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Editorial Cartoon by David Horsey
Happy Economic Recovery vs. An Anemic One
Paul A. Samuelson
The number-one question preoccupying economists, policy agents of government and Main Street families is this:
Will "recovery" from the current U.S. financial meltdown arrive before the end of 2009? Or, failing that, will it at least arrive early in 2010?
Geopolitical Consequences of the Financial Crisis
Roger C. Altman
It is now clear that the global economic crisis will be deep and prolonged and that it will have far-reaching geopolitical consequences. The long movement toward market liberalization has stopped, and a new period of state intervention, reregulation, and creeping protectionism has begun.
Economic Crisis will Create the Social Heroes of Tomorrow
Alvin and Heidi Toffler
The economic crisis now gripping the world is going to go away. We may not know precisely when, where and how. But one thing is certain. Nothing is likely to blow away the waves of change that have marked human history
House Prices, Mortgage Interest Rates Key to Housing Market Recovery
By Ilyce Glink
With housing prices falling and mortgage interest rates rising, it's hard to say the housing market has bottomed out. And, yet, there are some reasons for a more optimistic housing forecast, according to Mark Zandi, chief economist for Moody's Economy.com
Joseph Stiglitz:
Will Capitalism Survive Wall Street Apocalypse
Matthew Bandyk
A few days after writing about how the United States is not heading towards socialism, Joseph Stiglitz suggests that might not be true about the rest of the world. Stiglitz argues that the lesson many Third World nations might take from the financial crisis is that capitalism is fundamentally flawed.
Asia Economy: Tamed Asian Tigers, Distressed Chinese Dragon
by Brian P. Klein and Kenneth Neil Cukier
Since the 1960s, Asian economies have focused primarily on exports. It was the key to success in Japan, South Korea, Hong Kong, Singapore, and Taiwan. Much of Southeast Asia and China soon followed suit. Over the past decade, the region's exports have increased from 37 percent to 47 percent of GDP. By hitching their wagons to exports, however, Asian countries left themselves vulnerable to a drop-off in Western consumption
Whistling Past Economic Graveyard: Audacity of Misplaced Hope
by Arianna Huffington
When Tim Geithner unveiled the Public Private Investment Program, he said that dealing with these assets was a "core" part of solving the financial crisis. But the banks would much rather keep pretending that their toxic assets are not that toxic, and worth much more than they really are -- a risky charade the relaxed mark-to-market rules allow them to continue to pull off
Not Going to Be Economic Depression
Global Economic Viewpoint
Last week at the Milken Global Conference, three Noble Laureates in Economics sat down to discuss the global recession -- Gary Becker (Nobel Prize, 1992), Roger Myerson (Nobel Prize, 2007) and Myron Scholes (Nobel Prize 1997).
All three agreed that this is not going to be a depression and that the free-market economy is fundamentally healthy.
Why No One Can Guess When
Main Street Recovery will Occur
Paul A. Samuelson
Federal Reserve Chairmen Ben Bernanke glimpses a possible recovery by year end. He is a cautious scholar, backed by the best forecasters in the world at the Federal Reserve Board.
I would be a rash fool to quarrel with this quasi-optimistic view that by year end some stability will occur. You and I should hope that there will indeed be a glimmer of light at the end of the tunnel ahead. But shift our vision now to the future. Even if the short run prospect for a 2009-2010 recovery turns out to be good, I must warn once again that the long-run outlook for the U.S. dollar is hazardous.
Free-Market Economy Fundamentally Healthy
Global Economic Viewpoint
Last week at the Milken Global Conference, three Noble Laureates in Economics sat down to discuss the global recession -- Gary Becker (Nobel Prize, 1992), Roger Myerson (Nobel Prize, 2007) and Myron Scholes (Nobel Prize 1997).
All three agreed that this is not going to be a depression and that the free-market economy is fundamentally healthy.
Brazil, China & India Can Mitigate Global Crisis
Global Economic Viewpoint
Brazil, India and even China will not be able, by themselves, to correct the dysfunctions that produced the global crisis. But it is true that the economic power of these three countries can mitigate its negative consequences. ...
The Global Economy: Worse & Worser
Today's global economic debacle shares a disturbing number of similarities with the early stages of Japan's "lost decade" of the 1990s.
Without good policy and better luck, the world may well fall into a prolonged period of slow GDP growth, high unemployment, and stagnant living standards like that which unfolded in Japan almost 20 years ago.
Today's Global Economic Debacle: The Japan Fallacy
As the United States sinks deeper into recession, many observers fear the country could reprise Japan's "lost decade," the decade of stagnation that followed its mammoth property bubble in the late 1980s. But this fear is unawarranted.
Even the United States can Manage Itself into Economic Irrelevance
Chris Thomas
America has been the greatest of all nations for a long time. But we should not forget, especially at a crucial juncture like this, that with enough bad decisions and enough political incompetence, we can indeed manage ourselves into decline.
Deng Undone: China Halts Market Reform
Since the present Communist Party leadership took power, fresh market-oriented liberalization has been minor. Such policies have been wound down and supplanted by renewed state intervention. In privatization, prices, even foreign trade and investment, the PRC was heading away from the market well before the financial crisis erupted.
Why China & U.S. Not Ready to Upgrade Ties
Calling on the United States and China to do more together has an undeniable logic. Both Washington and Beijing are destined to fail if they attempt to confront the world's problems alone, and the current bilateral relationship is not getting the job done.
But elevating the bilateral relationship is not the solution. It will raise expectations for a level of partnership that cannot be met and exacerbate the very real differences that exist between Washington and Beijing.
Larry Summers: Brilliant Mind, Toxic Ideas
by Arianna Huffington
According to most commentators, the president's press conference went a long way toward taking the spotlight off the roiling anger over AIG, bonuses and Wall Street abuses -- and putting it back where the president wants it: on the imperative need to pass his budget.
But the best laid plans of our remarkable president may be laid to waste by a bank rescue plan that is the product of exhausted ideas put together by men far too beholden to Wall Street.
To understand why a man as brilliant and accomplished as Summers can be so wrong about what to do with the banks and Wall Street, it would be useful to turn to "The Innovator's Dilemma," by Harvard Business School professor Clayton Christensen.
State Welfare Rolls Feel Impact Of Recession
Welfare caseloads have been going up in most states over the past year, but not in all of them. In fact, cases are going down in some of the hardest-hit areas. That's raised questions about whether the program is an adequate safety net for families in need.
Global Downturn Hits Mexico Harder Than Most
The global recession has hit Mexico harder than most other countries in the region. Mexico is suffering a drop in exports to the United States, a decline in remittances from Mexicans living and working in the United States, the continuing impact of swine flu on tourism, and the shrinking of the oil sector.
Morgage-Burning Parties Almost Extinct
When's the last time you went to a mortgage-burning party? Do people even pay off their 30-year mortgages anymore? NPR's Planet Money team went on a mission to find out.
Heavy Job Loss Prompts Stimulus Criticism
The surprising loss of 467,000 jobs in June, far more than expected, is fueling Republican criticism of the Obama administration's stimulus program. After the numbers were announced Thursday, President Obama called the huge job losses sobering. The continuing fallout in the labor market is causing problems in the housing sector, and vice versa.
Tourists Usually In Spain Stay Mainly Off The Planes
The global recession has been catastrophic for one of the world's most popular tourist desitinations: Spain. Business is off and unemployment is up as Britons and other northern Europeans pinched by the poor economy stay home.
Risks, Benefits Of Securitization Under Scrutiny
As part of its plan to reform financial markets, the Obama administration will turn its focus to the securitization industry. These days, almost anytime someone borrows money, the debt gets repackaged into a security that can be bought or sold like a stock.
New Owner Spurs Optimism At Saturn
Many Saturn dealers and customers were relieved after hearing that Roger Penske would buy the company from General Motors. Penske has a reputation as a dynamo in his many business endeavors, but the company will be entering uncharted waters with the Saturn venture.
Economist: Stimulus Appears To Be Working
More jobs were lost last month than expected, but the Obama administration's economic stimulus package promises to create 600,000 jobs by the end of the summer. Mark Zandi, the chief economist at Moody's Economy.com, says that without the stimulus, the numbers would be worse.
U.S. Shed 467,000 Jobs In June
The Labor Department reported Thursday that U.S. businesses shed a bigger-than-expected 467,000 jobs in June. The unemployment rate rose slightly to 9.5 percent, the highest in nearly 26 years. The Dow Jones industrial average fell more than 200 points on the news.
Obama Disappointed By Jobs Numbers
President Obama said Thursday he is "deeply concerned" about unemployment. The remarks to The Associated Press came after the Labor Department said U.S. businesses shed 467,000 jobs in June and that the unemployment rate increased to 9.5 percent.
Report: SEC Official Raised Madoff Concern
In 2004, an investigator with the Securities and Exchange Commission warned superiors of inconsistencies in convicted fraudster Bernard Madoff's trading practices. She was, however, told to focus on other investigations. Zachary Goldfarb, a business and economics reporter with The Washington Post, offers his insight.
July 4 Becomes Silent Night In Cash-Strapped Places
You may want to double-check before you head out on July 4 for the annual fireworks show. Dozens of towns are canceling their Fourth of July celebrations this year owing to lack of funds.
Politicians Reconsider Drilling Off Florida Coast
For years, oil production has been largely banned in the Gulf of Mexico off the coast of Florida. In large part, that's because of concerns that a spill could devastate the state's tourism industry. But now, some elected officials seem willing to take another look at offshore drilling after years of opposition.
Q&A: Rising Unemployment Clouds Outlook
The increase in the unemployment rate to a 26-year high of 9.5 percent doesn't bode well for a smooth transition to economic recovery. Economists said they expected to see job losses; however, the 467,000 job cuts in June exceeded the consensus of analysts' projections.
NPR Topics: Economy
NPR news on the U.S. and world economy, the World Bank, and Federal Reserve. Commentary on economic trends. Subscribe to NPR Economy podcasts and RSS feeds.
House prices and the wealth effect: Home discomforts
Brighter data on house prices may not signal a surge in spending AFTER a long winter, spring brought a touch of sunshine to American house prices. The latest Case-Shiller indices, released on June 30th, showed that prices continued to fall in April: the ten-city index was 0.7% lower than a month earlier, and the 20-city index went down by 0.6%. But these falls were the smallest since June 2008. So even though house prices in America were still roughly 18% lower than a year earlier, many now suspect that the worst is over. Such optimism may be premature. On June 30th the Office of the Comptroller of the Currency, a bank regulator, said that the number of foreclosures in process rose by 22% in the first quarter of this year, and that the number of prime mortgages with payments at least 60 days late went up by 20%. The government is stepping up its efforts to get people to take part in its anti-foreclosure programmes. ...
Reforming finance: the EU's proposals: Divided by a common market
In the first of an occasional series on the reform of finance, we look at the European Union’s proposals GIVEN its history of financial meltdown and subsequent recovery, Sweden, which assumed the presidency of the European Union on July 1st, is the ideal country to orchestrate the reform of Europe’s financial landscape. Its reputation for levelheadedness will come in handy too. The EU remains riven by two deep divides on the regulation of finance. The first is an ideological one over the degree of freedom that should be afforded to markets. It pits a weakened and distracted Britain, whose appeal as a financial centre in less troubled times was enhanced by its “light-touch” regulation, against countries such as France and Germany, which feel their long-standing distrust of freewheeling markets has been vindicated. “There is a large body of people who say that the Anglo-Saxon model has failed,” says a person involved in the new regulations. “Now they see the chance to bury it.” Tougher regulations may also peg London back in its rivalry with other European centres such as Frankfurt or Paris. ...
Bernard Madoff: The Madoff affair
Bernard Madoff's sentencing Bernard Madoff received a 150-year jail sentence, the maximum possible under American law, on June 29th for overseeing a $65 billion Ponzi scheme. The punishment of Mr Madoff whose fraud was described as “extraordinarily evil” by the judge, still leaves many questions unanswered. Prosecutors continue to investigate whether he was acting in concert with others. Efforts to retrieve money placed with Mr Madoff by duped investors will drag on for years. An internal inquiry by the Securities and Exchange Commission into its failure to spot what he was up to is due to report its findings in a few weeks. Fund managers should not escape scrutiny either. Some clearly winked at Mr Madoff’s smooth returns in the belief that he was exploiting inside information. ...
The rise of dark pools: Attack of the clones
New trading venues offer a challenge to conventional exchanges THERE is more than a hint of science fiction in the new jargon of finance. Systemic councils are being formed all over the place. America has appointed a “special master” to look at pay practices in bailed-out firms. And in the world of exchanges, “dark pools” are rising fast. Dark pools are trading venues that match buyers and sellers anonymously. By concealing their identity, as well as the number of shares bought or sold, dark pools help institutional investors avoid price movements as the wider market reacts to their trades. ...
Appraising the European Central Bank: Hard talk, soft policy
The ECB has run as loose a monetary policy as other central banks have. It is just rather more coy about it THE global economy has stopped sinking and central bankers are pausing for breath. As The Economist went to press on July 2nd, the European Central Bank (ECB) was expected to keep its main “refi” interest rate unchanged, at 1%. The ECB’s rate-setting council has been chary of cutting rates closer to zero as policymakers elsewhere have done. Its reluctance to do more has attracted criticism, only some of it fair. The focus on policy rates may put the ECB in a bad light but these are no longer a reliable guide to the overall monetary-policy stance. If you look at market rates the policy stance in the euro area is as loose as anywhere else, because of stimulus decisions taken at the height of the financial crisis. In October the ECB decided it would offer banks as much cash as they wanted, at a fixed interest rate (the refi rate) and against a wider range of security than usual, for up to six months. It also scheduled extra three-month and six-month refinancing operations, so that banks could come more often to the central-bank well. ...
Japanese banking liberalisation: Knocking down the wall
Japan eases the rules for banks and their securities affiliates REGULATORS around the world are contemplating higher walls between commercial banks and their investment-banking divisions. In Japan the opposite is happening. Last month the country’s Financial Services Agency (FSA) dramatically eased the regulations on how banks may interact with their securities arms, with sweeping implications for Japan’s financial markets. The old system laid huge burdens on financial groups. It prevented bankers from suggesting services that were provided by the same firm but housed in a different unit. Foreign banks, lacking the same holding-company structures as domestic rivals, were the worst hit. Until recently, grouses an employee of a big bank, its Japanese unit generated more paperwork than the rest of its operations across Asia combined. Domestic firms also suffered. And a system designed to minimise risk increased it, says an executive. “If the country manager asks the head of the securities unit, ‘How’s business?’, he can’t say because he is in a different legal entity.” ...
Volatility in interest-rate swaps: Rate expectations
Long-term inflation worries surge WHEN markets slide investors become uncertain. They seek to buy insurance against the worst that can happen, and that means buying options. An option is a derivative contract that gives the purchaser the right, but not the obligation, to buy or sell an asset at a certain price. Naturally, those that sell options raise their prices in response to higher demand for insurance. This shows up in the “implied volatility” of the option, which indicates how wild investors expect market swings to be. In the stockmarket, this measure is known as the Vix (short for volatility index) and is a widely watched indicator of confidence. It soared in the wake of the failure of Lehman Brothers last autumn. But it has slowly subsided and is now down to pre-Lehman levels, a sign that investor confidence is returning. ...
Buttonwood: Caveat creditor
A new economic era is dawning SOMETIMES you can have too much news. There was so much financial turmoil in the autumn that it was hard to keep up with events. In retrospect it is clear that a change in the economic backdrop akin to the demise of the Bretton Woods system in the early 1970s has taken place. Investors will be dealing with the aftermath for decades to come. From the mid-1980s onwards the answer to big financial setbacks appeared to be simple. Central banks would cut interest rates and, eventually, the stockmarket would recover. It worked after Black Monday (the day in October 1987 when the Dow Jones Industrial Average fell by 23%) and the Asian crisis of 1997-98. It did not rescue shares after the dotcom bust but the easing led to the housing boom and the underpricing of risk in credit markets. ...
Award: Bill Emmott
Bill Emmott, our editor from 1993 to 2006, received a lifetime achievement award at the 2009 Loeb Awards for business and financial journalism in New York on June 29th. ...
Economics focus: Put out
Uncertainty over the size of the output gap complicates the task of central banks HAVING raised the alarm on deflation, the Federal Reserve has now begun to sound the all clear. The statement it released after its policy meeting on June 24th notably omitted the warning from its three prior meetings that “inflation could persist for a time below rates that best foster economic growth and price stability”. To be sure, with the economy gradually finding a bottom and the rate of decline in home prices slowing, the chances of a downward spiral of deflation and economic activity have diminished. Yet it seems premature to write off the threat as long as a large output gap persists. The output gap is the difference between actual economic output and the most the economy could produce given the capital, know-how and people available. When actual output exceeds potential, demand for products and labour bids up prices and wages, fuelling inflation. When actual output falls short, competition for scarce sales and jobs puts downward pressure on inflation. Estimating how big the output gap is, and how much of a deflationary threat it still poses, is not easy. The Congressional Budget Office (CBO) estimates that the gap topped 6% in the first quarter of this year and will average more than 7% in 2009, which would be the largest figure on record. Given that core inflation was so low when the recession began, it is not a stretch to believe that, with so much slack in the economy, it could yet turn negative. But this view has been challenged in a note by John Williams and Justin Weidner of the Federal Reserve Bank of San Francisco. Rather than follow the conventional route of deriving an inflation forecast from an estimate of potential output, they do the opposite: they infer the output gap from the behaviour of inflation. As in the euro zone, where consumer prices fell for the first time ever in the 12 months to June, and Japan, where inflation excluding perishable food was -1.1% in May, inflation in America is now negative because of a drop in fuel prices last year. But core inflation is 1.8%, within its range this decade. The authors take this as evidence that the output gap may have been only 2% in the first quarter, implying little or no threat of deflation. ...
Hedge-fund philanthropy: Alternative social investments
Hedge-fund giving is proving surprisingly resilient THIS has been the worst year or so in history for the hedge-fund industry, with many funds suffering deep losses and record numbers of them going out of business. Yet some leading hedge-funders remain firmly committed to giving away a chunk of their fortunes. As The Economist went to press the Children’s Investment Fund Foundation, a charity based in London, was due to announce that it had received a whopping GBP495m ($812m) in the 2008 fiscal year from TCI, a hedge fund, under covenants built into the fund when it was founded by Christopher Cooper-Hohn in 2003. The gift took the value of the endowment to just over GBP1.5 billion, all of which Mr Cooper-Hohn and his wife, Jamie, who oversees the day-to-day running of the foundation, will use to help children in the developing world. ...
Buttonwood: Tied to the mast
Coping with the politics of austerity TAXES are unpopular, and so are public-spending cuts. Democracies may thus have an innate tendency to run up budget deficits. How to control the politicians’ urge to splurge? In Greek mythology the song of the Sirens was so seductive that enraptured sailors let their ships run on to the rocks. Odysseus stopped his sailors’ ears with wax and had himself tied to his ship’s mast so he could hear the song without endangering his vessel. Various attempts through history have been made to tie politicians to the mast and prevent them from ruining the public finances. The gold standard was one. By anchoring the value of money, the rights of creditors were protected. Spendthrift governments were forced to cut back. ...
Friction in world trade : Duties call
A row with China points to fraying tempers DESPITE the periodic sighting of green shoots elsewhere in the economy, the landscape of global trade remains resolutely bare. The World Bank said on June 22nd that world-trade volumes, reeling from a drastic collapse in global demand (see chart), will shrink by nearly 10% this year. That would be the sharpest fall since the Depression, and the first decline in trade since a small dip in 1982. Unsurprisingly, tempers are fraying as governments struggle to find ways to protect their own. The latest salvo was fired on June 23rd by America and the European Union, which complained to the World Trade Organisation (WTO) about China’s restrictions on the exports of nine minerals, including bauxite, coke, magnesium and manganese. These are important raw materials for the steel industry, among others, and China restricts their exports on the grounds that they are exhaustible resources. But America and the EU argue that by hindering their export, China is unfairly favouring domestic industries. ...
Consumer spending in Asia: Shopaholics wanted
Can Asians replace Americans as a driver of global growth? ASIA’S emerging economies are bouncing back much more strongly than any others. While America’s industrial production continued to slide in May, output in emerging Asia has regained its pre-crisis level (see chart 1). This is largely due to China; but although production in the region’s smaller economies is still well down on a year ago, it is rebounding in those countries too. Taiwan’s industrial output rose by an annualised 80% in the three months to May compared with the previous three months. JPMorgan estimates that emerging Asia’s GDP has grown by an annualised 7% in the second quarter. Asia’s ability to decouple from America reflects the fact that the region’s downturn was caused only partly by the slump in American activity. In most Asian economies falling domestic demand was more important than the drop in net exports in explaining the collapse in GDP growth. The surge in food and energy prices in the first half of 2008 squeezed profits and spending power. Tighter monetary policy aimed at curbing inflation then further choked domestic demand. ...
Economics focus: Deliver us from competition
If competition in banking leads to too much risk-taking, the right remedy is better supervision RICKY GERVAIS, a comedian, tells a story about an anxious flight. When informed that the airline no longer offered newspapers to passengers, in order to cut costs, he found it all too easy to imagine a maintenance worker inspecting the plane’s undercarriage and asking: “Do we really need all these rivets?” That firms which strive hard to sustain profits may act incautiously is a concern in many industries. The severity of today’s financial crisis is blamed by some on the pressure of competition on banks. There is a bulky academic literature that links liberalisation of markets with an increase in bank failures. It argues that the lifting of restraints, such as interest-rate caps on deposits or rules that prevent banks from operating in certain markets, leads to more intense competition. That is good for borrowers, but it also hurts banks’ profit margins by reducing the “franchise value” that comes from expected earnings. ...
Chinese IPOs resume: Thirst-quenching
After a long period of inactivity, China’s equity market reopens IT IS like a downpour after a drought. In 2007 and early 2008, hundreds of Chinese companies worked feverishly with accountants and bankers to prepare for initial public offerings. Their work came to nothing. Collapsing share prices, a contracting economy, unrealistic expectations on the part of sellers and, finally, restrictions from regulators crushed the IPO market. Now the companies and bankers that have managed to survive a brutal year are once again seeking capital, through listings on bourses in the mainland and beyond. The first raindrop in China has been Guilin Sanjin, a manufacturer of Chinese medicine, which is expected to issue shares on June 29th on the Shenzhen Stock Exchange, the market for the country’s smaller companies. The size of the offering is likely to be a bit under $100m—a mere rounding error compared to the mega-deals of two or three years ago, but a sign, nonetheless, that business has resumed. ...
Money-market funds under scrutiny: Sleep therapy
New rules designed to make money funds safer do not go far enough BRUCE BENT, a money-market-fund pioneer, liked to say the industry should aim to bore you into a sound night’s sleep. That was before it turned terrifyingly exciting, thanks largely to Mr Bent’s own Reserve Primary Fund, which in September became the first money fund since 1994 to “break the buck”, or fall below the $1 net-asset value per share that all funds seek to maintain. That triggered a run on money funds and traumatised the short-term debt markets they help to oil, forcing the American government to guarantee the industry’s almost $4 trillion of assets—and confirming fears that it had become a big source of systemic risk (see chart). With the guarantees due to expire in mid-September, pressure is on to tighten regulation. On June 24th the Securities and Exchange Commission (SEC) proposed a number of rule changes that are likely to go into effect after a brief comment period. Funds would be required to hold up to 10% of their assets in cash or bonds that can be sold within a day so they can more easily meet redemptions; to cut the maximum average maturity of their portfolios from 90 to 60 days to reduce interest-rate risk; and to buy only top-notch securities (up to 5% can currently be invested a grade below). Funds will also be allowed to suspend withdrawals if they break the buck, to allow for more orderly liquidation. ...
The craze for clearing houses: Counter insurgency
Central counterparties may not be all they are cracked up to be CENTRAL counterparties (CCPs) have been part of the financial plumbing in exchange-traded markets since at least 1925, when the Board of Trade Clearing Corporation in Chicago took responsibility for settling grain futures. But they have never been so popular as now. The idea is a good one. CCPs act as the buyer to every seller in a market, and the seller to every buyer. They collect margins on every trade; members put money into a reserve fund as well. Traders only have to worry about the creditworthiness of one entity, with which they can net off their trades. If a big trader goes under the financial system is less likely to go with it. ...
Mortgage defaults in America: Can pay, won't pay
It is easier to dump a home loan if a friend has done so too HOUSE prices in America have fallen so far that as many as one in five households have mortgage debt greater than the value of their homes. In a few states, borrowers are not liable for the shortfall between an unpaid loan and the resale value of the home it is secured upon. Even where borrowers are on the hook, lenders often find it too costly to pursue unpaid debts. So some homeowners may be tempted to default and escape the burden of negative equity. How widespread is this practice? New research* based on a survey of 1,000 homeowners suggests that one in four mortgage defaults are “strategic”—by people who could meet their payments but who choose not to. The main drivers of strategic default are the scale of negative equity, and moral and social considerations. Few would opt to renege on their mortgage if the equity gap were below 10% of their home’s value, the authors find, partly because of the costs of moving. But one in six would bail out if loans were underwater by a half. ...
The Economist: Finance and economics
Finance and economics
Eurozone retail sales post fall
Retail sales in the eurozone fell more than expected in May, a further sign of the slowing economy, data shows.
Rogue trades cost oil broker $10m
A rogue trader at a London-based oil brokerage causes his employer to lose $10m (£6m) after making unauthorised trades.
Construction sees sharp slowdown
The UK construction sector is expected to shrink by 16% in 2009, according to an industry body.
Sahara gas pipeline gets go-ahead
Nigeria, Niger and Algeria agree to build a multi-billion-dollar gas pipeline across the Sahara.
US job losses worse than expected
The number of jobs lost in the US last month came in at 467,000, which is much more than had been expected.
IMF refuses new aid for Zimbabwe
The International Monetary Fund tells Zimbabwe it will not provide more funds until it has settled its existing $1bn debts.
Pension view 'not radical enough'
The author of an influential report into the future of pensions in the UK tells the BBC his proposals were not radical enough.
Europe nears gas pipeline accord
Five European governments are due to sign an agreement on 13 July for a major new pipeline from Central Asia.
California in 'fiscal emergency'
Governor Arnold Schwarzenegger declares a fiscal emergency in California to deal with a $24.3bn (£14.5bn) deficit.
Indian growth of 7% 'is possible'
Economic growth of 7% in India is possible this year, according to a report from the country's finance ministry.
Eurozone unemployment up again
The unemployment rate in the 16 countries using the euro rose to 9.5% in May, according to official EU statistics.
Euro interest rates kept on hold
The European Central Bank keeps its key interest rate unchanged at 1% following its monthly meeting.
More defaults expected on loans
Defaults on loans have risen and are expected to increase in the coming months, a Bank of England survey finds.
Signs of recovery for UK industry
UK manufacturing shrank at its slowest pace for a year in June, a survey says, adding to hopes the worst of the recession is over.
Irish joblessness at 13-year high
The Irish Republic's unemployment rate hit 11.9% in June, the highest since April 1996, official figures show.
Business mood improves in Japan
Business confidence in Japan has improved for the first time in two-and-a-half years, says a key Bank of Japan survey.
Russians crack down on gambling
A new law comes into effect in Russia, confining gambling to four far-flung regions of the country.
Money laundering risk to football
Football is being used as vehicle for money laundering, according to an international agency responsible for tracking the proceeds of crime.
India's exports continue to fall
India's exports fell in May for the eighth month in a row as overseas demand for goods continued to shrink in the global recession.
VAT cut lifts French restaurants
The cost of eating in French cafes and restaurants should be set to fall as the government cuts VAT to boost spending.
Workplaces set to get 'smarter'
Technology will ensure that the office of the future is full of sensors that help workers be very productive, suggests a report.
Chinese manufacturing increases
China's manufacturing sector grew in June, at a slightly faster pace than in the previous month.
US judge overturns Stanford bail
Texan billionaire Sir Allen Stanford is ordered to remain in jail until his fraud trial begins, as a US judge overturns a bail ruling.
Eurozone inflation turns negative
The eurozone's annual rate of inflation turned negative in June for the first time since the currency started in 1999.
Sharp contraction for UK economy
The UK economy contracted 2.4% in the first quarter of 2009, a decline not exceeded in 51 years, the latest data shows.
Billions in virtual cash stolen in online robbery
Details emerge of why billions in virtual cash disappeared from a virtual bank in Eve Online.
How to find property in England and Wales for under £40,000
The most affordable property in some areas of England and Wales is on the market for less than £40,000, a survey suggests.
Feed the poor
Welfare costs to strain India's budget
Shrinking fast
How this recession compares to the 1980s and 1990s
Rogue trading
Can one individual have the clout to move markets?
Burning out
Budget busts mean damp squibs in the US on 4 July
Back to school
Job insecurity sparks 'Plan B' career hunts
Stephanomics
UK plc: Finding some reasons to be cheerful
BBC News | Business | Economy | World Edition
The latest Economy News from the BBC: breaking news on the global and UK economy and international investments including audio and video coverage.
Costa Rica tops good life survey
The Latin American nation tops a new global ranking that combines measures of life expectance, happiness and ecological footprint. The UK languishes midway down the table while the US is placed 114th
IMF detects 'nascent' recovery in Zimbabwe
The Fund says the African nation is starting to show signs of economic upturn after a decade of decline, noting positive trends such as price stability and increased financial intermediation
China joins carbon tax protest
Beijing has joined a growing clamour of complaint about US plans for a carbon tax on imports from countries without their own emission caps, warning it could set off a global trade war
No hoops allowed in chaos of G8 logistics
Such is the chaotic state of preparations for the July 8-10 summit in a police barracks on the edge of L'Aquila that scores of reporters were kept penned for hours outside in a temporary press centre
Heat rises as Russia awaits Obama
Russia eyes opportunities created by the economic context and what it calls a crisis in US global leadership to show that Washington needs Moscow
UN's Ban presses Burma to free prisoners
Ban Ki-moon, UN secretary-general, has met Burma's reclusive Senior-General Than Shwe to press for the freedom of political prisoners and political reforms
Rollmop empire
Greenland is shaking off the gentle yoke of Denmark. Since there is thought to be another North Sea of oil and gas under their ice cap, they have timed their self-determination impeccably
Seeking protection
Perhaps transparency measures are having an effect in moderating trade restrictions. But letting in sunlight on protectionism is not enough to kill it outright
China to allow renminbi trade payments
Beijing moves towards reducing reliance on the US dollar with new rules that will enable importers and exporters to settle their payments to select Chinese companies in renminbi
Football vulnerable to money laundering
The Financial Action Task Force highlights cases that showed how big money in the sport makes it an attractive money-laundering opportunity for criminals
IMF plans debt issuance for bail-outs
The decision to issue interest-bearing notes opens the way for China, Brazil and Russia to lend the institution large sums of money, thus retaining their leverage in governance talks
WTO warns on barriers to trade
Governments around the world have continued to push up trade barriers in spite of high-profile pledges at the G20 summit to resist protectionism, according to a World Trade Organisation report
China recovery hopes gather pace
China's manufacturing and business-activity indices both finished in positive territory in June, confirming that the world's third-largest economy is continuing to expand amid a mixed picture elsewhere in Asia
Data give signs of global recovery
The global downturn appeared close to a bottom after manufacturing figures from across the world suggested the worldwide recession was running out of steam in all big economies
Levy for air travellers to fight Aids
Travellers in the US, UK and Germany could soon find themselves donating to the fight against Aids and malaria when they buy an airline ticket over the internet under a scheme to raise hundreds of millions of dollars for healthcare in poor countries
FT.com - International economy
FT.com - International economy
Jobless consumers will hold back recovery
Many forecasters now expect the U.S. economy to begin growing later this year. But it probably won’t feel like a recovery for most people. By John W. Schoen.
Economists point to rising debt as next crisis
The Founding Fathers left one legacy not celebrated on Independence Day but which affects us all. It's the national debt, which is a staggering $11.4 trillion — about $37,000 for every American.
Jobless rate rises to 26-year high
Out-of-work with no place to land, the legions of America's unemployed are growing. The nation's unemployment rate rose to 9.5 percent in June, a 26-year high.
Stocks end shortened week with big fall
Major stock indexes ended down more than 2 percent Tuesday after the U.S. unemployment rate hit a 26-year high.
Factory orders rise more than expected in May
Orders to U.S. factories jumped in May by the largest amount in nearly a year, another sign that the nosedive in manufacturing is nearing an end.
Pending home sales climb in May
Pending home sales rose in May for the fourth straight month, fresh evidence that the housing sector may be recovering, a private group says.
Manufacturing report boosts economic hope
Brighter news on manufacturing is offering more hope that the longest recession since World War II is near an end.
Mortgage applications decline
U.S. mortgage applications plunged to a seven-month low last week as demand for home refinancing loans tumbled 30 percent, data from an industry group showed on Wednesday.
Consumer confidence slipped in June
Americans — whose hope for the economy had been rising since March — unexpectedly lost faith this month, pushing down a widely watched barometer.
U.S. metro jobless rates rise in May
Unemployment rates rose in all the largest U.S. metropolitan areas for the fifth straight month in May.
Iraqi oil licensing round runs into trouble
Iraq's hopes for an oil-revenue fueled recovery suffered a blow as the foreign oil companies greeted the country's first oil auction in over 30 years with grumbles and just one deal.
Home prices fall, but trend is easing
There is a clear trend home prices declines are moderating — another sign the beleaguered housing market is stabilizing, according to data released Tuesday.
Average cost of gas stays flat last two weeks
The price of a gallon of gasoline held steady over the past two weeks, at $2.66 for a gallon of regular unleaded.
Oil at month-low amid U.S., Europe job losses
Oil prices tumbled to their lowest level in a month Thursday following the release of woeful job numbers in Europe and the U.S.
Crisis looms as Calif. misses budget deadline
The California Senate has shut down for the night after failing to approve a stopgap plan to stave off the need for IOUs and ease the state's $24.3 billion budget deficit.
Many retailers are facing a cruel summer
As Americans get ready to celebrate July Fourth, many merchants already have dismissed summer as a washout.
Stock markets feeling the lazy days of summer
Markets have replaced big gains with little change.
Americans saving more, spending modestly
Households pushed their savings rate to the highest level in more than 15 years in May amid a big boost in incomes from the government's stimulus program.
Consumer sentiment rises in June
U.S. consumer confidence rose in June to the highest since February 2008, as expectations grew that the worst economic recession since the Great Depression may be ending, a survey showed.
Bernanke: I didn’t bully BofA to buy Merrill
Federal Reserve Chairman Ben Bernanke told Congress Thursday he didn’t pressure Bank of America into acquiring Merrill Lynch in a deal that ultimately cost taxpayers $20 billion.
Jobless claims rise; GDP dips at lower pace
Despite persistent layoffs, the economy seems to be faring better than it was at the start of the year.
Geithner: Administration eyes financial reform
Treasury Secretary Timothy Geithner said the administration will send legislative language to Congress in the next few days to create a consumer financial products agency.
1st quarter GDP dips at 5.5 percent pace
The economy tumbled at a 5.5 percent pace in the first quarter, but appears to be doing better now.
Durable goods, home sales send mixed message
Orders to U.S. factories for manufactured goods from computers to aircraft surged in May for a second straight month.
Rules to prevent ‘breaking the buck’ advance
Federal regulators on Wednesday proposed tightened rules for money-market mutual funds that will require them to hold a reserve of assets that could be easily sold.
New-home sales slip, missing expectations
New U.S. home sales fell slightly last month, in another sign that the housing market’s recovery is likely to be gradual and prolonged.
Fed sees recession easing, inflation subdued
The Federal Reserve says the recession is easing, but the economy likely will remain weak and keep a lid on inflation.
Economy has no bounce yet, Buffett says
Billionaire Warren Buffett said the economy has not yet had any bounce and will take some time to recover, but he complimented the government's efforts to solve the problems.
Durable goods orders rose sharply in May
Orders to U.S. factories for big-ticket manufactured goods rose sharply for a second straight month in May, and a key indicator of business investment surged.
Experts: Global recession is close to a bottom
A severe U.S. recession will bottom out this year, but any recovery will be weak due to anemic markets and shrunken consumer wealth, the OECD said Wednesday.
Obama says stimulus spending must pick up
Amid rising public impatience with an economy now under his watch, President Barack Obama on Tuesday said his administration needs to move faster to initiate a recovery
Home sales climb, but at a sluggish pace
Sales of previously occupied homes rose modestly from April to May, the third monthly increase this year, but signs of a housing recovery are fragile at best.
msnbc.com: Stocks & economy
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Long Run Inflation and Technological Development - Part III
I have commented in the past that it is impossible to measure inflation over long-periods of time (see here and here). Inflation "is an increase in the price of a basket of goods and services that is representative of the economy as a whole", but due to technological and taste changes, a representative basket of goods in 1979 is radically different than in 2009 and there is no objective way to compare the two.
It is an obvious point, but I think it is one economists all too often forget. That's why I was delighted to see the article Giving up my iPod for a Walkman:
When the Sony Walkman was launched, 30 years ago this week, it started a revolution in portable music. But how does it compare with its digital successors? The Magazine invited 13-year-old Scott Campbell to swap his iPod for a Walkman for a week.
Note that the "cannot measure inflation over long periods" argument does not claim the current goods are necessarily better. Just that they are different. Bring back the World Hockey Association!
Candidate for 2009's Worst Economics Article
I have read The sardine economy five times and I still cannot tell if it is sheer economic idiocy or an absolutely brilliant piece of satire. I am afraid it is probably the former, which saddens me as it is read by a fellow Canadian. (h/t: Worthwhile Canadian Initiative)
We are given a disclaimer that the author is not an economist:
I am not an economist. Even as an undergraduate, I didn't take one class in economics or political science. Instead, I took courses that had more relevance to real life and were of more practical use: The Idealism of Plato, Medieval Proofs of the Existence of God and The Dialectics of Hegel.
But apparently the author is no historian either, as he gives us this gem:
The Great Depression came to an end, not because of strategies formulated by economists, but by the outbreak of the second world war (when the generals started placing orders for obsolete weaponry of the type that had been used in the first world war.)
The Great Depression was really two downturns - a severe depression between 1929-33 and a deep but short downturn in 1937-38. The U.S. economy was growing at a 9% a year clip for the 3 years before they joined the war. Furthermore, most of the U.S. growth came from internal growth, rather than being export driven (so it was not because the U.S. was selling arms to other countries). The timing simply does not work, and had the author bothered to do any research, he would know how fallacious this claim is.
And what does he base this assertion on? The fact that the Dow Jones did not reach 1929 levels until 1954. But Teitel himself argues that stocks and financial markets do not represent the 'productive economy'. Which makes me wonder if this truly is a brilliant piece of a satire.
He rails against financial instruments and states:
When a large part of the gross domestic product of a country consists not of doing something useful but producing financial transactions, that country's economy becomes a house of cards waiting to collapse.
Which is a fair enough opinion. But then he goes on to add:
In Canada, where I live, the federal and one provincial government committed to General Motors the obscene amount of C$10.5bn, or 40% of all the corporate taxes it is estimated the federal government will collect in 2009.
What on earth does this have to do with exotic financial instruments? If you believe in "a real economy based on productive labour" then can you not make an argument that the government should help out failing industries based on 'productive labour'? I was against the GM bailout (I happen to live in the province Teitel is referring to) - I just don't understand the author's logic here.
Maybe I do not understand the logic because unlike Teitel I am not lawyer. I am curious to know if he considers his profession to be 'productive labour'.
Financial Arbitrage, Bernie Madoff and Free Lunches
Although we all would like to earn arbitrage profits, there probably aren't too many real-world opportunities to do so. I guess I am one of those people who believes the efficient market theory is approximately correct. Or the version I like to tell my students - "There may be individuals who can generate riskless excessive returns. But chances are, you're not one of them." Ed Glaeser argues that the searches for these profits leads people into getting suckered by scam artists such as Bernie Madoff:
If the lesson of the current crisis were that there were plenty of opportunities for arbitrage, then ordinary investors might conclude that they can beat the market, either by finding loopholes themselves or by investing with money managers who are skilled enough to beat the market. This type of logic led so many to trust their money with Bernie Madoff and his ilk.
If an investment seems to good to be true, then you have to wonder if it is really just a Ponzi scheme.
It May Be Hard to Believe, But People Used to Wait in Suspense for Fed Releases...
To absolutely no one's surprise the Fed is standing pat on interest rates:
Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
Again, not a surprise. As I discussed last week, the United States is likely to see rising levels of inflation, so the Fed funds rate will need to be raised. The Fed faces a difficult problem - if they raise rates too fast and too soon, they risk slowing or reversing the recovery. If they raise rates too slowly or too little, they risk runaway inflation. I must admit, I am glad I am not one of the ones having to make that decision.
The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period...
Could the U.S. Have Inflation While Canada Experiences Deflation?
It appears Canada avoided deflation for now:
Canadas annual rate of inflation edged higher in May due to lower energy prices than a year earlier that outweighed a rise in food costs.
Like many (but not all) economists, I expect to see rising levels of inflation in the United States thanks to massive increases in the money supply over the past few years. I particularly expect this to manifest itself through higher commodity prices, such as the price of oil.
Statistics Canada said Thursday the consumer price index rose 0.1% from a year earlier, after a 0.4% annual increase in April.
The slight increase in inflation came despite expectations that the country would dip into deflation in May. Economists had expected the annual inflation rate to come in at minus 0.2% in May.
Recall that the oil prices in U.S. dollars and the value of the Canadian dollar are highly positively correlated. The Canadian dollar will rise as oil prices rise, lowering the price of imported goods. Oil prices, when priced in Canadian dollars may or may not be higher, but the prices of other imported goods will almost certainly be lower. So it is, at least theoretically, possible for rising commodity prices to cause deflation.
Welcome to the Party. Can I Get You A Drink?
Keith Hennesey wonders Will the stimulus come too late?:
I began this blog at the end of March after the stimulus bill had become law. I had been struck by how much the stimulus debate had focused on whether the bill was efficient. (It clearly was not.) There was much less discussion of whether the stimulus would be effective, and of the timing of the macroeconomic boost...
I'll have to read Keith's archives, but even without doing so I suspect he had the same thoughts that I did. Specifically, that this sort of fiscal stimulus was necessarily going to be too late. My thoughts, back from 2008 when the issue was being ignored, are here: What Are The Key Ingredients of Fiscal Stimulus and Fiscal Stimulus - Unlikely To Work in the Real World.
s-l-o-o-o-w CBO says that $25 B of spending had gone into the economy by May 22nd. Thats less than 4% of the total budgetary impact of that bill. Other news reports suggest that about $40 B is in the economy if you include the revenue side. Remember that almost all of the 2008 stimulus was in private hands by August 1. We will get very little GDP boost from fiscal stimulus in Q3 of 2009, and not much in Q4 either. The stimulus will begin to ramp up in Q1 of next year, and be in full swing by Q2 and Q3 of 2010.
What I have found really depressing about the entire fiscal stimulus debate is how little attention has been paid to what Hennesey calls "the timing of the macroeconomic boost". I guess I expect it from advocates of fiscal stimulus, such as Brad De Long and Paul Krugman. But I would have liked to seen more discussion of the issue from folks like Greg Mankiw.
I would feel like Cassandra about this issue, but Cassandra wasn't predictly the blindingly obvious which I likely am. I think it's just a case where a lot of very smart people are too intelligent to bother with simple details.
Not The Only One Who Dislikes the Publication System
Last week I gave my views on peer review and the authoring process. Turns out I am not the only one who has problems with the status quo. Business Deans have issues with it too, particularly when it comes to coauthorships:
Eighty percent of the business deans who responded to a recent survey said that co-authors are sometimes carried by a colleague on a published journal article, and most felt that faculty rewards are sometimes based on an undeserved publication record...
I am certain this happens from time to time, but I am not sure if it is frequent enough that it is a serious problem. Thoughts?
According to the study, more than 70 percent of journal articles in business have two or more co-authors, in part because the rapid expansion of knowledge in business disciplines makes such collaboration necessary.
Another, more sinister reason may be at play, the authors note: This would be when an author grants another faculty member a co-authorship position on an article when he or she has done no work or very little work, thereby not deserving to be cited as a co-author.
The motive might be to help another person get a promotion or achieve tenure, or it might involve a payback in which two scholars agree to share co-authorship on different papers, the authors say.
Cap-and-Trade vs. Carbon Taxes
John Whitehead disagrees with Greg Mankiw:
The worst blog post title of all time?
John is a friend, but I think I agree more with Prof. Mankiw on this one. Economists need to realize that we are never going to get a textbook perfect cap-and-trade system vs. a textbook perfect carbon tax system. Becuase of that there is not a great deal of point arguing the merits between the two, beyond as a blackboard exercise. What we will get is a cap-and-trade or a carbon tax system which is flawed thanks to the compromises, sausage making and horse-trading that go on when any political decision is made. So we will either get a carbon tax system that has hundreds of little exemptions, or a cap-and-trade system that looks an awful lot like Waxman-Markey.
My nominee:
* Cap-and-trade looks worse and worse, Greg Mankiw's Blog
As the post goes on to say:
Although the [Waxman-Markey] bill changes incentives by putting a price on carbon, it also offers a large dose of command-and-control regulation.
In other words, cap-and-trade looks fine. Waxman-Markey looks bad because of all of the command-and-control it contains.
Now to be fair to Prof. Whitehead, the Waxman-Markey act is likely to have a great deal more flaws than, say, the SO2 trading system in the Clean Air Act (1990). So while any real-world cap-and-trade system is likely to be imperfect, it does not necessarily have to be this imperfect. Thus he has a point by suggesting that Waxman-Markey does not invalidate the benefits of cap-and-trade.
The Peer Review Process - And Why It Doesn't Work
As someone who works in the 'real world', I have to admit I am having trouble finding sympathy for this viewpoint:
Today I got a "gentle reminder" that my review was due on June 9. It was a WTF moment because I had only agreed to review the paper on May 19!! The reminder letter said they had a policy of "reasonable turnaround" so I figured this was a weird typo/screw up. Then I went back and looked at the original request email. And it said that they wanted the review IN THREE WEEKS.
I don't intend to single out Prof. Grier for his view - I suspect it would be shared by the majority of academic economists. Plus, for some reason, reviewers are typically unpaid for their reviews - what is their incentive to do a good (and quick) job? And I am probably somewhat biased due to my poor experiences with the peer review system in the past.
YIKES!!!
Here is the message I sent back to the editors:
"Wow. I can't believe you expect reviews in three weeks... I have no plans to complete a review in the next week or two. I honestly have to say that your turnaround policy is abusive. I guess I didn't notice the "deadline" TWO WEEKS AGO when I first agreed to do the review... I am still shaking my head in astonishment about the message you just sent me.
Three weeks seems like more than a reasonable turn-around time to me. But then again, most of my work is in the private sector, so I am used to having to meet deadlines if I want to keep my clients as clients. I have done a number of peer reviews and they really do not take that long. And Grier admits that excessive delays are common in academia:
There is no doubt that long delays in getting feedback from journals is unprofessional and unnecessary. I have a piece with an ex-student that sat for 11 months before we got a review (which was a straightforward R&R) and now the revised version has been sitting for about 8 months. I almost don't remember what the paper is about!
This is a serious issue, given that tenure decisions are almost entirely based on a person's publication record. The system is broken because of how flawed the incentive system is. Professors have no incentive to provide a good or quick review. The only real incentive they have is to use the peer-review system to block competing research. I suspect many 11 month reviews have the following timeline:
There is a pretty easy solution to at least some of these problems - require authors to post an application fee (say $500) whenever they submit a paper to a journal. Give this fee to the reviews so long as they meet the necessary time line. It still doesn't solve the problem of peer-review as a mechanism to block competing research, but it would both speed up reviews and prevent authors from sending in papers that they know are 'not ready for prime-time'.
Who Are the Most Effective Economics Instructors? - Part II
In response to the post: Who Are the Most Effective Economics Instructors?, Craig Newmark writes:
I havent read the book, either, but heres my guess at a big part of whats going on: the non-tenure-track teachers give higher grades and/or lighter workloads than tenure-track faculty. Both are positively correlated with higher student evaluations.
As much as I dislike disagreeing with people who I know are smarter than me, I don't think this is it. I agree with Prof. Newmark that teachers that "higher grades and/or lighter workloads" are "positively correlated with higher student evaluations" (which throws the usefulness of student evaluations into question). But why would non-tenure-track teachers give higher grades and/or lighter workloads than non-tenure but tenure-track faculty? I'm not seeing the connection.
My guess of what is going on (again, assuming the data is correct) is that it has to do with differences in skill sets.
Consider the three groups of tenured professors, tenure-track professors and professorial wannabe's. All of them either want to be tenured professors or already are. But what do they want the job? It could be because they love teaching, but it could also be because they love research and teaching is just one the 'costs' in getting a research job. In other words, they don't teach because they want to, they teach because they have to.
Now consider "practitioner adjuncts" who are not trying to obtain a permanent position in academia. They are just teaching, part-time, for the sake or the joy of teaching. For these people, teaching is not a cost, it is a benefit. It makes sense that they would be better at it!
If that is the case, then why do we not have practitioner adjuncts teach every course? Why do we let so many who are ill-suited to teaching into the classroom?
About.com Economics
Get the latest headlines from the About.com Economics GuideSite.
Economy Sheds 467,000 Jobs in June; Unemployment Rises to 9.5%
The Labor Department reported the economy lost more than 460,000 jobs in June.
Construction Spending Lowest in 5 Years
The Commerce Department reported construction spending fell 0.9% in May to the lowest rate in more than five years,
Yellen Says Fed Should Not Rush to Reverse Policy
Top Federal Reserve officials said on Tuesday the central bank should not rush to raise interest rates or remove other accommodative policies as soon as the U.S. economy climbs out of recession.
U.S. City of Pontiac Feels Brunt of GM's Pain
The decline of U.S. automakers has for years affected those who live in Pontiac.
Consumer Spending Rises 0.3% in May
U.S. consumer spending rose as expected in May while personal income posted a larger than expected jump, a government report showed on Friday, as consumers spent government stimulus money.
Will The Economy Improve From Here?
Thursday's GDP revision showed the economy still fell sharply by 5.5% in the first quarter. Is the worst behind us?
Will Larry Summers Replace Big Ben?
Obama will likely tap Bernanke for another four-year term amid questions about the temperament of Summers and praise for Bernanke
IMF's Lipsky Calls for Credible Exit Strategies
Countries should prepare credible exit strategies from the economic crisis, though there is still a serious risk financial strains could persist or intensify, John Lipsky of the International Monetary Fund said on Thursday.
FOMC Holds Key Interest Rate Steady at 0-0.25%
The Federal Reserve on Wednesday left historically low interest rates alone, but signaled a new concern for rising inflation.
Buffett Says Inflation a Concern, But Supports Obama Fiscal Policy
Berkshire Hathaway Chairman Warren Buffett said Wednesday inflation is a concern but that he supports U.S. fiscal policy under President Barack Obama.
FOXBusiness.com
FOX Business Network - We Report. You Decide.
Wall Street's reality check
A dismal jobs report has set the stage for what could be a month of reality checks on Wall Street as the spring stock rally hits a wall.
Small business lending falls sharply
Despite emergency stimulus measures, small business lending continues to fall. In the just-ended quarter, the Small Business Administration's flagship program backed 30% fewer loans than it did a year ago, and 55% fewer loans than it did in 2007, before the recession set in.
Job market takes turn for worse
The battered U.S. labor market took a step backwards last month as employers trimmed more jobs from their payrolls in June, according to a government report Thursday.
Japan backs dollar as reserve currency
Read full story for latest details.
Health care: Will 'pay or play' chase employers away?
It is one of the touchiest issues in the health care debate: Would a government-run health plan upend the employer-based health insurance system used by 160 million Americans?
Oil below $66
Read full story for latest details.
The last thing consumers need
In his latest astutely staged gesture as grand economic reformer, President Obama this week directed his Treasury Department to deliver to Congress a 153-page bill creating a new agency to protect unwitting consumers against devious lenders.
FDIC's tough terms for buyers of failed banks
Read full story for latest details.
Cash-poor California turns to IOUs
Here come the California IOUs.
Money train: The cost of high-speed rail
President Obama is pouring $13 billion into an ambitious high-speed rail project. Some say it will never make money. Some say it will. And still others say profit is not even the point.
Electronic health records: A checkup
Getting an electronic health record system in place by 2014? Tough.
Wesley Clark: Ethanol's field general
If ever there were an industry in need of a general, it's the ethanol industry. Already under siege from food companies blaming biofuels for rising grocery prices, ethanol companies are now seeing their profit margins crushed by falling prices for their product. Compounding the problem, many environmentalists -- who five minutes ago seemed to be in ethanol's corner -- have turned against the corn-based fuel.
Optimism about the economy stalls - poll
A new national poll indicates that nearly half of all Americans think the economy has stabilized, but only one in eight believes that a recovery has started.
Industrial Production
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Inflation (CPI)
July 15
Retail Sales
July 14
Job Growth
July 2
Manufacturing (ISM)
Read full story for latest details.
Consumer Confidence
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Economic news - CNNMoney.com
From CNN and Money magazine, CNNMoney.com combines business news and in-depth market analysis with practical advice and answers to personal finance questions.
How Will the Dollar Trade on July 4th?
The U.S. non-farm payrolls report and the ECB interest rate decision did not disappoint us by generating a tremendous amount of volatility in the currency market. The U.S. dollar rallied against every major currency except for the Japanese Yen which indicates that risk aversion drove the dollar higher. Equities fell more than 2 percent after job losses exceeded the market’s forecast by more than 100k. A total of 467k Americans lost their jobs in June, driving the unemployment rate up 9.5 percent to the highest level since 1983. The Australian dollar was hit the hardest as the drop in gold How Does the Dollar Trade on July 4th Holiday?
Kathy Lien submits:
prices exacerbated the selling. U.S. equity, futures and commodity markets are closed for trading on Friday in observation of the July 4th holiday. Forex markets will be open as usual but the absence of NY traders will certainly be felt.
Complete Story »
Trading Week Outlook: July 5- July 10, 2009
Two interest rate announcements from the Reserve Bank of Australia and the Bank of England, coupled with the Australian Employment, the U.K. Industrial Production and the U.S. ISM Non-Manufacturing Index, will put the spotlight on the GBP/USD and the AUD/USD currency pairs in the week ahead.
All Things Forex submits:
In preparation for the new trading week, here is a quick look at the most important economic events that every currency trader should pay attention to.
Complete Story »
Today in Commodities: Thursday, July 2
Energies traded lower by 3.5-4.5% today. We will shortly be exploring longs in crude oil for clients. For those brave souls who are currently short we would advise trailing stops down to protect your profits. August crude oil should find support at $64.50 the 38.2% Fibonacci retracement level followed by $61.90 the 50% Fibonacci level. Natural gas did break the trend line in recent sessions so at the moment we would refrain from picking a bottom in futures. That being said we are still advising clients to accumulate October $1 call spreads. The only 2 currencies that traded higher today were the US dollar and yen, if the stock market continues lower the yen should remain bid. We will not be trading the US dollar for clients but we will be paying very close attention as the dollar will set the tone for movement elsewhere. On a close above the 20 day moving average in the dollar at 80.64 in September look for further upside and for other currencies and commodities to falter. The only play we endorse currently in commodities is long exposure in the Loonie. Grains were lower today, clients got stopped out of their long corn at a loss today. Stops were executed at $3.48 in September and $3.58 in December. We will be looking for a long entry again after the holiday.
Matthew Bradbard submits:
Complete Story »
With Rates on Hold, ECB's Trichet's Quite Complacent for the Moment
It's summertime and the livin' is... (fill with adjective best describing your situation.) The European Central Bank ((ECB)) has gone into a wait and see mode, leaving main interest rates unchanged and forecasting a return to mild inflation after Eurostat had issued a 0.1% deflation figure for June. According to the introductory statement delivered by ECB president Jean-Claude Trichet, after the monthly rate setting council meeting Thursday, markets have somehow stabilized, but he intoned in the Q&A session I followed via webcast that all his estimates are only valid for the moment, meaning any exogenous or systemic shock could change the picture any day. As always, he repeated his mantra that the ECB stands on 24-hour guard to react quickly in case of the next black swan event.
The Prudent Investor submits:
M3 Growth for First Time Below 4.5% Reference Rate
Complete Story »
Move Over Fed, California's Now Printing Its Own Money
Watch out Ben Bernanke, the Federal Reserve now has competition in the currency game. California is planning to create its own money in the form of IOUs, just like the Fed. What is the California IOU – currency or an interest bearing note? Officially the IUOs will be called “registered warrants”. State Controller John Chiang planned to issue $3.4 billion, maturing on Oct. 1 to replace state payments. The interest rate is set to be determined on Thursday, but cannot exceed the statutory limit of 5%.
Michael Steinberg submits:
Complete Story »
U.S. Mortgage Rates Slip: Is the Fed's Course Affirmed?
Freddie Mac (FRE) reports that mortgage rates fell in the US in the past week. The average 30-year fixed rate mortgage fell 10 bp to 5.32%. Fed officials may find some comfort in this development, but it is unlikely to silence its critics.
Marc Chandler submits:
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June Postmortem: World Markets, The Dollar, The Banks
It's the Economy, Stupid (Still)
In our prior bi-weekly review of world markets, we recalled the above famous summary of Bill Clinton's presidential campaign theme that helped him seize the White House from George Bush Senior in 1992. Then too, the U.S. economy was suffering a decline that started with…surprise!!... irresponsible bank lending and a resulting Savings & Loan (S&L) banking crisis that threatened the health of even the largest U.S. banks.
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5 Things the Market Needs Corporate Earnings to Show Now
By Mike Conlon Well the second quarter has just come to an end and everyone on The Street is anxious to see what the results were. According to Bloomberg, stock prices in the second quarter had rebounded sharply from the previous quarter and stock indices were up the most for a quarter since 1998. Of course much of this has to do with the fact that the first quarter was one of the worst for stocks in history, but let’s not ruin a good story for the want of a few facts. Still the question remains, will the market continue to rise?
Sean Hyman submits:
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Is Treasury's TARP Debt Already Monetized? Part III
The discussion continues for one more post. I ended the last post with these words: The hope is that as the banking system works through its problems, TARP funds will be returned and the mortgage-backed securities will mature or be sold back into the market allowing the balance sheet of the Federal Reserve to contract back to where it was in the summer of 2008. The banking system is apparently holding onto reserves to protect itself and that is why they are really not lending. The idea is that if they don’t need these excess reserves they will return them. This is what the Federal Reserve is planning to happen. Let’s hope that they are correct!
John M. Mason submits:
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Can China Do Without the U.S. Dollar?
China’s announcement overnight that it will allow companies to settle international trade claims in yuan shows how serious the Chinese authorities are about building a local currency market. Bloomberg reports, July 2 (Bloomberg) — China will allow companies to use the yuan to settle cross-border trade and let them keep their entitlement to export tax rebates, seeking to reduce the reliance of importers and exporters on the U.S. dollar.
David Goldman submits:
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The Global Manufacturing Contraction Eases Again in June
Global manufacturing took another step towards growth in June - but the process was, as ever, uneven. The JPMorgan Global Manufacturing PMI posted a 46.9, its highest reading since last August. The current output component even expanded slightly following a year-long period of contraction. The PMI has now remained below the neutral 50.0 mark for thirteen successive months. The principal factors weighing down on the level of the PMI in June were declines in new orders, employment and inventories. However, rates of contraction in new work and employment eased to their weakest for thirteen and eight months respectively. Looking ahead, the new orders to inventories ratio – which tends to move in advance of the production cycle – rose for the sixth month running to its highest since April 2004. Only 4 PMIs - those for China, India, Turkey and Sweden posted growth readings in June (although Sweden is not included in the JP Morgan survey). There was a general easing in the rates of contraction recorded elsewhere. The next two to three months will now be critical in order to decide whether the sector is going to move over to expansion mode, and if it does, at what pace?
Edward Hugh submits:
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Non-Farm Payrolls Falls 467,000: Still Following 1980s Trajectory
A total of 467k Americans lost their jobs in the month of June, driving the unemployment rate to a fresh quarter century high of 9.5 percent. The jobless rate was better than the market expected but the total number of job losses was worse. The dollar rallied after NFPs on the fear that the trend of larger job losses is returning. However after the dramatic improvement in May, it is natural to see an increase in job losses especially with layoffs at GM and Chrysler. Government jobs were also cut by 52k which means that private sector payroll reductions represented only 415k jobs. What does concern us is the flat growth in average hourly earnings and the decline in weekly hours because it suggests that companies are reducing working hours and cutting pay. Yet the increase in job losses last month does not necessarily mean that we will return to the steep downward slope in 2008. No one ever said that the path back towards positive growth will be a smooth one. In the 1980s, before job losses turned into job growth, there were many hiccups along the way. At the time, we moved 2 steps forward and 1 step back which could be the current trend for payrolls as well. In fact, even with Thursday's dip in NFPs, the following chart comparing current job losses to the 1980s recession is eerily similar (X axis: 1 equals the first month of job losses).
Kathy Lien submits:
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Thursday FX View: U.S. Employment Report Creates More Waves
The U.S. trading week is ending in completely the opposite fashion to its demure start thanks to yet another resounding number of jobs lost during the month of June. As a result of a payroll report reading 467,000 losses and 100,000 more than anticipated, the recovery theme suffered a dramatic setback. The rate of unemployment rose to 9.5%. Not only is the dollar on a roll, but as a safety haven its partner in crime has reversed and earlier loss against the dollar and is rising strongly. The European Central Bank left interest rates unchanged at what its president Jean-Claude Trichet called an “appropriate” 1% level. However, he managed to undermine the single euro when he opened the door to a further reduction in the repo rate when he said the door to further cuts was not necessarily closed.
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Is Inflation a Fact… Or Just an Opinion? Part II
Yesterday I outlined the basic arguments for why inflation is believed to have hit the market or will be soon. In a nutshell, inflationists look at the Fed’s money printing as shown by the US Monetary Base and claim that inflation must be just around the corner. But the facts do not support this… at least not just yet.
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Currency Pair Overview: Majors Split Throughout the U.S. Session
Overall, the currency market traded split during the second part of the day. On one side, it was the cad, swissy and the euro which posted relatively strong gains compared to the dollar, but on the other side it was the pound and the aussie which failed again to move, expanding range-bound trade from the last few days. In addition, the yen had its own way of trading during Wednesday’s session, depending on the regional news headlines. Moreover, the pound’s hesitation might continue in the coming period, as a number of market participants say that the U.K. economy might be facing a fiscal crisis if the government fails to take decisive actions.
The LFB submits:
The Euro (Eur/Usd) showed a lot of strength during the European and the U.S. sessions, a period in which the pair advanced as much as 150 pips. The strength the euro posted during the second part of the day may be linked to tomorrow’s ECB press conference, where a number of market participants expect the ECB to have an upbeat tone over the euro-area economy.
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Why You Shouldn't Speculate on the Dollar
The dollar bears are having a field day with the fall of the dollar. I'm also a dollar bear, having written articles with such titles as: The Dollar Is Doomed and Will The U.S. Dollar Crash? Over the past century (1900-2000), the dollar has kept its value far better than fourteen of the fifteen hard currencies of the world. The dollar has been stronger than the German mark, Japanese yen, British pound sterling, Australian dollar (formerly pound), French franc, and other hard currencies. The dollar has held its value better than any other major currency except for the Swiss franc. {Source: "Triumph of The Optimists}
Living4Dividends submits:It Ain't Easy Being a Dollar Bear
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Great Banking Confusion: Is There a Better Way?
The (usually) transparent process of inter-bank lending works so well that most of the time we don't even think about it. This process has largely weaned the public away from physical paper money. Note that most money (about 90%) now exists only as entries on bank ledgers, backed by loans (debt). Also, note that possessing physical paper dollars is like having equity in the economic output of the United States of America, and has no credit risk associated to it. Physical paper money is not anyone's liability. Bank deposit money, on the other hand, does have credit risk associated to it. That risk consists of the liability of the bank in which the deposit resides. Strangely enough, most of the time the credit risk of bank deposit money is lower than the theft and physical-loss risk of physical paper money.
Mansoor H. Khan submits:
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China Calls for Global Reserve; Forex Markets React
U.S. dollar trading ((USD)) was on the back foot as global equity markets continued to rally. News that China is looking for global reserve currencies to be on the agenda at the next G8 meeting added to the downside pressure. Data was mixed with ADP private unemployment falling -473K in June vs. -393K forecast. May pending home sales at 0.1% vs. 0.0% forecast. June ISM Manufacturing climbed to 44.8 vs. 42.8 previously. Crude oil closed down $0.58 to close the day at $69.31. In US share markets, the Nasdaq was up 10 points or 0.58% and the Dow Jones was up 57 points or 0.68%. Looking ahead, June Non Farm Payrolls forecast at -363K vs. -345K previously. The unemployment rate is forecast to rise to 9.6% vs. 9.4% previously.
The Aft Deck submits:
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China Wants More Talk About the U.S. Dollar
News wires report that China has announced it wants to talk about reform of the international monetary order at next week's G8 meeting in Italy. The dollar has been hit in a knee-jerk reaction to the news headlines, but we are skeptical of the merits. First, China is not a member of G8 and is hardly in a position to determine the agenda. Second, China's views are well known since the April G20 meeting. Third, what ever reform takes place, it is a multiyear process. Fourth, we are struck by the gap between China's declaratory policy--what they say--and their operational policy--what they do. What they say sounds like they want to end the dollar's role as the numeraire. What they do is accumulate dollars and Treasuries, with some officials acknowledging they have no choice. Fifth, any changes in the international monetary order requires US approval. It cannot be foisted on the US. Sixth, the G8 is not the key forum for this kind of discussion. The IMF is. Moreover, central bankers do not attend G8 meetings and that alone may limit such discussions.
Marc Chandler submits:
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Market Preview Briefing: Crude Reverses; All Eyes on U.S. Employment Numbers
Summary 1. Most instruments trading within tight ranges established over the past 8 weeks on the daily charts awaiting clarification on the world economy.
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Seeking Alpha Dollar/Currencies stocks
'Dollar/Currencies' Tag RSS Syndication from SeekingAlpha.com
Cap-and-Trade: The Industrial Anti-Revolution
The inconvenient truth is that the new cap-and-trade bill is based on lies. A tsunami of economic discontent is coming.
Is Another Stock Market Collapse Imminent?
Strong insider trading could mean that bad news is just over the horizon.
Number of Americans on Welfare Increasing Sharply
California: Harbinger of National Doom?
America’s richest state is a stark example of how things can go terribly wrong.
Chinese Reaction Ups Risk of Global Trade War
Economic depression, and now possible trade war. What’s next?
Europe Leads Overhaul of Global Financial System
Largest Treasury Bond Caper in History?
Is someone anonymously dumping treasuries, or is it just the work of a bold counterfeiter?
A New Alternative to Treasury Bonds?
Brazil, Russia, India and China to buy IMF bonds
Get Ready for More Bank Failures
The worst may not be over for Wall Street, as unemployment blows through government stress test levels.
State Budgets in Dire Shape
American states are struggling to balance their budgets.
Europe: Unemployment Still Rising Fast
GM Bankruptcy: Ominous Implications for America
The bankruptcy of what was once the world’s largest automobile manufacturer is a stark reminder that the whole nation is heading in the same direction.
Europe Wants to Call Shots for Financial System
The German-led EU attempts to wrest more regulatory powers from Britain.
America Begs China for Money--and the Chinese Laugh!
What will it cost for Chinese support this time?
American Gold? No Thanks!
The Chinese and Japanese are falling out of love with the dollar.
Britain to Lose AAA Credit Rating?
The United Kingdom’s credit rating—and its economy—teeter at the precipice.
Green Shoots Without Roots
Smart people ask: Where is the fruit?
Europe's Economy Worse Than Expected
Europe’s souring economy will soon affect its social systems.
Germany--Bad Year for an Election
Crisis looms in Europe as its constituents prepare for the European parliamentary elections next month.
EU's Beastly Fines
The EU bares its teeth through another brutal fine, this time on computer processor giant Intel.
President Obama Cuts Budget Fat
No wonder Uncle Sam is a bloated, overweight diabetic.
Dozens of Cities Need Bailouts
Will the government (read: taxpayers) be forced to bail out municipal governments too?
The American Dream Is Dying
Shocker: Most people are just a couple of paychecks away from financial ruin.
China Canceling U.S. Credit Card
theTrumpet.com: Economy
theTrumpet.com -- Understand your world.
Is the G8 Still Relevant?
World Vision says LβAquila summit a credibility test
Thailand Takes Tougher Line on Copyright Piracy
Government is cracking down on sales of illegally copied goods, such as movies and clothes, but its campaign has met resistance
French Prime Minister Visits Iraq to Talk Business
Analysts say Fillon's trip to Baghdad, with large delegation of French political and business leaders, is another positive sign for war-torn nation
Fuel Efficient Cars Create Problems for Transportation Budgets
Transportation planners need to find new ways to raise money as motorists buy less gas and tax revenues decrease
Could Rice Help Cut Concrete's Carbon Footprint?
Usually discarded, rice hulls can help make cement stronger, so builders can use less
Zimbabwe PM Tsvangirai Under Pressure From His Party Over Prosecutions
MDC sources say party leaders and members are increasingly unhappy with Mr. Tsvangiraiβs defense of the unity government while his own party members are being targeted
Fireworks Show Will Go on in Massachusetts Town, Thanks to Local Businesses
Budget cuts threatened to cancel annual Fourth of July tradition, before one banker stepped in
Obama Poll Ratings Strong Despite Weak Economy
Latest survey shows President Obama still popular, with 57 percent job approval rating
IMF Sees 'Nascent" Recovery in Zimbabwe, But Remains Firm on Arrears
"A more liberal economic environment, price stability, a deepening in financial intermediation, and increased access to foreign credit lines underpinned a pickup in economic activity," it said
Low-Paid Zimbabwean Public Workers Hoping For a Raise This Month
The Zimbabwe Independent newspaper quoted Finance Minister Tendai Biti as saying new salaries for public servants will be announced on July 16 in his quarterly review
VOA News: Economy and Finance
Up to the minute news from Voice of America
Resolved: The New York Times Should Be Staffed By Volunteers, Like Meals On Wheels
Flaming Eggheads: In the current New Yorker, Malcolm Gladwell gives an energetic pan to Chris Anderson's Free: The Future of a Radical Price. As Anil Dash points out, there's a vehement tone to Gladwell's review that suggests some harder feelings at work than you'd expect in a standard piece of intra-Condé Nast logrolling. Anderson has replied somewhat snippily too. (Disclosure: I know Anderson medium well and like him; Gladwell I've never met but he looks cool in pictures.) The central virtue of Wired, as a great man once told me, was to be right enough on the large trend that it could afford to be repeatedly, spectacularly wrong on almost all the specifics. As a result, you can nearly always refute a Wired-type manifesto by pointing out how facts on the ground keep falling short of the vision. (I used to do that a lot, sometimes in the pages of Wired itself.) So Gladwell is on semi-solid ground in referring to YouTube's high maintenance costs, The Wall Street Journal website's (sporadically applied) pay structure, premium cable, and iPhone downloads as areas where free isn't paying and paid-for is paying. Gladwell gets lost in his other arguments, though. He pedantically objects to Stewart Brand's statement that "information wants to be free," by noting, correctly, that "information can't actually want anything." But then he uses that same formula, stating that in another case, "information does not want to be free. It wants to be really, really expensive." That other case is the market for orphan pharmaceuticals, which are growing more expensive. But Gladwell was right the first time: The new drug recipes don't want to be free or expensive. Their manufacturers want them to be expensive; many other parties (buyers, industrial spies, some national governments, and after a period of protection, U.S. patent laws) want them to be free. Some of those parties have more moral legitimacy than others, but the point is that there are two parties to every deal. Gladwell uses this point when it serves him. He starts off his review by citing a dispute between the Dallas Morning News (which wants to license its content at a high price) and Amazon.com (which wants to pay close-to-free prices to repackage the paper's content). In Gladwell's formulation, this undermines Brand's famous phrase. "Why," he writes, "are the self-interested motives of powerful companies being elevated to a philosophical principle?" But most of us have no problem with the principle that you have to pay for quality, and that view certainly serves the interests of Morning News owner A. H. Belo Corporation. A. H. Belo doesn't enjoy Amazon's vast market cap, but it has been around for more than 150 years and lists on the New York Stock Exchange — unlike Amazon, which lists in the Nasdaq ghetto. Should Belo's concerns be privileged because its industry is in decline? For all the quibbling, it seems pretty straightforward that over time, the natural progression of information is to become worth $0.00. I might feel differently if I were a paleontologist trying to get a dig funded, but to take an example close to hand: A brand new title from Gladwell or Anderson fetches a hefty price; after only a few weeks it becomes available for a few bucks on the remainder table, after a year or so for a dollar at the charity bin; and eventually it will be put out by the curb, to be picked up for free by trashpickers like me. And that's just information in some physical delivery form. (That is, right now, a nice printed book has some intrinsic value.) The effect is even sharper for pure information. Right now it might be worth it to me to hire somebody to steal Gladwell's notebooks or memory stick, in the hope of using his ideas to write a bestseller of my own. But the value of those intellectual nuggets drops rapidly. Death accelerates the process: Anderson's personal papers may one day be of interest to some university archive, but eventually they will be picked over and thrown out by disinterested liquidators (who I like to imagine speaking in broad cockney accents). Maybe some portions will be digitized, but in time they'll be "accidentally" deleted to make space for something more current. The other time factor is that right now we are in a period of plummeting prices for the kind of information both men are writing about. To take Gladwell's examples: Downloading an album's worth of music is cheaper than buying a CD used to be. Premium cable, in adjusted dollars, is cheaper than it was when Jerry Levin first cooked up that so-crazy-it-might-work idea. Pharmaceutical information tends downward so quickly that it requires a vast scaffolding of IP protection and regulation to keep it up. That trend may change with new models of content creation or the invention of smellivision or whatever. But right now it's Anderson's view that is ascendant. You can, of course, read Gladwell's review for free.
Volvo, Ikea, Abba, and the destruction of money...
Sweden's Riksbank has taken a pro-inflationary step other central banks can only envy: negative interest rates. Don't ask me to explain the mechanism, but the bank is now offering an effective deposit rate of negative .25%. The move appears to have succeeded in weakening the Swedish crown against the Euro. Inflationists in the U.S. have been debating similar ideas, and even some more surprising stuff, such as the harebrained dollar decimation scheme, in which every tenth buck will be treated the way General Philippe Pétain dealt with the French army mutineers. Because more than 80 percent of the American work force is still employed, and because Americans have a pretty broad sense that they're getting ripped off when their money is devalued (because they are in fact getting ripped off), such overt policies seem like tough sells. But could the Fed work a negative-interest-rate scheme, whose effects wouldn't be obvious right away? Anti-Swedenism rears its ugly head, as Mish Shedlock wishes the Scandinavian kingdom bad luck — and hopes the bad luck comes soon, before we end up with another Swedish export that seems good at the time but ends up filling us with shame and regret: The global economy is in a mess because of the lack of savings not because of an excess of it. People spent money they did not have, pushing asset prices to ridiculous levels. Banks, in belief that asset prices would keep rising exponentially, increased leverage. Now consumers everywhere are retrenching in the wake of the collapse, a much needed phenomenon. In light of the above, punishing savers with negative deposit rates is the height of stupidity. It would be fitting if there was an immediate run on deposits. And if that happens what will Sweden do? Halt deposits? Sweden risks (and deserves) a currency collapse and bank runs for this insane effort. Look for capital flight in Sweden. We should all be rooting for the demise of Sweden lest Bernanke or some other Central Bank clowns try the same thing. The risk is that Sweden does not immediately suffer for this stupidity and that Bernanke tries to do the same thing. One thing is certain. This is eventually going to blow sky high. Let's hope it does before Bernanke gets the same brilliant idea.
Suze Orman's Personal Finance Advice: Quit Your Job
Suze conducted her interview with Mike's silhouette in order to "protect his job." She made two cases against this type of loan consolidation: a) a car or home, unlike unsecured debt, can be seized by the bank; b) the maturity terms of mortgage and auto debt mean the person will likely end up spending more. Here's a portion of their exchange: Suze: I would feel far more comfortable with somebody who has credit card debt that is high going to somebody like a [Consumer Credit Counseling Service], consolidating that debt, getting them to reduce their interest rate, pay CCCS so that in five years you're through with this debt, and keep all my secured assets exactly that, secured, so no matter what happens I know that I in fact can keep my car and keep my home and that's what I want to do. Whenever you give people an option to pay less, they will take that option. That's how we got into trouble to begin with. But you know, Mike, as you said, I think you knew all of this; that's why you wrote in to the Suze Orman Show. But now that you've heard if trom me what do you think you are going to do in regards to your job? Mike: Well, uh, first thank goodness I have a job. But I'll definitely have to go back and think things over. Because, I don't know if I put that in my email, but that's one thing I always wanted to be was a financial advisor. You are somebody I look up to as an established financial advisor. But it's definitely something I'll have to go back and think about. Suze: Mike, here's what I learned after all the years, and it's been thirty years now really that I've been doing this, is this: that it's better to do what's right than to do what's easy. And I understand that you need a paycheck. I understand that in this economy what are you gonna do? But if you make money off of telling people to do something that in the long run hurts them, that will only come back to bite you in ways that are far beyond what money can buy and what money can do for you. That's why I have never in my career made a move with somebody else's money that was good for me before it was good for them. Thanks, Mike, so I did just want to protect you, but honest to God, it makes no sense. Mike: Right, when I took the job it was a little bit like, what is it? And like I said I wanted to be a financial advisor, so of course I analyzed it a little more than my fellow employees did, and I was like: I would never do this, why are they doing it? Suze: Bingo, Mike! Bingo, and listen, you have to understand there's a big difference between a financial advisor and a financial salesperson. Don't you feel like a salesperson? Mike: That's all I am right now. Suze: Under the guise of being a so-called financial advisor or representative of this major bank. Again, when are the banks going to get it, that they have got to put people's interest at heart before they put their own bottom line at heart? And until they do that, this economy will never ever turn around. Good for you, boyfriend. Mike: You're exactly right. Suze: Bingo! [Italics, and transcription, mine] I don't feel one way or another about personal finance celebrity Suze Orman, and I only learned today, while watching her show for the first time, that her first name is pronounced "Siouxsie" and not "Siouxs." Her advice seems sound enough, and she appears willing to strike a balance between respecting her callers' desire to buy stuff and advising them whether they can afford it. (For example, she "approved" one guy to buy a 1970 VW Beetle for $5,500 even while advising him that he was massively overpaying for the vehicle, on the logic that given his personal balance sheet he could afford the $5,500.) But I'm gonna have to go ahead and ... disagree with Suze on this job advice. Mike is right: He's just a salesman right now. His job is to sell debt consolidation. To say he has an ethical obligation to stop selling the bank's products is like saying a lawyer should only become a prosecutor or an actor should only play good guys. Mike may have ethical concerns about his job, but they are no different than the concerns of a salesman who decides he can't sell porn or booze or cigarettes: They exist solely within the confines of Mike's own head. In fact, when he makes "a move with somebody else's money" it's the bank's money, not the borrower's. So he does have an ethical obligation: to his employer. And because Suze is informally giving Mike advice, I'd say she served him poorly by implying that he needs to stop doing what he's doing. Not just because it means he loses his paycheck but because a 22-year-old MBA should be doing anything he can to learn about finance, particularly if he eventually wants to become a personal financial advisor. (And if he does, he should steer his clients away from this type of loan consolidation, for exactly the reasons Orman says.) 
Here's a fairly dramatic encounter from this afternoon's Suze Orman Show. "Mike" works as a credit manager selling consolidation loans for a "major banking institution." A 22-year-old MBA, Mike calls people with substantial credit card debt (owed both to his own employer and to other lenders), and tries to get them to move their unsecured debt into car or home loans with lower interest rates. Mike had written into the show because he had ethical qualms about selling people potentially disadvantageous products.
Barney Frank to Spend TARP Profits?
The Washington Examiner's Byron York reported yesterday that Rep. Barney Frank (D-Mass.) has plans for the cash coming in as banks repay TARP money: Last Friday, Frank introduced the "TARP for Main Street Act of 2009," a bill that would take profits from the program and immediately redirect them toward housing proposals favored by Frank and some fellow Democrats.
In other words, Frank wants to take any profit the government would have made off of TARP and immediately spend it on low income housing and mortgage subsidies. Never mind that TARP legislation says that any money the government receives from institutions paying off their bailouts "shall be paid into the general fund of the Treasury for reduction of the public debt."
While most institutions are still struggling to stay afloat, much less pay back TARP funds, it still remains to be seen if the stimulus program will ultimately end up paying for itself. In the meantime however, it seems as if Frank is doing his darndest to prevent what could be a positive outcome. Oh yeah, and did I mention that the U.S. debt is currently over $11.5 trillion?
You Know The Real Reason Why Time Mag Is Going Down the Drain? The Content!
For all the tears that get shed over the beginning of the middle of the end for Mr. Luce's mag and newsweeklies in general, one obvious explanation generally gets glossed over: They are mostly written by conventional-wisdom mongerers who can barely finish shipping an issue of "Why Dinosaurs Believed in God" and "The Mother Mary Holy Water Diet" before rushing out something like this time-waster by esteemed historian David M. Kennedy. Sample verbiage: It's old news that F.D.R.'s New Deal did not end the Depression....F.D.R. appreciated the irony that it was the Depression that made it possible for him to realize those larger objectives. It would be too much to say that he deliberately prolonged the crisis to preserve the possibilities for reform. But he candidly acknowledged the relationship between peril and progress in his second Inaugural Address, on Jan. 20, 1937.... President Obama knows this. Asked by PBS news anchor Jim Lehrer in February if he did not feel burdened by the several crises now besetting the country, Obama noted that the moment "is full of peril but full of possibility" and that such times are "when the political system starts to move effectively." Roosevelt could not have said it better. F.D.R. championed a long-deferred reform agenda that put security at its core. Obama wants to advance another set of reforms that have long been stalled. Whole rendezvous with declining circulation here. Given that it's such old news that the New Deal was an economic flopperoo and that President Obama is pushing a New Dealish-like economic stimulus package, you'd think that maybe Time would be interested in engaging the whys and wherefores of such things. Or in anything like a critical analysis of FDR and BHO. It needn't be negative or libertarian, but something other than idle idol worship might actually pull some eyeballs. Check out Radley Balko and Jeff Winkler's great social-panic stories from the past four decades of Time here. But don't try satanism at home, kids! In any case, what can Obama learn from FDR? Plenty. Especially what not to do during an economic downturn. Just watch below.
U.S. Economy: Turtles All the Way Down
"Less devastating" is President Obama's description of new Labor Department unemployment figures that massively exceeded expectations. Some 467,000 jobs vanished in June, according to the Bureau of Labor Statistics. That figure was well above the 350,000-363,000 job losses guesstimated by economists, but it was quite close to the 473,000 figure calculated by Macroeconomic Advisers, LLC in its ADP National Employment Report [pdf]. Calculated Risk notes, once again, that the unemployment figures have blown through the "more adverse" scenario envisioned in the first of the so-called bank stress tests. The financial markets are in the process of giving up a non-trivial portion of their second-quarter gains — a slightly unusual pattern for the pre-Fourth of July period. (CNBC calls it the "single worst day before the long Fourth weekend in more than a century," for all you economic sabermetricians out there.) Will any news be coming after the holiday to indicate economic activity is increasing, or decreasing at a decreasing rate, in these here United States? Obama
economic advisors Christina Romer and David Axelrod both downplay but do not dismiss the possibility of a second stimulus package. Meanwhile, paying for the first stimulus package is getting easier, as 10-year Treasury yields drop to 3.49 percent. The Department of the Treasury will be borrowing new piles of money next week, and China is reiterating its call to replace the dollar as a reserve currency. Disgruntled goldbugs (ain't they all disgruntled?) may enjoy this headline: "China, Dollar Vie for Gold Standard."
Reason.tv: PJ O'Rourke: "Where was the government with Studebaker?"—The best-selling author on bailouts, easy women, the ruination of the U.S. auto industry, and his new book, Driving Like Crazy
P.J. O'Rourke is a 21st-century H.L. Mencken-a libertarian satirist and quote-machine who's deeply suspicious of most any office-holder ("Politics is the attempt to achieve power and prestige without merit"). Go here for embed code, audio podcast, iPod, and HD versions. Go to Reason's YouTube channel! Approximately 15 minutes. This interview produced by Ted Balaker. Director of photography is Alex Manning, editor is Nate Chaffetz, and associate producer is Paul Detrick.
Since the 1970s, O'Rourke has written for all kinds of publications, including Playboy, Esquire, Vanity Fair, Automobile, and The National Lampoon. He is the H.L. Mencken Research Fellow at the Cato Institute, a regular correspondent to for The Atlantic Monthly, and the best-selling author of 12 books, the latest of which is Driving Like Crazy: 30 Years of Vehicular Hell-Bending.
In June, Reason.tv's Ted Balaker sat down with O'Rourke at the Peterson Automotive Museum in Los Angeles. Topics include: bailouts, who ruined the U.S. auto industry, politicians' love affair with trains, how easy women made O'Rourke a youthful socialist and how getting a paycheck turned him into a libertarian.
Peter Bagge's Everybody Is Stupid Except For Me (And Other Astute Observations)
Or (writes Peter hisself!): "If you want a copy RIGHT NOW, you can order it by phone directly from Fantagraphics Books. If you dial (800-657-1100) between now and the end of July they won't charge you postage, so it'll cost you about the same that Amazon charges. DEAL!" And check out the reviews so far (the last one included to be fair and balanced): How to describe Peter Bagge? Cartoonist? Cynic? Little ball of human rage? All of the above. Also satirist, raconteur, concerned citizen, and critic. And finally, Libertarian. But one from the realist branch of that political tree. For the past eight years, Bagge has been producing regular strips and features for Reason, the scathingly brilliant libertarian journal that's the secret guilty favorite of Washington insiders Left and Right. Now the best of that work has been collected by Fantagraphics. Everybody Is Stupid Except for Me is as combative, iconoclastic, and embittered as its title suggests it would be. It is also smart, thought-provoking, and funny as hell. Disconcertingly, you'll agree with at least half of what Bagge says. Then, gratifyingly, you'll realize that everybody is stupid except for you, too.—Tim Heffernan, Esquire Everybody Is Stupid, overt political concerns aside, is pleasingly consistent with Bagge's earlier work: As mass-population stupidity (tax-dollar boondoggles, sports-arena and shopping-mall mania and so forth) escalates, so do Bagge's abilities to hold it up to razor-edged ridicule. Bagge cartoons himself as a confused Everyman, perpetually attempting to make sense of a society-gone-senseless. If Bagge is a curmudgeon, he tempers the attitude with a willingness to laugh at everything—even himself. If a documentarian, he is an interpretive and exaggerative one. If a social critic or polemicist, he brings to the table a rare combination of backhanded affection and rambunctious humor. No "ifs" as to the matter of his being one terrific cartoonist, with a keen constancy of purpose.—Michael H. Price, Fort Worth Business Press First of all, sorry to bury the lead, I'm getting to the point. Second of all, Iggy Pop wouldn't suffer shit like this from smug, vodka-swilling liberal arts majors at a bar. Third of all, is it all right if I draw from this isolated incident with a moron, that all libertarians are idiots? If Everyone is Stupid is any indication, that's totally fine. This bloated collection of Peter Bagge's work is just a series of similar encounters, through the lens of libertarianism. The book would have you believe that the world is comprised of bleeding-heart pinko Democrats who want to tax you to death and take away your assault rifles, and the GOP's flock of sexually-repressed bible-thumping rednecks.—Ashley Cardiff, CC2K 
As Brian Doherty noted yesterday, Reason's own beloved Peter Bagge has a fantastic collection of a near-decade's worth of political cartooning coming out from Fantagraphics. The content is king but the actual production is nothing short of stunning, filled with the bright, bright colors than Paul Simon used to sing about back when Kodak was still making film.
Reason Foundation Chairman Bill Dunn on Free Minds, Free Markets, & The Current Crisis
There's two parts and both are well worth watching if you're interested in freedom and fiscal sanity. Go here for Part 1 and here for Part 2.
Over at the MartinKronicle ("insight from a commodity trader), Michael Martin interviews Bill Dunn, the chairman of Reason Foundation, the nonprofit that publishes this website, and principal at Dunn Capital Management.
InstaVision Talks With Texas Gov. Rick Perry, Who Makes a Lot of Economic Sense
Over at PJTV, Glenn "InstaVision" Reynolds interviews Texas Gov. Rick Perry on why the Lone Star State is doing relatively well compared to other giga-states such as California, which is in full-on breakdown mode. The secret, says Perry, is low taxes, predictable and minimal business reg climate, keeping spending low, and the like. About the best-kept secret: Texas's legislature meets for only 140 days every other year. As a former resident of both California and Texas, I can attest to the many differences in the states (especially the weather). I don't think Texas is any sort of paradise, but when you stack the place up compared to virtually every other state in the U.S., it's got a helluva lot going for it. Watch the interview below. It's about 15 minutes long and while Perry is pure politician (and I mean that in a bad way!), he makes pretty damn good economic sense (while being awful on any number of other issues, such as border enforcement, social freedoms, the drug war, and more). 
Did the Bubble Start In 1994? Did the Recession Start In 2006?
Honor the unofficial 31st day of June by reading Volume 1, Number 1 [pdf] of BEACONOMICS A quarterly economic forecast for the U.S. and California, published last month by Christopher Thornberg's Beacon Economics. Don't expect to like everything you read. Thornberg agrees with the principle that public spending can and should be used to move surplus resources from the private sector, going so far as to say recently that government "should be spending when everyone else is cutting back" and "buying cars when no one else is buying cars." You may also object to his reference to "the myriad of long run issues — healthcare, social insurance, massive public debt, and environmental issues — that need to become a priority of public policy and debate in the coming decade." Finally, I have to say ouch for Reason when Thornberg dismisses "claims that the United States was entering into a 'lost decade' like Japan experienced in the 1990s" as "unwarranted hysteria." That having been said, the study is the most useful broad view of the recession I've seen in a while. Thornberg has been a reliable realist on housing prices and a skeptic of all efforts to shore up real estate values. I share his disdain for the scapegoating of "mark-to-market" accounting rules and for the subsequent changes to FASB rules, which Thornberg describes as a "delay tactic" that will allow "many a defunct bank to avoid acknowledging their problems and leave the entire system weakened for years." And I am of course totally on board with his indictment of the real criminals: The largest imbalance in the economy and the primary issue that turned the quasi recession of the first three quarters of 2008 into the full blown downturn of the fourth quarter was not housing or finance, but the American public. Thornberg is less optimistic than I am about the far future of asset-backed securities (pp 7-9). But he's more optimistic about the recovery, predicting that output will bottom out this fall and growth will remain in a hockey-stick pattern stretching into next year, with house prices hitting bottom in the first half of 2010. That's on the premise that the recession began quite a bit earlier than the December 2007 start date given by the National Bureau of Economic Research. His discussion of the recovery prospects (pp 13-15) is the only green shoots-type talk I know of that is in any way closely argued or persuasive. And page 10 contains an interesting estimate that the 2007 U.S. economy was overvalued by $15 trillion (an idea I've cribbed several times), having begun to super-inflate way back in 1994. But rather than go on cherry-picking the stuff I agree with, I suggest you check out the report for yourself.
The Cost of Doing Something
On the eve of what would be a 219-212 House of Representatives vote in favor of the American Clean Energy and Security Act, the New York Times editorial board argued that whatever the bill's eventual price tag, it sure beat "the costs of doing nothing." Warned the Gray Lady: "By any measure—drought, famine, coastal devastation—the costs of inaction, of clinging to a broken energy policy, will dwarf the costs of acting now." Matt Welch is editor in chief of Reason.
If that argument sounds familiar, it is. Times columnist Paul Krugman, while declaring those 212 nay votes guilty of "treason against the planet," posited that "we're facing a clear and present danger to our way of life, perhaps even to civilization itself." Therefore, "How can anyone justify failing to act?"
The same logic, minus some of the apocalyptic language, is being used this summer to push through President Barack Obama's other massively expensive overhaul to the way America does business: health care reform. "I can assure you," the president said recently in Green Bay, Wisconsin, "the cost of doing nothing is going to be a lot higher in the years to come. Our deficits will be higher. Our premiums will keep going up. Our wages will be lower. Our jobs will be fewer. Our businesses will suffer." Echoed Health and Human Services Secretary Kathleen Sebelius a week later: "The cost of doing nothing will render us a second rate nation on into the future." Rep. George Miller (D-Calif.), in subsequent House hearings, went still further: "There is not one child, not one worker, not one employer, nor one taxpayer who can further bear the cost of doing nothing."
Hyperbole aside, the urge to have the government do something in the face of a perceived crisis is arguably the most powerful and effective legislative engine known to man. If the crisis is acute enough, backers of state intervention will even admit that content matters less than the mere existence of action itself. During the height of last fall's financial panic, for example, New York Mayor and financial journalism titan Michael Bloomberg said on NBC's "Meet the Press" that "Nobody knows exactly what they should do, but anything is better than nothing." As the House of Representatives was passing the stimulus package this February, Rep. David Obey (D-Wisc.), chairman of the House Appropriations Committee, thundered that "the cost of doing nothing would be catastrophic." Auto bailout? "The cost of doing nothing is cataclysmic," warned Sen. Bob Casey (D-Penn.) last December.
In weighing the pros and cons of a given bill, one way to assess the "do something" argument is to apply analytical rigor where legislators and their enablers insert dystopian adjectives. For instance, instead of taking international trade economist Paul Krugman's word that global warming poses a "clear and present danger" to "civilization itself," you could grapple with the legislative analysis by Reason Science Correspondent (and controversial global warming believer) Ronald Bailey, who has followed the science and policy of this stuff for two decades.
Another way is to look back in history, and see how previous laws passed using this justification have stood the test of time. Here is a highly partial list of four questionable bills rammed through Congress using classic do-something logic. One could easily assemble a much longer tally of perceived crises that weren't actual emergenices, and/or instances when doing something turned out to be worse than doing nothing at all.
Law: Authorization for Use of Military Force Against Iraq Resolution of 2002
Existential Threat: President George W. Bush: "[T]he Iraqi regime is a threat of unique urgency....[I]t has developed weapons of mass death; it has used them against innocent men, women and children. We know the designs of the Iraqi regime. In defiance of pledges to the U.N., it has stockpiled biological and chemical weapons. It is rebuilding the facilities used to make those weapons....Saddam must disarm, period. If, however, he chooses to do otherwise, if he persists in his defiance, the use of force may become unavoidable." House Speaker Dennis Hastert: "I think the bottom line for all of us here is, we've been through this process, we've been through September 11th. We visited Ground Zero. We've been at the Pentagon the day after. And we don't want that type of tragedy to happen in this country again. And we will do everything in our power to prevent it from happening again."
Promise: "[A]s we saw in the fall of the Taliban, men and women celebrate freedom's arrival....We'll work with other nations to help the Iraqi people form a just government and a unified country. And should force be required, the United States will help rebuild a liberated Iraq."
Results: Saddam was indeed disarmed and dethroned, though he didn't have the weapons he was supposed to disarm. Neither freedom nor unity nor a "just government" arrived quite as advertised, and the rebuilding process continues.
Cost of Doing Something: An estimated 4,322 U.S. military killed and 68,920 wounded; 1,360 U.S. contractors killed, 318 non-U.S. coalition forces killed. An estimated 100,000 or so Iraqis killed, though those numbers are hard to measure and disputed. An estimated 2.8 million Iraqis displaced from their homes. Plus more than $1 trillion spent, and the U.S. military stretched.
Law: The Sarbanes-Oxley Act of 2002.
Existential Threat: Allegedly plummeting investor confidence in the wake of recent corporate scandals at Enron, Adelphia, WorldCom, and elsewhere.
Promise: President Bush: "No more easy money for corporate criminals, just hard time....The era of low standards and false profits is over."
Results: Um.
Cost of Doing Something: Created make-work for auditors. Compliance costs affected small actors disproportionately. Companies stopped going public.
Law: The Bipartisan Campaign Finance Reform Act of 2002.
Existential Threat: John McCain: "Our political system is confronting today a very serious challenge, as dangerous in its way as war and depression have been in the past. America will need your best efforts to defeat it. The threat that concerns me is the pervasive public cynicism that is debilitating our democracy....When the people come to believe that government is so dysfunctional or corrupt that it no longer serves these ends, basic civil consensus will deteriorate to the point that our culture might fragment beyond recognition....We desperately need to reform a campaign system that lures good people into bad practices; a system that values money far above ideas and integrity; a system that is a stain upon every public official's honor."
Promise: To "break the iron triangle of big money, lobbyists and legislation and take the government out of the hands of the special interests."
Results: Er, not so much.
Cost of Doing Something: Among many other restrictions on political speech, the law put the federal government in the role of censoring political advertisements by organizations unaffiliated with any political party or candidate. Compliance costs affected small actors disproportionately.
Law: The Anti-Terrorism and Effective Death Penalty Act of 1996
Existential Threat: Terrorism by foreigners (such as the 1993 bombing of the World Trade Center) and terrorism by domestics (such as Timothy McVeigh in 1995).
Promise: "[T]o stop terrorists before they strike, and to bring them to justice if they do....[T]o deport terrorists from American soil without being compelled by the terrorists to divulge classified information, and to bar terrorists from entering the United States in the first place."
Results: Terrorists, including foreigners, continued to murder on American soil.
Cost of Doing Something: Introduced the foul modern concept of secret courts that use secret evidence, removed the appeal process for when legal non-citizens tangle with power-crazed border guards, limited appeals for death row inmates.
There are times when doing something with the federal government is the perfectly appropriate or reasonable response to a given challenge. Such is the fodder of constructive public policy discussion. But when a politician or pundit uses scare language about the perils of inaction, that is often an attempt to shut discussion down, and force through something today that many of us will be sorry about for years to come.
Reason Writers Around Town: Shikha Dalmia on Obama's Top Five Health Care Lies
President Barack Obama walked into the Oval Office with a veritable halo over his head, writes Shikha Dalmia in her latest Forbes column. In the eyes of his backers, Obama could say or do no wrong because he had evidently descended directly from heaven to return celestial order to our fallen world. Oprah declared his tongue to be "dipped in the unvarnished truth." Newsweek editor Evan Thomas averred that Obama "stands above the country and above the world as a sort of a God." But when it comes to health care reform, Dalmia notes, with every passing day, Obama seems more like a demagogue, uttering not transcendental truths, but bald-faced lies. Read the whole thing here.
Bruder, Canst Thou Spare a Ten-Cent Piece?
It became common practice for families to leave their carriages home and take taxis on shopping trips and to dinners out. Some Amish families had bought second homes on the west coast of Florida and expensive Dutch Harness Horses, with their distinctive, prancing gait. Others lined their carriages in dark velvet and illuminated them with battery-powered LED lighting. Even the tradition of helping each other out began to unravel, Bishop Hochstetler says. Instead of asking neighbors for help, well-to-do Amish began hiring outsiders so they wouldn't have to reciprocate. "Factory work doesn't eliminate fellowship, but it does not encourage togetherness," the bishop says. Last fall, the recreational-vehicle industry began to lay off workers. Facing financial hardship, the Amish traditionally have sought aid within the community. But with nearly half of households depending on manufacturing income, Amish bishops this year reluctantly decided for the first time that laid-off workers could seek unemployment benefits. Some green shoots: The depositor-stricken Tri-County Land Trust took a substantial hit to its cash reserves and suspended lending, but it's still in operation, following very "conservative" investment strategies. It's not FDIC-insured, and the rates on deposits look more attractive than anything you'll get from your neighborhood gigantibank. (You have to be Amish to be a customer.) Also funnel cake sales are said to be recession-proof. 
Amish Hoosiers find out too late that it really was a gift to be simple in this Wall Street Journal report about a run on a bank for Plain Folk. Douglas Belkin writes that Mammon, in the form of $30/hour jobs in the RV and construction industries, spurred a "keeping-up-with-the-Joneses" mentality and tested the bonds of the Amish community:
Deadbeat: Not Just A Circumstance, A State of Mind
Lose what little faith you still have in your fellow Americans with the new Mortgage Metrics Report. For the first time, the quarterly report [pdf] from the Office of the Comptroller of the Currency and the Office of Thrift Supervision includes information on redefault rates for modified mortgage loans. That is, lenders are increasingly offering supposedly distressed borrowers substantial reductions in principal and interest payments. (See page 25 to see how rapidly these modifications are becoming much more charitable to the borrowers.) Redefault data track how many of these renegotiated loans end up back in trouble. There's a wide variety in types and degrees of trouble — everything from 30 days' tardiness on payments to completed foreclosures. In general, the more loans you modify, the higher the percentage of redefaults: In the first quarter of 2008, 68,001 loans were modified, and 40,206, or 59 percent, of those have ended up 30 days late again, or worse. In the first quarter of 2009, 185,156 loan mods were done, and of those, 120,067, or 64 percent, ended up in trouble. (Check my math: to get a total-in-trouble number I'm adding up "30-59 days Delinquent," "60 or More Days Delinquent," "In Process of Foreclosure," and "Completed Foreclosure." To be sporting, I'm leaving "Short Sale or Deed-in-Lieu of Foreclosure" out.) If there's any good news in this, it may be that while the total number of loan modifications is skyrocketing, the percentage of redefaults is increasing sporadically relative to total loan mods, rather than growing in a straight line. So in the fourth quarter of 2008, for example, only 46.9 percent of modified loans ended up back in trouble. But even that isn't really encouraging, because some of the "trouble" categories were artificially depressed in that period (through, for example, statewide foreclosure moratoriums in effect in some of the most deadbeat-rich areas). Also, the terms of loan mods are getting much more generous: Where last year banks tended to offer only small gestures like maturity-lengthening or a slightly better interest rate, now they're offering to reduce principal, pay all closing costs for new mortgages etc. So if these borrowers really are honest citizens who just need help getting back on their feet, the percentage of redefaulting loans should be going down, not up. That's not the case, because they are not honest citizens. They're deadbeats, and it's time to stop pretending they can be anything else. 
But one pattern emerges when you add up all the redefaults per quarter and compare them to the total number of loan modifications: When you take deadbeats and give them a free opportunity to get out of contractual obligations they willingly signed before God and country, a fairly reliable majority of them — and often a fillibuster-proof 60+ percent — end up deadbeating again.
Do Bad Banks Offer Defective Toasters?
Here's a bank that won't be too big to fail: the Public-Private Investment Program (PPIP), which is expected to be unveiled Wednesday. The PPIP, once dubbed the "bad bank" (on the principle that it would buy up so-called toxic assets from large financial institutions that were receiving Troubled Asset Relief Plan funding), has lost limbs and pined with scurvy during its long passage. If it arrives tomorrow, PPIP will be a much smaller vessel, displacing a mere $50 billion rather than the $1 trillion originally foreseen. Charlie Gasparino reports that nine firms will participate in the program, including one run by vulture investor Wilbur Ross and a joint venture between GE Capital (which may want to sell off a few toxic assets of its own and then buy them back) and private investor Angelo, Gordon & Co. New "King" of Wall Street Larry Fink, the lightning rod supergenius* who did so much to make this golden age of mortgage-backed-securities possible, may also participate through his BlackRock investment management firm. Will there be any good buys out there? As long as some critical mass of borrowers continue to service their debt (and even in this degenerate land that's still true of the majority of borrowers), the same mix of assets that would sink, say Mirae Bank, could theoretically pay off for experienced buyers of troubled assets. With a $50 billion public backstop on losses, this seems to fit the "heads I win tails I break even" setup favored by Rep. Barney Frank (D-Mass.). Caveat: It's not really clear whether the PPIP will be buying debt instruments. Even at these prices, PPIP does not seem to have tempted weather-controlling madman George Soros into participating. Seeking Alpha's Tom Lindmark says the small-enough-to-fail banks will continue to bleed until they die, so the whole program should scrapped, scuttled and scuppered. * I'd like to take only a half-sarcasm point here, since I do think mortgage-backed securities were an impressive financial invention that will, in time, return to viability (if they haven't already in some markets).
FTC Discovers Kids Hang at Mall, Like the Internets. Uses Information to Propagandize for Free Trade?
Someone at the Federal Trade Commission (FTC) heard that the kids these days like to hang out at the mall. (Question: Do kids still hang out at the mall? Word on the pedestrian and cyclist-friendly street is that the American mall is dead.) Further, someone—perhaps this same enterprising person?—heard that when the kids are not shopping at DeLiA's, they totally like to watch videos on the World Wide Web. And so this strange taxpayer-funded, candy-colored interactive online mall of free trade propaganda was born. The lessons are encourage economic literacy, pro-trade attitudes, and mall map reading skills. Click below to watch the lesson about competition. The lesson is unobjectionable: Three pizza places at the mall? That's good. "When businesses compete, consumers win!" If there's going to be propaganda, this is the topic I'd like to see it on. But sweet baby Jesus, if the FTC keeps it up at this rate, kids will hate capitalism as much as I now hate bureaucratically-approved yellow stoner guy and his federally-funded uptight pink girlfriend. 
Inflation and You: Partners In Freedom
Why is demand for Treasury bonds high, when the supply is so vast and the Federal Reserve has to keep buying inventory, supposedly to keep up the price? The Market Oracle reads the entrails: The demand from both domestic and foreign market participants has been ridiculously high in all three tranches auctioned last week. Even the 7 Year Note - which is considered to be a bit of an odd duck - was oversubscribed to a record level and foreign Central Banks took the highest percentage ever for this particular maturity. World capital markets are highly interconnected. If the yields on Treasury bonds increase, that will cause funding costs to rise for the Russians, Chinese, Japanese, etc. - all those parties that are highly critical of the way the US continues to ramp up its borrowing needs. Officials in those countries are fully aware of that, so they continue to show up in size at all the Treasury auctions - which is really what matters at the end of the day. If anybody can disambiguate me on why a rise in Oceania's bond yields would cause funding problems for central bankers in Eurasia and Eastasia (because it would lower the price of the bonds they have in their portfolios?), I'm all ears. It's also interesting that you can ease your worries about another party's excessive leverage by lending that party more money. On the other hand, if you're a believer in bold, persistent experimentation with your great-grandchildren's tax revenues, this is good news. At the moment the Treasury is in the catbird seat. With gasoline the only thing going up in price, the government can continue to set new records in debt issuance (a new auction of 3-, 10- and 30-year notes will be held next week [pdf]), but not have to worry that it's unleashing inflation. Things get more complicated, of course, when you want to unleash your inflation tiger but just can't get it up. The bridezilla above and the lazy slob to the left -- who's apparently getting a COLA adjustment even though he can't be bothered to look at the nail he's hammering -- come from The Story of Inflation, one of several fairly instructive comic books available from the New York Federal Reserve. You can order free copies here, and you'd better do it soon before the Obama Administration realizes they can realize $100 billion in deficit cutting by calling them "graphic novels" and selling them for $24.95. The Story of Inflation tries to be even-handed; you may prefer your pro-inflation propaganda in the more raw forms that were popular in a less thought-tormented age. 
If federal debt is so scary, why do people keep buying it? The panic I tried to spread over U.S. Treasury bonds earlier this month has gone nowhere. After breaking 4%, the yield on the 10-year Treasury has dropped to 3.49%, and with the Department of the Treasury not planning to borrow any new money this week, that puts at least a temporary kibosh on the claim that the market is losing its appetite for U.S. government debt. 
In any event, the U.S. Government is not having trouble selling its debt. If you traded all your greenbacks for gold, escudos or Mervyn's gift cards on the promise of mega- or giga-inflation, I apologize.
Greg Mankiw on Health Care Reform
Mankiw also notes that while politicians may promise today that the public option plan won't require taxpayer funding, the future is another story. Read the full article here. Also, read Peter Suderman's take on the Public Option here and Ronald Bailey on the reality of the health care debate here.
Harvard economist and former George W. Bush adviser N. Gregory Mankiw wrote an excellent op-ed for the New York Times this weekend about President Obama's public health care plan. Mankiw writes:Even if one accepts the president's broader goals of wider access to health care and cost containment, his economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don't need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices. [...]
This lesson applies directly to the market for health care. If the government has a dominant role in buying the services of doctors and other health care providers, it can force prices down. Once the government is virtually the only game in town, health care providers will have little choice but to take whatever they can get. It is no wonder that the American Medical Association opposes the public option.
To be sure, squeezing suppliers would have unpleasant side effects. Over time, society would end up with fewer doctors and other health care workers. The reduced quantity of services would somehow need to be rationed among competing demands. Such rationing is unlikely to work well.
Economists Are Funny. Funny Ha-Ha and Funny Uh-Oh.
A joke, appropriate for many of the current debates about our economy: Q: How do you know macroeconomists have a sense of humor? A: They use decimal points. I picked up this gem by hanging with a bunch of journalists and economists in Cape Cod this week at conference sponsored by the Murray Weidenbaum Center on the Economy, Government, and Public Policy of Washington University in St. Louis. Sorry you can't be here with me, Hit&Runners. But to give you a feel of what the conference is like, try this: Enjoy this nerdy comic: Watch this video starring conference host, George Mason economics prof, and romantic novelist Russ Roberts:
And stay tuned for more.
The $2.7 Billion Tax Break for Captain Morgan, and Other Lowlights From TARPy McStimulus
Step 1: Watch the government panic. Step 2: Be a rich company. Step 3: Profit! It's not just TARP, obviously. The stimulus bill was a corporate welfare love-in as well: Remember this, the next time some politician or editorial board talks of "the cost of doing nothing" (which will be today, tomorrow, and every day that Congress debates health care and climate change). This list above, multiplied a thousand times, is the routine and utterly predictable cost of doing something. Politically connected industries and companies will be given micro-targeted tax breaks and subsidies, while the rest of us shlubs will not only pay for them, we'll get an earful of sanctimony from the Washington Post, David Brooks, and even the Wall Street Journal editorial board, especially those who have the nerve to say "Hold on a sec."
Here's your daily must-read, for the masochists among you: "Bailout of U.S. Banks Gives British Rum a $2.7 Billion Benefit." It's a grisly tale not of unintended consequences, but rather consequences that were perfectly intended by lawmakers who tucked various giveaways into the increasingly misnamed Troubled Assets Relief Program.
The hurried legislation adopted by a Congress voting under the threat of sudden global economic collapse led to hidden tax breaks for firms in dozens of industries. They included builders of Nascar auto-racing tracks, restaurant chains such as Burger King Holdings Inc., movie and television producers -- and London's Diageo. [...]
Congress inserted the tax benefits for companies other than banks in a fog of confusion and panic after the House of Representatives rejected the first attempt to fund the bank support effort urged by then President George W. Bush and Treasury Secretary Henry Paulson. [...]
That legislation included $20 billion in tax breaks for companies that produce energy from wind and other alternative sources as well as $1.6 billion in relief related to the tax treatment of canceled debt for Sprint Nextel Corp., the third- largest U.S. mobile-phone-service company, and other firms. [...]
The $2.7 billion Diageo tax break in the October bailout bill gives the most financial aid to a non-U.S. company.
"I don't think that the taxpayers knew they were investing in Captain Morgan when the Congress was considering the first bailout bill," says Steve Ellis, vice president of Taxpayers for Common Sense, a Washington-based government watchdog group.
The legislation, which includes dozens of narrowly written provisions, created a new class of bailout beneficiaries.
One, championed by Michigan Representative Dave Camp, the top Republican on the tax-writing House Ways and Means Committee, and supported by [Senate Finance Committee Chairman Max] Baucus, is saving Nascar track builders $109 million in taxes this year by allowing more generous write-offs.
Other tax breaks backed by Baucus help restaurant franchises make renovations by shortening depreciation schedules. Another shaves $478 million during the next decade from tax bills to movie and television producers as a better way of encouraging them to shoot in the U.S.
Whole Bloomberg story here. Reason on the bailouts here.
Housing Bubble and Bust, Thy Name Is...Midland?
Expected finding: The rapid-drop pattern of the last three years is, as I noted the other day, historically unusual. Usually the pace of decline is much slower over a long duration (obviously, we don't know when or if current markets will bottom out). Real estate values can take the better part of a decade to find the bottom, and about that long to recover to their prior peaks. Unexpected (to me) finding: Although California, in a walk, has already taken five of the top ten total-depreciation spots for the period studied, it turns out Midland, Texas still holds the record for longest period from peak to trough: Home prices in Midland, TX -- the worst [metropolitan statistical area] by duration of house price decline -- lost over 56 percent of their value from the second quarter of 1982 to the fourth quarter of 2000 and have yet to recover 8¼ years later. Here are the ten biggest losers in total depreciation: How long will Midland hold its place in the real estate Hole of Shame? I don't see Merced picking up anytime soon, but could it really be 2024 before that jewel of the San Joaquin Valley hits bottom? Elsewhere in the piece, FHFA flirts with measuring booms and busts in nominal rather than real dollars, which tends to make the return-to-previous-peak come faster. (That's the only anti-inflation rhetoric you're likely to hear from the government for a long time.) But even if you use that trick, "the time it takes for an area to recover still tends to be longer than the time it takes for the same area to move from peak to trough. Correspondingly, annual depreciation rates in the downturn tend to be of larger magnitude that annual appreciation rates in recovery." Midland shared in the statewide oil boom of the 1970s and the subsequent oil collapse of the 1980s, which put nearly a quarter-million Texans out of work. The same cannot be said for the biggest clowns of this decade: [M]ost of the larger historical downturns were caused by sharp increases in unemployment rates and shocks to personal income. Although the U.S. economy has experienced such conditions in the last year, those factors were not among the precipitants of the latest downturn, which began in 2006, well before the financial crisis erupted in the third quarter of 2007 and the recession began in the fourth quarter of 2007. I vaguely recall a Thor comic from the 1970s in which the god of thunder is given a tour of hell by a grim reaper figure who starts off by whispering, "There is so little to see....and so much time!" 
The so-old-it's-new Federal Housing Finance Agency has an interesting study [pdf] out of previous depreciations in real estate markets. 
Friday Fun Graph: Our Crash in Context
Obama Pulls an Agency Out of His...Hat
"Notice that I am not touching the cards," the magician says, handing the deck to an audience member to shuffle. Another audience member cuts the deck. The magician scribbles on a piece of paper while standing on the far side of the room, noting once again that he is not touching the deck. A third person draws a card. A fourth unfolds the paper to reveal that the magician has correctly guessed the 10 of clubs. The audience gasps. How did he do it without touching the cards at all? But if Obama is challenged on his sly accusation of bad faith, he will simply point to his first statement: He loves debate! He welcomes it. That's what he said, isn't it? He must not be trying to impute bad motives and use ad hominem attacks against his opponents, since we know for sure he likes debate. But as with the magic trick, the relevant sleight of hand has already occurred with the new Consumer Financial Protection Agency. The debate will be ugly, but the House took up the proposal for the new agency this week, and promises to get something passed by the end of July. The rest is just stage business; the deed is done. It was over before the audience knew the magician had even begun. Katherine Mangu-Ward is an associate editor at Reason. Thanks and apologies to the confabulous Andrew Mayne for supplying the raw ingredients for today's abused magical metaphor.
Of course, the answer is simple. He did touch the deck. Casually fanning out the deck after the initial shuffler has reflexively handed the cards back to him, the magician comments inanely "Good shuffle. Looks random." Then he sets them on the table (just so) to be cut and strides off, hands where we can see them.
Human beings are excellent at editing our own memories to conform with a suggested narrative. The magician's "reminders" that he has not touched the deck erase from our minds the fact that he had ample opportunity to examine and position the relevant cards before the trick even got rolling. Part of the fun of the magic trick is when the magician asks his duped audience to recount the chain of events: No matter how carefully they retrace their steps, they omit the incident where he touched the deck simply because they know for sure he never touched the deck. It's called "provoked confabulation," and this particular gambit is on display, sans Bicycle deck, in the current debate over the creation of the Consumer Financial Protection Agency and the rest of President Barack Obama's proposed financial regulatory reforms.
In this case, it's about casting adversaries of a massive new regulatory body in a bad light. Check out Obama's rhetorical sleight of hand (sleight of mouth?) on Saturday. First this: "Some argue that these changes—and the many others we’ve called for—go too far. And I welcome a debate about how we can make sure our regulations work for businesses and consumers."
The message here is clear. Obama is not like bad old George W. Bush, who was always stifling debate by talking about national security and 9/11 and stuff. (George Bush used exactly the same trick, of course, occasionally noting how much he loved debate in wartime. Bush got a fair amount of media pushback, though.) No siree, Obama welcomes debate. But then he says this: "But what I will not accept—what I will vigorously oppose—are those who do not argue in good faith. Those who would defend the status quo at any cost. Those who put their narrow interests ahead of the interests of ordinary Americans. We’ve already begun to see special interests mobilizing against change. That’s not surprising. That’s Washington."
Listening to Obama's speech, we walk away with a vague sense that opposing the creation of a big new regulatory body to oversee banking somehow places one in league with, "interests that have benefited from a system which allowed ordinary Americans to be exploited," as Obama went on to describe them. That those who "defend business-as-usual" are doing so under pressure form the special interests sinisterly "mobilizing against change." In fact, even those who are obviously not compromised by any kind of potential financial stake in the legislation (pro-market journalists, say) are also in some way tainted.
In many ways, we're witnessing a replay of the creation of the Department of Homeland Security. Consolidating and streamlining agencies sounds excellent—so what if the government picks up significant new powers along the way?—but it's hard to pull off, and not just because of those meddlesome special interests. Obama's 89-page proposal [PDF] takes a lot of individual powers from existing agencies. Bureaucratic turf wars can be bitter struggles. And while no one in the administration is accusing the Securities and Exchange Commission, or the Treasury Department, or the Federal Reserve of acting in bad faith, folks at those agencies have a special interest in what the new agency looks like, too. Congress is on the job as well, inserting compromises and special favors, soothing egos around Washington, and generally trying to look busy.
The Coming Condo Crisis
Oh, Barney Frank, you've done it again! From Reuters: Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery.... In March, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70 percent of the units have been sold, up from 51 percent, the paper said. Freddie Mac is due to implement similar policies next month.... In a letter to the CEO's of both companies, Representatives Barney Frank, the chairman of the House Financial Services Committee, and Anthony Weiner warned that a 70 percent sales threshold "may be too onerous" and could lead condo buyers to shun new developments.... In addition to the 70 percent sales threshold, Fannie Mae will also not purchase mortgages in buildings where 15 percent of owners are delinquent on condo association dues or where one owner has more than 10 percent of units, as the firm sees these as signals that a building could run into financial trouble, the paper added. I interviewed Thomas Sowell last month on how looser lending standards, among other things, contributed to the housing bust.
Reason Magazine - Topics > Economics
Safeguarding financial stability
27/05/2009 - Financial services
Commission outlines plans for closer financial supervision at European level
Falling EU economy set to stabilise as measures take effect
04/05/2009 - Economy - Economic policies
The EU is going through its worst recession since WWII. Inflation has slowed, but employment and public finances are hard hit. The situation should stabilise in 2010.
Reining in risky investing
30/04/2009 - Economy - Economic policies
Commission proposes first EU law on hedge funds and issues guidelines on bank pay practices.
Paying for the grey
29/04/2009 - Budget
2009 ageing report: Europe tackling the challenge of an ageing population but the recession threatens a setback.
Paying for the grey
21/04/2009 - Budget
2009 ageing report: Europe tackling the challenge of an ageing population but the recession threatens a setback.
European Commission - Latest news from the field of economy, finance and tax
European Commission - Latest news from the field of economy, finance and tax