Tuesday, August 24, 2010

8/24/10 Post

Why Quantitative Easing is Likely to Trigger a Collapse of the U.S. Dollar
A week ago, the Federal Reserve initiated a new program of "quantitative easing" (QE), with the Fed purchasing U.S. Treasury securities and paying for those securities by creating billions of dollars in new monetary base. Treasury bond prices surged on the action. Unfortunately, the unintended side effect of this policy shift is likely to be an abrupt collapse in the foreign exchange value of the U.S. dollar.
Dollar's post-election dive a 'knee-jerk reaction'
Australia’s volatile local currency is taking its cues from offshore again after diving one US cent on Monday over uncertainty about the federal election result.
State tax hikes could go too far
Some U.S. states facing steep budget gaps have resorted to tax policies that could be harmful over the long term.
New Fees Weighed for Mortgage Industry
The Obama administration may propose that any federal backing of mortgages be paid for through fees on the lending industry, according to people familiar with the internal discussions.
Yen soars to 15-year high against dollar
The Japanese yen surged to a fresh 15-year high against the U.S. dollar Tuesday, after the Japanese government failed to say it would take steps to curb the currency's strength amid growing concerns about the pace of the recovery.
John Boehner says Obama economic team should resign
House Republican leader John Boehner on Tuesday called for the resignation of President Barack Obama's embattled economic team, including Treasury Secretary Timothy Geithner and White House economic adviser Larry Summers.
Health Care Law: Paperwork Burden Could be Repealed
The requirement would hit about 38 million businesses, charities and tax-exempt organizations, many of them small businesses already swamped by government paperwork, according to a recent report by the National Taxpayer Advocate, an independent watchdog within the Internal Revenue Service.
Fed divided on Aug decision to buy Treasuries: report
At least seven of the 17 top Federal Reserve officials at the U.S. central bank's August meeting had reservations about the decision to buy more Treasuries.
Greek Banks Pressured to Merge as Economy Hurts Profits
Greek banks are under growing political pressure to merge as second-quarter earnings probably slumped on rising loan losses and worsening asset quality in the debt-burdened country.
Credit card interest rates are through the roof
The average interest rate on existing cards jumped to 14.7% last quarter, up from 13.1% a year earlier.
Taleb's Pessimism Lures CIC
China's Sovereign-Wealth Fund Is in Talks to Invest in Universa's Bearish Wagers.
Bacon prices sizzle. Consumers feel the heat.
Last week, prices of pork bellies -- from which bacon is cut -- jumped to an all-time high of $1.42 a pound. Prices have soared more than 200% from a year ago.
Contentious times for Bernanke and the Fed
Divisions among the 17 key Federal Reserve officials about how to deal with the economic situation reached a peak at their meeting earlier this month.
Stocks retreat following overseas markets lower;
U.S. traders braced for another disappointing report on the housing market later in the day. Overseas markets tumbled.
No fed cash for stem cell research
A federal judge on Monday issued a temporary ban on federal funding for embryonic stem cell research, sidetracking President Barack Obama’s executive order which had expanded federal funding for human stem cell research last year.
Economic Slowdown Is One for the Textbooks
What is occurring is practically a textbook slowdown: The stock market sells off, leading economic indicators roll over, economists mark down their growth forecasts and earnings growth slumps. It is the speed of it all that is remarkable.
What to watch in Tuesday's primaries
Five states — Alaska, Arizona, Florida, Oklahoma and Vermont — go to the polls Tuesday but only three of them can point to primary elections that are being closely monitored by a national audience.
New Ads Urge Democrats to Support Health Care Repeal
Heritage Foundation is hoping to pressure Democrats, who voted against the final health care bill, to sign a discharge petition that would force an up-or-down vote on a repeal of the health care reform law.
Bank Sovereign-Debt Disclosures Get Muddied
A primary goal of Europe's recent "stress" tests of its banks was to illuminate their holdings of potentially risky government-issued debt. But that clarity has been fleeting.

Secondary Sources: Tax Cuts, Americans’ Pessimism, Health Care Costs
A roundup of economic news from around the Web.
A Consensus to Question
Old consensus: we need Freddie and Fannie in order to make housing "affordable." New consensus: we need them in order to "prevent further house price declines," in other words, to make housing less affordable.
Presumptions Matter
According to Paul Krugman, for government not to raise taxes is for government “to cut checks” to persons whose taxes aren’t raised...
Health Insurance Coverage at Small and Large Firms
...we've mined the Kaiser Family Foundation's 2009 Annual Survey of Employer Health Benefits, which breaks the data down by plan type.
A Failure to Tax Is Not a ‘Corrupt’ Government Giveaway
[Krugman] sees individuals’ incomes as government’s to give back, not something they have an implicit right to keep. This column is far less useful for its policy arguments than it is as a window on how Krugman views the world.
Credit Card Interest Rates Much Higher
The spread on credit card interest--the difference between the interest rate on your charges, and the Treasury benchmark rate--is the highest it's been in 22 years.
Krugman's Way-Too-Simple Mode
...there's absolutely no notion of capital or the idea that production takes time here.
Further sentences to ponder, or my Arnold Kling imitation
"63% of the Political Class think the government has the consent of the governed, but only six percent (6%) of those with Mainstream views agree."
Macroeconomic Puzzles
Trying to explain why those $20 bills are left on the sidewalk is what leads one in the direction of Zero Marginal Product and the Recalculation Story.
Federal Bailout of GM Still Horribly Wrong
Our friends at The Economist magazine usually talk good sense about free trade and free markets, which makes their retrospective endorsement of the government bailout of General Motors all the more disappointing.
Public Schools Are Modern Monuments to Profligacy
It’s the hot new public-sector trend; massively expensive K-12 school buildings.
Confused Administration Keeps Pushing Conventional Arms Treaties
No wonder U.S. policy toward these treaties is muddled.
“When Liberalism Doesn’t Work It Discredits Liberalism”
It is far past time for the federal government to stop mucking up the housing market. The government should end the interventions it has made since 2008, starting with abolition of the TARP program.
First Principles and Foreign Policy
The Heritage Foundation believes that the first principles on which the United States was founded must guide its foreign as well as its domestic policy.
Housing Isn't Really Dead
To suggest that real estate as an asset class is gone forever is to grossly misunderstand not only housing, but the nature of human progress itself.
Is Printing Money Really Safe in This Strange Market?
Even if the bond market rally has a little more gas left in the tank, anything being propelled by the promise of freely printed money is becoming suspect.
Why the US Dollar Is Key to How the Markets Unfold
The future of stocks and gold will be determined as the dollar heads into its yearly cycle low.

Research, Reports & Studies
America's Best (and Worst) Cities for School Reform: Attracting Entrepreneurs and Change Agents
Which of thirty major U.S. cities have cultivated a healthy environment for school reform to flourish (and which have not)?
Guessing the Trigger Point for a U.S. Debt Crisis
This paper explores the possibility of the U.S. experiencing a debt crisis in the medium run, meaning somewhere between 2015 and 2035. It is impossible to state precisely the trigger point for a crisis. At best, we can make guesses about some of the key parameters.
New Technologies, Future Weapons: Gene Sequencing and Synthetic Biology
With every technological advancement, comes new national security risks. Without a clear understanding of the actual risks associated with synthetic biology, the U.S. is in danger of responding to fears with overregulation
Make China Account for Its Dismal Human Rights Record
Successive editions of the U.S. Department of State’s annual Country Reports on Human Rights Practices have documented China’s lack of progress in human rights, ranging from continued abuses in Tibet to imprisonment and harsh treatment of political prisoners to a general crackdown on religious groups that are not sanctioned by the government.

Economists’ Comments & Opinions
Virginia Is for Surpluses
Erasing red ink without a tax increase.
Lessons from the Bell, California Fiasco
High government salaries means soaring pension costs that taxpayers cannot afford.
The Politics of Plastic
The war against credit cards is raising costs and harming consumers.
The public workers you support
This stark picture clearly reflects upside-down priorities -- particularly if officials care about boosting the truly productive parts of the economy.
Social Security in 2015: Red Ink Returns for Good
When America’s most successful social welfare program starts to run permanently in the red in 2015, people may start to look at it in a whole new way.
Why Small Businesses Aren’t Hiring
...unless we fix the residential real estate mess, we won’t see small business hiring anytime soon.
Obama Misreads Message of ‘Live Free or Die’: Amity Shlaes
The results of the government experiment are in, courtesy of the states. Double dips are more likely with policies like [Obama's].
The Fed Can Create Money, Not Confidence
Inflation—or stagflation—remains the more serious danger than deflation.
Hyperinflation Is Fiscal, Not Monetary Phenomenon
Too many analysts believe there has to be some economic demand or some consumption to stimulate inflation or hyperinflation.
The Road to Stagflation
The Fed is dealing with underlying problems by papering them over, which will lead to inflation and economic stagnation.
Reagan’s Words Still Speak Volumes Today
“This is the issue of this election: Whether we believe in our capacity for self-government or whether we abandon the American revolution and confess that a little intellectual elite in a far-distant capitol can plan our lives for us better than we can plan them ourselves….A government can’t control the economy without controlling people. And they know when a government sets out to do that, it must use force and coercion to achieve its purpose.”
Beware the light at the end of the tunnel
It's a debt train about to collide with federal obligations.
Social Security Is "Beyond Comprehension"
There is work that has been done in the past where we looked at what people thought their benefit was going to be, relative to what it turned out to be. It showed that even people who were right on the verge of retirement are all over the place in terms of being able to predict the benefit.

A major message of economics is that incentives often don't predict outcomes. We call this 'the invisible hand.' -Garett Jones, Twitter

Graph of the Day
Obama's failed Stimulus Program cost more than the Iraq War
See: Weekly Initial Jobless Claims (SA)
See also: Visa Waiver Program Promotes Travel to the U.S.

Book Excerpts
"I believe it can be demonstrated that many of what are said to be the great problem areas of urban America—housing, transportation, school systems, tax burdens, etc.—are directly traceable to overextension of government's role in human affairs." –Benjamin A. Rogge, Can Capitalism Survive? (1979)

Did You Know
"China is working to unclog the world's longest traffic jam stretching from Beijing to the northern province of Inner Mongolia. This 60 mile backup has resulted in cars and trucks only traveling about 2 miles per day. This traffic jam as also resulted in local entrepreneurs setting up shop on the highway selling food and water."