Thursday, August 12, 2010

8/12/10 Post

US jobless claims jump to highest level since February
New claims for US jobless benefits jumped unexpectedly last week to the highest level in about six months. Initial claims climbed by 2,000 to 484,000 in the week to August 7 from the previous week's upwardly revised figure of 482,000.
Taleb Says Government Bonds to Collapse, Avoid Stocks
“I’m very pessimistic,” he said at the Discovery Invest Leadership Summit in Johannesburg today. “By staying in cash or hedging against inflation, you won’t regret it in two years.”
Homes lost to foreclosure up 6 pct from last year
The number of U.S. homes lost to foreclosure surged in July. Lenders repossessed 92,858 properties last month, up 9 percent from June and an increase of 6 percent from July 2009.
Wider Trade Gap Signals Weak Growth
Imports Jump, Exports Sag in Sign U.S. Upturn Is Slowing; Demand Rises for Foreign-Made Autos, Electronics Goods.
Watchdog panel cites global impact of US bailout
The $700 billion U.S. bailout program launched in response to the global economic meltdown had a far greater impact overseas than other countries' financial rescue plans did on the U.S., according to a new report from a congressional watchdog.
Obama Administration to Provide $3 Billion in Housing Aid
The Obama administration is providing $3 billion to unemployed homeowners facing foreclosure in the nation's toughest job markets. The Treasury Department says it will send $2 billion to 17 states that have unemployment rates higher than the national average for a year.
We Want Our IOUs
State Controller John Chiang said Tuesday that without a state budget, California's government would be unable to pay its bills in late August (or maybe early September). That means issuing IOUs to some people.
Debts Rise, and Go Unpaid, as Bust Erodes Home Equity
The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.
Economists Cut U.S. Growth Forecasts as Firms Limit Hiring
Gross domestic product will expand at an average 2.55 percent annual rate in the last six months of 2010, according to the median of 67 estimates in a survey taken July 31 to Aug. 9, down from the 2.8 percent pace projected last month.
Science Stimulus Funds Called Wasteful
Funding for a range of other studies on substance abuse and public health has raised eyebrows, including research into whether female college students are more likely to engage in casual sex after drinking alcohol, the reasons why young men don't use condoms correctly, how methamphetamine enhances the motivation for female rats' sexual behavior and "obesity and psychosocial adjustment during adolescence."
Market Drop Signals Fears About Global Recovery
...after downward revisions to other economic data like inventories and the export figures, even that 2.4 percent annual rate is now looking too rosy — and may even be as low as 1 percent, some economists say.
Markets Swoon on Fears
Stocks Pummeled on Signs of Global Slowdown; Money Flees to Dollar and Yen.
Analysts Detail Tax Cuts’ Deficit Implications
New data from the nonpartisan Joint Committee on Taxation show that households earning more than $1 million a year would reap nearly $31 billion in tax breaks under the GOP plan in 2011, for an average tax cut per household of about $100,000.
2010s a 'lost decade,' or temporary funk?
Economic outlook divides Fed.
Support for Broadband Loses Speed as Nationwide Growth Slows
The center said 53 percent of those surveyed felt that the government's programs for broadband access should not be attempted or were "not too important" a priority, and those who felt most strongly were older than 50 and skeptical that they would benefit from the Internet.
GM Posts $1.33 Billion Profit, Prepares for Public Offering
It was the second straight quarterly profit for GM, which made $865 million in the first quarter.
Foreclosures rise in July
They're up 3.6% from the month before but down 9.7% from 12 months earlier.
Will 'tax the rich' save the economy?
Higher taxes on the nation's top wage earners could give a needed jolt to the struggling U.S. economy. Or it could be the tipping point that topples the nation back into recession.
Is this finally the economic collapse?
With 40.8 million Americans on food stamps and 45% of the unemployed having been seeking employment for 27 weeks or more what's left if QE2 doesn't kick start GDP growth?
The preventative medicine problem: nobody wants it
The health care system in America has been set up, thanks to decades of government and private sector incentives, to be all about treatment, not prevention.
Foreign economies aided by bailout, didn't help U.S.
The $700 billion bank bailout program helped rescue overseas economies, but international bailout programs did little to help the United States in return.

Secondary Sources: Deflation, Fed and Inflation, Fannie and Freddie
A roundup of economic news from around the Web.
A Challenge to Extreme Keynesians
Most economists, Keynesians and otherwise, ignore this summer change in employment because we focus on seasonally adjusted data. But as Casey points out, the raw unadjusted data may have something important to teach us.
Consumer Spending Slows in July
MasterCard Advisors’ SpendingPulse, a unit of MasterCard Worldwide, said Thursday that retail sales, excluding auto, fell in July by a seasonally adjusted 0.9% from June, but grew by 1.4% over a year earlier.
Why is there a boom in temporary hiring?
"The only obvious culprits here are a) higher required wages and healthcare costs (minimum wage, housing interventions and Obamacare are prime candidates here) and b) general lack of confidence in the economy and policy (the political climate in general is the prime candidate here)."
Policy is the Problem
Epistemological issues aside, as Tyler Cowen points to today, the fact is that temporary hiring has experienced a boom, while private sector permanent hiring is lagging behind. This is a strong indicator that the policies have created regime uncertainty which has clouded the investment horizon.
Mortgage Modifications Aren't Working So Well
That means that even post-modification, there are a lot of people who cannot afford their debt loads.
When Only Certain Jobs Count
...apparently some jobs are created more equal than others. While America’s schools continue to collapse thanks to ideologically rigid teachers’ unions, they can nonetheless count on more taxpayer handouts.
The End of Retirement as We Know It
Mathematically, society simply cannot have a high and growing dependency ratio--at least, not if the retirees expect to be supported in the style to which they have become accustomed.
The Great Recession and the Specificity of Labor
Rather than a more complex, wealthier economy having greater dampening effects on the volatility of cycles, it may well be the case that an economy with a greater division of labor and specialization, and therefore more heterogeneous human and physical capital will actually suffer larger booms and longer and deeper busts from the same bout of inflation than would simpler economies.
Strange Question from Ed Glaeser
It seems to me that if you look at the ratio of median house prices to median incomes, you learn something. That ratio rose significantly, particularly in California.
The Dodd-Frank Bailout is Already Here
The Dodd-Frank “no more taxpayer-funded bailouts forever” bill is not even a month old, and already President Obama is using it to turn your tax dollars into yet another bailout.
The Private Sector Can’t Keep Bailing Out the Public Sector
The public sector has been thriving at the expense of the private sector. So how much longer can the private sector continue to bail out the public sector?
Can You Call it ‘Social Security’ if it’s Built on Nothing but Monopoly Money?
Social Security faces the serious danger of failing to live up to its name due to its unfunded obligations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act: The Triumph of Crony Capitalism
The revolving door between Washington and Wall Street allows people attracted to power and skeptical of free markets to dominate economic policy for their benefit.
Why Sellers, Not Buyers, Are Now the Urgent Players
Among other reasons, lousy sentiment data and the ghastly financial sector make the probability of profitability appear to favor the bears.

Research, Reports & Studies
RCM: Wells Fargo Economics Group: Budget Deficit Narrowed in July—Challenges Remain
At -$165.0B for the month of July, the deficit is on pace to notch a near-record reading of -$1.3T in fiscal year 2010. Marginal improvement over 2009 stems from higher corporate profits and less emergency spending.
The Trade Performance of Asian Economies During and Following the 2008 Financial Crisis
In September and October 2008, the world experienced the onset of a major Financial Crisis. Although the worldwide crisis seemingly originated in the United States, its effects were felt by all economies around the world. This paper compares the trade performance of the major Asian economies both during and following the 2008 financial crisis.
2010 Social Security Trustees Report: Reform Needed Now
The 2010 annual report by the Social Security trustees has been released. It comes as no surprise that the Trustees Report predicts massive—and permanent— yearly deficits if the Social Security system is not reformed.
The President’s Worrisome Narrative to Discourage Homeownership
There is much evidence to indicate that many of the costly efforts by the federal government to promote housing and homeownership were at best ineffective and at worst contributed to a serious recession

Economists’ Comments & Opinions
Washington vs. Paul Ryan
What happens when a politician is more honest than his critics.
Say Goodbye to Fannie and Freddie
A practical approach would be to set a gradually rising schedule of fees, motivating private companies to enter the securitization business.
Wall Street Plays Uncle Sam Like A Fiddle In Matters Of Finance
Congress does the bidding of some of its biggest patrons, the titans of Wall Street. Don't expect real reform.
Congress Decides to Help Its Own
Although private sector employment has declined by 7.8 million since December 2007, on Tuesday President Obama signed into law the Education Jobs and Medicaid Assistance Act, a bill that would spend $10 billion on state and local government workers and $16 billion on state Medicaid payments.
The Great Stock Myth
Why the market’s rate of return—and your nest egg—may never recover.
Memo to Alan Greenspan: Keep Quiet
If cutting taxes leaves less money for government programs, the answer is simple: Ax the programs!
The true costs of very low interest rates
Hayek observed that interest rate stimulus interfered with economic calculations, causing managers to invest in projects that would not otherwise have appeared profitable.
Europe Jumps Off the Keynesian Bus
The economy is looking bright in Britain and Germany after those governments announced plans to reduce spending.
Debt and growth revisited
With the advanced economies at a critical juncture, some economists are urging more fiscal stimulus while others argue that raising debt levels will stunt growth. This column presents the Reinhart-Rogoff findings on the relationship between debt and growth based on data from 44 countries over 200 years with a focus on the debt-growth link during high-debt episodes.
Did the Stimulus Stimulate?
Since the beginning of the recession, the number of unemployed has increased by more than 8 million people. For $800 billion, we could have handed every one of these people a check for $100,000.
When Keynesians Attack
So, it is rather silly to say the recession was caused by tax cuts and the recovery was triggered by tax increases.
Green Protectionism
Western policy makers know it is against established trade law to block imports for protectionist purposes; no trade court would allow it. So they have shifted strategy. Welcome to the world of “green protectionism.”

Graph of the Day
Shadow economies have grown since the financial crisis began
See: Lower Rates, Higher Revenues

Book Excerpts
"Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other. If government spending is financed by borrowing from the commercial banks, it means credit expansion and inflation. If in the course of such an inflation the rise in commodity prices exceeds the rise in nominal wage rates, unemployment will drop. But what makes unemployment shrink is precisely the fact that real wage rates are falling." –Ludwig von Mises, Socialism: An Economic and Sociological Analysis (1922)

Did You Know
The UN is considering strategies to cut levels of meat consumption worldwide as part of its commitment to stamp out famine and cut global warming. The UN claims livestock, such as cows and pigs, require too much space and fodder to be an energy-efficient source of food for the everexpanding population. Ultimately, it argues, there’s simply not enough land for us all to eat roast beef. So, the UN Food & Agriculture Organisation is urging people to try other alternatives, including insects. The UN reports that ‘as a food source, insects are highly nutritious’, and they require a mere fraction of the resources to rear, pound for pound, as more conventional meats.