Friday, July 30, 2010

7/30/10 Post


News
States Going Deeper into Debt
The amount of debt that states are carrying spiked 10.3% last year to $460 billion, according to Moody's Investors Service. The debt is paid for through taxes and fees, making residents ultimately responsible.
South America Beckons to U.S. Firms
With the U.S. and European economies recovering in fits and starts and companies' beachheads in China providing more potential than profits at this point, robust demand from Brazil, Argentina and other countries in South America has bailed out companies that would have otherwise fallen short of expectations.
Treasuries Gain as Growth Slows, Pushing 2-Year Note Yields to Record Low
Treasuries climbed, pushing two-year note yields to the lowest ever, as a government report showing U.S. economic growth slowed in the second quarter spurred demand for the world’s safest securities.
Economic Growth Now Hinges on Consumer Spending
The fading inventory effect means growth now largely depends on how much people are willing to spend on finished goods—not the calculus at companies about how much they need to build stocks to meet future demand.
The New Abnormal
Americans are broke and depressed—and also swilling $3 lattes and waiting in line for iPhones. Welcome to the schizophrenic economy
Strong Profits. Weak Economy. Odd Couple?
GDP growth, which is seasonally adjusted, is usually reported on a quarter-to-quarter basis. Corporate profits, which can be highly seasonal, are typically expressed in year-on-year terms. When GDP growth is viewed on an annual basis, the story is more consistent: Growth turned positive in the fourth quarter, the same time S&P 500 earnings growth resumed after nine quarters of declines.

Blogs
Economists React: GDP Signals Companies More Optimistic Than Consumers
Economists and others weigh in on the slower gross-domestic-product growth.
Memo to My Beloved NY Times: The Stimulus Was Not $787 Billion
When the stimulus package was adopted in February 2009, the Congressional Budget Office estimated its cost for fiscal years 2009 through 2019 at $787 billion. In Appendix A of its January 2010 economic and budget outlook, however, CBO revised its estimate to $862 billion. The agency found that unexpectedly high unemployment had boosted the cost of the package’s jobless and food stamp benefits and that state and local governments had issued an unexpectedly large volume of the new Build America Bonds authorized by the stimulus package. These differences, as reinforced and offset by other minor changes, added $75 billion to the estimated cost.
Wage, Benefits Costs Rising Slowly
The Labor Department’s Employment Cost Index, which measures changes in the cost of labor, rose 1.8% for all civilian workers in the second quarter compared to a year ago. It was the largest year over year increase since the second quarter of 2009. The index rose 0.5% on a quarterly basis.
Some Further Comments on Blinder-Zandi
There is no specialization and trade in a representative agent model. Since I think that economic activity consists of sustainable patterns of specialization and trade, in my view these models contain no economic activity. Consequently, they capture none of the characteristics that I think are important for explaining macroeconomic outcomes.
Which country has the largest (percentage) ramp-up fiscal stimulus?
According to the IMF it is Saudi Arabia.
Revisions: Real GDP and PCE far away from previous peak
In fact real GDP in Q2 2010 was lower than originally reported for Q1 2010. And annualized real GDP is still 0.85% below the pre-recession peak. This means that real GDP would have to grow at a 3.4% rate over the next four quarters to reach the recession peak by the end of Q2 2011.

Research, Reports & Studies
Social Entrepreneurship: Concepts and Implications for Problem Solving
"Social entrepreneurship" describes the efforts of highly motivated individuals and organizations to solve economic and social problems for the benefit of society in general through the use of business methods and innovative strategies. These solutions are the result of the application of new resources or new combinations of existing resources and of the mobilization of diverse funding mechanisms which increase the sustainability, quality, and scalability of social enterprises.

Economists’ Comments & Opinions
Bank reforms to pinch consumer credit
Call it the law of unintended consequences. That's what many finance experts are saying will be the result of Congress' latest attempt to micromanage the world of consumer credit through the financial-reform measure President Obama signed into law last week.
Urban Myths
...the number of private-sector jobs on average each month has been 96,000. That's well below the 125,000 that economists say is needed each month just to keep up with growth in the work force. We're not even treading water.
Son of TARP
More politically directed credit, this time for small banks.
The Growth Imperative
We could be in for a long, slow decade. There’s a confluence of forces that are probably going to retard economic vitality.
Who Decides on Health-Care Value?
New rules to micromanage insurance companies could cost patients.
Want to Stimulate the Economy? Lower the Retirement Age to 55 Now!
If enough Boomers left the job market, it would even flip the current dynamic of too-many-people-chasing-too-few-jobs upside down, and create a tight labor markets. Tight labor markets drive up wages.
What Would Happen if the Bush Tax Cuts Expire
Much of the focus has been on the wealthy, but what will the expiration of the tax cuts mean for everyone else?

Graph of the Day
American Thinker: 2009 Median Hourly Earnings, Selected Occupations
See: US State Deficits: Minding the Gap

Book Excerpts
"Greater consumption due to an increase in population and growth of income heightens scarcity and induces price run-ups. A higher price represents an opportunity that leads inventors and businesspeople to seek new ways to satisfy the shortages. Some fail, at cost to themselves. A few succeed, and the final result is that we end up better off than if the original shortage problems had never arisen. That is, we need our problems, though this does not imply that we should purposely create additional problems for ourselves." –Julian Simon, The Ultimate Resource 2 (1996)

Did You Know
"China’s chief currency regulator, Yi Gang, revealed today that China has overtaken Japan as the world’s second-largest economy, and is now dwarfed only by the United States. However, projections from banks and economists suggest that China will trump the U.S. by 2025."