It's rare to see theft described so directly:

Proposals made in July by the Basel Committee on Banking Supervision should be redrafted to allow banks to use so-called contingent capital to meet the obligations, the European Banking Federation said in a letter seen by Bloomberg News. They should also be changed so lenders that can’t meet the requirements don’t immediately face restrictions on their ability to pay dividends and bonuses, the EBF said.

Stringing up a few EBF bankers is seeming more and more like a calm, rational approach to solving their issues. Especially when even investors are calling out their lies:

"European banks are in the deepest hole of all. Over the past five years, the European financial sector has shed 900 billion euros in capitalisation and two thirds of its value," said Jacques Chahine, chairman of European investment firm J.Chahine Capital.

"Although the sector has raised 450 billion euros in capital over the same period, this has clearly been inadequate to cover increased risk on sovereign debt. We believe banks will have to be recapitalised by an additional 450 billion euros to cover that risk," he said.

The response from the European Banking Authority is less than encouraging:

"The stress test recently conducted by the EBA showed that EU banks have significantly strengthened their capital positions and are able to withstand adverse macroeconomic scenarios, a view not changed by the additional disclosure of sovereign exposures," it said....

More below the fold...

Yesterday the Conference Board released its measure of consumer confidence, which dropped to 44.5 in August. This brings the Conference Board measure of confidence in line with the Reuters/University of Michigan measure of consumer sentiment. Bloomberg summarizes the Conference Board results.

Confidence is important, since consumer spending accounts for the lion's-share of aggregate spending. Consumer confidence measures are highly correlated with the annual growth in real personal consumption expenditures - the correlation coefficients are 75% and 67% for the University of Michigan Sentiment index and the Conference Board's Confidence index, respectively.

(Chart axis identifcation amended...rdan)
Ultimately, though, it's all about jobs and personal incomes.


READ MORE AFTER THE JUMP!
To date, while July real wages and salaries (deflated using the CPI) fell on the month, the 3-month average continues its ascent. Clearly the sluggish climb in real wages and salaries is not enough to spark a surge in confidence and spending. Neither will consumers draw down saving, as was the case over the last decade amid debt-financed consumption. In fact, saving is more likely to rise as a share of income than fall as the balance sheet repair process furthers.

Jobs and incomes will drive consumption.

To be sure, measures of confidence are "better" predictors of economic activity when the economy is fragile. We know that the economy is now much more fragile than previously thought. Weak confidence plus meager real wage and salary growth is, unfortunately, a harbinger of further 'weak' economic activity.

Since Sunday noon till about Tuesday 6 pm had no power. The live high voltage wire downed along with two trees prevented cars coming or going for the duration of days, so helped spur reflection on neighbors, basic water needs and food stuffs, and in some cases emergencies (not our area). Still, fire and ambulance vehicle access was blocked because going around was not possible.

You would be amazed that people's catchphrases for home wifi are forgotten, including where the printed version was hidden. Even the local starbucks and wifi was down. Ken could fill us in the the lack of running water I believe.

How about you?

by Mike Kimel

This post is the third in a series that looks at the relationship between real economic growth and the top individual marginal tax rate. The first looked at the period from 1901 to 1928, the second from 1929 to 1940. This one will look at the period from 1940 to 1950.

Before I begin, a quick recap... both the 1901 - 1928 period and the 1929 - 1940 [link fixed] failed to show the textbook relationship between taxes and growth. In fact, it seems that for both those periods, there was at least a bit of support for the notion that growth was faster in periods of rising tax rates than in periods when tax rates were coming down. There were also a few other findings that might be surprising - the so-called Roaring 20s were a period in which the economy was often in recession. The New Deal era, on the other hand, coincided with some of the fastest economic growth rates this country has seen since reliable data has been kept. As we will see in this post, the period from 1940 to 1950, encompassing WW2 as well as the immediate post-war recovery, also is subject to a lot of popular misconceptions.


Real GDP figures used in this post come from Bureau of Economic Analysis. Top individual marginal tax rate figures used in this post come from the IRS. As in previous posts, I’m using growth rate from one year to the next (e.g., the 1980 figure shows growth from 1980 to 1981) to avoid “what leads what” questions. If there is a causal relationship between the tax rate and the growth rate, the growth rate from 1980 to 1981 cannot be causing the 1980 tax rate.
The following graph shows the growth rate in real GDP from one year to the next (black line) and the top marginal tax rate (gray bars) for the period from 1940 to 1950.

Finally, in the fourth decade we looked at in this series so far, we see a graph that doesn't contradict textbook economics: growth seems to slow down as tax rates rise, reaching its lowest point (on the graph) when tax rates peaked. Then, after tax rates begin to fall, growth picks up again. So why do we see this negative correlation between tax rates and subsequent growth rates during the 1940 to 1950 period when we saw the opposite in the previous periods?

More below the fold...

This article by David Leonhardt in the New York Times is getting a lot of attention.

Leonhardt argues that there is an active debate in the economics profession between inflation hawks, moderates and doves and that only the position of hawks and moderates are represented on the Fed open market committee (FOMC). He guesses that Perry's equating dovishness with treason (now for monetary policy too) might be part of the problem.

I personally have a strong objection to Leonhardt's article. He lumps together people who think that the Fed should not cause higher inflation with people who think that the Fed can't cause higher inflation.

IF you were to conduct a survey of the country’s top economists, you would find a fair number who did not believe that the Federal Reserve should be taking more aggressive steps to help the economy. Some would worry that injecting more money into the economy might unnerve global investors or set off uncontrollable inflation. Others would wonder whether, with interest rates already so low, the Fed even had much power to lift economic growth.

But you would also find a sizable group of economists who thought the Fed could and should do far more than it was doing. This group, known as doves, tilts liberal, though it includes conservatives as well. If anything, it can probably claim a larger number of big-name economists — J. Bradford DeLong, Paul Krugman (an Op-Ed columnist for The New York Times), Christina D. Romer, Scott Sumner and Mark Thoma, among others — than the camp that believes the Fed has done too much.

Note that the group that think that the Fed doesn't have much power to lift economic growth are lost somewhere between the two paragraphs. Leonhardt goes on to present the debate between DeLong et al on one side and FOMC hawks "Richard W. Fisher of Dallas, Narayana R. Kocherlakota of Minneapolis and Charles I. Plosser of Philadelphia." with the moderates such as Bernanke in the mushy middle.

The hawks and those who doubt that the Fed can cause higher inflation absolutely disagree. The hawks say there is a risk of higher inflation. DeLong says higher inflation is possible and would be good. They agree on the first question and then disagree about the effects of inflation and the relative importance of economic catastrophe and whatever costs 4% inflation would have (small to minimal according to top conservative academics like uh Kocherlakota).

It is just not true that no prominent FOMC nominee Nobel Laureate has expressed doubt as to whether the Fed can cause higher inflation. Leonhardt seems to have decided that Peter Diamond just doesn't exist (or to agree with Sen Shelby that he doesn't know about money -- I might add that top academic N. Kocherlakota's research on money is all based on Peter Diamond's search model).

I don't have the sense that Romer and Krugman firmly disagree with those who think the Fed can't do much more. They call for more more more, but don't IIRC express confidence that anything the Fed might do would have a really big effect. Conflating the questions of should the Fed try to cause higher inflation and can the Fed achieve it makes them definitely doves. That's why I object to the conflation.

Before the jump I note (again) that I think the Fed could do more which would be useful -- buy risky assets (via Maiden Lane III if necessary). But that means I absolutely don't agree with people who call for QEIII and look at the quantity and not the quality or who think that saying more inflation would be nice would have much effect or who call for targeting nominal GDP (why not jut "target" real GDP and cut out the middle man ?).

More below the fold...

by Mike Kimel

Tyler Cowen has a post on truck driving jobs in North Dakota:

My poking around showed that some of them start at 75k a year, though with raises for good performance.

The implication, of course - why don't unemployed people move to North Dakota and drive trucks for good wages rather than stick around and collect unemployment?

I've got a theory:

Figure 1
Screenshot from Job Service North Dakota, run by the State Gov't of North Dakota.

Advertised wages for light truck drivers are quite a bit lower ($21,736 for entry level).

More below the fold...

As Rusty presents his short 'thoughts' on the administrative end of the national healthcare reform process, I noticed some readers have taken the problems he notes as indicative that the whole process is flawed and destructive. I do believe that is a wrong tack to take and will not serve to learn more of what is happening in the process. The US public has only begun to take note of the growing necessity of deciding not only public spending but the huge costs to the current private system. Changes are happening in that area as well.

The steadily increasing complexity of insurance billing and particular contracts with groups is simply bypassed in macro discussions but has profound effects on delivery of services and costs. We glibly point to general 'benefits' sections of insurance as the 'worth' of plans and that justify the 'premium' schedules....not the real contracts on the other side of service delivery. Many general public discussions ignore the trends in the private sector. The overall costs of the system itself as the 'cost curve' bends downward without much general scrutiny will impact more than the handy medicaid and elderly targets in the political discourse..

Health Care Thoughts: Regulations Gone Wild

My favorite nurse has been attending in-services and doing some computer seminars on long-term care nursing. She is not happy.

More below the fold...

I don't want to be hyperbolic, but I think that Rick Perry's chances of being elected President just declined significantly

KEYES: But should states-rights supporters be worried that, as governor you said that Social Security is not something that falls in the purview of the federal government, but in your campaign, have backed off that?

PERRY: I haven’t backed off anything in my book. Read the book again, get it right. Next question.

Keyes explains

In Perry’s book, released just nine months ago, he writes on page 48 that Social Security is “by far the best example” of a program “violently tossing aside any respect for our founding principles.” On page 50, he goes on to say that we have Social Security “at the expense of respect for the Constitution and limited government.”

Update: The next post at think progress

Asked by a woman in the crowd about Social Security being viewed as an entitlement program, Perry reiterated the suggestion in his anti-Washington book, Fed Up!, that the program amounts to a Ponzi scheme.
“It is a Ponzi scheme for these young people. The idea that they’re working and paying into Social Security today, that the current program is going to be there for them, is a lie,” Perry said. “It is a monstrous lie on this generation, and we can’t do that to them.”

I don't make predictions, but i wonder when was the last time that someone who called Social Security a "monstrous lie" was elected President ?

Let the Waves of Pity Begin:

More than 80 percent said they don’t believe that their compensation is mainly predicated on performance. Instead, [Capstone managing partner Rik] Kopelan said, young investment bankers worry that it’s "based on the profitability of the firm, based on how powerful the group heads were, based on capricious things." [emphases mine]

Gosh, really? That would never happen in the real world.

So why are they so saddened?

One investment banker who participated in the survey described a breach of the "tacit understanding" that he or she would be well compensated.

I don't know about anyone else, but if you try to use the phrase "tacit understanding" to get something valuable from an Investment Banking client, you will quickly find that you no longer have a client.

But the pain...

Considering “the sacrifice I make in my personal life (100-hour work weeks, canceled vacations, etc.), this business has to be more rewarding,” the person said, according to Capstone.

You hear a lot about people working 100-hour weeks. Some of it is true. The part that is left out is that those weeks are also filled with a company car home (and often to), meals provided on the expense account, and a guaranteed base salary with a bonus that (for those 100-hour a week jobs) generally runs north of 100% of salary. And that's ignoring signing bonuses.

More below the fold...

If these words translate to actions in the Congress on emergency aid, I believe it is a significant departure from past policies. And Virginia, Cantor's home state, is predicted to be impacted. We will know soon enough if political capital is spent on this idea.

A spokesperson for House Majority Leader Eric Cantor (R-VA) said that if there is any damage caused by Hurricane Irene requiring federal disaster funding, the money would have to be balanced out by spending cuts elsewhere in government.

"We aren't going to speculate on damage before it happens, period," his spokesperson Laena Fallon told TalkingPointsMemo. "But, as you know, Eric has consistently said that additional funds for federal disaster relief ought to be offset with spending cuts."

Read more at Business insider

It's not just that you make a mistake; it's that you cling desperately to that mistake and let it define you.

Katrina revealed George W. Bush's basic incompetence in a way that 9/11, Afghanistan, and Iraq had not. So he was weak going into the 2006 midterms. There were going to be losses. No one who wasn't being paid to say otherwise thought there were not going to be some losses.

And you have to assume that some people thought those losses would be smaller: they got rid of "Brownie," made a lot of noise about "Katrina and Rita," put Hayley Barbour on television as often as they could, talking about how Mississippi was rebuilt.

Damage control.

The problem was that one failure got people to look at other failures. And the sacrifices didn't come from there.

More below the fold...

Does committed funding -- as in the Social Security and Medicare payroll taxes -- protect programs from cuts ? It is often argued (sometimes here) that the committed funding makes it harder to cut Social Security OASDI pensions. Certainly recipients stress the (perceived) fact that they just want their money back and that it isn't like welfare.

How could we manage an experiment to test this hypothesis ? It seems to me that the best approach would be to have two similar programs with the same name some of which had committed funding and two of which didn't. Quick pop quiz: of Medicare plans A, B and D, which is funded how (answer after the jump).

Now lets see how this affects public opinion. Is it true that cuts to the programs without committed funding are considered more legtimate than cuts to the program with committed funding ? Has policy shifted so that only one set of programs is cut ? Which set ?

I think it is clear that this is a perfect experiment testing the relevance of completely committed funding compared to funding or partial funding from general revenues. In particular, I think that anyone who argues that the payroll tax cut (under which the Treasury just sends bonds to the SSA OASDI trust fund instead of selling the bonds to it) tends to undermine social security must bet his or her reputation on the results of the experiment (after the jump)

More below the fold...

by Rebecca Wilder

Lieblings quote of the day by Dean Baker:

"The ECB is run by a perverse cult that worships 2.0 percent inflation and is prepared to sacrifice almost all other economic goals to meet this target."

The article goes on to argue that the ECB should increase its inflation target to 3-4% in order to facilitate positive wage growth in the debt deflationary economies like Spain. I've argued a similar point in the past.

However, I'd like to add that this "perverse cult" called the European Central Bank (ECB) raised its policy rate on April 13 - a point in time that correlates perfectly with a shift in trend across euro-area bond markets. Specifically, April 13 marks the upswing in risk premia on Italian, Spanish, and Belgian bonds relative to German bunds. Hmmm...policy mistake?

More below the fold...

by Mike Kimel

Howard Hill on has been arguing with gold bugs:

I know that some readers are going to say “Wait. The gold market is saying inflation, not deflation.”

That’s not how I see it. I see the negative real rate on cash parked in T-bills (three month yield 0%, 12 month yield 0.08%) as a clear indication that prices are going down, not up. As more and more market participants equate gold to another currency, they are simply diversifying their cash into that currency along with Dollars, Pounds, Swiss Francs, Yen and Euros. If you consider the total bullion supply, the allocation into gold is less than $10 trillion worldwide, a small fraction of the total debt held as investment.

The key to understanding the mixed signals of gold and the bond market(s) is to realize that boiling every bit of information in the market down to a single price eliminates much of the information. Once that information is reduced to a single data point, you can’t actually re-create it. We’re left guessing at what forces are at work that put the prices where they are.

The one thing that makes no sense is to look at one market (eg gold) and conclude that there is inflation ahead while ignoring other larger markets that are telling the opposite story.

The Washington Post points us to a thought that needs to be included in public debate. (h/t Stormy)

Corporations pushing for job-creation tax breaks shield U.S.-vs.-abroad hiring data

Some of the country’s best-known multi­national corporations closely guard a number they don’t want anyone to know: the breakdown between their jobs here and abroad.

So secretive are these companies that they hand the figure over to government statisticians on the condition that officials will release only an aggregate number. The latest data show that multinationals cut 2.9 million jobs in the United States and added 2.4 million overseas between 2000 and 2009.

Some of the same companies that do not report their jobs breakdown, including Apple and Pfizer, are pushing lawmakers to cut their tax bills in the name of job creation in the United States.

More below the fold...

Barry Ritholtz points us to how essential US government intervention was for the banking system and in particular existing banks and the management at The Big Picture. It has links worth pursuing as well.

I continue to be of the mind that the Wall Street Bailouts were misguided, and that a massive Swedish style reorg would have been the best thing for the nation and the economy in the long run. Both Uncle Sam and the Fed would have provided the broad based debtor in possession financing required, and the losses would have fallen where they belonged — on the Shareholders and Bond Holders — and not the taxpayers.

The latest evidence of this: Data obtained by Bloomberg News through Freedom of Information Act requests, followed by months of litigation, and eventually, an act of Congress. (Wall Street Aristocracy Got $1.2T in Loans)

More below the fold...

[Expletive Deleted].

It will be interesting to see whether the Libya of Brad DeLong and Juan Cole's beliefs produces a respectable opposition leader—one of the surer signs of rule by the people—before Canada does.*

UPDATE: Via Amy Wilkins Twitter feed, Layton's final words. Can anyone imagine the 2011 Obama** being able to say this:

You decided that the way to replace Canada's Conservative federal government with something better was by working together in partnership with progressive-minded Canadians across the country. You made the right decision then; it is still the right decision today; and it will be the right decision right through to the next election, when we will succeed, together...

All my life I have worked to make things better. Hope and optimism have defined my political career, and I continue to be hopeful and optimistic about Canada....More and more, you are engaging in politics because you want to change things for the better. Many of you have placed your trust in our party. As my time in political life draws to a close I want to share with you my belief in your power to change this country and this world. There are great challenges before you, from the overwhelming nature of climate change to the unfairness of an economy that excludes so many from our collective wealth, and the changes necessary to build a more inclusive and generous Canada. I believe in you. Your energy, your vision, your passion for justice are exactly what this country needs today. You need to be at the heart of our economy, our political life, and our plans for the present and the future. [emphasis mine]

*I said "respectable." This does not include the Liberal Party for as long as they are led by Michael Ignatieff, to whom this post was Far Too Nice.

**I'll be nice to those of you who thought that Obama was anything other than a Corporatist from the start.

With the (roughly) 11% decline in US equities year-to-date, talk of a US recession has resurfaced. Through mid August, the high frequency economic indicators point to further weakness, rather than a double dip.

In my view, whether or not the US is IN a recession - defined as the coincident variables followed by the NBER (.xls) are turning downward - is really a moot point for a good chunk of the working-aged population. It probably 'feels' like the economy never exited recession to many.

As an aside, it would be difficult for the US economy to actually ENTER a contractionary phase right now, since the cyclical forces that normally drag the US into recession - inventories, auto sales, and housing - are at severely depressed levels. Confidence (or lack thereof) can reduce domestic spending and investment - it's in this respect that the losses in equity equity markets are important. It takes time for shocks to work their way into the economic data. Nevertheless, high frequency indicators do not point to recession...for now.

Claims are elevated but ticked up last week. If claims do not fall back in coming weeks, the unemployment rate will rise again. This could indicate the outset of a contracting economy.


Weekly diesel production shows an increase in transportation activity (please see this post for an explanation of the data).


Read More After the Jump!

More below the fold...

by Mike Kimel

Hi folks! Long time readers probably know I've been haranguing on the deficit and the national debt for a long time. Last week I got an e-mail telling me about a new book called “Deficit: Why Should I Care?” by Marie Bussing-Burks. I had never heard of either the book or Ms. Bussing-Burks, but the topic was interesting. I was offered the opportunity to read a pdf version of the book. That isn't unusual - such offers seem to arrive at Angry Bear's doorstep on a regular basis.

What is unusual though, is that I've read through much of the book already, and unlike most books purportedly written about the topic, I can safely recommend it to anyone who wants to learn more. It is factual, interesting, well written, very informative and seems to be a fairly unbiased treatment of the issue. That isn't to say I agree with everything in the book, but I do think the book is very good. Dan has arranged with the publisher for 50% discounts to be made available to any Angry Bear readers who buy it between now and September 5.

More below the fold...

by Linda Beale

Jobs as the Measure of Economic Success, and Rick Perry's Texas

We have had a warped sense of how to measure economic success in this country at least since George W. Bush started talking about the "ownership" society.  Of course, we should have guessed that moniker was problematic from the start, since it was 'invented' by a guy who bragged about representing the 'have-mores' while the economy was rapidly becoming a bi-polar, class-based society of have-mores and have-nots.

Most of the media looks at the gyrations of the Dow Jones Industrial, the S&P 500 and similar indexes of stock pricess and then says our economy is good (if they're up) or bad (if they're down).

Folks, that's only true for those who own most of the financial assets--the rich folks at the top of the scale.  It's not true for the companies. As Ali Velshi noted in the Daily Show clip on the earlier blog post, companies intrinsic values don't change by dropping 5% overnight, gaining 3% overnight and then dropping 4% overnight.  The companies are still plodding along doing what they're doing.  What changes is the attitudes of those secondary investors--more and more of them just quick traders out to arbitrage a temporary price difference who don't give a damn about the company's fundamentals.

More below the fold...

by Mike Kimel

The Effect of Individual Income Tax Rates on the Economy, Part 2: The Great Depression and the New Deal, 1929 - 1940

This post is the second in a series that looks at the relationship between real economic growth and the top individual marginal tax rate.

Last week I had a post looking at the relationship between the state of the economy and the top individual marginal tax rate from 1913, the first year for which there were individual income taxes, to 1928. Because there is no official data on GDP for that period, I used recessions as a proxy for how well (or poorly) the economy was doing. I note that there was no sign whatsoever that the economy did better during periods when income taxes were non-existent (the post also looked back to 1901), or were low, or were falling, than when tax rates were high or were rising between 1901 and 1928.

This post extends the analysis to the period from 1929 to 1940, 1929 being the first year for which official real GDP data is available from the Bureau of Economic Analysis. 1940 is the end of FDR's first eight years in office, and serves as a decent bookend to the New Deal era given America's entry into WW2 in 1941. Top individual marginal tax rate figures used in this post come from the IRS.


The following graph shows the growth rate in real GDP from one year to the next (black line) and the top marginal tax rate (gray bars). In case you're wondering, I'm using growth rate from one year to the next (e.g., the 1980 figure shows growth from 1980 to 1981) to avoid "what leads what" questions. If there is a causal relationship between the tax rate and the growth rate, the growth rate from 1980 to 1981 cannot be causing the 1980 tax rate.

Notice that tax rates fell from 77% in 1920 and 1921 to 24% in 1929, the year the Great Depression began. (As noted in the last post, the so called Roaring 20s was a period when the economy was often in recession.)

Figure 1

In 1932, tax rates rose to 63%, and by 1933, the economy was growing quickly. That doesn't match with what people believe, I know. It seems these days its commonly accepted that FDR, who took office in 1933, created the Great Depression or at least made it worse, and that only WW2 saved us. In part to address that issue, the graph below shows growth only during the New Deal era, 1933 - 1940 (no WW2!!!). To put the growth in perspective, I've added two lines. One represents the fastest single year growth during the Reagan administration, and the other shows the average of the single year growth rates during the Reagan administration. I figured it would be a good comparison, the Reagan administration being today's gold standard for all that is good and pure.

Figure 2.

As the graph shows, in all but two years from 1933 to 1940, the t to t+1 growth rate was faster than in every single year of the Reagan administration. In fact, the average of the yearly growth rates during this period was about a percent and a half faster than Reagan's best year.

And yes, there was a sharp downturn shortly after the tax hike in 1935, but its hard to credit that tax hike with the downturn when immediately after the economy continued on a rocket trajectory.

Now, whenever I point something like this out, I get told the same thing (at least by folks who are smart enough not to argue with the data): the rapid growth in the New Deal era occurred simply because the economy was slingshotting back from the Great Depression, and if anything the New Deal policies slowed the recovery. The problem with that argument, of course, is that because the unfortunate events of 2007-2009 witnessed the biggest economic decline since the end of WW2, the economy should be primed for the fastest spurt of growth in the past 60 years. After all, the policies we've been following before, during and since that decline have not been very New Dealish at all: top marginal tax rates are 35%, not 63% or 79%, there are no work relief programs, and Glass Steagal Act, passed as part of the New Deal, borders on irrelevant. Yet I think its safe to say just about everyone is in agreement that sort of growth isn't going to happen anytime soon.

It is also safe to say that for the first two periods covered in this series (i.e., 1901 - 1928 and 1929 - 1940), we once again haven't seen any sign of the purported relationship between higher lower marginal tax rates and faster economic growth. No doubt that relationship shows up later on. Next post in the series: WW2 and the immediate post-War era.

As always, if you want my spreadsheets, drop me a line. I'm at my first name which is mike and a period and my last name which is kimel at gmail period com.

by Rebecca Wilder

Disclaimer: I'm in Germany, and the keyboard takes some getting used to. Therefore, some of my posts in the coming week will be short and sweet (so that I don't include characters lik ö, which is sure to turn some heads). Furthermore, blogger spellcheck doesn't work in English here.

The Q2 real GDP data across the G7 are now in, except for Canada who is always the last to release their statistics. We now know that the G7 expansion has been nothing short of pathetic. Why? Because among the G7, ONLY Canada - the G7 consists of the US, UK, Germany, France, Canada, Italy, and Japan - has fully regained its GDP lost during the recession (it had by Q3 2010 no less). Canada's in an expansion league of its own.

Hence, the G7 ex Canada remain in "recovery" mode through Q2 2011 and roughly 3.5 years since the previous cyclical peak (see table in reference of post).

(Note: I differentiate "recovery", or regaining output lost, from "expansion", or growing beyond the previous cyclical peak, in this post.)

The chart above illustrates real GDP (just "GDP" from here on out) across the G7 around the peak of each country's GDP during the last cyle, point 0. Only Canada has fully recovered its real GDP lost, having expanded to a level that is near 2% over its previous peak through Q1 2011.

More below the fold...

Angry Bear PGL wrote this post in 2007 reflecting the shape of politics and media soundbites of this current and constant election campaigning over the current two years to 2012 elections:

In case Mr. Romney hasn't seen my question. let me restate it. How will you address the long-run fiscal problem, that is, will you raise income taxes or will you impose that backdoor employment tax increase known as “entitlement reform”, which really means cutting Social Security benefits? Until Mr. Romney answer this question clearly let's not pretend he has a serious position paper on taxes.

The whole post is below the fold. (hat tip Daniel B)

More below the fold...

by Mike Kimel

Some thoughts on the next presidential election.

1. It seems to be a political truism that only Nixon could go to China.
2. Once a precedent is set, even taboo activities become OK. Clinton could go to China because Nixon had already gone.
3. Obama seems willing to, er, "fix" a number of programs that folks on the left hold dear like Social Security and Medicare.
4. GW was unable to tackle Social Security and Medicare, though he did express the desire to do so.
5. Under the Nixon-has-gone-to-China precedent, Social Security and Medicare will not be off limits to Obama's successors of either party.
6. If Obama wins in 2012, what other Chinas will he visit?

I think this business insider article by Henry Blodget is a genuine must read

A former senior analyst at Moody's has gone public with his story of how one of the country's most important rating agencies is corrupted to the core.
The analyst, William J. Harrington,

Sad to say (pathetic really) something was news to me

"Moody's .... since going public in 2000."



I didn't know ( I have stressed my ignorance many times here but I had no idea how much ignorance I had to stress).

It sure didn't take long.

Also how long did the longest lived publicly traded investment bank in the USA survive as an investment bank ? Did any make it over age 18 ?

Since some time in the mid 70s I had been very puzzled as to how private unregulated firms with such power could remain uncorrupt (in 2008 I started wondering how they had remained uncorrupt for so long).

"We told you so" -- Bearle and Means.


update: at least I'm not naive enough to be surprised by this
MCO 27.04 -0.89 -3.19%

Refinance rates (list) for 15-year Fixed Rate Mortgage in my area:

Bank of America 3.625%
JPMorganChase 4.125%

And that's if everything is right.

As regular readers know, I have been arguing since long before angrybear.blogspot.com existed that Democrats should campaign on raising taxes on rich people (I was convinced in 1993 or 1994). One of the facts that all savvy people think they know is that people of modest means in the USA reject the proposal to soak the rich. Oddly those savvy people neglected to convince the substantial majority of US adults which has declared support for higher taxes on rich people in every poll on the subject in the past two decades (at least).

I assert that there has been a conspiracy of silence as the villagers and the MSM hide the fact that most US adults support higher taxes on the rich from almost all US adults.

This article by Rosalind S. Helderman is interesting as it shows that something has changed and something has remained the same. The article reports

Obama told residents that Republicans like Hultgren must be willing to raise taxes to reduce the deficit.

A few hours and 90 miles away, Hultgren’s own constituents had picked up the message, repeatedly hectoring the freshman congressman at a town hall meeting to raise taxes on the wealthy and corporations.

The extremely widespread solid majority view that taxes on the rich should be increased has (finally) been reported in the WAshington Post.

More below the fold...

I think Democrats are wise to punch hippies. I grew up as a wannabe hippy and I volunteer.

Oddly a lefty blogger is convinced that what the Democratic party needs is a Tea Party of the left, but it can't have one, because of the MSM and hippy baching progressive bloggers.

My jaw drops after the jump.

Here I admit that I am aiming for the maximum possible number of enraged comments.

If you can't punch the hippy you want, punch the hippy puncher you're with.

Also the Eagle flies with the dove

then eats it.

More below the fold...

In recent years the BLS has developed a new database where they can track the jobs created by an establishment over time. It is called Business Dynamics and you can read about it here.

Research using the new database has altered the basic view of where jobs are created. The old view that jobs are created by small businesses has been pretty much discredited by this approach.
As the chart below demonstrates over recent years, large firms have accounted for a greater share of employment than small firms. Since the 2000 recession their share has been relatively constant, implying that small and large firms have created about the same number of jobs.

More below the fold...

by run 75441


The Medicare Sky is Falling

Part of the Medicare Sky Falling story is a claim that doctors are refusing to accept new Medicare patients because of low payments. It is common for politicians and pundits to pontificate declaring Medicare is broken. A doctor himself, Wyoming Senator Barrasso made the claim to CNN’s Candy Crowley recently.

Sen. John Barrasso mistakenly claimed that "57 percent of doctors don’t want new Medicare patients," which isn’t true. His own spokeswoman admits he got it wrong.

National surveys have put the number who don’t take new Medicare patients as low as 14 percent, and a big American Medical Association survey last year showed only 17percent of all physicians said they were ‘restrictin’ Medicare patients (either taking none, or just some).”Senator’s Barrasso’s Medicare Mistake

See also Part 1, Part 2, and Medicare Breaks medical inflation curve

More below the fold...

Fitch won't downgrade the U.S., but they have downgraded Chirstiedom, officially because he didn't pillage the state's severely-underfunded Pension Funds enough.

Of course, those Pension Funds wouldn't be so underfunded if they had been funded instead of f*ck*d by the Whitman Administration's Coke-Induced Budgeting Practices. (The "miracle of compound interest" includes that it doesn't compound so much when there's no principal.)

[UPDATE: Blue Jersey highlights the line I missed:

Fitch believes that meeting the requisite increases in pension contributions will be challenging and is likely to conflict with other long term challenges, such as property tax relief, school funding, and infrastructure needs.

Gosh, you mean you have to pay for services? As for the other highlight:

The state's recent economic performance has been weak and the state is expected to lag the nation in recovering from the recent recession.

we could always use The Texas Solution: Hire More and More Government Workers.]

So, if you want him, as I said at Skippy, you can have him. He's got experience with ratings downgrades.

Sadly, I suspect Joe Wiesenthal has it right:

It might not be a big deal, and it might not be his fault, but this should probably kill any buzz about him running for President right now, given that THE DOWNGRADE is expected to be such a salient point of attack for any eventual GOP nominee.

And since the downgrade was engineered by a Romney supporter, any suggestions of conspiracy here are unjustified.

by Mike Kimel

Most economists believe that unemployment benefits increase the unemployment rate. The idea is that even having a relatively small income coming in (from unemployment) can encourage people to stay jobless just a little while longer. And no doubt there are people who play the unemployment compensation game fairly well.

Now, consider severance packages. These days they aren't uncommon. There are differences in how different states treat severance packages, but as I understand it, in general, if a jobless worker received a severance package equivalent to X weeks of pay in lump sum form, that makes the worker ineligible to receive unemployment benefits for what would otherwise be the first X weeks worth of claims. Which, would imply that for an unemployed worker, there is zero incentive to be jobless during the first X weeks of unemployment, but a jump in the incentive to be jobless beginning in week X + 1. One presumes, therefore, a greater probability of people turning down proffered job offers in weeks X-1 or X (when unemployment benefits are imminent) than in week 1 or 2 (when there is a much longer wait to get unemployment benefits).

If this solves the problem of anyone looking for a thesis topic at a Freshwater school, your thanks are all the payment I need but I do appreciate cookies.

Scott Lemieux linked to an article that in turn referenced a BEA report on state GDP gains with this map:

or, if you just want to see the numbers,

"Growth only slightly lower than Michigan's" should be a great campaign slogan.*


*And that's ignoring that the second-largest contributor to that gain is Finance and Insurance. Rick Perry probably gives Jamie Dimon a big, wet kiss every time they meet.

Rick

Governor Perry of Texas is making the claim that the Texas 2003 tort reform lead to Texas having 20,000 more doctors.

I challenge him to document his numbers.

Here is the number of doctors registered to practice in Texas before and after the 2003 tort reform. The data is from the official state registry that is the only body with the authority to
license doctors to practice in Texas.

http://www.dshs.state.tx.us/chs/hprc/PHYS-lnk.shtm

The data clearly shows that the growth rate of the number of doctors practicing in Texas slowed from an average rate of 3.4% in the five years before tort reform to a rate of 2.4% in the five years after tort reform. The calculations does not use the data from 2003, the actual year tort reform was passed and a year that should be considered a transition year.. This official data directly contradicts Perry claim that tort reform increased the number of doctors practicing in Texas.

More below the fold...

by Daniel Becker

(This is a long post. The time for sound bite debate to the demise of learned discussion is over for we are flirting with danger.)

Via a post at Financial Armageddon I learnt of a paper looking at the relationship of austerity implementation and social unrest. It is recent, dated August 2011.

Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009 

Jacopo Ponticelli, Universitat Pompeu Fabra

Hans-Joachim Voth, UPF-ICREA, CREI and CEPR

Discussion Paper No. 8513

August 2011

Centre for Economic Policy Research

The Financial Armageddon article shows the first chart of the paper which presents: the relationship between fiscal adjustment episodes and the number of incidents indicating instability (CHAOS).

 

 

"CHAOS is the sum of demonstrations, riots, strikes, assassinations, and attempted revolutions in a

single year in each country. The first set of five bars show the frequencies conditional on the size of budget cuts. When expenditure is increasing, the average country-year unit of observation in our data registers less than 1.5 events. When expenditure cuts reach 1% or more of GDP, this grows to nearly 2 events, a relative increase by almost a third compared to the periods of budget expansion. As cuts intensify, the frequency of disturbances rises. Once austerity measures involve expenditure reductions by 5% or more, there are more than 3 events per year and country -- twice as many as in times of expenditure increases."

This is a rather disturbing chart. Certainly the recent events in England play into the subject of this paper. That WE are now setup for our version of austerity implementation, this paper should be put in the hands of all the staff members of congress and the president. If I had my own national news show I would have in the corner of the screen the above chart along with the google map of all the riot locations in London and in big letters: Cut SS, MC, Medicaid. Really? You want to go there?

There is more to this paper than just the apparent connection between austerity and upheaval. "Controlling for economic growth does not change our results. This suggests that we capture more than the general association between economic downturns and unrest."

This is the most powerful statement of the paper. It implies that "Man" in all his glory is responsible for such social activity. It is not the "natural" course of economic activity that creates such volatile activity.  It is the economic policy implemented that determines whether there will be unrest or not. Currently, the proposed austerity is based on an a priori of "we're broke". It is stated with the authority of natural cause. Mother Nature Economy did it's thing and well...we're broke. All we can do is rebuild after the storm. Yet, an economy is totally of human design. The republican who stated that the conservative movement was making reality was more correct than their fantasizing of control and power would allow them to realize. Thus I delve into this paper more after the jump.

More below the fold...

Tyler Cowen doesn't much.

I tend to agree with Cowen. Nominal rigidities were quite the thing just before I arrived, so I think they are over rated. However, there are two points one of which is totally twitty and the other of which is a dead horse still being beaten by Paul Krugman.

OK twitty: By definition for there to be unemployment there must be three agents, an employer, an employee and an unemployed person. The unemployed person must be eager to work as the employee does at the employee's wage. The employer must consider the unemployed person qualified. This means that unemployment can certainly be eliminated if wages fall. At some point, either the employee decides to quit and just live off savings till social security kicks in or the unemployed person decides he or she doesn't want the job. By definition, wage rigidity is needed to explain unemployment. This is true even if lower wages do not at all cause higher employment. If nothing else super low wages can convince people to leave the labor force eliminating unemployment that way. In this case wage flexibility doesn't help the unemployed -- it makes the alternative of working worse so they consider their horrible predicment the best they can hope for. I said it was twitty.

Second, things are unusual because we are in a liquidity trap. The reason nominal rigidities usually matter is that the real money supply could increase if the nominal money stock staid the same and wages and prices fell. From 1940 through 2008 this meant that wage and price flexibility should have prevented output from fallin. N ow, however, the money supply doesn't matter since we are in a liquidity trap. In the IS-LM model (M/P) (money divided by the price level) appears. If P is free to adjust, then there can be no problem with insufficient aggregate demand. Therefore in all of the macro literature from 1940 through 2008, nominal rigidities were considered important. The idea here is wages go down so the firms cut prices (to maximize profits they would) so real balances (M/P) goes up so aggregate demand goes up so GDP goes up. There is no need for real wages to fall.

Right now this doesn't matter as M/P doesn't matter. But for decades and decades it mattered a lot, so nominal rigidities mattered. In practice, wages and prices are sticky so all reality based macroeconmists ("that's not enough I need a majority" -- Adlai Stevenson) agreed that nominal rigidities mattered. Now not so much. M/P doesn't matter so P only matters because of debt deflation (lower P makes nominal mortgage debt an ever worse problem) so wage and price flexibility won't save us so Keynesians don't talk about it.

As always, don't confuse "Keynesians" with Keynes. Keynes was not interested in nominal rigidities The General Theory through "The General Theory Restated" included nothing on nominal anything.

by Rebecca Wilder

Global slowdown underway - it's more than the Japanese supply chain disruptions

The global economic rebound is slowing markedly. With a tightening bias in emerging markets and a US recovery that continues to disappoint, external demand for any country that 'needs it' - those countries mired in fiscal austerity without monetary autonomy, i.e. euro area countries - is decelerating precipitously.

Exhibit 1: import demand for manufactured goods from 22.5% of the world (see chart at the end of this post) is slowing quickly, even contracting.


The chart illustrates the growth of import demand for manufactured goods from the US (12.8% of world import demand in 2011) and China (9.7% of world import demand in 2011) on a 3-month over 3-month annualized and seasonally adjusted basis. Spanning April through June 2011 compared to January through March 2011, US imports for manufactured goods slowed to a 4.9% annualized clip, while Chinese manufacturing imports contracted at a 22.9% annualized pace. US import demand growth peaked at 36.9% in March 2011 (again, on the same 3M/3M SAAR basis), while Chinese import demand growth peaked a bit earlier at 108.2% in January 2011.

More below the fold...

The real story of Michelle Bachmann's "win" in the Iowa straw poll (not to be confused with the Iowa primary) isn't that she got just over 4,800 votes—it's that she paid for 6,000, proving at least 1,200 Iowa straw pollers are smarter than most of the reporters covering her "win."

Late to the party mention: The Kauffman Institute's Blogger Survey results are here (I hope).

The people who rant about 51% of Americans "paying no income taxes" are strangely silent about the fact that more than two-thirds of corporations don't pay any—and they aren't subject to Social Security or Medicare/Medicaid taxes either.

More Dr. Seuss is good, though "newly enhanced Seuss illustrations" sounds suspiciously like a step beyond even the later collaborations, such as The Butter Battle Book.

Robert (at least on his FB feed) is trying desperately to be nice to Matt Yglesias. I'm not, since Matt "I've never attended a public school so I know what's wrong with them" Y. continues to fool himself about "the need for education reform" and refuses to pay attention to the research that shows most of those "reforms" his hedge-fund buddies are championing have been tried and failed. Jersey Jazzman does the heavy lifting here and (especially) here, while Bruce Baker notes the core of the Charterist argument.

Want a clear explanation for why people become writers or, if they don't write well enough, bloggers? Jason Albert in, of course, Slate explains his own ego.

(The idea that maybe we need a third category of uncreative typist—Slate columnists—rises up when they try to make an economic argument without understanding sunk costs. But giving them any more pageviews would be a violation of the Douthat Rule.)

As I'm sure all Angry Bear readers know, there is a debate within the Obama administration on whether to try to maybe do something about unemployment. To recap Obama has been talking about reducing the deficit which might ideally have no effect (if the reductions were far enough in the future) or which would make the problem worse. There is a debate within the administration in which political advisors strongly recommend against advocating any sort of new stimulus and economists recommend trying to do something.

There seems to be general agreement that Congress won't approve any effective policy, so the debate is over politics. The political advisors note that the public wants a balanced budget and predict that advocating any sort of stimulus would be politically costly. The economists argue that Obama can convince the majority of the public that they have been wrong for decades (as their parents and grandparents were before them).

I am an economist and I think that the economists such as Gene Sperling are dreaming.

My contribution, such as it is, is to note how widespread is the belief that it is politically useful to advocate unpopular policies which will not be implemented so no new evidence could possibly convince the vast majority of the public that they are wrong.

In this excellent post (click the link for the more than a nickle version of what is going on) the almost always reasonable Steve Benen writes

[Obama]'s generally unwilling to invest energy in a plan that can’t pass, regardless of the ancillary political benefits.
[skip]
another round of stimulus ... would fail miserably in Congress and most voters strongly disapprove of the idea anyway
[skip]
having the debate positions Obama as the leader with the right vision,
The more Obama can make them own the results, while positioning himself as the leader fighting the good fight, the better off he’ll be politically.

Benen confidently asserts that by advocating a policy of which most voters strongly disapprove Obama will obtain "ancillary political benefits", and concince voters that he is "right."

Frankly, I think that's crazy.

The "disapprove" was an indirect quote of the political advisors, but Benen does not contest the claim of fact which is, I think, un-contestable.

You propose policy for the country you have not the country you want. Political strategy based on the assumption that the US public will recognise that they are completely confused before the next election has failed again and again.

When was the last time it worked ?

Commenters who say I am wrong and do not provide such an example will be mocked in reply comments.

update: formatting corrected.

by Mike Kimel

The Effect of Individual Income Tax Rates on the Economy, Part 1: 1901 - 1928

In 1913, the 16th Amendment to the Constitution led to the income tax system we know and don't love today. Since that time, in fact, since way before that time, people have been arguing about the effect of taxes on the economy. Over the next few posts, I will take a systematic look at the relationship between individual tax rates and the economy going as far back as the data allows in the United States.

In most of these posts, I will measure the effect of the economy using growth in real GDP per capita. However, that series only dates back to 1929. So in today's post, which will focus on the period up to December 1928, I will look at the recessions (using official dates from the NBER and compare that to top individual marginal tax rates as published in the IRS' statistics of income historical table 23.

The graph below shows the top marginal tax rate (black line) and periods in which the economy was in recession (gray bars) going back to January 1901. (Note - the economy was in a recession from June of 1899 to December 1900, so January 1901 is a nice "clean slate" date at which to start.)

Figure 1.

More below the fold...

Try to think of times when someone has convinced you of something.

It is oddly hard. I think a key reason is that we change our minds when we are not thinking about an issue. I read decades ago the report by I don't know who that he regularly noticed that his opinions on eg slippery slope arguments had changed, but that they never changed when he was thinking about the issue let alone discussing it.

I bring this up, because I was wondering if Charles Krauthammer has ever convinced anyone of anything.

Please report cases of being convinced in comments.

With a hat tip to Tim Harford, The General Manchester Police are reporting their already-public-record convictions via Twitter (@gmpolice).

On a quick check, four of the eleven so far convicted (including the one woman), are over 35. So far:

It appears that legendary "moral decay" began under Margaret Thatcher. Whodathunkit? Well, maybe David Cameron in 2007:

More below the fold...

The bad news of the day is that about $5B ($5,000,000,000) more than previously believed went to buy goods made in China, Japan, non-major South and Central American countries, and other places outside the U.S. Per the Vampire Squid (tm Matt Taibbi), this should cause a revision to Q2 US GDP from 1.3% to 0.9%.

The good news of the day is that weekly unemployment claims were "only" 395,000. (Let's ignore the detail that last week was originally reported as 398K—breaking the streak—but is now 402K.)

The net result, at least as of 2:00pm is that the major equity indices are up by at least 3.80% (DJIA). The early articles claim that was because of the "good" news.

And the scary thing is, they're correct. In the 193 weeks since the recession started,* there have only been 39 where initial claims were below 395,000, and two (including the current, possibly-to-be-revised week) that were at that level.

But, especially as none of Harry Reid's appointees to The Grand Ripoff appear to believe that Jobs would do more good for balancing the budget than the Super Commission, it appears that three-quarters of that August body will be working solely on the numerator, not the denominator, of the Debt/GDP ratio.

For years I've made it no secret that I thought the US was going to follow Japan into a so called lost decade -- of course it's now more than a decade.

With the US stock market now apparently in a free fall I though this chart I've been keeping for years would prove of interest. In particular, note how nicely the two stock market major peaks and troughs seem to coincide. Is it more than just an interesting coincidence?

Angry Bear 2011: Mindful Money posted at Minyanville named Angry Bear among some of the top influential financial blogs.

Angry Bear 2010: In 2010 24/7 Wall St. named Angry Bear among the top twenty independent financial blogs on the net.

The Angry Bear www.angrybearblog.com. Half a dozen professionals, including a tax law expert, a historian, PhDs in economics, business consultants and financial professionals provide perspectives on the financial world. Despite their expansive coverage of economic issues, their articles are as deep as their coverage is extensive. Topics include world trade, industrial production, U.S. Government programs, and major regulatory issues.

2010 FINS from The Wall Street Journal named Linda Beale's ataxingmatter in The Top Five Tax Accounting blogs to read for 2009-2010.

In no particular order our current economists are Mike Kimel, Ken Houghton, Spencer England, Robert Waldmann, Linda Beale (tax and law), and Rebecca Wilder (The Wilder View at Economonitor). Bruce Webb has added his nationally recognized expertise in particular on Social Security and current healthcare debate. Beverly Mann writes on Supreme Court proceedings. Daniel Crawford (Rdan) tries to keep up with everyone.

Mostly in alphabetical order: Daniel Crawford: aka Rdan owns and manages Angry Bear since 2007.
Linda Beale I am a law professor at Wayne State University Law School who teaches various courses in the area of federal income tax, such as introduction to federal income tax, corporate taxation, partnership taxation, international taxation and perhaps in the future a course in statutory interpretation focussed on tax. I think that the tax system should reflect the values of ordinary Americans and our long-held belief in principles of liberty, equality and community. I fear that we have instead tended to give too much credence to purportedly "objective" ideas about taxation based on the rationales of law and economics and unverified theories about economic growth and too little credence to human needs for community that require allocating the burdens and benefits of the tax system fairly among the people and entities that make up our system. She maintains her own blog ataxingmatter as well.
Mike Kimel: An economist for a private corporation and author of Presimetrics blog and the book Presimetrics: How Democratic and Republican Administrations Measure Up on the Issues We Care About to be published August 2010. The book can be pre-ordered.
Ken Houghton: A principle in his own company and former economist for several major financial companies.
Spencer England: Before I started my own consulting business I was an economist for the CIA for 10 years and worked for a couple of Boston investment management firms as their in house economist, investment strategist for some 12 years. My original field of study was international economics and international finance. I just celebrated the 20th anniversary of publishing SEER -- my equity strategy product. I model the S&P industries and advise portfolio managers on how to structure their portfolios by recommending industry weights.
Robert Waldmann: ...born the day after Kennedy was elected (November 9 1960). I have a PhD in economics (Harvard 1989) and teach economics at the University of Rome "Tor Vergata". I wasn't always like this. I have a bachelor's degree in biology. Oddly, I don't blog much at my own site rjwaldmann about economics or Italy. Currently, I am obsessed with Obama, but I'll try not to bore people with stuff they already read 10 times today. As an economist (roughly) I am interested in behavioral economics, growth, and the economics of inequality. Actually much of my current research, such as it is, is really in econometric methodology and statistics. I was very unorthodox in the 80s, but the orthodoxy is much less rigid now.
Bruce Webb:I am by training a historian and mythologist who then has spent my working career in information retrieval and land use regulation. My interest in Social Security arose when I noticed in passing that the dates related to 'crisis' were moving but that nobody seemed to be noticing that and still less asking the key questions 'why?' and 'can this go on?' So I set out to try to answer those questions and then share the results which somehow led to a gig here at AB. Politically I am somewhat left of left of center and could best be described as a 'New Dealer' and so weigh in on more overtly political questions as the opportunity arises.
Rebecca Wilder: After receiving my Doctorate in Economics, I was an assistant professor for two years. However, I realized that teaching just wasn't for me and took a job in private sector. Now, I am an Economist in the financial industry. As an economist in finance, I analyze data, write commentary, and offer economic insight to traders, chiefs of staff, and really anyone who wants my opinion. It is in this job that I developed a fancy for writing, but mostly I love talking about economics to anyone who will listen. She writes her own column, The Wilder View, at Nouriel Roubini's Economonitor as well.

History of Angry Bear: Written by Cactus The eponymous Angry Bear blog is the brainchild of... Angry Bear ("AB"), who founded the blog in February of 2003. The title of the blog reflects his emotional reaction (anger) to his view of the state (bearish) of the state of the economy when the blog was founded. Sadly, he had cause to maintain that sentiment for quite a while. Kash Mansori joined the blog in August 2003, and PGL arrived a year later. AB, Kash, and PGL formed the core of the blog for many years. Each has a Ph.D. in economics, but AB's focus is on microeconomic issues, Kash's are in macroeconomic issues, and PGL's training is in finance. Neither AB nor Kash has posted here in a while, but we hold out hope for their eventual return. We also hold out hope for the return of CR, who posted for several years at both Angry Bear and his own blog, Calculated Risk. However, we can at least continue to enjoy his insights on real estate, housing, and banking trends, and economic indicators at the Calculated Risk blog. Since 2006, Angry Bear has added more regulars - some have remained, some have stayed for a while and then moved on. Former regulars include Daniel Becker, Tom Ealey (Save the Rustbelt), and Stormy,, Tom Bozzo, and Noni Mausa.

Or, Barack Obama sucks at 11-dimensional chess.

On July 14, 2011, S&P was assuming that 2001 and 2003 tax fraud deferrals would expire at the end of 2012 [Update: link updated, via MG; PDF--see page 4].

It is no longer making that assumption, which is worth another $4T. Brad DeLong annotates/redlines the press release without comment on that part:

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

English translation: even though extending the tax cuts would require an affirmative action of both houses of Congress and consent from President Obama (or veto override by vote of 2/3 of both houses), we don't believe this will happen or we would have kept our innumerate mouths shut in the first place (or at least after Treasury called us on our McArdlesque calculations).

Our revised upside scenario--which, other things being equal, we view as consistent with the outlook on the 'AA+' long-term rating being revised to stable--retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and to 87% by 2021. to 77% in 2015 and to 78% by 2021. [redlining by BdL]

English translation: if we thought Barack Obama and his Administration both were serious and would be successful, we wouldn't have left the U.S. on credit watch for possible downgrade. But we don't, nyah, nyah, nyah.

As I noted earlier today, it's not coincident that the twenty countries still rated AAA (with the possible exception of New Zealand) all either are tax havens, authoritarian "democracies" (Hong Kong and Singapore) or have Mandatory National Health Insurance.

If S&P on 14 July had said, "The U.S. needs to control its health care costs or we will downgrade it," no one would have said a word of dissent. But the downgrade S&P presented is not based on the root issue; it is based on the belief that temporary blackmail does long-term damage.

It's punditry, not analysis. Even Barack Obama deserves better.

At least until he fails 11-dimensional chess the way S&P believes he will.

From Crash of the Titans, pp. 33-34:

The largest chunks of these [created by Merrill in the winter of 2006-2007] CDOs still carried triple-A ratings, at least in name, because the credit rating agencies hadn't bothered to recalibrate their antiquated ratings models. But almost no one was willing to buy the triple-A portion of these bonds from Merrill because the rest of the marketplace knew what the credit rating agencies and [Osman] Semerci [then Head of Merrill's FICC area] didn't know: that the entire world of mortgages had turned into radioactive waste. [UPDATE: emphasis mine]

Two quick reactions:

1. Sh*t, I knew that by late January of 2007, and I wasn't being paid to know it.
   
   
2. Note that this paragraph actually highlights an implicit disagreement that Robert and I have been arguing through on this blog for the past few years: whether ratings are a signal or the primary signal that investors use. Or, as Andrew Samwick—yes, this is my day for agreeing with conservatives (though not libertarians) on root-cause analysis—points out:
   

   I don't think potential investors in U.S. Treasuries relied too much on its previous AAA rating in actively valuing the bonds and bills. And even if they did, they should be only minimally bothered by its current AA+ rating. Potential investors have plenty of public information on current and projected cash flows of the U.S. government. In those circumstances, there is little value added by a ratings agency's grade.

   
   

When the market disagrees with the ratings, the ratings lose. So what has been happening today in the post-S&P bond market?

I didn't know what to call this post since it is about myself, a topic I tend to try to obscure in public for reasons of personality quirks. But I need to open this up for Angry Bear contributors and readers, whom I actually admire and for whom I feel a great respect. I do not say that enough I think. More under the fold for those who want to follow.

More below the fold...

by Mike Kimel

Assume a world similar to ours, but with a major difference. At some point in the 1920s, an inventor came up with a product called Fleem. Fleem has interesting properties, and when applied liberally in a house, gives even the meanest hovel a more homey feel. A healthy market for Fleem develops in the 1920s. John D. Rockefeller, having attributed the presence of Fleem to ridding his granddaughter of impure thoughts, instructs his son to create an organization ("Standard Fleem") dedicated to making Fleem more widely available.

More below the fold...

I think given the seriousness of the political situation currently being played out, which in my thinking includes the current S and P opinion, has been discussed in comments in a remarkable fashion. Plenty of links and thoughtful commentary. And of course passions run high and are expressed. Well done and my thanks to the readers.

The economic questions are longer term in nature, and of course include much more than the federal government...believe it or not it also includes the predominate trade policies multi national companies implement in their business plans, and those other policies they express through their lobbyists to Congress and the President as solely in the national interest, and how the federal government will play a part. But that discussion is muted at the moment.

How the format here promotes several conversations at the same time is a priority, and keeping a lid on the propensity to offer political answers and retorts as economic answers is a difficult task when debating the political commentary. After all I think information as accurate and real as possible is the baseline, including enough baseline knowledge to sort some of it out on one's own and not repeat slogans as much as possible, is important. Suggestions welcome on format if you have ideas. Historic times demand attention.

Via Ellie Lang, the NYT (no link, unless this works) lists thirteen (13) countries that have a AAA credit rating from S&P:

Switzerland
Hong Kong
Sweden
Germany
Canada
Denmark
Britain
Netherlands
Finland
Norway
Austria
France
Australia

The thing all thirteen have in common? All provide National Health Care.

References are here (Cowen) and here (Salmon).*

1. Just because Charlie Sheen got drunk, did some other drugs, and committed adultery doesn't mean he'll do it again.
   
   
2. Just because someone who calls himself Jack the Ripper has killed two women in London doesn't mean he'll do it again.
   
   
3. Just because the U.S. dropped a hydrogen bomb that emits massive amounts of radiation on Hiroshima doesn't mean they'll do it again.
   
   
4. Just because Megan McArdle makes mistakes when she tries to do financial analysis doesn't mean she'll do it again.

Feel free to add more in comments.

Cowen, by the way, wins the intellectually-inconsistent-in-a-short-period award (partially because Felix's argument meanders more than Moses in the desert):

[T]he “we should have had a much bigger stimulus” argument is unlikely to go down in intellectual history as the correct view. Instead, Ken Rogoff and Scott Sumner are likely to go down as the prophets of our times. We needed a big dose of inflation, promptly, right after the downturn. Repeat and rinse as necessary.

Shorter Tyler Cowen: we didn't need to put a lot more dollars into the economy than we did. Instead, we needed to put a lot more dollars into the economy than we did.

UPDATE: Mark Thoma is collecting reaction to the S&P's alleged rationale as only he does. See especially Economics of Contempt's post and this e-mail from the someone who has Been There and Done That.

*Who follows up his far-too-nuanced-for-me "FAQ." But I am a Bear of Very Little Brain compared to such analysis.