Swiss Bank Weigelin Indicted
10 hours ago
The great thing about Accounting Identities is that they must be true.
The bad thing about Accounting Identities is that their truth is often trivial.
Tim Duy notes the reality: We can’t all be net exporters
The Greek crisis…is a reminder that global imbalances are still with us - and, if not corrected, will eventually threaten the sustainability of the global recovery. Indeed, how sustainable can any recovery be if the vast majority of nations are pursuing an export oriented growth strategy? After all, clearly that is not a game all can play - there needs to be a net importer to offset the net exports. Who wants to fill that role? If the US is pushed into filling that role, we have simply come full circle over the past three years.
There is an obvious nominee, as D-Squared noted today:
If you put Oliver Wendell Holmes ("the First Amendment does not protect the right to shout 'fire' in a crowded theatre") and JM Keynes (describing Treasury anti-inflation policy in the 30s as "crying 'fire, fire' in Noah's flood") together, does that mean that German politicians talking about the inflationary consequences of a Greek bailout are shouting "Fire!" in a flooded theatre?
And follows that by telling the truth and shaming the Devil:
[T]he main issue the ratings agencies have is the Greek pension liability, and the main component of the austerity measures will end up being a reform of the pension system. The sovereign bond market is a curious place, where "He's willing to cheat his own grandmother, that one", can be a mark of the utmost probity.
One of these days, economists will admit that it’s life-cycle theory, not just Modigliani-Miller, that has destroyed the profession’s foundations. Apparently, planning for the future and accepting deferred compensation is A Bad Idea.
by Bruce Webb
It is I think a truism that in any economic enterprise all costs ultimately have to come out of price, that in the end 'the customer pays'. But what is not true is that price is infinitely elastic, at some point price in and of itself will restrain demand, and while you can prop up demand through some things like advertising and marketing (the 'gotta have it factor'), at some point the ancient principle 'what the market can bear' will kick in. This principle is so obvious as to hardly be worth stating yet many on the Right simply turn it off and on as needed.
This was highlighted in what Kevin Drum aptly called a checkbo9ok tax:
The Democrats supporting the current legislation have assured an anxious electorate that whatever funds are used to create whatever regulatory scheme created will come from the banks, not the taxpayers. Let me emphasize that so that even casual readers will catch it: the Democrats promise that you won't pay for their legislation, banks will.
Really?
Since when have corporations ever paid taxes, fees or penalties? Employees end up paying in the form of lower salaries and benefits. Customers end up paying in the form of higher costs.
And in this case, every account holder will be forced to pay higher fees on their checking account and savings account. That's you, my friendly reader. Can you say "checkbook tax"? I can, and I think lots of candidates will be saying it come November.
Yes, just as the entire Republican membership of the Senate is repeating Luntz's last gem: "Taxpayer funded bailout". But it is crap economics.
In wingnuttia, prices are entirely elastic in regards to taxes, they just flow through to customers. Yet they are sticky in regards to anything else, for example increases in minimum wage just cost jobs. Nowhere in the argument is the real claim revealed, that taxes squeeze profits, and that managers and owners are simply looking out for their own interests.
The argument that corporate taxes somehow are just double taxation because ultimately all cost has to come out of price is just bullshit, it is the internal division of the proceeds from that sale that make all the difference, and ultimately the sales price is disconnected from simple cost. Yet the Frank Luntz's of this world trot this same 'elastic for thee but not for me' argument time and time again. And it WORKS! They can always sell just about anything by pretending that the main concern of the commercial operation is jobs on the one hand and low prices on the other when the reality is that the suits could give a crap about either, if they can boost profits by closing a plant here and boosting a price there they will. Everyone knows this yet somehow the Frank Luntz's of this world can still sell this message with a straight face.
I just don't get it.
by Linda Beale
The IRS released its draft schedule and instructions for the new initiative (announced late in January by Commissioner Shulman and set forth in Ann. 2010-9) for disclosure on new Schedule UTP on uncertain tax positions for taxpayers with assets of $10 million or more. The release, Ann. 2010-30 [Download Ann.2010-30. uncertain tax positions], invites comments and indicates that these draft forms and instruvtions will not be finalized until after the comment deadling of June 1, 2010, and after the IRS has had time to review all of the comments on the proposal and the documents. REITs, RICs, partnerships and tax exempt organizations are not required yet to file Schedule UTP.
One of the issues the IRS is considering is the extent to which the new form for uncertain tax positions ( Schedule UTP [Download Schedule UTP form]) duplicates information required through other disclosure initiatives (such as the reportable transaction rules and Schedule M-3, the revised form for reconciling financial statement (book) and tax differences).
by cactus
John McWhorter on James Patterson and Some Odd Numbers on Black Childhood Poverty
I'm kinda in the home stretch for the fact checking on my book - we've revised and rewritten and rechecked so many times I'm ready to plotz, but even so, I'm willing to bet some mistakes will creep in. Its inevitable in a book as data driven as this one. But I don't like mistakes, so I recheck again...
Which brings me to this review of James Patterson's new book by John McWhorter in the New Republic. The point of the book seems to be that welfare was bad for Black families. The review cites some interesting, er, facts, which presumably come from the book being reviewed.
For instance, after a few paragraphs about how welfare destroyed the Black American family, we're told this:
As such, the refashioning of AFDC in 1996 into a five-year program with required job training was the most important event in black American history between the Voting Rights Act of 1965 and the election of Barack Obama. In that light, Patterson is too saturnine about the Moynihan’s report’s legacy. By 2004 the welfare rolls had gone down by two-thirds, and contrary to fears that people off the rolls would starve or languish in squalor (Moynihan was among those who thought they would), black childhood poverty went down to 30 percent from 41 percent, and ex-recipients have regularly reported greater self-esteem and are thankful for the new regime.
Well, if the 1996 refashioning yada yada yada "was the most important event in black American history between the Voting Rights Act of 1965 and the election of Barack Obama," its something worth a look. Since I don't have a clue where to find data on self-esteem and thankfulness, let's have us a look at the bit about how, by 2004, "black childhood poverty went down to 30 percent from 41 percent." We can check out data on Black childhood poverty from this table at the Census.
First, an aside - as of 2002, the Census started differentiating between two definitions of "Black" which is self-evident from the key to the graph above. Other things evident from the graph.... if something in '96 caused a big drop in Black childhood poverty, it was powerful enough for its effect to work its way back in time all the way to '93, which is the year Black childhood poverty began its decline. That drop did reach a bottom of 30.2%, but in 2001, not in 2004. In fact, unfortunately, the rate of Black children in poverty rose since then. And when the real facts are placed on a simple graph, its extremely difficult for a rational person to reach so and so's conclusion.
Just cactching up. Hat tip to Mark Thoma for the post on the Milken Global Conference. He mentions the panel on Geopolitics, Global Demand and the Quest for Energy Security", and the video from the session Roubini and Milken Debate Where we've been-where we're going
by Dale Coberly
HOW MUCH MONEY DOES A MAN NEED
A morality tale
Leo Tolstoy tells a story about a Russian peasant who makes a deal with the Devil. The devil will give the man as much land as he can walk around in one day. But, the devil warns him (the devil always tells the objective truth) if he does not come back to the place where he started from by the time the sun sets, all the land will spill out of the gap and he will get nothing.
So the man starts out on his walk very early in the morning with modest intentions. But he sees a bit of nice land he'd like to add to his estate, and then another, and another, so he keeps walking just a little further than he intended. Suddenly he notices that the sun is going down, and he is nowhere near the place where he started. So he runs for it. And he runs. And he runs.
I won't spoil the story for those who can't see how it ends, but I believe Tolstoy called it "How Much Land Does A Man Need?"
I was thinking about this after a futile argument with some people who think they are friends of Social Security, while I was recalculating the "returns on investment" at a given percent with a constant input. I knew the answer was something like "you double your money in about 40 years at about 3%. and double it in about 30 years at about 4%. There is a reason for the "about."
What I see people do is calculate the exact amount to the penny without regard for what they are actually doing. It seems to me that if you wait forty years to cash out, you have waited too long. And after about 30 years you would have about 86% as much money at 3% as you would have gotten at 4%. Aside from the problem of whether what you will want to buy when you are 60 or 70 is the same as, or "worth" the same as, what you want to buy when you are 30, there is the question of whether there is more safety in that 3% investment, and whether getting "only" 86% of what you "could have" gotten is going to be such a hardship.
It is easy for me to imagine a man working hard and saving harder and reaching the age of 65... or 67 is it now? and going to be 69 soon? you don't say. Reaching this age with an extra million dollars in the bank and dying before he can enjoy it. Or realizing that he has already lost his life by working so hard so long and thinking only about money. Or reaching old age and having a million dollars squeezed out of the work of others. Or reaching the age when he would really like to quit, and seeing his millions disappear as the market changes.
by run75441
Portions of this post originally appeared in HealthBeat Blog as written by Maggie Mahar; Myths & Facts About HealthCare Reform: Who Wins & Who Loses? and Myths & Facts about Health Care Reform Part 2: Doctors Who Take Medicare
Healthcare Reform Myths and Countering Facts
The media has fun chumming the airwaves with misinformation on the passed Healthcare Reform Legislation and what it means for most doctors, hospitals, patients, Medicare and Advantage recipients, and also state budgets. It sells news and attracts readers.
Myth 1: Healthcare Reform is a Give-Away to the Insurance Industry
_ It is true that millions of people will be forced to buy healthcare insurance by 2014which will result in $millions in new premiums. It is also true that many of these new customers are the very same ones cast adrift by these companies because of the expenses of insuring them.
- In 2010, Medicare will slash Medicare Advantage Payments by 5%. In 2011, Medicare Advantage Payments will be frozen. Over 10 years, $132 billion will be cut from Medicare Advantage.
- In 2011, the MLR will be applied to all premiums charged. For Group coverage this amounts to 85% of all premiums must be paid out in medical expenses. For Individual coverage the percentage is 80%.
- In six months (2010), all healthcare plans will have to provide preventative service at no cost.
- In 2010, insurance companies will no longer be able to drop the seriously ill unless they can prove fraud or intentional deceit. Denial of service is appealable to the Comptroller as established in the Manager’s Amendment.
- In 2011, the cap is removed from how much can be paid out over a patient’s life time. In 2014, the yearly cap is removed.
- In 2011, states will have greater power to insist upon justification for premium increases from insurance companies.
I have reported on this in previous years, but in the first quarter the increase in the not seasonally adjusted (NSA) core CPI was the smallest increase since the early 1960s. Moreover, the 2010 increase was only 0.5%, or less than half the average increase of 1.2% from 2000 to 2009.
Why is this important? In a low inflation world firms tend to raise prices once a year -- typically at the start of the year or season. Consequently, in the not seasonally adjusted core CPI over half the annual increase occurs in the first quarter. Actually, in recent years the first quarter share has even been larger than the 55% share since the early 1990s. Moreover, if the first quarter change is less than the prior years change, than the annual change is generally less than in the prior year. This very small increase in the first quarter NSA core CPI strongly implies that in 2010 the annual increase in the core CPI will be significantly smaller than in 2009.
Given the extremely modest increase in the first quarter NSA core CPI virtually the only acceleration in inflation in 2010 is likely to stem from food or fuel. We are all familiar with the risk to the recovery and inflation from oil, so there is not much I can add here. The DOE expects the spring switch over to more gasoline use to develop without significant refinery shortages. Concerns are being raised by the recent rise in food prices, especially in the PPI. Yes, meat and vegetable prices have risen in recent months, but it is hard to be too concerned about food inflation as long as prices of the big four major crops of corn, wheat, rice and soybeans appear to be well under control.
Note that a lower core CPI would be consistent with the typical cyclical pattern as the lowest core inflation numbers generally occur in the first year or two of a recovery.
It has been asked a number of times why Angry Bear has not posted on the wars in Iraq and Afghanistan for awhile now. William Pitt asks the same question for himself:
William Pitt writes an op-ed about where the criticism in the press and blogs of the wars in Iraq and Afghanistan have gone in the last couple years:
William Pitt writes an op-ed about where the criticism in the press and blogs of the wars in Iraq and Afghanistan have gone in the last couple years:
A good friend noted recently how little we hear of Iraq and Afghanistan in the news anymore, and further noted the deafening silence regarding those ongoing wars from what he described as "dishwater left-leaning political activists" whose disengagement from the issue, according to him, makes them full of something I can't repeat in print. That bogus disengagement, he asserts, stems from the fact that Obama is in office now, so everything must be OK. It isn't, of course, but it is hard to miss the fact that we haven't heard much about the wars, or the protesters, since a couple of Januarys ago.There is a lot of conversation on other hearings and news, but as
[snip]
Once again, all that was from one single day (Rdan...a long list of bombings and deaths by place). So, yeah, it's not over over there. Not by a long chalk, and despite the whistling silence, it's not over over here, either. The wars in Iraq and Afghanistan affect every living American well beyond the impact of the flesh-and-blood conflicts we occasionally see on TV. The issue of who is still getting rich off those wars, how our society has been wired to blindly support a permanent state of war, and why we hear so little about these all-consuming matters, remain deeply pressing and of deadly importance.
Jamail is not the only reporter focusing on this. This Thursday, a teach-in will be taking place on Capitol Hill to focus specifically on Iraq, Afghanistan and the issues that surround them. The moderator will be Rep. Dennis Kucinich (D-Ohio) and the panelists will include Chris Hedges, author of "War Is a Force That Gives Us Meaning"; Jeremy Scahill, author of "Blackwater: The Rise of the World's Most Powerful Mercenary Army," and former Army colonel and current political activist Ann Wright.
"Jarhead" succinctly puts it, "We are still in the desert."
by Robert Waldmann
Brad DeLong clears his throat. I throw a cow.
He wrote:
The win-win benefits of trading money for money--where are they? It turns out that they are there. There are, actually, four:
1. Trading money now for money later: people who want to save now and spend later can make win-win trades with people who want to spend now and save later.
2. Risk: people who are unusually averse to risk in general can make win-win trades by trading off some of the risks that they are bearing to people who are unusually tolerant of risk in general.
3. Insurance: people who are holding a lot of one big risk can reduce the risk of catastrophic loss by paying a great many others to each take a small piece of that risk.
4. Information: people who have information that prices are going to rise can make win-win deals with people who have information that prices are going to fall--although here the win-win is not for the participants in the trade: for them it is zero-sum, and the winners are those others who observe the market price at which the trades occur.
I comment.
Ahem. Your fourth win-win "Information:" is not like the others. You redefined win-win to mean "socially desirable" and decide that, if a third party wins, it is a win-win. Also, as you understood when you were in high school and Grossman and Hart figured out when you were in college, information does not explain trading. If the only differences across people were that they had different information then trades couldn't be win-wins. If it were common knowledge that everyone is rational then trades couldn't occur. It is not unusual for someone in a type 4 trade to think they are in some other sort of trade. In *theory* there are no type 4 trades which are known to be type 4 trades. Obviously in reality there are such trades.
O.K., Greece is now “high yield”, “junk”, “below investment grade”, at least according to S&P. What I mean by that is S&P now rates Greece’s foreign and local currency sovereign debt at the BB+ level (with a negative outlook), below the sometimes-coveted investment grade status, BBB- is the minimum. Why did S&P feel the need to do this now? Just covering its _ss – Greek debt was rated A- as recently as December 2009.
On to the Germans. What they are doing is actually quite striking: offering a bailout in order to appease markets so that international investors will pick up the Greek bill (never was going to happen anyway); and then telling markets that bond investors in Europe will take a haircut so that international investors won't pick up the Greek bill. I guess the light-bulb finally went on that there is a contagion brewing here because bunds are tight, while all Peripheries are wide.
The original bailout will likely be offered to satisfy Greece’s near-term obligations. However, in the meantime the probability that the liquidity crisis spreads across the GIIPS (Greece, Italy, Ireland, Portugal, and Spain) - especially Portugal with a 2009 current account deficit equal to 10.3% of GDP, making it shockingly susceptible to capital outflows - is rising.
We’re in crisis mode – the calm before the storm. I see the Eurozone disaster happening in three waves:
Robert Waldmann
An earlier post on this topic seems to have been eaten by blogger (update it's back). This post is roughly half roughly retyping.
I have two proposals (last time I only had one). One is to give up on the ratings agencies. They were geese that laid golden eggs providing an immensely valuable service for a tiny fee, but we've killed them. Regulations could be based on firms which put a whole lot of money where their mouth is. Those would be firms which write CDSs. Personally I trust the vampire squid. If G-S is willing to write CDSs with huge notional value on something and sell them for y basis points per year, I'd guess they are pretty safe. GS may or may not be evil but they sure aren't stupid. This reform would have to wait until the idiot CDS writer problem is solved (can you say AIG-FP ?).
Short of that, I'd say it would work fine to require the agencies to insure 0.01% of anything they rated. It takes a long time for instruments to actually default, but if the agencies balance sheets included CDS written and marked to market, they would be much much more careful.
A problem with this proposal is that the incentives are too long term. Ah that's another hard problem. The solution is to make compensation above say $500,000 a year of officers of, for example, ratings agencies be paid only in stock which can't be sold for 10 years (they can live on the dividends until then).
* it's baaaack
UPDATE: Tristero piles on the details that I assumed. And Bloix in comments there makes it clear that the diagram which has the Generals's panties in twists is relatively straightforward compared to a car's electrical system (as anyone who has used Erwin or Visio or even Powerpoint to build data flow diagrams can tell you).
Why does Elizabeth Bulmiller have a job? Because she writes nonsense quoting Important Sources:
The slide has since bounced around the Internet as an example of a military tool that has spun out of control. Like an insurgency, PowerPoint has crept into the daily lives of military commanders and reached the level of near obsession. The amount of time expended on PowerPoint, the Microsoft presentation program of computer-generated charts, graphs and bullet points, has made it a running joke in the Pentagon and in Iraq and Afghanistan.
"PowerPoint makes us stupid," Gen. James N. Mattis of the Marine Corps, the Joint Forces commander, said this month at a military conference in North Carolina.
Now, some of my best friends live in North Carolina, so I won't say Gen. Mattis got cause and effect backwards. But if you really believe that the article's attached graphic is either a bad representation of the situation in Afghanistan or an impediment to understanding, then you shouldn't be in a position to command hundreds, if not thousands, of military personnel.
In short, you probably thought it was a good idea to invade in the first place because everything would be perfect and you would be greeted with flowers, not putting them on 5,000+ American graves to date.
Because you didn't understand that countries are both made up of living organisms and that they, in turn, act as if they are living organisms, with interactions that change depending on the conditions, facilities, and income flows (or, as the graphic says, "narcotics").
If you don't understand that, then you don't understand nation-building, and have no excuse to claim that is what you are doing.
It's a poor craftsman who blames his tools, and an even poorer reporter who takes those claims at face-value and presents them in "the paper of record."
Robert Waldmann
Douthat is worried about the Republican information cocoon. He thinks that conservatives should not rely so much on Fox News and should be open to media which they consider unfriendly (such as his employer the New York Times). He argues that Republicans achieved more back before Fox
In the age Before Fox News, on the other hand (B.F.N., to historians), the American Right managed to lower taxes, slow government’s growth to a crawl , whip inflation, and deregulate important swathes of the American economy, among other Reagan-era accomplishments.
After the jump, I click Douthat's link and consult an obscure source called the Wikipedia.
by David Zetland
reposted from Aguanomics
(Rdan here...
I have not posted David's material in awhile, nor actually much on economics of water in more than a year. We don't always agree on the economics of water, but we do agree on its importance and value. My first postings on water economics were a result of a challenge from Tim Worstall to look at privatizing water utilities as occurred in 1989 in the United Kingdom, in relation to privitizing water supplies in the US and ongoing changes of ownership through the World Trade Oganization rules. Time permits a return to my special interest. Unfortunately it is still a ho-hum issue for the bulk of Americans if the media is any indication.
I am posting David's post on coal and water tables so I don't have to. But my sentiments are along the same lines.)
The sorrow of West Virginia
Some of you may have heard of the 25-plus coal miners who died in an "accident" at the Upper Big Branch (UBB) mine. What you may not have heard is this:
In 2009, the Mine Safety and Health Administration cited the UBB mine 515 times, often for problems with its ventilation and escape-route plans. Some 48 of the citations were for violations deemed likely to lead to serious injury or illness.
The Massey Energy Company, which owns the UBB mine, is contesting many of those violations. But this is not the first time that Massey—the fourth-largest coal company in America—has come under fire for its safety practices. In 2006 two people died in a fire at the Aracoma mine, which Massey owns and which was found to have inadequate water supplies and poor ventilation. Massey paid $4.2m in criminal and civil fines. In 2008 Massey paid $20m in fines levied by the Environmental Protection Agency for clean-water violations.
by cactus
A Look at Recessions Part 1: By the President's Political Party
I am going to have a few posts on recessions over the next few weeks. This one is short - I'm trying to get another batch of copy edits out to my publisher. In this post, I'm focusing on the period from 1929 on - that's the period for which real GDP per capita is available. Because I'm swamped, I'm going to put up some graphs and let them do their own talking.
The graph below shows the length of each recession in our time period, in months. It also assigns a recession to the party of the President who happened to be in the Oval Office at the time the recession started.
Now, perhaps a recession that starts shortly after a president takes office is not entirely that President's fault. Nor can you unambiguously blame someone who has already left office, as the former President might well have taken steps that might have avoided the recession had he not been in office. So the next graph only assumes a recession to a party if that party was in office for three or more years by the start of the recession. Three years seems a bit much for me, but I don't have the time to argue right now, so I'm picking a big enough figure that nobody should complain. (Gray bars mean a recession falls into the three year no man's land.)
What about the severity of the recession? Well, before I put up those graphs, a couple comments...
1. the BEA has quarterly data from 1947 on, and annual prior to that
2. I didn't do any smoothing - I don't want anyone complaining about what method I chose to do it. Thus, I simply assign each month the closest reported real GDP per capita. Thus, for instance, I assign Jan, Feb, and March of 1981 the real GDP per capita of 1981 Q1. Its not perfect, but it is what is and I don't have to defend when I start downturns and how I'm going to smooth things when the recessions don't start or end at the start or end of a quarter or year.
(Rdan...charts corrected)
by Bruce Webb
I have had occasion before to mention the "Leninist Strategy" for Social Security put forth in 1983 and followed by Social Security 'reformers' ever since. The strategy has three main pillars:
One: reassure current retirees that their benefits won't be cut
Two: convince younger workers that left unreformed Social Security just won't be there for them
Three: blame the Boomers
Well time has moved on since 1983 and increasingly pillars One and Three are coming into collision and this combined with CBO scoring methodology has put the Deficits Commission into a bind. One which I will outline below the fold.
Yesterday I attended the 6th Annual Goldman Sachs Emerging Markets conference in New York. My takeaway from the conference overall was that the risk-on sentiment that is driving massive inflows into EM funds is still very much present. Going forward, the conference participants generally see emerging markets as “different” from those ten years ago, and will no doubt remain resilient to the sovereign stress that is emanating from the developed world.
China. Goldman Sachs views the recent property boom as limited to that sector – the Chinese authorities are currently clamping down via administrative tightening measures – and that a broader “asset bubble” is not present. China was deleveraging going into the crisis, so its starting point was on a very different level than that of other “frothy” economies, like the US or UK.
On the outlook for China, Goldman sees 13% growth this year, followed by a remarkable 12.4% next. The inflation outlook, although tame, depends very much on Asia continuing as front-runner of the policy tightening cycle.
Jan Hatzius presented his outlook on the US economy – he sees the Fed hiking rates in 2011, as monetary policy accommodates the massive labor underutilization. I could not disagree with this assessment.
Rebecca: I would add that I see a positive probability attached to further Fed QE measures, as the fiscal stimulus inevitably drags the economy – without further stimulus growth will turn negative and drag GDP. In lieu of a heroic surge in private sector demand, which is currently driven almost solely by the upswing on a massive inventory cycle, the Fed will have no choice but to continue to “pushing on a string”. The fiscal impetus is driving this recovery.
Actually I was truly shocked that the merits of the fiscal stimulus were not mentioned more directly in his outlook. He spent (roughly) 7 slides comparing this recession to previous post-war recessions, and not once did fiscal policy come up - just Fed policy. Several slides after that, we finally get a chart illustrating the contribution to GDP from government spending. And then, I knew it was coming, a chart about the US public debt to GDP. It's just a scare tactic, I assure you; these charts should not be taken seriously. As long as the US issues debt in its own currency, and that currency is not fully convertible (into anything), the US government does not face solvency risk!
Unlike Greece....
Morning AB link:
Marshall Auerback on BNN: (click on picture for video link; it takes a bit to load)
by Bruce Webb
This may be too wonkish for the Virtual Summit, so let me try it out here.
A lot of crosstalk on Social Security 'crisis' is a result of three different definitions of 'crisis' which I would sum up as follows:
Crisis one: Social Security promised benefits which may not be payable.
Crisis two: Social Security promised benefits which were not affordable.
Crisis three: Social Security promised benefits which should not have been promised.
Note the changes in tense and mood, changes which constrain the range of acceptable fix. Crisis one is probabalistic ('may'), it doesn't necessarily commit to the proposition that those benefits actually can't be payable, and implicitly assumes that such payments are desireable. Crisis two however is deterministic, in this frame the damage has been done, and implicitly argues that the only question is what to do about it. Crisis three is moralistic, it claims that even the attempt to pay these benefits was a mistake, that the effort was flawed from the beginning.
Taking Crisis three first. From this standpoint, one associated with Rand, Friedman and the Austrians the only real question is how to transition away from Social Security as currently configured and the solutions proposed will tend to gravitate towards such things as private or personal accounts.
On the other hand Crisis two assumes that the damage has been done and its solutions will naturally tend to gravitate towards benefit cuts.
And finally Crisis one will see benefit cuts as the fallback position, given the probabilities maybe necessary but not something to be embraced, and is open to some sort of revenue enhancement.
As to ranges of fixes. A Crisis three person is not necessarily open to any kind of fix whether that fix is proposed on the cost or revenue side, that is just to perpetuate what with Friedman they believe to be an "immoral" system. On the other hand a Crisis two person will reflexively reject any tax based fix on the time honored principle of "Don't throw good money after bad". Only if you have a Crisis one mentality does, for example, the Northwest Plan even make sense, because Crisis three people refject the whole idea of a fix and Crisis two people regard the status quo as already broken.
Which is why supporters of traditional Social Security often just miss their marks entirely, they assume naively that their desired end of retirement security through social insurance at the promised level of benefits is simply accepted and that the only question is the method when neither half of that end is necessarily accepted by the opposition. So when people like my friend Dale make an argument in the form of "We have a moral responsibility to support the subsistence of the elderly and the cost of doing that in a way that delivers 100% of the scheduled benefit is cheap" it simply falls on deaf ears, with Crisis three people replying to the former assertion "The hell we do" and Crisis two people asserting that the current cost is already too high.
This is why I get impatient with progressives and to some extent with Dale (who doesn't consider himself a progressive in that sense), they insensibly assume that their desired end is even shared. "Just lift the payroll tax cap and the problem is fixed!" is not compelling to people who don't want to fix it that problem in that frame. Their frames will lead them to a totally different range of fixes. Hence the crosstalk.
by Bruce Webb
I mention from time to time that I talk with a number of D.C. policy types about Social Security, but mostly don't use names because the conversations are officially off the record. Well a group of them, spearheaded by Roger Hickey's folks at Campaign for America's Future, have gone on the record in a big way and moreover want you to join in and comment on their new blog The Virtual Summit for Fiscal and Economic Responsibility
The blog launched yesterday with a piece by Dean Baker, who as those of you who follow this topic has been a key defender of Social Security for years, being notably ahead of the curve when he and colleague Mark Weisbrot published Social Security: the Phony Crisis in 1999, and another by Congressman John Conyers, plus contributions by Bill Scher and Dave Johnson of CAF (Dave also being a veteran of the 'There is No Crisis' movement of 2005) and Barbara Burt of the Frances Perkins Center (Perkins being FDR's Labor Secretary and so the foster mother of Social Security).
I have been asked to contribute and will from time to time. So for those who have been asking when supporters of Social Security were going to get organized and push back on the Peter G Peterson contingent in a public way, well the answer was 'yesterday April 20th, 2010'. Be there.
Roosevelt Institute Senior Fellow Marshall Auerback and Braintruster at the New Deal 2.0 explores the possibility, and what it means if deficit hysteria continues unchecked:
A recent poll by Douglas Schoen and Patrick Caddell suggests that swing voters in the US, who are key to the fate of the Democratic Party, care most about three things: reigniting the economy, reducing the deficit and creating jobs.
But the latter two goals are generally incompatible, especially during major recessions.
In times of high unemployment, government deficits are required to underwrite growth, given that the private sector shift to non-government surpluses has left a huge spending gap and firms responded to the failing sales by cutting back production. Employment falls and unemployment rises. Then investment growth declines because the pessimism spreads. Before too long you have a recession. Without any discretionary change in fiscal policy (now referred to in the public media as “stimulus packages”) the government balance will head towards and typically into deficit, unless the US miraculously becomes an export powerhouse along emerging Asia lines, and runs persistent current account surpluses, to a degree which allows the governments to run budget surpluses.
This is not going to happen, particularly when the largest current account surplus nations, notably Germany, cling to a mercantilist export led growth model, an inevitable consequence of that country’s aversion to increased government deficit spending. The German government’s reticence to counter any kind of shift in regard to its current account surplus is particularly significant in light of the ongoing and intensifying strains developing in the EMU nations (see here) . Last week’s Greek “rescue” is Europe’s “Bear Stearns event”. The Lehman moment has yet to come. One possible outcome of this could well be significantly larger budget deficits in the US and a substantial increase in America’s external deficit, given the unlikelihood of America becoming an export super power again. Let me elaborate below.
In the euro zone, I now see one of two possible outcomes. Scenario 1: the problem of Greece is not contained, and the contagion effect extends to the other “PIIGS” countries, leading to a cascade of defaults and corresponding devaluations as countries exit the EMU. Interestingly enough, the country which could well be affected most adversely in this situation is France, as the country’s industrial base competes largely against countries like Italy and the corresponding competitive devaluation of the Italian currency in the event of a euro zone break-up could well destroy the French economy (by contrast, as a capital goods exporter with few euro zone competitors, Germany’s industrial base will be less adversely affected in our view).
In Scenario 2 (more likely in my opinion) we get some greater fears about other PIIGS nations (discussion is now turning to Spain, Portugal and Ireland). The EMU might well hold together but the corresponding fear of contagion might well provoke capital flight and drive the euro down to parity (or lower) with the dollar. Of course, the euro’s weakness creates other problems: when the euro was strengthening last year due to portfolio shifts out of the dollar, many of those buyers of euro bought euro denominated national government paper (including Greece). The resultant portfolio shifts helped fund the national EMU governments at lower rates during that period. That portfolio shifting has largely come to an end, making national government funding within the euro zone more problematic, as the Greek situation now illustrates.
Health care costs soar for insured workers presents another chart to gain a perspective when someone says health insurance premiums will rise with government intervention...ask more complex questions by remembering health care premiums are rising very rapidly anyway, and individuals will be bearing more of the costs of those premiums.
One of the many causes of the financial crisis was excessive reliance on excessively generous ratings of novel financial instruments. There are proposals to change the incentives faced by the bond rating agencies to prevent them from being so lax. I don’t think that any such reform is likely to be successful. I think it would be better to rely on something other than the ratings. I explain my thoughts after the jump.
The 1920s Depression: Glenn Beck, Thomas Woods, and "Benefits" of Cutting Taxes to Combat a Recession, Part 2
by cactus
Last week I wrote a post about some nonsense Glen Beck was peddling, with said nonsense originating with Thomas Woods. Woods claimed a smorgasbord of things, the dollar meal version being:
1. lefties talk up how the New Deal (big gubmint, tax hikes) saved the economy from the Great Depression but it didn't
2. there is a conspiracy of silence about the recovery from the 1920s Depression because it shows that if the government does nothing (with the possible exception of cutting taxes), the economy will roar, as it did throughout the 1920s
Last week I put up a graph showing the marginal tax rates and the recessions from 1920 to 1940. The graph of the data doesn't quite mesh with the words that Woods chooses to use. What we see is that while Republican administrations were happily cutting marginal tax rates in the 1920s, the economy kept going into recession after recession culminating with Great Depression. In fact, between the end of the 1920s Depression and the start of the Great Depression (not including either one), the economy was in recession 30% of the time. Conversely, once the New Deal started and the Big One ended in '33, there was only a single recession before WW2 started.
Today we're gonna do something different. We're going to look at economic growth and see how well that meshes with Woods' storyline. Now, the problem is... where do we find data? After all, the Naitonal Income and Product Accounts tables were not being calculated back in the '20s. But... Woods quotes a number or two on GNP, which he gets from Smiley on GNP. Smiley, in turn, pulls his GNP data from the Historical Statistics of the United States. I'm always leery of using pre-1929 national accounts data from the HSUS since its made up of interpolations, but I guess its as good a source for that data as one is likely to find. Either way, they're clearly good enough for Woods, so I cannot imagine he would object to us poking around.
Anyway, I had to enter the data by hand, and I'm using a mini-mini laptop right now, so hopefully I didn't screw up anything, but here's what real GNP per capita in 1958 dollars (I'm not changing the HSUS data at all.... I want to make sure Woods would approve) looks like:
Sorry about the step figure look, but I wanted to get the recessions (the gray bars) as accurate as possible... and while that data is monthly, real GNP per capita from the HSUS is yearly. Now, Woods' focus is on the recoveries... but the the graph doesn't exactly scream at you that the Mucho Tax Cuts and Deregulation Roaring '20s massacred the Drab Socialist New Deal period. As a result, he adds a lot of verbage which I do encourage you to read. I prefer to take a different approach, though. I created the graph below, which I think is pretty self-explanatory.
So there it is. All of Woods' verbiage boils down to this... relative to the New Deal policy he excoriates, his example of success is a time of slower growth, more time spent in recession, and it all culminates in what may be the worst economic situation this country has ever faced.
Now, you may be thinking... Woods doesn't realize that the policy he is promoting produced worse results than the one he is attacking. But I disagree. I believe he knows what the data shows. I provided a few examples last week where Woods seemed to me, at least, to be very misleading. One technique for doing that which I pointed out last week was to cite someone else when passing off incorrect data, but not to point out that the data was wrong. That allows Woods not to outright lie, but it does lead readers to believe something which is not true. Here's another example... Woods states:
Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.”
Now, Woods is very carefully not stating himself that the Fed did nothing. He himself states that the Fed's actions were hardly noticeable. That may be... I have no way to measure that with the poor data that is available to us now. But Woods goes farther. He tells us that an economic historian has stated that "the Fed did not move to use its powers to turn the money supply around and fight the contraction." Which is stronger than hardly noticeable. Does Woods agree with this statement? Well, he doesn't quite say so. But what he never writes is this - "well, this dude says the Fed did nothing, but he is wrong." And by not doing that, by telling us what some historian said but not indicating we should not believe that historian, Woods is, in effect, endorsing that economic historian's statement. And by now, after two posts, you should realize that I'm only bringing this up because the Fed actually did something.
As we can see on page 440 of this document from the FRASER collection at the Federal Reserve of St Louis, back in that era, there could be different rates at different Federal Reserve Banks. And just about all the big ones had rate cuts in 1921 before the end of the recession. Take the New York branch, the most important one. The rate was 7% at the start of the year, was cut to 6.5% in May, cut again to 6% in June, and cut again to 5.5% in July, the month the recession ended. One can argue that the Fed moved a little late - which would make "hardly noticeable" potentially true, but it certainly makes "the Fed did not move" BS. This is just one of several examples where, in my opinion, Woods is careful not to lie by commission. But readers will read it and conclude something that is untrue.
So there it is. After two posts, I conclude:
1, the Roaring 20s prior to the start of the Great Depression were a period of deregulation, many tax cuts, and many recessions with very short lived recoveries. The culmination of the Roaring 20s was a great economic disaster, perhaps the worst in American history. None of this applies to the New Deal Era prior to the start of World War 2.
2. Over the length of the Roaring 20s "recovery" and the New Deal recovery, growth was quite a bit faster during the New Deal years.
3. Woods writes carefully and precisely enough that it is hard to conclude that he does not realize 1 and 2.
4. Knowing what Woods appears to know, and knowing that economic policy has tremendous consequences on people's lives, Woods is nevertheless willing to promote policies that did much more poorly than he implies and to attack policies that did much better than those he promotes
5. Glen Beck is either in on the con or he's being had.
Robert Waldmann
Kevin Drum tries to list all proposed explanations for the financial crisis. I see if I can add others after the jump.
A note of comparison might come in handy when thinking in big numbers.
The top 25 hedge fund managers made a record $25.3 billion dollars in 2009. And despite all those dramatic congressional hearings, average compensation of Wall Street bankers rose by 27 percent in 2009. Meanwhile, banks are hiding their debt with the same old balance sheet magic they've been deploying for years and posting record new trading revenues—
On the other side of humanity, more sobering numbers include a record 2.8 million properties in foreclosure for 2009, a 21 percent increase over 2008's astonishingly high figure, with another 4.5 million foreclosures projected for 2010.
Banks are incentivized not to lend. When the Emergency Economic Stabilization Act (which included TARP) was passed in October 2008, it included some fine print allowing the Fed to pay banks interest on reserves (money, or capital, banks are obligated to park with the Fed to back their businesses), and on extra reserves (money they aren't obligated to park). In September 2008, the top banks were required to keep $43 billion dollars in reserve at the Fed, and placed $59 billion in extra reserves. Today, banks are required to keep $63 billion in reserves, but parked an extra $1.2 trillion at the Fed.
(bolding mine)
Lifted from an e-mail, our Ken Houghton opines:
What that $1.1T isn't doing is being invested internally in new equipment or processes.
Take that pile of cash, and then look at the cash on hand (excess reserves) at the banks. Ignoring my natural tendency to rant about the idiocy of paying interest on reserves--LET ALONE EXCESS RESERVES--that's breaking the accounting identity (S=I) and the money multiplier.
As a ballpark, you should see that in GDP trending annually about $200-300B below the previous trend. ($1T in reserves => ca. $5T in relatively safe lending; ballpark a 5% return = $250B.)
Maybe more about this at some point in the future. Consider it a RawShock Test, and feel free to describe what you see in comments.
Lifted from an e-mail by Stormy
Financial Times notes that China’s champions-elect are going abroad, in oil, in mining and in car manufacturing, supported in almost all cases by state-owned banks. But the banks themselves are largely staying put. Why?
Global chinese capital See charts for China
Unfair China Trade Costs Local Jobs
Couple of points:
1. Currency manipulation is discussed here and here:
Neither you nor anyone else knows what the true currency exchange (dollar v yuan) should be. The only way we will know is if the yuan is allowed to float. (Ours does...the Canadian one does, etc etc...in fact, most industrialized nations allow their currencies to float... If they did not, then there would be a big stink.)
2.Walmart--both retailer and manufacturer. What we need to see is where that split between retailer and manufacturer occurs. Often, it has forced major U.S. firms to outsource production in order to keep their goods on Wal-mart shelves,,,e,g, Master Lock, to name only one. On the other hand, Faded Glory is a brand name in effect created by Wal-mart and made in China on the cheap. It is not a Chinese brand name. But again, no one knows what the proportion of foreign brands, Wal-mart brands, Chinese brands is on Wal-mart shelves.
3. China is beginning to protect and nurture certain categories of indigenous firms. It is worth watching what areas it is and will be investing in. Certainly IT.
Beyond Wal-mart:
What needs careful analysis is exactly the relationship between major firms and Chinese suppliers. In some cases, the foreign firm itself has set up shop....in terms of others, the firm-- like Mattel--use Chinese firms as suppliers. In others, there may indeed be a Chinese firm.
Apparently, Walmart is responsible for 10% of China's exports...but how is that 10% spread between foreign firms in China and indigenous Chinese firms? And what how much has it forced American firms to outsource production to cheap locales--Mexico, China, etc?
I can easily point you to declarations by Chinese officials that 60% of China's exports are driven by foreign firms in China--in the case of IT, closer to 80%.
I pointed you and others to National Tooling and Machining Association because there is a possible shift occurring. Unfortunately, I do not think anyone bothered to read the pdf file at that site.
That association is only one of the many collections of foreign firms using China and other third world countries as export platforms. The reasons for this possible shift are many and varied.
I see that some in NakedCapitalism are sad that China is getting only 2% profit margin (on Walmart?) Well, not sure how that number is arrived at.
Anyway, the intent apparently is to allow China to continue to manipulate its currency. Weird.
As far as the cards China and the U.S. have to play in their trade spat? Certainly China can use its role as major creditor with some effect. (If I remember correctly, the U.S. government fully protected China's investment in AIG. Does that say anything?) Now, how effective that role will be...who knows. The U.S. can try to deflate its currency...up to a point. These are tricky waters.
A piece of geek: Williams syndrome, brain function, and an all out social way of thinking.
Robert Waldmann
Goldman Sachs accused of (civil) Financial Arson
I don't want to bore readers so I'll just mention, again, that this wouldn't have been possible if cash settlement CDS were not allowed. In all other cases it is not legal to insure against a risk that one doesn't bear. A simple law which says that Courts must consider all CDS contracts signed after May 1 2010 to be physical settlement CDS contracts if anyone seeks enforcement would eliminate the opportunity for the alleged fraud.
Lifted from an e-mail by Stormy. Another topical thread.
U.S. military….massive oil shortage.
I have not tracked down the original report....but there has been growing concern from a number of unusual quarters. (I discount the Oil Drum, Matt Simon, et al.)
With gas usage in the states at low levels and with oil prices continuing to rise....something is amiss and out of place. This could well be the next shoe to drop.
Just a heads up. Something to watch.
I remain very skeptical about the sustainability of the recovery, as the labor market is in shambles and nominal wage growth is unlikely to facilitate “healthy” deleveraging - please see this recent post “Reducing household financial leverage: the easy way and the hard way”. I digress; because you can't fight the data. And for now, the consumer is back.
The latest retail sales figures reveal two bits of information worth noting. First, autos were a big factor in the March 2010 surge. Second, even though the large contribution from motor vehicles and parts compromises my enthusiasm somewhat, the underlying trend has emerged: consumers are less frugal in spite of income constraints.
The March advanced retail sales report was genuinely strong, 7.6% annual pace since March of last year or 1.6% over the month and seasonally adjusted. At first I thought that this heroic sales growth was just a scam. March auto sales were unusually large in response to the competitive pricing during the peak of the Toyota scandal. See Edmunds.com’s preview of the March light weight vehicle sales that registered a large 11.75mn gain.
And in reality, the March number was driven largely by auto sales, contributing 1.1% to the 1.6% monthly growth in retail sales. Furthermore, 36% of the total sales bill drove 5.7% of the 7.6% annual gain: nonstore retailers, motor vehicles and parts, and gasoline stations.
One could stop there (which I almost did); but upon further examination, a real trend is breaking out: the growth is broadening across categories with each month that passes. Just look at the evolution since January 2010 (after revisions, of course).
Barkley Rosser at Econospeak takes aim at immigration and worker ratios:
Robert Reich says so, "Why More Immigrants Are An Answer to the Coming Boomer Entitlement Mess", which is also linked to by Mark Thoma. He has been on the Social Security Advisory board and has heard all the tales of coming Demographic Doom due to the impending wave of boomer retirements, even though the adjustments due to the Greenspan Commission in the early 80s were supposed to pay for the boomers' retirements. This year the fund is running a (small) deficit, and so out of all the sources of the broader federal budget deficit (of which rising medical care costs, not to mention high defense budgets) it is social security that is the Big Problem that Something Must Be Done About (along with Medicare). I would agree that more immigrants will help in the short run, but demography is not the main problem here.
I and Bruce Webb have posted only about a million times in the past here and elsewhere on how if the "optimistic" projection of the SSA were to hold, the system would never run a deficit. In many recent years the economy beat that projection. However, in the last few it has plunged far below the pessimistic forecast with fica revenues collapsing as employment has collapsed in the Great Recession. This is the problem, and the simple solution is to get the economy and employment growing again at something like the optimistic forecast rate. Then the system will go back into surplus, possibly even mostly staying there, without any fiddling with or opening the doors to massive immigration (and, no, I am not anti-immigrant at all here, just trying to be clear about what is what).
Indeed, the fallaciousness of this general demographic hysteria is seen in that the US has among the best demographics for this even with low immigration compared with other OECD economies. Germany (and others) have the age distributions the US will have in 2030 when we hear Doom will hit, and they are paying their pensions all right, with Germany's even higher than the ones here. Really, folks, higher immigration may be an OK thing, but it is relatively peripheral to the condition of the Social Security system. Growing the economy and particularly employment is the key to saving the system.
by Bruce Webb
Reader BuffPilot has been asking Angry Bear for awhile now to post the following graph
http://blog.heritage.org/2009/03/24/bush-deficit-vs-obama-deficit-in-pictures/
If you follow the link you will see that Heritage updated it with new CBO and OMB data this year. That is below the fold.
March industrial production only rose 0.1%. But this is a very misleading headline as
manufacturing output rose 0.9%. The difference was a 6.4% drop in output of utilities.
The decline in utilities largely reflects the March rise in temperatures and fall in heating days as the weather returned to normal after the severe snow storms of February.
Historically, recoveries have been proportional to the recessions -- severe recessions have strong recoveries and mild recessions have weak recoveries. So far the recovery in industrial production this cycle looks about average. But given the depth and severity of the recessions an average rebound is disappointing.
The second aspect of the report reinforces last months signal that manufacturing productivity growth may be slowing very sharply. The monthly manufacturing productivity data is not reported, but I estimate it by dividing the output data reported by the Federal Reserve by the manufacturing hours worked data by the BLS. It is not exactly what is reported in the quarterly productivity data, but it is close enough to provide significant warnings of major trend changes and that is what the data is now showing.
The 1920s Depression: Glenn Beck, Thomas Woods, and "Benefits" of Cutting Taxes to Combat a Recession, Part 1
by cactus
The 1920s Depression: Glenn Beck, Thomas Woods, and "Benefits" of Cutting Taxes to Combat a Recession, Part 1
So I get an e-mail from reader Dean Moriarty, stating:
Yesterday, I found myself in the sad position of inadvertantly listening to the Glenn Beck show. He was talking to some caller about how American history classes never want to talk about the 1920 Depression, because it is a matter that somehow completely undermines everything we are taught about how "the New Deal was a miracle and totally saved America from the Great Depression." Aside from the straw man he made about the New Deal, I was still curious why he felt that the government response to the 1920 Depression was such a trenchant rebuttal of any kind of left-leaning economic philosophy.
Basically, the claim is made that it was a cut in government spending, tax cuts, laissez-faire ecomomic policy, and inaction on the Federal Reserve that solved the problem.
Dean goes on to point out that Beck claims to get many of these ideas from a dude called Thomas Woods, who is a senior fellow with the very libertarian Mises Institute. The guy has written a few books and gotten a few awards from assorted libertarian organizations, so he's something of a prominent chap int those circles.
Woods' position on the 1920s can be found here. Its even got footnotes so you just know its authoritative. Anyway, read the whole thing if you'd like, but what Woods is arguing is this:
According to the endlessly repeated conventional wisdom, the Great Depression of the 1930s was the result of capitalism run riot, and only the wise interventions of progressive politicians restored prosperity. Many of those who concede that the New Deal programs alone did not succeed in lifting the country out of depression nevertheless go on to suggest that the massive government spending during World War II is what did it.1 (Even some nominal free-marketeers make the latter claim, which hands the entire theoretical argument to supporters of fiscal stimulus.)
The connection between this version of history and the events of today is obvious enough: once again, it is claimed, wildcat capitalism has created a terrific mess, and once again, only a combination of fiscal and monetary stimulus can save us.
Robert Waldmann
A year and a half ago I speculated as to how Lehman had managed to get it’s unsecured debt to be worth only 12 cents on the dollar. With my tinfoil hat firmly on, I wondered if they had written CDS on themselves. I may just be demonstrating my ignorance of the law and institutions, but I suspect that I was essentially right.
LOUISE STORY and ERIC DASH have an important article in the New York Times in which they allege that Lehman hid investments off its balance sheet using deals with a privately held financial firm Hudson Castle and its subsidiaries.
After the jump I quote them on one huge deal and explain why I think that Lehman, in effect, wrote a CDS on itself.
Brad DeLong and Mark Thoma posit that a falling US public deficit is bad news – they are right!
Deficit hysteria is now mainstream thinking, while the more appropriate hysteria should be “jobs hysteria”. How in the world is nominal income growth expected to finance a drop in consumer debt leverage if the government supports a smaller deficit? TARP costs less and tax receipt growth is beating expectations. But that's all it is, beating expectations.
This only proves the endogeneity of the deficit: the sole reason that the private sector is producing stronger-than-expected growth in tax receipts is BECAUSE the government ran large deficits.
Put it this way: as long as the US is running current account deficits, then a shrinking government deficit will, by definition, squeeze liquidity from the private sector. During a “balance sheet recession”, the government should be growing its balance sheet not shrinking it.
An excerpt from the Japan's Quarterly Economic Outlook (Summary*) (Summer 1997):
“Thus, recovery in personal consumption is expected to continue after the reaction to the rise in demand ahead of the consumption tax hike subsides in the near future. However, the pace of recovery is likely to be moderate considering the increases in the tax burden, such as the rise in the consumption tax.”RW: Boy were they wrong – moderate?
The battle over credit and debit card "swipe fees" that has been raging on Capitol Hill for the past 5 years will be heating up again soon. The credit card industry makes $125 million a day in swipe fees, so it is obvious why they are fighting to protect this "secret tax" on consumers and merchants. Check on this short interactive widget, produced by the National Association of Convenience Stores, to see why reform is so essential to Main Street retailers and consumers.
Check it out here: Card fee games
Robert Waldmann
Is Jim Puzzangera of the Los Angeles Times insinuating what I think he's insinuating ?
Before Washington Mutual collapsed ... its executives knowingly created "a mortgage time bomb" by steering borrowers to subprime mortgages and turning the loans into securities the company knew were likely to go bad
...
"At times, WaMu selected and securitized loans that it had identified as likely to go delinquent" or securitized loans in which the company had discovered fraudulent activity,
Sounds to me as if someone has the sneaking suspicion that people who knew WaMu was headed towards ChapLev did that on purpose so that they could give themselves a little golden parachute by buying CDSs.
Stinking pond scum.
I congratulate Mr Puzzanghera and almost don't want to mention the fact that his last name is a portmanteau (portfolio ?) of the Italian words for stink and puddle.
Via CalculatedRisk (of course)
by Marshall Auerback, Fellow and Contributor to the Roosevelt Institute's New Deal 2.0
Marshall Auerback warns that Germany’s obsession with a defense against the external threat of inflation is blinding them to the real risks facing Europe.
The Maginot Line, named after French Minister of Defense André Maginot, was a line of defenses which France constructed along its borders with Germany and Italy after suffering appalling damage and casualties during World War I. The French thought they were now protected from a repeat, and believed the defenses impenetrable.
Chatting to a number of German participants at last week’s Institute for New Economic Thinking (INET) conference, we couldn’t help getting a sense of the economic parallel in regard to Germany’s deep resistance to greater fiscal expansion as means of dealing with the problem of the “PIIGS“.
The Problem:
Germany’s fiscal deficit fetishism is largely a product of that country’s own hyperinflation experience during the Weimar Republic. As deeply ingrained as that trauma remains in the German psyche, it is now taking on an almost hysterically irrational quality as evidenced by the latest “rescue package” for Greece. Its EMU “partners”, led by Greece and soon to be followed by Portugal, Spain, Ireland and Italy, are increasingly being forced to embrace Germanic-style hair shirt economics, because the obvious fiscal response is constrained via self-imposed rules inherent in the rules governing the European Monetary Union. These rules are regarded, almost to a man, as “sound economics” by Germany’s policy makers and the vast majority of its citizens (if one is to measure this via the national polls, which continue to indicate visceral hostility to “bailouts” for “lazy Greek scroungers and tax dodgers”). We wonder if they’ll still be feeling that way if the contagion extends to Berlin and Paris.
Lifted from comments. Vtcodger summarizes his thoughts on a layman's approach to trade and trade policy:
1. It's pretty clear that there is no protocol for determining if a currency is under or over valued relative to another or by how much. It's all guesswork.
2. Foreign Exchange probably is not a marketplace that is efficient with regard to cost of goods. Other factors like perceived stability of currencies and speculative forces probably cause exchange rates to be (considerably?) different than they would be if they were set only by cost of manufacture, shipping, and similar trade related factors.
3. Attempts to deal with trade balances between individual pairs of countries in isolation are probably going to produce dubious results. (But that won't keep folks from trying).
4. If one were to look at all the trade relationships on the planet, one would probably find that there is no set of values for the currencies that makes them all "fair".
5. The expectation that revaluing the renimbi upwards will solve US trade problems is probably nuts. A small upward revaluation will probably help. But for every good, once some other nation (which will rarely be the US) becomes the low cost provider, the (Multi-national companies) will simply swich providers and the Yuan exchange rate will be irrelevant to trade in that product. Beyond a certain point, this is a lose-lose game for the US and China.
The Institute for New Economic Thinking (INET) hosted its inaugural conference this weekend at King's College Cambridge, an experiment of sorts. I had the pleasure of attending the conference, my first time to Cambridge. John Maynard Keynes wrote his *General Theory* at King's College. And as if that wasn't enough, I dined with blogging legends, Mark Thoma and Yves Smith! The photo was taken at the conference by another attendee, Pierpaolo Barbieri: "Lord Skideslky, easily Keynes’ finest biographer".
The conference was a spectacular fireworks display of economic panels, featuring experts across a broad spectrum of applied macroeconomic theory and policy, including banking and development. (You can see the speaker list, presentations, and video here). Definitely read other conference pieces by Marshall Auerback, Mark Thoma, and Yves Smith.
Through INET, George Soros is funding a vision: that new and innovative macroeconomic theory prevent, rather than fuel, future “Superbubbles”. INET's goal is the following:
“to create an environment nourished by open discourse and critical thinking where the next generation of scholars has the support to go beyond our prevailing economic paradigms and advance our understanding of the economic system as a tool to meet social objectives.”That's a tall order, and likely not the intended output from the inaugural conference. But what Rob Johnson, Executive Director of INET, probably did have in mind was something of a declaration of war against outdated, disproved, or even deleterious macroeconomic policy and research. And there, I believe that he succeeded.
There was no shortage of criticism at the INET conference.
China's March trade deficit
Patrick Chovanec on Seekingalpha asks the basic question on the direction Chinese policy makers will take regarding the currency question, but the underlying question remains unanswered...
What tipped this month’s figure from a marginal surplus to a deficit was a surge in imports, up 66% from last year. But it's going to be important to drill down and take a closer look at exactly what’s making up those imports. If they are finished consumer goods, then it could be a sign of rising consumption in China and a shift towards more balanced trade. But if they consist mainly of raw materials, as many economists suspect, it could indicate that Chinese manufacturers are gearing up for a surge in exports later this year (a phenomenon compounded by rising commodity prices for inputs like iron ore and crude oil, in part due to rising Chinese demand).
The key question is, is this a trend or a cycle? Is it a trend towards higher domestic consumption and more balanced trade, or part of a production cycle that leads right back to where we started? I’m not convinced yet this is a trend.[snip]
That’s probably why even Chen Deming, China’s Minister of Commerce (who has been very vocal these past few weeks about the damage a stronger RMB could do to exporters) is being careful not to overplay the news, describing the March trade deficit as “a blip on the radar screen” that may soon be reversed..
[snip]
The key thing to watch, regarding China’s willingness to strengthen the RMB, is the recovery of China’s exports. They’re up just over 20% from last year, but that’s just barely back to the level they were at before the global financial crisis struck.
Lifted from comments.
Before they cut our paid for stuff, I think we need to "Audit the Government". Not sure if anyone in Congress, Treasury, or Federal Reserve is up to the task.
As far as the annual budget goes, I always see those pie charts where they make SS, Medicare and Medicaid look like really big slices of pie, and everything tiny by comparison.
I think we should make a new pie without SS since it is fully funded from FICA flows, at least at the moment. Then we would get the rest in proper proportion.
Yes, employment is a problem. Don't see us getting back to bubble levels anytime soon. That caused the surplus to disappear just recently instead of 2016-2017 as projected.
If I can find an economist anywhere, I would like to know why stimulus programs, federal deficits and ZIRP are good for a recessionary economy, but mom & dad or grandma & grandpa spending money is bad? If the fact that the SS trust fund runs out in 2040 is why something needs to be done today, I think employment would still take precedence. Otherwise the kids, mom and dad, grandma and grandpa will all be living in the same house, and we won't even know for sure which of the three generations has a job.
Robert Waldmann
Jesse Eisinger and Jake Bernstein come very close to accusing Alec Litowitz of the Magnetar hedge fund of being a financial arsonist. I have been speculating about financial arson for a year and a half now.
The hypothesis is that Magnetar deliberately set up especially low quality CDOs and bought CDS insurance on them. Magnetar bought the equity tranches of the CDOs and so had a voice in the selection of underlying assets. Many anonymous sources claim that Magnetar pressed for risky assets to be included in the CDOs.
Magnetar clearly used the revenue from their equity tranches to invest massively in CDSs. They claim they were net losers when all but one of the CDOs which they sponsored defaulted. So ? Arson analogy after the jump.
by Bruce Webb
Well this is a response to a question in the Rivlin thread. There are widespread misunderstandings about what if anything makes up the "IOUs" in the Trust Funds, with many people thinking they just have artificially low rates (and so obviously underperforming theoretical private accounts) or just are open-ended loosey-goosy commitments to maybe pay the money back someday. Well that is not how it works at all on a monthly basis. So with no further ado here they are:
As always click to enlarge. Some notes under the fold.
There has been some arguing about the dangers of federal deficit spending (little said about the huge private sector debt levels except on econoblogs), but Kevin Drum on Mother Jones notes in a post how the argument appears to be framed in the public's mind no matter which party or movement is involved:
Ah, the American public. God love 'em. The Economist asked if they'd rather tackle the federal deficit by cutting spending or raising taxes, and the runaway winner was cutting spending, by a margin of 62% to 5%. So what are we willing to cut? Answer: pretty much nothing."
[snip}
Beyond that, there were only four areas that even a quarter of the population was willing to cut: mass transit, agriculture, housing, and the environment. At a rough guess, these areas account for about 3% of the federal budget. You could slash their budgets by a third and still barely make a dent in federal spending. I suppose one of these days everyone's going to have to figure this out. Apparently no time soon, though.
Now the comments at The Economist didn't appear to be much different in tone and content than other sites. However, my bet is he who frames successfully for the moment's advantage will win, and the budget itself will remain less relevant.
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