Tuesday, May 3, 2011

General Economics

News                                                                                                                             
Bloomberg | Oil Drops on Economic Growth Concern as Bin Laden Death Boosts Volatility
Crude, which touched a 2 1/2-year high yesterday, fell as much as 1.4 percent after the Institute for Supply Management’s manufacturing index declined to the lowest in four months. U.S. crude stockpiles rose last week from the highest since November, according to a Bloomberg News survey before an Energy Department report tomorrow. Oil options volatility increased after news of the al-Qaeda leader’s death.

Econ Comments                                                                                                             
AEI | Risk-Retention in the Dodd-Frank Act
The risk-retention requirements of the Dodd-Frank Act (DFA) were enacted in the belief that they would improve the quality and reduce the risk of securitized mortgages by requiring securitizers to have ―skin in the game.  The general rule is that unless all mortgages in a securitized pool meet certain minimum quality standards, the securitizer must retain at least a 5 percent interest in the pool—an interest that cannot be hedged or insured. However, now that the bank and securities regulators have filled in some of the details in a recent notice of proposed rule making (NPR), it has become clear that the risk-retention idea will not achieve what was intended.
Bloomberg | Housing’s Good News Is Federal Cash Shortage: Caroline Baum
There are a couple of reasons to think that, without intervention, the housing market would have “cleared” by now, and that buyers would be attracted by falling prices rather than taxpayer dollars.
CNN: Money | Commodities quickly return to normal: Up
Traders who thought bin Laden's death would reverse the months-long rally in oil and gold were sorely disappointed by the end of the day. Commodities markets didn't let emotions run the show for long.
Investors | Just Let The Economy Recover
Like most of the mistakes being made in Washington today, this dogmatic faith in government spending is something that has been tried before — and failed before.
RCM | Joseph Stiglitz's 1% Fallacy, and Why We Can't Trust 99% of Economists
To begin, Stiglitz makes the tired argument that over the last 25 years the rich have grown richer, of course it's what he left out that really informs such a discussion.
AEI | The FDIC and Unintended Consequences of Dodd-Frank
The Dodd-Frank Act required the FDIC to change how it assesses banks for deposit insurance.  FDIC’s final rule implementing that mandate went into effect on April 1, 2011.   The FDIC now charges a risk-fee based upon an institution’s net assets rather than on domestic deposits.  The new fee has triggered market and institutional responses that create incentives for institutions to engage in regulatory avoidance, increase the likely cost of credit to borrowers and affects the efficacy of monetary policy.
Minyanville | State of the Housing Market, May 2011
It's Groundhog Day for real estate and it looks like the market is seeing its shadow again.

Blogs                                                                                                                             
Cato@Liberty | U.S. Sugar Program Means Higher Prices and Short Supplies
Advocates of the U.S. sugar program like to claim they are protecting our “food security.” It turns out that trade barriers deliver higher prices for consumers while making our food supplies LESS secure.
WSJ: Real Time Economics | Secondary Sources: CFOs Crude Worries, Government Welfare Spending, Fed
A roundup of economic news from around the Web
WSJ: Real Time Economics | Economists React to Bin Laden Killing: ‘John Wayne’ Back in the Saddle?
Economists and others weigh in on the killing of Osama bin Laden by U.S. forces.

Reports                                                                                                                         
AEI | Why China Overheats
Despite efforts to rein it in, China's inflation rate has reached a point where it is sparking social unrest. Chinese premier Wen Jiabao's recent comment that inflation is a tiger that "once set free is very difficult to put back in its cage" aptly characterizes the current inflation in his country. The world's second-largest economy faces some fundamental choices if it is to restore stability.

Taxes

News                                                                                                                             
CNN Money | California nightmare: Spending cuts vs. tax extension
To help close the $26.6 billion budget shortfall the state is facing, Governor Jerry Brown wants to let residents vote on extending a tax hike in effect since 2009.
NYTimes via CNBC | US Business Has High Tax Rates but Pays Less
...by taking advantage of myriad breaks and loopholes that other countries generally do not offer, United States corporations pay only slightly more on average than their counterparts in other industrial countries.

Health Care

News                                                                                                                             National Journal | White House Threatens Veto of Republican Health Initiatives
President Obama threatened on Monday to fight or veto three moves afoot in the House to hobble the health care reform law: one that aims to prevent the use of federal dollars to pay for abortions, one that takes money away from new health insurance exchanges, and a third that would expand school health clinics.
NYT | Rule Would Discourage States’ Cutting Medicaid Payments to Providers
In a new effort to increase access to health care for poor people, the Obama administration is proposing a rule that would make it much more difficult for states to cut Medicaid payments to doctors and hospitals.
National Journal | Debate Over Migrant Workers Arises in Vermont Health Care Bill
Vermont is on a fast track to becoming the first state to have a single-payer health care system. Both chambers of the Legislature have passed universal health care bills and a conference committee is hashing out differences in amendments before a final measure is sent to Democratic Gov. Peter Shumlin.
Politico | States turn to work-arounds on health insurance exchanges
The health care reform law requires every state to have an online insurance marketplace, called an exchange, by 2014. If states do not have the framework in place for an exchange by 2013, the Department of Health and Human Services will come into the state and do the job itself.

Blogs                                                                                                                             
Heritage Foundation | Another Good Swing At Defunding Obamacare—But Not A Hit
The bill scheduled for a vote, HR 1213, would repeal the automatic funding that Obamacare provides for federally-dictated insurance exchanges, the mechanisms to sell the re-fashioned and federally-approved insurance policies. 
Heritage Foundation | The Free Market Works for Health Care
Advocates of big-government health care have ruthlessly attacked Representative Paul Ryan’s (R–WI) proposal to reform Medicare, which would give seniors a contribution to apply to the health plan of their choice. Under this “premium support” system, insurers would compete in newly created Medicare exchanges and would face pressure to offer high-value coverage at the best price possible.

Monetary

News                                                                                                                             
WSJ | Euro-Zone Data Underline Inflation Risk
Factory-gate prices in the euro zone posted their sharpest annual gain for two-and-a-half years in March, putting more pressure on the European Central Bank to tighten monetary policy further, official data showed Tuesday.
Bloomberg | Treasury 10-Year Yields Reach Six-Week Low as Fed Buys, Economy Pace Slows
Six-month rates dropped to a record yesterday as demand for shorter-dated securities was boosted by the reduction in sales and speculation the Federal Reserve will keep monetary stimulus. Threats of reprisals for the death of al-Qaeda’s leader buoyed longer-maturity Treasuries yesterday on demand for safety. The Central Intelligence Agency must stay “vigilant,” said Director Leon Panetta, who oversaw the mission.
Market Watch | Banks willingness to lend at 17-year high: Fed
Banks are more willing to make loans to consumers than anytime in the last 17 years, according to a survey released by the Federal Reserve on Monday.
WSJ | OECD Inflation Rate Rises
Figures released by the Organization for Economic Cooperation and Development on Tuesday showed consumer prices in its 33 members rose by 2.7% in the 12 months to March, having risen by 2.4% in the 12 months to February.
Bloomberg | http://www.bloomberg.com/news/2011-05-02/asia-seeks-to-diversify-record-reserves-as-u-s-dollar-declines.html
Ten Southeast Asian nations, along with China, Japan and South Korea, plan to discuss an infrastructure fund to boost investment in roads, ports and utilities at a meeting of finance officials that started today in Hanoi. Policy makers have agreed to look for “new avenues” for reserves, the Philippine central bank chief said last month, urging greater use of China’s yuan.

Econ Comments                                                                                                             
Minyanville | Outcome of Fed's Measures Won't Be Inflation or Deflation, but "Stankflation"
That is, inflation in the things average Americans need, like food and energy, coupled with prolonged and pronounced deflation in the value of their homes and their real wages.
Bloomberg | Low Fed Policy Rates Pose ‘Immediate Threat,’ Pimco’s Gross Says
A fed funds target rate at virtually zero poses an “immediate threat” to bond holders facing rising inflation and negative real yields, said Pacific Investment Management Co.’s Bill Gross in his monthly investment outlook.
Market Watch | The Fed’s impossible dream
Keeping both inflation and unemployment low is extremely difficult — if not impossible.
Bloomberg | Bond Vigilantes Ignore Next Stage of Euro Mess: Matthew Lynn
“It won’t be long before bond investors turn to France after they have finished with Portugal and Spain,” Xavier Rolet, the chief executive officer of London Stock Exchange Group Plc, told the Independent newspaper in December.
Minyanville | Five Things You Need to Know: How to Manage Competing Waves of Inflation and Deflation
While monetary growth is increasing, the real economy remains highly leveraged to real estate, debt exchange and high velocity transactions.

Blogs                                                                                                                             
The Economist: Free exchange | The commodity-price speed limit
I'm actually fairly optimistic about the global economy's ability to grow over the long-term despite slowing growth rates in the supply of various commodities. It's the medium-term that's likely to prove difficult.
Forbes | The Fed Undermines Trust In the Dollar
Bernanke certainly provided the world with a clear explanation of the Fed’s policies. But he lost his “All In” bet that a clear explanation would increase trust in the Fed’s ability to stabilize the value of the dollar.

Budget

News                                                                                                                             
CNN Money | Treasury extends debt ceiling window to Aug. 2
In a letter to Congress, [Geithner] also said that he now estimates he can keep the country out of default until Aug. 2, three weeks later than he estimated last month.

Econ Comments                                                                                                             
Reuters | Analysis: EU sharpens knives for zero-sum budget battle
The knives are out for the European Union's budget even before the bloc's executive presents its proposals in June for the next long-term financial plan, with anti-European populism on the rise in many countries.
Bloomberg | Chastity Belt Needed to Keep U.S. Budget Pure: Amity Shlaes
Gramm-Rudman or something like it. That’s the consoling phrase I keep hearing as lawmakers talk about implementing an automatic control on government spending in the style of the 1985 Gramm-Rudman plan.
Reason Foundation | Cutting the Debt Is Important to 96 Percent of Americans and 74 Percent Want a Government Spending Cap
As the federal government rapidly approaches the $14.3 trillion debt ceiling, 96 percent of Americans say it is important to reduce the national debt, according to a new Reason Foundation-Rupe poll.

Blogs                                                                                                                             
WSJ: Real Time Economics | U.S. to Take ‘Extraordinary’ Steps as It Nears Debt Ceiling
Further measures would follow May 16. Geithner said he would declare a debt issuance suspension period for the Civil Service Retirement and Disability Fund, which would permit the Treasury to redeem existing Treasurys and suspend issuing new ones.

Employment

Blogs                                                                                                                             
The Economist: Free Exchange | Black and jobless in America
In the chart above, one sees the obvious impact of the recession, and it should be clear that in the absence of strong economic growth, serious unemployment problems will persist at all levels of educational attainment but especially among the economy's low-skilled workers.
Forbes: New Geographer | The Best Cities For Jobs
Between 2009 and 2010, only 13 of 397 metropolitan areas experienced any growth at all.