the unemployment rate now exceeds 25 percent, with youth unemployment well above 40 percent. To prevent a generation of young people from being locked out of the job market, it is important to have public service jobs that can employ people immediately.
4. Right to rent for homeowners facing foreclosure for a substantial period (5-10 years), This would in turn lead to a boost in consumption that would increase demand in the economy.
Worrisome Thoughts on the Way to the Jobs Summit - Robert Reich - The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that's been going on for years but which the Great Recession has dramatically accelerated. Under the pressure of this awful recession, many companies have found ways to cut their payrolls for good. They’ve discovered that new software and computer technologies have made workers in Asia and Latin America just about as productive as Americans, and that the Internet allows far more work to be efficiently outsourced abroad. This means many Americans won’t be rehired unless they’re willing to settle for much lower wages and benefits. Today's official unemployment numbers hide the extent to which Americans are already on this path.
What Types of Employment Policies Should be Discussed at the Jobs Forum?, by Mark Thoma - Let’s start with tax cuts, tax credits, and other changes that do not involve the direct purchase of goods and services, or the direct purchase of labor by the government. Tax incentives directed at consumers include measures such as a payroll tax cut, cash for clunkers, incentives to purchase homes, a sales tax cut, a tax rebate, and so on. Tax incentives directed at producers include tax cuts on business profits, tax incentives that encourage work sharing rather than layoffs or that encourage firms to hire new workers, accelerated depreciation, tax cuts or credits that encourage investment, and so on. Transfers from the federal government to the state and local levels can help to make up the revenue shortfalls; if state and local governments do not get more federal aid, hundreds of thousands more jobs could be lost.Government investment, particularly investment in infrastructure, was a major component of the stimulus package. Government consumption has effects similar to spending on non-durables by consumers.Government spending on labor services occur when the government hires labor directly to accomplish some task, e.g. to inspect food service establishments.
Christina Romer: Putting Americans Back to Work - WSJ - Many ideas under discussion build on partnerships with the private sector. One idea is to give direct incentives for homeowners to retrofit their homes to improve energy efficiency. Others have suggested incentives to help small businesses invest, grow and create jobs. This could include measures to restore the flow of credit for small businesses and targeted tax cuts. Direct government investments can also play an important role. We've already seen from the Recovery Act that spending on infrastructure—everything from roads and bridges to schools and municipal buildings—is an effective way to put people back to work while creating lasting investments Congressional Budget Office - Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output as of September 2009 PDF – BLOG
The wrong jobs summit - The White House is hosting a jobs summit this week. I, however, cannot but think that it is the wrong jobs summit—that it will be the wrong people talking about the wrong things. It appears that what we have is a failure to communicate. ... We need the White House's National Economic Council and key congressional “centrists” on one side and the Federal Reserve Open Market Committee on the other to meet. Those two groups seem to have very inconsistent views of the economic situation. ... Something has to give. If they could reach agreement on whose view ... is likely correct, then a rescue plan—entailing either more government spending or greater liquidity—would become obvious. Until that “jobs summit” is convened, others are moot.
‘Summit’ Or Stunt? - The Obama administration’s jobs summit is already getting criticized from both sides of the political spectrum.The White House describes the forum as “an opportunity for the President and the economic team to hear from some of the best and brightest CEOs, small business owners, and financial experts about ideas for continuing to grow the economy and put Americans back to work.” But several bloggers question whether the summit will turn into a PR stunt or lead to actual policy change...
The Sham of a Mockery of an Obama Jobs Summit - WSJ - What is it about Thursday’s White House “jobs summit” that rubs me the wrong way? All presidents engage in these sorts of elaborate PR stunts. Why not just dismiss it as another meaningless piece of Washington political theater? I should. But I can’t. And that’s because this jobs summit seems an unusually pointless and cynical waste of time. Obamanomics — the White House’s jumble of industrial policy, massive deficit spending and tax hikes — isn’t working. There are now 15.7 million Americans without jobs. And a big White House conference on jobs is nothing more than a soft distraction from those hard facts.
Why Obama's Jobs Summit Won't Matter - The White House jobs "summit" Thursday will try to revive employment growth, but it will be a hard slog. Job creation is fundamentally a private-sector process, and the private economy is experiencing a broad retreat from credit-driven spending. Companies hire mainly when they see greater demand for their products and believe that extra workers will generate higher profits. More jobs then elevate confidence and demand. But for now, the logic is running in reverse. To restore profitability, companies are firing workers, and the ensuing pessimism erodes confidence and spending. Beyond households' $12 trillion loss in net worth, mostly reflecting lower stock and home values, Americans are saving more to guard against joblessness, lost overtime, or lower wages.Things to come - Paul Krugman - What we’re in right now is the aftermath of a giant financial crisis, which typically leads to a prolonged period of economic weakness — and this time isn’t different. A bolder economic policy early this year might have led to a turnaround, but what we actually got were half-measures. As a result, unemployment is likely to stay near its current level for a year or more. And politically it’s hard to do anything about that. The result, then, will be high unemployment leading into the 2010 elections, and corresponding Democratic losses. These losses will be worse because Obama, by pursuing a uniformly pro-banker policy without even a gesture to popular anger over the bailouts, has ceded populist energy to the right and demoralized the movement that brought him to power. So what I see is years of terrible job markets, combined with political paralysis.
Rendell & Lawmakers Aligning on 2-Year, Treasury-Funded Transport Bill - Senior Democrats in Congress are warming to a new two-year federal transportation bill as a vehicle for upwards of $100 billion in infrastructure spending aimed at job creation -- and a key player in building that momentum makes his home far from the Capitol. Gov. Ed Rendell (D-PA), the co-chairman of Building America's Future, held a meeting yesterday with House and Senate aides as well as representatives from the construction and investment industries and the road lobby. On the agenda: creating consensus for a financial "front-loading" of the next transportation bill, likely over two years, and a long-term plan for infrastructure investments going forward."If there's a second stimulus or a jobs bill, to me it should be all about infrastructure," Rendell told MSNBC this morning (viewable above).
RAIL TRAFFIC STILL NEGATIVE DESPITE VERY EASY COMPS - Rail traffic continues to decline despite very easy year over year comps. In a sure sign of tepid recovery, we continue to see improvement off the lows, but a still very meager traffic trends. A recovering economy would have no problem overcoming the very low levels of last fall, but we actually continue to see declines. Total intermodal traffic was down 6.4% versus 2008 and down a staggering 32% versus 2007. The recovery on Wall Street might be real, but it’s certainly not real on Main Street as these numbers clearly show. A few commodity groups are showing strong year over year climbs, but all data is still very weak compared to 2007.
American Jobs Plan - This national crisis demands a bold plan to put people back to work. The Economic Policy Institute proposes the American Jobs Plan, a plan that would create at least 4.6 million jobs in one year.Here you will find EPI's comprehensive research and analysis of the jobs crisis—how severe it has grown and why—and the details of EPI's American Jobs Plan:
Tech CEOs to Obama: Focus On Long-Term Growth, Jobs Will Come - In a letter to Obama, CEOs of some 70 high-tech companies, including Intel, Microsoft Corp. and Dell Inc., urged the president to speed up stimulus spending and focus on policies that they feel can help spur long-term growth, such as promoting free trade and overhauling immigration rules to make it easier for companies to retain highly educated foreign professionals to work in the U.S. They also urged Obama “to remove the uncertainty that is deterring businesses from making an investment and hiring decisions,” such as enacting a permanent extension of a research-and-development tax credit.
"The Case for $6 Trillion More Monetary Stimulus" - A lively debate is under way between those who want more fiscal stimulus to create jobs and those who worry that our national debt is already too high. Both sides are ignoring the obvious alternative--one that would create jobs and lower the deficit. In a newly-posted Policy Brief, I present the argument for easier monetary policy in all the main developed economies. The European Central Bank and the Bank of Japan should join the Federal Reserve and the Bank of England in combined purchases of an additional $6 trillion in long-term bonds designed to push 10-year bond yields down another 75 basis points.
Good financial innovation: small business equity investing - So, in the world-as-it-is, only investors willing to actively participate in a small business (or at least to actively supervise) take equity stakes, while more distant third parties prefer debt, with its promise to pay on time, or else. But those choices are too stark. If someone devised an equity instrument that would offer stronger, easier-to-value promises than common equity, that would effectively disperse entrepreneurs’ risks while offering investors an upside, that could be efficiently offered in modest chunks small investors could incorporate into diverse portfolios, I think that would be a fantastic financial innovation.
The Greatest Deception in the History of Finance - Returning to the question of what is the greatest deception in the history of finance, consider this scenario: Hundreds of millions of people are led to believe that one particular financial pursuit, which, to accomplish, requires the largest financial effort of a lifetime; but more importantly, and for most people, it is also the most physically and emotionally taxing effort of a lifetime; working in various unsatisfying and stressful jobs and sacrificing meaningful pursuits for this one financial pursuit; and the effort requires 30, 40 or even 50 years of time, assuming the end destination of this pursuit is ever reached — or if it even exists… and this doesn’t include the $4 trillion decline (see above)… This financial pursuit, this deception, is called financial freedom.
Hiring Is Rising In One Area: Low-Paid Interns - In boom times, companies with too much work for existing employees — yet not enough work to justify another hire — may have turned to temporary workers. But with the economy still in the doldrums, companies again are opting for unpaid or low-paid internships to get the extra work done. It is a brilliant, recession-proof way to double your work force, said Drew McLellan, whose McLellan Marketing Group in Des Moines has long hired unpaid interns. “It’s more money to the bottom line for you.”
Want work experience on the trading floor of a major bank? - UK Follows US Example Of Auctioning Work Experience For A Good Cause - With so many students now graduating from university without a job, the value of work experience has never been higher. So much so, that some parents are now prepared to pay serious money to land their children work experience placements - and help an inspirational charity in the process.
Cash for appliances - From the folks who brought you Cash for Clunkers. Here is the description of the program from the Energy Department...the Council of Economic Advisors report on Cash for Clunkers, which explains that the macroeconomic stimulus from such measures comes from giving consumers an incentive to buy the product during the period of the rebate. Even if the programs succeed in their mission of persuading Americans to abandon their appliances sooner than they otherwise would, I remain deeply skeptical that junking working capital in this fashion is the best way to grow Americans' wealth.
This is Not Your FDR's Federal Government - Megan McArdle - Paul Krugman and I seem to agree that the worst part of a recession is unemployment. Where we differ is that Krugman doesn't understand why the administration has not made creating jobs a top priority. He wants transfers to state and local governments, a tax credit for increasing payrolls, and a WPA-style jobs program. I want to talk about the jobs program, because it's a superficially compelling idea that just won't work. I don't say this because I necessarily think it's a bad idea. During an employment slump as deep as ours, there are some compelling reasons to support the creation of temporary, low paid public jobs as an alternative to collecting unemployment. Unfortunately, all this is entirely academic, because the federal government cannot create something akin to the CCC or the WPA on the time frame that would help the people who are suffering now. For one thing, there are powerful public sector unions, who are going to fiercely resist any attempt to create low paid temporary jobs that could be done by well paid government workers who have excellent benefits and job security. Even if you could surmount union opposition, the federal government has an ever-increasing thicket of red tape that makes such a thing impractical. It takes months to get hired for a job with the federal government. It takes months to ramp up a new program. By the time you'd gotten your NWPA through Congress over strenuous union objections, appointed someone to head it, set up the funding and hiring procedures, and actually hired people, it would be 2011. Maybe 2012.
Double dip warning - Krugman - I’ve never been fully committed to the notion that we’re going to have a “double dip” — that the economy will slide back into recession. But it has been clear for a while that it’s a serious possibility, for two reasons. First, a large part of the growth we’ve had has been driven by the stimulus — but the stimulus has already had its maximum impact on the growth of GDP, will hit its maximum impact on the level of GDP in the middle of next year, and then will begin to fade out. Second, the rise in manufacturing production is to a large extent an inventory bounce — and this, too, will fade out in the quarters ahead.
Americans See Protectionism, Tax Cuts as Ways to Create Jobs - Gallup Poll - As President Obama holds a jobs summit Thursday to discuss ways to address the problem of growing unemployment in the United States, Americans' top prescriptions for creating more jobs are to keep manufacturing jobs in the U.S. (18%), lower taxes (14%), provide more help to small businesses (12%), and create more infrastructure work (10%). Americans offer mixed forecasts for what will happen to the U.S. job market over the next year. Twenty-eight percent predict it will get worse while slightly more, 35%, say it will get better, and 36% think it will stay the same.
Report: Gasoline Taxes Cover Only Half of Highway Expenses - SubsidyScope, a Pew initiative, is producing a series of reports looking at transportation funding. In October, they scrutinized Amtrak and estimate that the railroad loses about $24 for each passenger carried. Pew's numbers show that Amtrak recovers about 68.5% of its costs from fares. At the end of November, Pew took on highways: Subsidyscope has calculated that in 2007, 51 percent of the nation's $193 billion set aside for highway construction and maintenance was generated through user fees-down from 10 years earlier when user fees made up 61 percent of total spending on roads. The rest came from other sources, including revenue generated by income, sales and property taxes, as well as bond issues.
Half of Americans at risk for not having enough in retirement, survey says - The numbers are dismal. But worse still is our reaction - actually, our lack of action. I’m talking about the latest reading of the National Retirement Risk Index, calculated by the Center for Retirement Research at Boston College. Battered by a lengthy recession, a record 51 percent of US households are now considered at risk of not having enough money to sustain their standard of living in retirement. That’s the case even if they work until 65 - two years beyond the current average retirement age - and take a reverse mortgage on their home and use all their assets, including the mortgage proceeds, to buy an inflation-adjusted lifetime annuity to maximize their income
Detroit's compounding debt points to disaster - What does it mean when you can't restructure your finances to make revenues match expenditures, and you can't pay your debts except through more borrowing? Lots of people would call that bankrupt. The city wants to tie this new debt to future revenue state sharing payments, as a way to "securitize" the loans and maybe win a better interest rate. Problem is, given the state's fiscal situation, that's pretty dubious security for the lender, so it will likely come with added danger to the city.
Audits unmask Detroit's fiscal crisis - The Detroit News - The city's finances are so shaky that officials repeatedly borrow money to cover day-to-day bills, rarely go after deadbeats and have sat on millions of dollars in property tax overpayments for years, according to two recent audits. Mayor Dave Bing has warned the city is courting receivership unless he makes drastic changes, but two little-noticed audits offer startling glimpses of how quickly the city is burning through cash, losing revenue and failing to implement seemingly routine controls of spending. Detroit, which faces a $300 million deficit, remains "one of the weakest (financially) in the nation" and "significant economic conditions continue to cast doubt on the city's future operation," outside auditors wrote last month in a 227-page audit of the 2007-08 finances. "In a nutshell, the city is insolvent," said Joe Harris, the city's former chief financial officer under one-time interim Mayor Ken Cockrel Jr. "The next few weeks will determine if they will survive."
Anemic recovery - Recent indictors continue to support the impression that we're in the midst of a weak economic recovery. Americans bought about the same number of light vehicles in November 2009 as they had in November 2008. That's the second month in a row with flat year-on-year comparisons. Admittedly, flat is better than the declining year-on-year comparisons to which we'd become accustomed. But remember that by November of 2008, auto sales had really fallen off the cliff. I'm seeing the same story in new home sales. These are up on a seasonally adjusted basis mostly because they had previously been so very low, not because the market is remotely back to normal. (w/ embedded charts)
Cutting Down To Size - Postindustrial cities, even relatively successful ones such as Pittsburgh, are trying to manage, rather than just reverse, population loss. Between 1950 and 2009, more than 100,000 factory jobs and 300,000 people—50 percent of Pittsburgh's population—skipped town, according to census data. By 2009, even as the eyes of the globe fixed on Pittsburgh as host of the G20 conference, almost 20 percent of the city lay vacant or abandoned, according to the mayor's office. That's similar to estimates in the nation's most economically desperate cities, including Detroit..
UN investigator accuses US of shameful neglect of homeless - guardian.uk - A United Nations special investigator who was blocked from visiting the US by the Bush administration has accused the American government of pouring billions of dollars into rescuing banks and big business while treating as "invisible" a deepening homeless crisis.Raquel Rolnik, the UN special rapporteur for the right to adequate housing, who has just completed a seven-city tour of America, said it was shameful that a country as wealthy as the US was not spending more money on lifting its citizens out of homelessness and substandard, overcrowded housing.
Persistence of Poverty, and Increasing Marginal Utility - I finally got the chance to read The Persistence of Poverty by Charles Karelis. Here is Tyler Cowen’s review. I can’t recommend this book enough. It’s deeply informative, and quite challenging to how we think of ordinary economic decision making theory. It’s a fun ride, and can easily be read in an afternoon. Karelis proposes we start to distinguish between pleasure goods, and good that are relievers, and realize that some goods can act as both. His thesis is that there is diminishing marginal utility in pleasure goods, but that relievers have increasing marginal utility. “…paying the first bill in a stack of overdue bills does little to relieve a guilty conscience.” I didn’t quite understand what was going on with it from the book reviews, so let’s do the story with a teensy bit of math.
Food Stamp Use Soars Across U.S., and Stigma Fades - NYTimes - With food stamp use at record highs and climbing every month, a program once scorned as a failed welfare scheme now helps feed one in eight Americans and one in four children. It has grown so rapidly in places so diverse that it is becoming nearly as ordinary as the groceries it buys. More than 36 million people use inconspicuous plastic cards for staples like milk, bread and cheese, swiping them at counters in blighted cities and in suburbs pocked with foreclosure signs.Virtually all have incomes near or below the federal poverty line, but their eclectic ranks testify to the range of people struggling with basic needs. They include single mothers and married couples, the newly jobless and the chronically poor, longtime recipients of welfare checks and workers whose reduced hours or slender wages leave pantries bare.
School Districts Bearing Increasing Burden to Feed Kids - Aside from cutting taxes, which conservatives presumably support though they somehow manage to never mention this aspect of the program, the biggest thing the American Reinvestment and Recovery Act did was have the federal government step in to help plug gaps in state and local budgets. That helps resolve exactly this sort of situation. People who urged ARRA’s defeat or who continue to urge its early cancelation are backing policies that will lead to widespread malnourishment of children with lasting impact on their education and life prospects
Welcome To The Generation Of Million Dollar Kids - Think your children are costing you a lot? You're right, with an Australian study finding that the average child now costs $1 million (US$917,000) to raise, taking into account toys, holidays and other activities. A study on Generation Z and the cost of parenting by social analyst Mark McCrindle found a government estimate that it cost $384,543 to raise a child to 18 was way off as this did not include private education, holidays or "non-essential" items. It also assumed that children would leave home at 18 but this was no longer the case with Generation Z, those born after 1995, as the costs of accommodation and bills were a deterrent to moving out.
Expiring insurance subsidy imperils laid-off Americans - McClatchy - For workers who are laid off or downsized between Sept. 1, 2008, and Dec. 31, 2009, the COBRA subsidy pays 65 percent of their job-based health insurance premiums for nine months. That subsidy, however, expires Monday for Hall and untold thousands of others who began receiving it in March, when it first became available as part of the American Recovery and Reinvestment Act. Unless Congress moves swiftly to extend the benefit, millions of other jobless Americans will experience the same sticker shock when they exhaust their subsidies and must pay full health insurance premiums, instead of just 35 percent. For many, the cost of coverage will triple, forcing cash-strapped unemployed workers to scramble for cheaper private coverage, go uninsured or suck it up like Hall and pay the higher rates.
Paying for Health Care (and War, by the Way) - Economix Blog - NYTimes - “Moral hazard” is a term commonly applied to certain financial contracts, under which one party is obliged to pay another money if a specified event (e.g., illness or a fire or an accident) occurs. The term refers to situations in which the very existence of the contract alters the behavior of one party, so that it increases the probability of the event’s occurrence or the size of the monetary payoff based on that event, or both. In the context of health care, having an insurance plan will increase the likelihood that a person will actually use the health care system. It will also probably increase the resource-intensity of the treatments chosen by patients and physicians. Some economists even theorize that such coverage encourages unhealthy lifestyles and reckless behavior.The term “moral hazard” can also be applied to the contingency of war and its cost. If the monetary and the blood cost of war are shifted mainly to citizens other than the elites who are empowered to declare war and decide how it is conducted, I argued, then that elite is more likely to embrace war and to spend on it
House-Passed and Senate Health Bills Reduce Deficit, Slow Health Care Costs, and Include Realistic Medicare Savings - Health reform legislation that has passed the House in one form and is before the Senate in another is facing a series of attacks that, taken together, suggest the legislation would do little to control health care costs and would increase budget deficits. Many of these charges are exaggerated or simply incorrect, based on the Center’s careful analysis of the legislation. In particular, a number of criticisms rest on a mistaken belief that, in recent years, Congress has repeatedly enacted provisions to achieve savings in Medicare and then generally blocked these provisions before they could take effect. Thus, critics say, no one should take seriously the provisions of the current bills that would produce Medicare savings. In fact, the Center’s analysis of major legislation affecting Medicare that Congress has enacted over the last two decades shows that Congress has permitted the vast majority of Medicare savings to take effect.
The best public option discussion you'll read today - We recognize that taking a strong public option off the table may be necessary to enact reform legislation. But this will mean, at a minimum, higher government subsidy costs by not permitting a payer with substantial market power to bring cost containment pressure on the system. The outcome is likely to be that costs will continue to spiral upward. In effect, the nation would be relying on the range of promising pilot approaches to cost containment that would take some time to be successful. If they are not, we may be left with increasingly regulatory approaches, such as rate setting or utilization controls that apply to all payers. This would mean much more government involvement than giving people a choice of a low-cost public option that would be required to compete with private insurers
Democrats Threaten to Bypass Republican Changes on Health Bill - Bloomberg -- Senate Democrats threatened to bypass Republican amendments to hasten debate over U.S. health-care legislation as delays jeopardized the goal of passage this year. Democratic leaders voiced frustration as the deliberations stretched into a third day without a vote on any amendment. Blaming Republicans for stalling, Democrats may act to remove the opposition party’s amendments from floor consideration by tabling them, said Senator Dick Durbin of Illinois. “We’re not going to sit here and watch this bill go down,” Durbin told reporters yesterday. He warned that work may continue through the Christmas holidays if necessary.
Democratic Governors Voice Concern Over Health Care Bill – NYTimes - Republican governors are not alone in being concerned about what the proposed health care legislation might mean for their already overstrained budgets: Democrats share the same worries. “We’ve got concerns,” Gov. Jack Markell of Delaware said in an interview Wednesday, hours before getting elected as the chairman of the Democratic Governors Association. “And we’re doing our best to communicate them. We understand the need to get something done, and we’re supportive of getting something done. But we want to make sure it’s done in a way that state budgets are not negatively impacted.”
Congress Waters Down Health Care Reform Provisions - But what about President Obama's pledge to pass a measure that reins in the larger forces driving up health care costs? Or his vow that a reformed system would deliver more-efficient care, with better results for patients? That's where the legislation could fall well short of the promises.In a recent letter to Obama, 23 prominent economists identified four provisions that they said "can go a long way toward delivering better health care, and better value, to Americans." They are: ensuring that reform doesn't add to the federal deficit; creating an independent commission to bring Medicare costs under control; discouraging high-cost insurance plans by taxing them; and changing the incentives in medicine so that doctors and hospitals are paid not for how much treatment they give but for how well it works.Many of these economists — as well as other health experts — are watching in dismay as the legislation's reforms and cost-saving measures are whittled away by powerful special interests.
Health Care vs Health Insurance - This interesting Ed Kilgore post about the public option reminded me that I really wish people would be more careful about distinguishing between the terms “health care” and “health insurance.” It’s like the difference between the auto mechanic who fixes your car if it gets damaged, and the car insurance that gives you money to hire a mechanic if your car gets damaged. If you look around the world, you see a mix of direct government provision of health care services (Britain), direct government provision of health insurance (Canada), non-profit provision of health insurance (Switzerland), and mandatory private savings accounts (Singapore) playing the dominant role in financing health care. Private health insurance exists in many countries, but it’s generally pretty marginal.
Reform or Else - Krugman - NY Times: Health care reform hangs in the balance. Its fate rests with a handful of “centrist” senators — senators who claim to be mainly worried about whether the proposed legislation is fiscally responsible. But if they’re really concerned with fiscal responsibility, they shouldn’t be worried about what would happen if health reform passes. They should, instead, be worried about what would happen if it doesn’t pass. For America can’t get control of its budget without controlling health care costs - and this is our last, best chance to deal with these costs in a rational way.
What is Happening to the Reform in Health Reform? - That's the subject of my story in the newest issue of dead-tree TIME, which looks at some of the ways that Congress is already undercutting many of the promised reforms in the health care system. As is often the case when politicians and interest groups get hold of a big and complicated piece of legislation, you have to look deep into the fine print to figure out what is really going on.A couple of provisions that have been quietly inserted in the Senate bill are causing no small amount of heartburn in the Obama White House at the moment, because they call into question whether some of the most crucial reforms called for in the legislation will ever actually happen: One has to do with the much-touted independent Medicare commission. This is something that OMB Director Peter Orszag has often called a "game changer." Health adviser Nancy-Ann DeParle says its importance "can't be overstated. ... That'll have huge impact, we think, on future spending growth." But look at what has happened to it behind the scenes…
American Indians Stand to Gain in Health Care Overhaul - NYTimes - “Native Americans die of illnesses like tuberculosis, alcoholism, diabetes, pneumonia and influenza at far higher rates,” Mr. Obama said. “We’re going to have to do more to address disparities in health care delivery.” The health care overhaul now being debated in Congress appears poised to bring the most significant improvements to the Indian health system in decades. After months of negotiations, provisions under consideration could, over time, direct streams of money to the Indian health care system and give Indians more treatment options.
Blue Cross Blue Shield Lobbyists Quietly Helping Extreme Effort To Declare Health Reform Unconstitutional ThinkProgess has documented how the private health insurance industry is waging a duplicitous, “two-faced” campaign to kill health reform. Because the industry understands that the public views it in a largely negative light, the industry presents itself as proactively working hand-in-hand with legislators to produce reform. However, behind the scenes, the industry is coordinating a massive effort to kill all reform — employing attacks from front groups, allied politicians, think tanks, lobbyists, and right-wing media
Big Pharma Paying Off Competitors To Keep Generics From Consumers - Over the last few years, drug-makers have embraced a startlingly simple tactic for fending off competition from generic brands: paying them off. In a nutshell, the company that holds the patent on a profitable drug strikes a deal with the maker of the cheaper generic brand: you hold off on marketing your generic for several years, and in return, we'll give you a share of our profits on the drug.
Coal-Fueled Chamber Of Commerce Demands Lawmakers Defeat Health Reform In Order To ‘Stop’ Clean Energy Bill - Corporate front groups and large business trade associations are funneling their resources into defeating health reform. Even though health reform will lower costs for small businesses and boost worker productivity economy-wide, it appears that corporate entities influenced by major polluters are hoping that the defeat of health care legislation will slow President Obama’s agenda and derail their true enemy: clean energy reform.
We Know How This Debate Ends. Or Do We? - Republicans will do whatever they can to drag out the debate. But unless political circumstances change drastically, they probably will not succeed in stopping reform altogether. Instead, the Senate will vote for a bill, work out its differences with the House, and send legislation to the White House for the president to sign. By the time all of this complaining and amending is done, legislation might end up a lot worse than it is now--which is saying something, since the bill is already full of compromises. Legislation could end up putting even less money into helping people buy insurance; it could have even weaker efforts to change the behavior of the health care industry; and, of course, it could have an even more timid version of the public insurance option.
As toll mounts, researchers peer into the H1N1 death spiral - The Globe and Mail - When a person becomes infected by H1N1 or other viruses, the immune system releases cytokines – small proteins that help recruit cells to destroy the virus. Side effects include fever, chills and muscle aches that for the vast majority of people are transient. But in some, the immune response goes berserk – a cytokine storm that can rage even after the virus has cleared.That inflammatory response causes fluid buildup in the lungs. The simple act of breathing – getting oxygen in and carbon dioxide out – becomes too daunting even for a high-tech ventilator. Damage caused by viral injury makes lungs vulnerable to a bacterial infection.While the H1N1 virus still kills the elderly and those with underlying health conditions, it can attack the young and healthy with shocking velocity. It's a fatal irony: A robust immune system can be hazardous to your health. In some cases, it's the reaction to the flu – more so than the virus itself – that sets off the death spiral.
United Nations Says US Is Neglecting Deepening Homeless Crisis - Rolnik had waited more than a year to tour cities across the US to prepare a report for the UN's human rights council on America's deepening housing crisis following the subprime mortgage debacle. UN special rapporteurs are more often found investigating human rights in Sudan and Burundi or abuses of the Israeli occupation than exposing the underbelly of the American dream. George Bush's administration blocked her visit, finding itself in the company of Cuba, Burma and North Korea in blocking a special rapporteur. "I was asking for almost a year before I as allowed in," Rolnik said. "But I didn't expect to see what I have seen. In some ways the situation is worse than I expected."
The future of Africa? - I'm still thinking about this fascinating article from the NYT magazine last week, titled "Is There Such a Thing as Agro-Imperialism?". Foreign investment can do wonders but the interaction between such investment and corrupt foreign governments can also be negative if workers and citizens are not granted adequate rights. This article caused me to revaluate possible paths for some African futures. I see corrupt politicians deciding it is more profitable, and also more secure, to "sell off" their countries than to oppress them in the traditional manner. I see a new kind of tax farming, based on the extraction and exploitation of resources and raw materials, with African labor along for the ride. It will mean higher living standards and better infrastructure, but probably not along a path that will look very appealing to most Western observers.
China 'wants to set up factories in Africa' - guardian.uk - The Chinese government has shown "strong interest" in setting up factories in Africa, helping the continent develop a manufacturing base and boost its economy, the president of the World Bank said today.While most attention on China's investment in Africa has focused on its large-scale pursuit of natural resources, experts say a growing number of entrepreneurs are experimenting with production.However, some questioned whether the workshop of the world was ready to outsource much of its industry."There is not only willingness but strong interest among some in China, and I've discussed with the minister of commerce, Chen Deming, that there may be possibilities of moving some of the lower-value manufacturing facilities to sub-Saharan Africa, toys or footwear," Robert Zoellick, the president of the World Bank, told the Financial Times.
Can the Euro Zone Survive Economic Recovery? - The economic recovery that the euro zone anticipates in 2010 could bring with it new tensions. Indeed, in the extreme, some countries could find themselves considering whether to leave the single currency altogether. Although the euro simplifies trade, it creates significant problems for monetary policy. Even before it was born, some economists (such as myself) asked whether a single currency would be desirable for such a heterogeneous group of countries. A single currency means a single monetary policy and a single interest rate, even if economic conditions – particularly cyclical conditions – differ substantially among the member countries
Thrifty Britons cash in on low interest rates and falling bills - Some lenders are witnessing dramatic changes in customers' behaviour. Indeed, the Bank of England may be disturbed to learn that many lenders and building societies are encouraging customers to overpay and cut their mortgage debts, again reducing the funds available to households to spend. Most lenders permit overpayments of about 10 per cent of a debt – but some are now raising that threshold. Customers on tracker and variable rates have seen the biggest benefit from the fall in rates, and they account for about 50 per cent of all British home loans
India’s 7.9% Growth May Force Subbarao to ‘Sit Up’ (Bloomberg) -- India’s central bank may withdraw more stimulus measures by the end of the year after Asia’s third-biggest economy grew at the fastest pace in six quarters. “The chances of a rate move before the end of December have risen,” said Robert Prior-Wandesforde, senior Asia economist at HSBC Holdings Plc in Singapore. Economic growth of 7.9 percent last quarter was an “extraordinary” number that “will no doubt make the Reserve Bank of India sit up and take notice,” he said. Governor Duvvuri Subbarao, concerned about inflation gaining traction, last week indicated that there was a need to exit some of the “unconventional” measures used to spur growth. Australia and Vietnam have already begun to tighten monetary policy as the Asia Pacific region leads the world out of the worst recession since the 1930s.
Australian Professor in Japan makes case for protectionism against China - It’s time to start getting tough on Beijing…where China is at fault is in a very different area. It complains bitterly about Western, U.S. mainly, tariff/subsidy protectionism. But China itself indulges in a much worse kind of protectionism — exchange rate protectionism. If China’s currency is undervalued by around 20 percent, as many estimate, that is equal to a 20 percent tariff on all goods entering China, and a 20 percent subsidy for all exports. Tariff/subsidy protectionism in the West never gets as wild as this.True, China is not entirely to blame. It has simply been taking advantage of an extraordinary lacuna in orthodox Western economic thinking — the idea that tariff protectionism is evil but exchange rate protectionism can be ignored. We saw a good example at the recent APEC summit conference in Singapore. APEC repeated its ritual calls for free trade. It had almost nothing to say about the 800-pound elephant at the conference table — the controls that Beijing uses to keep its currency consistently undervalued
The cost of China’s excess capacity - The world has changed; but China has not. China has responded to the world financial crisis with what seems to be great success. But this is an illusion. China’s solution – a surge in spending on investment – will create greater excess capacity. China’s high-savings, high-investment economy is costly for its people and destabilising for the world. The time for a radical reform is long past. In a disturbing new report, the European Chamber of Commerce in China lays out the challenge in six sectors: aluminium, wind power, steel, cement, chemicals, and refining. Yet vast additional capacity is on the way. The scale of the excess capacity is breathtaking. At the end of 2008, China’s steel capacity was 660m tons against demand of 470m tons. This difference is much the same as the European Union’s total output. Yet, notes the report, “there are currently 58m tonnes of new capacity under construction in China”. To the extent that gross domestic product is driven by such absurd spending is a measure of waste, not of economic welfare
Overcapacity in China: Causes, Impacts and Recommendations - To download the full study in PDF, please click here: pdf English Version - The European Union Chamber of Commerce in China launched a unique new study examining the impact and influence of industrial overcapacity in China on 26th November. Entitled Overcapacity in China: Causes, Impacts and Recommendations, the study is the first ever industry-led report on industrial capacity utilization in China. The sixty-page study offers a detailed analysis of the causes and effects of overcapacity across six key Chinese industries. The study has found that the recent measures taken by the Chinese authorities to curb overcapacity are a positive first step. However, the European business community in China sees further possibilities for improvement and drawing on the knowledge and experience of the European Chamber’s 1,400 member companies, provides a series of recommendations on how this problem can be curbed.
Dangers of an Overheated China - Several hundred million Chinese peasants have moved from the countryside to the cities over the last 30 years, in one of the largest, most rapid migrations in history. To help make this work, the Chinese government has subsidized its exporters by pegging the renminbi at an unnaturally low rate to the dollar. This has supported relatively high-paying export jobs; additional subsidies have included direct credit allocation and preferential treatment for coastal enterprises. China uses American spending power to enlarge its private sector, while America uses Chinese lending power to expand its public sector. Yet this arrangement may unravel in a dangerous way, and if it does, the most likely culprit will be Chinese economic overcapacity.
Why the Chinese don’t spend - Barack Obama, on his recent trip to Asia, called for a “rebalancing” of the world economy, meaning that China should save less and spend more, while the Chinese President, Hu Jintao, stressed his country’s “vigorous” efforts to promote consumer spending. Everyone wants Chinese consumers to spend more. So why don’t they? It isn’t that China doesn’t spend at all: it’s already the world’s biggest car market, and consumer spending grew eight per cent annually in the past decade. But, proportionate to its economy, China spends far too little. Chinese households set aside a quarter of their disposable income, and, collectively, consumers and institutions put away $2.5 trillion every year. And in the past ten years consumption has actually fallen as a share of G.D.P. This makes the economy more dependent than ever on exports and investment, creating an imbalance in the global economy. It also means that Chinese consumers aren’t really reaping the full fruits of their labor. If Americans are addicted to living beyond their means, the Chinese are too adept at living beneath theirs.
Dubai Crisis Gives China Chance to Buy Oil, Gold: Report - BEIJING (Reuters) - Dubai's debt crisis could be China's opportunity to snap up gold and oil assets, a senior Chinese official said in remarks published on Monday.""While the impact of the Dubai crisis on the global economy and on China was not known yet, it would last a while at the very least, Ji Xiaonan, who chairs the supervisory board for big state-owned companies under the State Council's state assets commission, told the Economic Information Daily. "That could give China a buying opportunity to put some forex reserves into gold or oil reserves," Ji was quoted as saying by the paper, which is widely read by Chinese officials."
Cheap Oil is Here to Stay; Forget "Peak Oil," We Now Have "Peak Demand," We'll Never Run Out - A growing number of experts are saying that oil prices will remain well below $100 a barrel as the economy remains fragile and efficiency measures kick in. "The world will never run out of oil," Deutsche Bank analysts wrote in a recent research note, echoing the old logic that the Stone Age didn't end because the world ran out of stone. "If the oil age does end, it likely will be because we become more efficient and simply use less petroleum." It's this "becoming more efficient" idea that the Deutsche Bank analysts use to predict even lower oil prices in 2010 than now - an average of $65 a barrel next year compared to nearly $80 currently
FT - Mexican oil production: from bad to worse - Mexico’s declining oil output has been evident for some time now - and it suffered a symbolic setback when its massive Cantarell field fell so sharply that it lost its place as the country’s number one field. Analysts at Barclays Capital point out that this year’s decline will actually be slightly less bad than last year’s: But next year they forecast that the decline rate will again gather pace: We expect Mexican oil output to continue to decline sharply, and we forecast the pace of fall to average 8.9% in 2010.
Melted Russian Bombs Needed to Ease Uranium Pinch: Chart of Day (Bloomberg) -- The world’s atomic-power plants risk running short of fuel within a decade because uranium suppliers can’t build enrichment facilities or recycle Soviet-era warheads fast enough, according to the World Nuclear Association. The CHART OF THE DAY shows forecast global demand overwhelming fuel supply for reactors after 2017, potentially driving up costs for Exelon Corp. and Electricite de France SA, the largest reactor operators in the U.S. and Europe. Fifty-two nuclear reactors are under construction, from China and India to Finland and France, according to an October bulletin from the association. Atomic power is undergoing a revival partly because it produces far fewer greenhouse gases than conventional coal- or natural gas-burning generators.
State's water delivery outlook is grim - Operators of the sprawling state system that supplies water to 25 million Californians from Butte County to San Diego issued their lowest-ever estimate on the amount of water they will be able to deliver. Officials predicted Tuesday they will be able to offer only 5 percent of the total volume of water requested by California cities and farms next year. That's the smallest water allocation the agency has released since its creation in 1967.The estimate, based on current water conditions, is only preliminary and is almost certain to rise as the rainy season wears on. Still, officials expect a multiyear drought, low reservoirs and environmental restrictions on water pumping to keep supplies well below average in 2010."We have to assume we're heading into a fourth year of drought and we have to respond accordingly,"
Scientists Announce Proof of Mega-Droughts - While Californians worry about the three-year drought dragging on another season, researchers say climate change soon could create much longer dry spells - lasting decades or even centuries. Scientists from the University of California, Davis, this month announced the first proof of such mega-droughts after studying mineral formations in caves along the Sierra Nevada. Just as important: The big droughts seem connected to rapid warming, especially in the Arctic. The dry spells occurred during a climate warm-up that started about 15,000 years ago after the last Ice Age, says Davis geochemist Isabel Montanez. Scientists fear climate wasming this century might similarly trigger mega-droughts that would devastate agriculture, increase wildfires and cut water supply in the nation's most populous state.
Protecting the Forests, in Hopes of Countering Global Warming - The giant evergreens of the West have long been proclaimed essential, whether the cause was saving salmon and spotted owls or small towns and their sawmills. Now, with evidence showing that American forests store 15 percent or more of the carbon gases produced in the nation, expectations are growing for them to do even more. Over the next 50 years or so, experts say, some forests could be cultivated to grow bigger, more resilient trees, potentially increasing their carbon storage by 50 percent and providing an important “bridge” to a time when the nation will theoretically have shifted away from greenhouse-gas producing fossil fuels.
Economics-haters are going to hate this post - From the NYTimes Comes a great example of climate change issues in developing countries (Tree Harvester Offers to Save Indonesian Forests). First, we get the formulaic two paragraphs describing the environmental problem: Second, we get the hated* insight that private property is often a potential solution to environmental problems. One driver of deforestation is the lack of property rights over forests. People slash and burn and have no incentive to replant the trees because they don't own the land Third, we get another hated* insight that private property and incentives is often a potential solution to environmental problems. Fourth, we get the hated* insight that sunk costs: don't matter. Some environmental groups hate business firms that pollute. They hate them so much that they totally reject the idea that profit-maximization can be harnessed to solve environmental problems. Don't let your hate get in the way of good economic policy!
Trade, pollution, and the environment: New evidence - VoxEU - The “pollution haven” view asserts that globalisation draws industries to countries with lax environmental regulation. This column present evidence that that the major polluting industries are not very footloose and that changes in emissions through the relocation of activities are relatively small. The growth of trade itself, however, is likely to contribute to growing emissions associated with transport.
The Real Conspiracy Was Launched By The Fossil Fuel Industry - There is, in fact, a climate conspiracy. It just happens to be one launched by the fossil fuel industry to obscure the truth about climate change and delay any action. And this release of emails right before the Copenhagen conference is just another salvo—and a highly effective one—in that public relations battle, redolent with the scent of the same flaks and hacks who brought you "smoking isn't dangerous. The "Copenhagen Diagnosis" released today reveals that by any objective measure—melting ice sheets, greenhouse gas concentrations, sea level rise—the climate is warming faster than anticipated. And when the natural variability induced by massive climate systems such as oscillations over decades in ocean temperatures, currents and even sunspots reverts to the mean, the roughly three warming watts per square meter added by greenhouse gases will still be there to drive climate change.
Exxon-Mobil Is Funding Climate Skeptic 'Scientists' - A group promoting skepticism over widely-accredited climate change science has a web of connections to influential oil giant Exxon-Mobil, Raw Story has found. The organization is called the Nongovernmental International Panel on Climate Change (NIPCC), apparently named after the UN coalition International Panel on Climate Change (IPCC). An investigation into the group reveals its numerous links to Exxon-Mobil, a vehement opponent of climate legislation and notorious among scientists for funding global warming skeptics.
Seven Answers to Climate Contrarian Nonsense -: Scientific American - Within the community of scientists and others concerned about anthropogenic climate change, those whom Inhofe calls skeptics are more commonly termed contrarians, naysayers and denialists. Not everyone who questions climate change science fits that description, of course—some people are genuinely unaware of the facts or honestly disagree about their interpretation. What distinguishes the true naysayers is an unwavering dedication to denying the need for action on the problem, often with weak and long-disproved arguments about supposed weaknesses in the science behind global warming.What follows is only a partial list of the contrarians' bad arguments and some brief rebuttals of them.
FT - Why Copenhagen must be the end of the beginning - My view that decisive action is justified is contentious. Sceptics offer two counter-arguments: first, that the science underlying climate change is highly uncertain; second, that costs exceed benefits.Yet it is not enough to argue that the science is uncertain. Given the risks, we have to be quite sure the science is wrong before following the sceptics. By the time we know it is not, it is likely to be too late to act effectively. We cannot repeat experiments with just one planet.
Approaching Copenhagen with a Portfolio of Commitments - As we approach Copenhagen in December, international negotiations are focused on developing a climate policy framework for the post-2012 period, when the Kyoto Protocol’s first commitment period will have ended. In addition to negotiations under the UNFCCC, other intergovernmental outlets, are trying to reach common ground among the world’s major emitters of greenhouse gases. To date, these efforts have not produced a politically, economically, and environmentally viable structure for a future climate agreement. In the Harvard Project on International Climate Agreements (a global effort which now includes 35 research initiatives in Australia, China, Europe, India, Japan, and the United States), we continue to investigate promising post-2012 international policy architectures, as part of our on-going effort to help the countries of the world identify the key design elements of a post-2012 architecture that is scientifically sound, economically rational, and politically pragmatic.
Enough posturing politics. Time to let the experts lead - We can only marvel at the disarray. Here we are, 17 years after the signing of the UN framework convention on climate change, two years after the decision in Bali to agree a new climate policy, one year after Barack Obama's election, and days out from the Copenhagen conference. Yet a real global strategy to avoid catastrophe remains elusive.Copenhagen must mark the end of politician-dominated negotiation. The technical stuff has to come out of the shadows
Why a cap-and-trade system can be bad for your health - VoxEU - The purpose of a cap-and-trade system is to help in the fight against global climate change. This column warns that a unilateral approach could increase global emissions by shifting production to more carbon-intensive methods abroad. Acting alone, the EU’s Emission Trading Scheme may be doing more harm than good.
AFP: NASA climate expert hopes Copenhagen summit fails - A leading scientist who helped alert the world to the dangers of global warming said on Thursday that climate talks in Copenhagen next week were based on such flawed proposals that he hoped they failed.J ames Hansen, the director of NASA's Goddard Institute for Space Studies since 1981, said attempts to forge a global deal on cutting emissions after the Kyoto treaty expires were based on a "fundamentally wrong" approach."I would rather it not happen if people accept that as being the right track because it's a disaster track," he told Britain's Guardian newspaper ahead of the December 7-18 summit.Hansen is highly sceptical about a favoured measure of cutting greenhouse gas emissions, a cap-and-trade system under which a progressively stricter 'right to pollute' is exchanged in a carbon market.Instead, he has previously argued for a direct tax on fossil fuels as the only realistic way to achieve the necessary cuts.
Worse Than the Worst: Climate Report Says Even Most Dire Predictions May Be Too Tame - There's even less time for humanity to try to curb global warming than recently thought, according to a new in-depth scientific assessment by 26 scientists from eight countries. Sea level rise, ocean acidification and the rapid melting of massive ice sheets are among the significantly increased effects of human-induced global warming assessed in the survey, which also examines the emissions of heat-trapping gases that are causing the climate change. "Many indicators are currently tracking near or above the worst-case projections" made three years ago by the world's scientists, the new Copenhagen Diagnosis said. Nor has manmade global warming slowed or paused, as some headlines have recently suggested, according to the report, which you can see here.
Indefinite population growth is not an option - guardian.co.uk -The Optimum Population trust today launched a unique project that enables carbon offsets to be made through the support of family planning. This innovative approach stems from a report that shows meeting the otherwise unmet demand for family planning could be the most cost-effective means of achieving CO2 reductions. For example, we believe every £4 spent on family planning saves one tonne of CO2. A similar reduction would require an £8 investment in tree planting, £15 in wind power, £31 in solar energy and £56 in hybrid vehicle technology.
Nepal holds Cabinet meeting on Everest - Nepal held the world’s highest Cabinet meeting today as ministers wearing oxygen masks gathered on the slopes of Mount Everest to highlight the danger that global warming poses to Himalayan glaciers. The 23 Cabinet members, also wearing purple sashes reading “Save the Himalayas”, sat at folding tables next to the Everest base camp at an altitude of 17,192ft (5,250 metres).They signed a commitment to tighten environmental regulations and expand protected areas before flying back to Kathmandu. “The Everest declaration was a message to minimise the negative impact of climate change on Mount Everest and other Himalayan mountains,” said Madhav Kumar Nepal, the Prime Minister
The Tragedy Of The Himalayas - While it's difficult to get a comprehensive assessment of the tens of thousands of glaciers in the Himalayas — all above 10,000 ft. — independent scientific studies indicate that the third pole is melting fast, probably because of warming temperatures brought on by climate change. Since 1960, almost a fifth of the Indian Himalayas' ice coverage has disappeared, and the 2007 global-warming assessment by the Intergovernmental Panel on Climate Change judged that glaciers in the Himalayas were "receding faster than at any other place in the world." If global warming goes unchecked, the Himalayan melt will certainly get worse. This year Chinese researchers projected a 43% decrease in glaciated area by 2070. If that happens, the impact could be catastrophic. "This isn't like the polar ice caps," says Shubash Lohani, an officer with the Nepal program of the World Wildlife Fund (WWF). "You have a huge population downstream from the Himalayas who are dependent on it."
Antarctic melt to feed global sea rise - Quickening ice loss in West Antarctica will likely contribute heavily to a projected sea level rise of up to 1.4 metres (4.5 feet) by 2100, according to a major scientific report released Tuesday.Scientists long held that most of Antarctica's continent-sized ice sheet was highly resistant to global warming, and that the more vulnerable West Antarctic ice block would remain intact for thousands of years to come.The Intergovernmental Panel on Climate Change (IPCC) -- whose 2007 report is the scientific benchmark for the UN December 7-18 Copenhagen climate summit -- did not even factor melting ice sheets into its forecasts for rising seas.But studies since then show huge loss of ice mass, mainly as a result of warmer ocean temperatures, according to the review by more than 100 experts on the Scientific Committee on Antarctic ResearchThe new evidence suggests that West Antarctica in particular will add "tens of centimetres" to the global ocean watermark, which is predicted to go up two to nine times higher than the IPCC forecast, according to the report.
Big Freeze: Earth Could Plunge into Sudden Ice Age - Starting roughly 12,800 years ago, the Northern Hemisphere was gripped by a chill that lasted some 1,300 years. Known by scientists as the Younger Dryas and nicknamed the "Big Freeze," geological evidence suggests it was brought on when a vast pulse of fresh water — a greater volume than all of North America's Great Lakes combined — poured into the Atlantic and Arctic Oceans. This abrupt influx, caused when the glacial Lake Agassiz in North America burst its banks, diluted the circulation of warmer water in the North Atlantic, bringing this "conveyer belt" to a halt. Without this warming influence, evidence shows that temperatures across the Northern Hemisphere plummeted. Looking ahead to the future, there is no reason why such a freeze shouldn't happen again — and in ironic fashion it could be precipitated if ongoing changes in climate force the Greenland ice sheet to suddenly melt, scientists say.
Theory that Civilization is a Heat Engine - Garrett treats civilization like a "heat engine" that "consumes energy and does 'work' in the form of economic production, which then spurs it to consume more energy," he says."If society consumed no energy, civilization would be worthless," he adds. "It is only by consuming energy that civilization is able to maintain the activities that give it economic value. This means that if we ever start to run out of energy, then the value of civilization is going to fall and even collapse absent discovery of new energy sources." Garrett says his study's key finding "is that accumulated economic production over the course of history has been tied to the rate of energy consumption at a global level through a constant factor." That "constant" is 9.7 (plus or minus 0.3) milliwatts per inflation-adjusted 1990 dollar. So if you look at economic and energy production at any specific time in history, "each inflation-adjusted 1990 dollar would be supported by 9.7 milliwatts of primary energy consumption," Garrett says.
Cold comfort: the psychology of climate denial - If the evidence is overwhelming that man-made climate change is already upon us and set to wreak planetary havoc, why do so many people refuse to believe it?The UN's panel of climate scientists, in a landmark report, described the proof of global warming as "unequivocal".That was two years ago, and since then hundreds of other studies have pointed to an ever-bleaker future, with a potential loss of life numbering in the tens of millions, if not more.Yet survey after survey from around world reveals deep-seated doubt among the public. Experts see several explanations for the eagerness with which so many dismiss climate change as overblown or a hoax."There is the individual reluctance to give up our comfortable lifestyles - to travel less, consume less," said Anthony Grayling, a philosophy professor at the University of London and a bestselling author in Britain.
Ordinary fears/extraordinary times: 55 (real) things to worry about (if you must…) Peak Oil, Climate change and the Greater Depression will pose many challenges to our way of life but let’s get real, for a moment: Golden Hordes aren’t one of them. At least not now. Economic depression brings with it a host of serious problems, and I think you can say quite confidently, without being a chicken little, that most of the world is in a Greater Depression. But still, we’ve got a few years to go before we can say that the USA is no longer a viable culture, when no one wants to live in Paris or London, when potatoes no longer grow in Poland, and before donkey’s begin pulling our rusted-out cars. Bikers with shotguns; weaving socks from milk thistle; crashing waves drowning our cities; evacuating your house on a moments notice to house troops; the government coming to confiscate your precious metals; a mass exodus of cities as the violence and mayhem escalates to untolerable levels—all of these things should not be on the top of the list of what to prepared for.
Unique Times -- and the Future - In various contexts throughout this volume [GeoDestinies] it is pointed out that we now live in unique times, unlike any in the past, and unlike what any will be in the future. Yet many people in developed countries do not realize the unique years we have had since the beginning of the Industrial Revolution. This fact, as a framework to understand the present and what lies ahead cannot be overemphasized. We have developed technology by which we have exploited the Earth’s resources to a degree never before seen and which, in the case of non-renewable resources – fossil fuels, and metals as well as nonmetals, can never be repeated. We have drawn both from the past, and also mortgaged the next few centuries at least by degrading the vital renewable resources of soil and freshwater, which are not renewable within the span of several lifetimes. This is in contrast to many centuries of history when, lacking technology of today, things changed very slowly. All this has resulted in a seismic difference in prospects for future generations. We, in these industrial centuries, and those seeking now to industrialize, have left very little for those who will exist for the duration of the presumably million years of life of a typical mammalian species. We have done all this for enjoying (for some of us) a brief degree of affluence beyond anything ever before seen, and almost certainly will not happen again.