General Economic News Jan. 17 - 21

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News
FRIDAY
Record $4 Billion Exits Muni Funds
Investors pulled $4 billion out of municipal-bond funds in the week ended Wednesday, setting a new record, Thomson Reuters unit Lipper FMI said Thursday.
Obama's Conundrum: Matching Job Creation and Spending Cuts
President Obama's visit to General Electric's birthplace in Schenectady, New York today comes as part of his 2011 economic push. So far almost everything he has done this year has been focused on the economy, from his editorial in the Wall Street Journal promising to rollback burdensome regulations to hiring a new Chief of Staff, Bill Daley, who has strong ties to the business community.
California Declares Fiscal Emergency
Jerry Brown, California’s governor, declared a state of fiscal emergency on Thursday for the government of the most populous US state to press lawmakers to tackle its $25.4 billion budget gap.
Home sales hit 13-year low; slow recovery ahead
The number of people who bought previously owned homes last year fell to the lowest level in 13 years, and economists say it will be years before the housing market fully recovers.
In N.Y., Obama looks to highlight economic successes
President is announcing GE's Immelt will lead restructured presidential advisory board
Gas prices high - and might get higher
Strong worldwide oil demand and lack of supply are to blame for steadily rising gasoline prices in the United States, an oil industry group said Friday.
The World Economic Forum in Davos: A Changed Global Reality
Given that the scale of the downturn was so epochal, it should not be surprising that the nature of the recovery would likewise be the stuff of history. And it has been.
Rebuilding Haiti's economy
A long-term, sustainable recovery in Haiti can't take place without job creation. Investing in reviving Haiti's garment manufacturing sector holds the promise of providing tens of thousands of Haitians with work.
The Boondoggle That Wouldn't Die?
The New Cost-Cutting Congress May Spend Billions More On A Jet Engine The Pentagon Doesn't Want
Back with a vengeance
Rising commodity prices both reflect and threaten the world’s economic recovery
The consequences of costly nosh
What record food prices mean for business
Financial Crisis Panel to Deliver Three Conclusions
The federal commission that investigated the origins of the financial crisis is set to issue three competing conclusions next week.
Hu Says Strong China-U.S. Ties Are Needed as World has `Tortuous' Recovery
Chinese President Hu Jintao told business executives in Washington that closer ties between his country and the U.S. were critical amid a “tortuous” global economic recovery.
Pouring gas on an economic recovery
The U.S. economy is slowly but surely nursing itself back to health.

THURSDAY
China GDP Expands 9.8% Despite Tightening Measures
China's economy unexpectedly accelerated in the fourth quarter of 2010 despite a series of tightening measures, spotlighting Beijing's difficulties managing growth and fueling market concerns about further government moves to combat inflation.
Administration Split over Fannie-Freddie Strategy
the Obama administration is sorely divided over how to reform Fannie Mae and Freddie Mac, the controversial mortgage giants.  Sources familiar with the discussions raise the possibility that the White House will miss its statutory deadline for submitting recommendations to Congress.
World needs $100 trillion more credit, says World Economic Forum
The world's expected economic growth will have to be supported by an extra $100 trillion (£63 trillion) in credit over the next decade, according to the World Economic Forum.
Brazil central bank raises interest rate to 11.25%
The move, though, adds to upward pressure on Brazil's currency, the real, whose soaring value against the dollar has already become problematic for the country's exporters.
Welfare Tab for Children of Illegal Immigrants Estimated at $600M in L.A. County
Los Angeles County Supervisor Michael Antonovich released new statistics this week showing social spending for those families in his county rose to $53 million in November, putting the county government on track to spend more than $600 million on related costs for the year -- up from $570 million in 2009.
U.S. companies dump billions into China
While U.S. businesses are still reluctant to invest in new plants and jobs in the United States, many are pouring money into China. But not for the reasons you'd think.
December Sales of U.S. Existing Homes Jump to 7-Month High
Purchases of existing houses, which are tabulated when a contract closes, increased 12 percent to a 5.28 million annual rate, the most since May.
Banks say fewer consumer loans are going bad
In an encouraging round of earnings reports, major banks say fewer mortgages are going bad, credit card defaults are down and more people are paying the bills on time.

WEDNESDAY
China 'logs double-digit growth in 2010'
China's economy grew 10.3 percent last year but inflation exceeded the government's full-year target, Hong Kong-based Phoenix Television said on its website Wednesday.
What is Plan B if China dumps its U.S. debt?
When borrowing money it's always good to have a Plan B in case a big creditor pulls the plug. That should be true whether the sum is a few thousand dollars or about a trillion, the size of the United States government's debt to China.
Housing Starts in U.S. Decreased in December to One-Year Low
Builders began work on fewer homes than projected in December, a sign the industry that triggered the recession continued to struggle more than a year into the U.S. economic recovery.
U.S. for sale - Uncle Sam's real estate play
As Washington deficit hawks scour the federal budget for ways to trim the size of government, they are arriving at one idea with increasing frequency: Put government property on the auction block.
Another nasty inflation surprise
The script for 2011 had appeared as simple as it was momentous: would the fiscal squeeze stifle the recovery? That question remains as potent as before but just days into the new year the narrative has now abruptly switched to a rival storyline: just how bad will inflation get?

TUESDAY
States Warned of $2 Trillion Pensions Shortfall
US public pensions face a shortfall of $2,500 billion that will force state and local governments to sell assets and make deep cuts to services, according to the former chairman of New Jersey’s pension fund.
'Explosive' Food Prices the Biggest Risk: Analyst
Overheating emerging markets, in China in particular, pose the biggest threat to the market and political situation in 2011 according to Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.
Food Prices Causing Riots in Africa Stoke Record U.S. Farm Economy Growth
The same record food prices causing riots in Algeria and export bans in India are allowing President Barack Obama to combine the biggest-ever U.S. farm exports with the tamest inflation since the 1960s.
Obama Launches Rule Review, Pledging to Spur Jobs, Growth
President Barack Obama plans a government-wide review of federal regulations, aiming to eliminate rules that stymie economic growth.
Deadlines Missed on Financial-Overhaul Rules
Regulators have missed or postponed several deadlines to write rules needed to implement the financial overhaul triggered by the Dodd- Frank law.
U.K. Plans to Set Minimum Prices for Alcoholic Drinks
Supermarkets including J Sainsbury Plc and Tesco Plc, as well as smaller retailers, pubs and bars in England and Wales, will be banned from selling alcoholic drinks at less their rate of duty plus value-added tax, to help cut binge drinking.
Report: Housing Market Steady in January
The National Association of Home Builders says its housing market index held steady in January, with many builders remaining pessimistic that home sales will improve in the near future.
Canada tightens mortgage rules
Canada imposed new curbs on mortgage lending on Monday amid concern about spiralling consumer debt fuelled by high property prices and low interest rates.

Economist Comments
FRIDAY
European debt crisis: Does Obama get how serious this is?
Europe's debt crisis appears to be getting worse, yet American leadership is absent. How many times will America turn away from Europe only to return to it at great cost?
Spike in world food prices: It's more than bad weather
A global index for food prices, as measured by the UN, reached a record high last month. This on the heels of a food crisis in 2007-08. The weather isn't the only culprit -- or solution.

THURSDAY
Obama isn't fooling anyone
When Obama was in a place of political comfort, the free market was a place of unhinged self-interest, unfairness and misery. Nearly all of our troubles were portrayed as a case of regulatory neglect — and nearly every dilemma was met accordingly.
Obama Approaches Regulations Backwards
After two years of issuing regulations that have exacerbated recession-induced unemployment by discouraging job creation, President Obama has issued an executive order to evaluate whether rules and regulations have benefits that exceed costs. This backwards process-backwards because the benefit-cost calculus should have been applied first-does not inspire confidence.
Taking the Government Out of Housing Finance: Principles for Reforming the Housing Finance Market
Implicit in most of the proposals for reforming the housing finance system is the idea that institutional investors will not buy mortgage backed securities (MBS) backed by US mortgages unless they are issued by a government sponsored enterprise (GSE), a US government agency, or are otherwise guaranteed by the US government. We believe, however, that there is a robust alternative to government support of the housing finance system—a system which in the past has led to large scale taxpayer bailouts and losses.

WEDNESDAY
Gas-fueled vertigo
Rising pump prices are leaving motorists wobbly
Oversight Plan Seen to Lack Specifics
Top federal regulators inched forward in their implementation of the new financial regulatory law, but didn't provide the clarity banks and others are seeking on two critical provisions.
Obama's Rules Revelation

TUESDAY
Why China matters
If China and the United States had Facebook profiles, their relationship statuses would say "it's complicated."
Why the Economy Is Headed for Another Depression
Here, a look at the events that will lead to the next leg down in the secular bear market and the reaction by the Fed that will end up pushing the economy over the edge.

Blogs
FRIDAY
Will Rising Food Prices Kill the Recovery?
If food costs more, will you buy any less? Surprisingly enough, that simple question may be the key to whether 2011 sees a strong rebound in economic growth, or is, instead, a bust.
Is China's bubble close to popping?
A few hedge funds are betting that it is.
China's playing catch-up
China's economy is expanding rapidly, but the West can't emulate that kind of growth.
Can entrepreneurship save Pakistan?
We know that decades of aid haven't worked, writes guest blogger Dane Stangler. So what do we try now?
Costs of living
What is behind rising inflation?
Housing Finance Reform
In order for the buy-and-hold model to come back, a lot more capital would have to come into the banking system, whereas now a lot of that capital is in the shadow banking system. I think that can happen as a natural, evolutionary process. But things could evolve differently from what I expect.
Now it is all about the economy
It seems reasonable to hope that the most interesting arguments in British politics will be about things that matter: how much the state should tax, borrow and spend, how to organise the British economy and welfare system to promote jobs and growth, and how to deliver public services. The dividing lines between the coalition and Labour could not be clearer, and those lines will be defended on both sides by articulate and aggressive champions. Bring it on.
Foot Voting, Political Ignorance, and Constitutional Design
The strengths and weaknesses of federalism have been debated for centuries. But one major possible advantage of building decentralization and limited government into a constitution has been largely ignored in the debate so far: its potential for reducing the costs of widespread political ignorance.
Who's rich?
To get into the top 5%, you need to earn less than $150,000. To me, it's something of a wake-up-call to realise that a couple who make $75,000 each are in the top 5% of American households. I'm curious whether this is surprising to others, too? Would you, like me, have guessed the thresholds were higher? Does this change what you think about who is "rich" in America today?
The Great Reconfiguration
If the chief reason that government takes over health care and education is because it can, that is not an outcome I would wish for.
America's broke recovery
ONE of the ideas for why America's recovery has been relatively slow and jobless refers to the fact that the country experienced a balance-sheet recession. In the years prior to the crisis, households accumulated a lot of debt, which was offset by rising asset prices. Those asset prices then collapsed and many households are now desperately attempting to pay down their debts. Because they're heavily indebted, efforts to spark a recovery by encouraging household spending or residential investments are likely to go nowhere; people are simply too broke.
What If the Largest Countries Had the Biggest Populations?
What if the world were rearranged so that the inhabitants of the country with the largest population would move to the country with the largest area? And the second-largest population would migrate to the second-largest country, and so on?

THURSDAY
Do People Vote With Their Feet for Economic Freedom?
If libertarians value liberty so much, wonders New Zealand-based libertarian economist Eric Crampton, why don’t more of them move to New Zealand?
Complexity, Spontaneous Order, blah, blah, blah…and Wow
So I still feel confident saying that price controls will lead to long lines and are a bad idea, that expropriating private property will decrease investment, and that letting you choose for yourself is usually better than having the Central Authorities tell you what to do.
The crazy housing market
But the point I want to emphasize here is that when we talk about why the housing went crazy between 1997 and 2007, let’s not stick with interest rates, capital flows, and animal spirits. Let’s remember the role of bad economic policy in the housing market and the financial sector.
Krugman Issues a Counter-Challenge to Austrians
Krugman argues that he has already demonstrated the logical and empirical errors in the Austrian Theory of the Business Cycle.  With that assertion firmly made, he then asks: "The point is that the real world looks a lot like the one Keynes and Friedman envisioned, in which the demand side drives the business cycle. Why should anyone be determined to throw away 75 years of economic thought, to believe that these appearances are deceiving?
The Demise of America’s Manufacturing Sector Has Been Greatly Exaggerated
While it is true that the United States has lost more than 7 million manufacturing jobs since the late 1970s, that’s happened at the same time that U.S. manufacturing output has continued to expand and grow to new record levels almost every year. And in comparison to other countries, the United States remains by far the world’s largest manufacturer.
Housing Remains Embattled Sector
Housing may no longer be in the basement, but it is barely crawling up the cellar steps.
Haiti, New York, and learned helplessness
Why are we surprised to hear of Haitians waiting for the state to clean up their island, while snowbound New Yorkers wait for the city to clear theirs?

WEDNESDAY
Obama's Regulation
It’s a relief President Obama, in an Op-Ed in today's Wall Street Journal, acknowledges that the free market is “the greatest force for prosperity the world has ever known.”
Corrupt cronies
What we are living through now is the continuing of the looting process. Get the government out of the banking business. The process is corrupt. The cronies are winning. You and I are losing.
From Katrina to snowmageddon: lessons government should learn
From Katrina to the Christmas blizzard to river floods, the government has botched natural disaster relief management. Here's how to do it right.
Prepayment Penalties Help Risky Borrowers
Recognizing this logic also explains why we don’t often see prepayments in prime mortgages:  prime borrowers are already close to the best credit, so there’s less chance of their credit improving and less room overall for improvement.  Of course, there’s nothing stopping the borrower from waiting for their credit to improve before getting a mortgage.
Number of the Week: Big Banks Gobble Up Market Share
Size has advantages. But in the case of the biggest U.S. banks, it could also be one of the greatest weaknesses in the global financial system.
Barack Obama, Mr. Deregulation?
In today’s much talked-of Wall Street Journal op-ed, President Obama reaches for common ground with critics of excessive government regulation — not a constituency he’s had much time for in the past. He announced an executive order requiring agencies to review existing regulation for outdated or unwise rules deserving of being struck from the books. That drew measured praise from organized business groups, something the President has not had much of lately.
A continuing disgrace
THE British inflation rate was 3.7%, as measured by the consumer prices index in December, and 4.8% on the broader retail prices index. It has been above the government's target range for over a year now; far more than a temporary blip. And inflation is sure to rise again in January, once the value added tax increase is absorbed. Higher food and fuel prices are the current driving force.
India's economy: Headed for trouble?
I've written in the past that India's economy emerged from the Great Recession in better shape than China's, despite its slightly lower growth rate. But now India looks like it's running into choppy times as well, with frighteningly high inflation, big budget and trade deficits and weakening competitiveness versus China and other rivals.

TUESDAY
Another nasty inflation surprise
THE script for 2011 had appeared as simple as it was momentous: would the fiscal squeeze stifle the recovery? That question remains as potent as before but just days into the new year the narrative has now abruptly switched to a rival storyline: just how bad will inflation get?
Through Trade, Millions Tap Into the Talents and Knowledge and Efforts of Each Other
Imagine how much time Mr Thwaites would have spent building his own toaster from scratch were his goal to build a toaster comparable to the one he bought at retail.  (Actually, don’t imagine….  it’s impossible.)
Schedule for Week of January 16th
Three key housing reports will be released this week: January homebuilder confidence on Tuesday, December housing starts on Wednesday, and December existing home sales on Thursday.
What Would Public Choice Theory Say About Rating Agencies and Sovereign Debt?
Particularly since the European sovereign debt crisis put the question of sovereign debt ratings squarely on the table, and even more in the last few days since the rating agencies have downgraded Greek debt to junk status, I have to wonder what insulates Moody’s, Standard & Poors, and Fitch against pressures direct and indirect, subtle and not so subtle, by interested sovereigns.
The Keynesian Diversion
It’s easy to be a Keynesian – most business people are, and swarms of pseudo-economists long before Keynes were saying largely the same thing that Keynes himself said in 1936.  It is, alas, far more difficult to be a real economist.
The Keynesian Diversion II
In short, as Leland Yeager suggests in the passage highlighted here, Keynes’s assumed away most of the adjustments to economic discoordination that actually take place in economies – most of the stuff that are the objects of ‘microeconomic’ analyses.  Keynes was then left – not surprisingly – with deficient aggregate demand as the overwhelming culprit that must be solved.
Sumner and Krugman on zero MP workers
A few points about Scott's and Krugman's posts.
AS vs. PSST, again
The debate is hotting up, as our friends across the pond would say. Some random comments.
Krugman’s Evil Twin
I know the evil twin analogy is hackneyed, but I am at a loss to explain the back-to-back pieces Paul Krugman wrote over this past weekend. 
Productivity, Inventory Recessions, and Recalculations
The most recent two recessions--the Dotcom crash and the securitization crash--were not inventory recessions (we had a housing inventory recession in 2006-2007, but the really big overall economic hit came later). Think of them as financial shocks or recalculations. As a CEO, you worry about your firm surviving, so you focus on the balance sheet. You lay off your overhead workers in order to conserve cash. You try to restructure your organization. Output per worker goes up.
Which Provides More Bang for the Buck: Roads or Light Rail?
Between roads and light rail, which option would you suppose is the most cost effective for moving people into and through the downtown area of a major American city?
A Regulatory Overhaul?
President Obama makes the case for a regulatory overhaul in the Wall Street Journal and announces a new executive order. A couple of thoughts:
Oil shocks and economic recessions
I've just completed a new research paper that surveys the history of the oil industry with a particular focus on the events associated with significant changes in the price of oil. Here I report the paper's summary of oil market disruptions and economic downturns since the Second World War. Every recession (with one exception) was preceded by an increase in oil prices, and every oil market disruption (with one exception) was followed by an economic recession.
What kinds of societies create wealth? What kinds destroy it?
New and free societies create wealth. As they age, they shuffle wealth – and then destroy it.
China fact and sentence of the day
China has lent more money to other developing countries over the past two years than the World Bank, a stark indication of the scale of Beijing’s economic reach and its drive to secure natural resources.
Inflation Is Here
“Faced with rising international food prices,” Steven Mufson writes in the Washington Post, “governments around the world are cooking up measures to protect domestic supplies and keep a lid on prices at home.” Instead of export bans, subsidies, and price controls, governments might better consider the role of their central banks in creating money out of thin air and causing price inflation.
A continuing disgrace
THE British inflation rate was 3.7%, as measured by the consumer prices index in December, and 4.8% on the broader retail prices index. It has been above the government's target range for over a year now; far more than a temporary blip. And inflation is sure to rise again in January, once the value added tax increase is absorbed. Higher food and fuel prices are the current driving force.
Are Record Retail Sales Good For US consumers?
Congratulations. We are now consuming more each month than we did before the start of the recession.

Reports
FRIDAY
A Gain for LEI, but Watch out for the Head-Fake From Permits
The sixth straight monthly gain in the Leading Economic Index (LEI) is consistent with our outlook for continued growth in 2011. However, gains in the LEI may be overstating the strength of the recovery.

THURSDAY
Housing Starts End The Year On A Weak Note
Housing starts fell 4.3 percent in December to a 529,000-unit pace, with single family starts tumbling 9.0 percent. Building permits jumped 16.7 percent, however, reflecting a big jump in apartment construction.

TUESDAY
Key Asian Indicators: A Book of Charts
The global financial crisis has had a major impact on perceptions of American power and its relationships in Asia. Many of the perceptions are not founded on facts. Among the facts often overlooked:
Economics Group
Weekly Economic & Financial Commentary