6/21/10 Post

BUZZ: U.S. Gold Rises to a Record on Buying From Investors Seeking to Protect Wealth

News
US manufacturing crown slips
The US remained the world’s biggest manufacturing nation by output last year, but is poised to relinquish this slot in 2011 to China – thus ending a 110-year run as the number one country in factory production.
Bank failure is 83rd in '10; pace more than double last year's
The 83 closures so far this year is more than double the pace set in all of 2009, which was itself a brisk year for shutdowns.
In Budget Crisis, States Take Aim at Pension Costs
But there is a catch: Nearly all of the cuts so far apply only to workers not yet hired.
Fannie and Freddie tab is $146B and rising
The Congressional Budget Office has predicted that the final bill could reach $389 billion.
Bureaucracy frustrates U.S. Gulf oil spill efforts
Those on the front lines of the U.S. Gulf Coast oil spill say they are forced to fight two battles -- one against the crude washing into lush wetlands and another against needless bureaucracy.
States See Growth in Jobs
The sluggish U.S. jobs recovery is inching beyond the industrial South and Midwest, and is spreading toward the service-heavy economies of the two coasts, in a sign of hope for a labor force hit by the worst recession in generations.
Wall Street reform comes down to the wire
With one week down and one week to go on negotiations melding the two Wall Street reform bills, lawmakers have a lot of tough decisions ahead.
Big Sis: Internet Monitoring Needed to Fight Homegrown Terrorism
Napolitano said it is wrong to believe that if security is embraced, liberty is sacrificed.
Is the Fed out of bullets?
Economists are more nervous about the chances of another recession. And one of biggest fears is that the Federal Reserve may have run out of bullets to fight another downturn.
Doc's win on Medicare too late to stop 21% cut
The Senate passed a bill Friday rescinding a 21% cut and adding a 2.2% increase for Medicare payments. The bill was passed by unanimous consent after lawmakers found a way to pay for the boost without raising the budget deficit.

Blogs
Economists React to Yuan News
Here are some initial reactions from China economists to the Chinese central bank’s statement vowing to make the yuan’s exchange rate more flexible.
Weekly Summary and a Look Ahead
Two key housing reports will be released this week: existing home sales on Tuesday, and new home sales on Wednesday.
Dead On Arrival: Financial Reform Fails
Welcome to the next global credit cycle – with too big to fail banks at center stage.
From the AER
It seems as though empirical work without the "con" of econometrics is in. Theorem-proving and low-credibility multiple regression is out.
Adam Levitin on Interchange Price Controls
...the problem with this argument is that it only looks at half of the market.
Response from Brad DeLong on fiscal policy
I believe the "zero bound" is perhaps the single largest "red herring" in the economics profession today.
Housing Starts and the Unemployment Rate
Usually housing starts and residential construction employment lead the economy out of a recession, but not this time because of the huge overhang of existing housing units.
Markets For Everything: North Korean Edition
It turns out that the people in red who were cheering for North Korea in their soccer game against Brazil weren't North Koreans at all, but Chinese actors.
CoreLogic: House Prices increase 0.8% in April
National home prices increased in April, the second consecutive monthly increase.

Research, Reports & Studies
The Case for Auditing the Fed Is Obvious
The profit or loss of the Fed’s investments would provide a very helpful indicator of whether the Fed’s actions served the economy as a whole or merely transferred wealth from ordinary taxpayers to bank shareholders.
Corporate Tax Incidence: Review of General Equilibrium Estimates and Analysis
The analysis identifies the major drivers of the results from open-economy models and compares estimates from four major studies that have examined corporate tax incidence in an open economy.
Crisis Economics
As Milton Friedman once put it: "The role of the economist in discussions of public policy seems to me to be to prescribe what should be done in light of what can be done, politics aside, and not to predict what is ‘politically feasible' and then to recommend it."
The Hudson Institute Weekly Economic Report
Housing starts are down, initial unemployment insurance claims are up, and some price indices show deflation.
Wells Fargo Economics Group: Weekly Economic & Financial Commentary
Production seems to be running ahead of demand...
Looking Ahead to Economic Reports This Week
Data will include existing home sales for May (Tuesday); new-home sales for May (Wednesday); durable goods orders for May and weekly jobless claims (Thursday); and the Reuters/University of Michigan consumer confidence index for June and the revised first-quarter gross domestic product (Friday).
Sales Taxation of Business Purchases: A Tax Policy Distortion
One might think that the prevalence of the sales tax would be good news for citizens and economists who support efficient taxation. But such a tax raises relatively few efficiency problems.

Graphic of the Day
See also: Jobs may rebound in 2010

Economists’ Comments & Opinions
New Bank Taxes Under Financial Reform Will Raise Borrowing Costs, Hurt Growth
The beleaguered American taxpayer deserves a break. The housing-led financial crisis begat trillions of dollars of red ink.
Bad Policy Explains Dow Stuck At 10,000
To many... the Dow’s inability to sustain increases above 10,000 is a replay of a downward market cycle that began in 1966.
Of Brown Pelicans And Black Swans
No one could have ever predicted that a single exploding oil well in the Gulf of Mexico, the Deepwater Horizon, would destroy 50% of oil giant British Petroleum's stock market valuation.
Cutting the Pentagon Budget
The important question is not how much money we spend but whether we spend it effectively and meet our defense needs in the process.

Book Excerpts
"…I ultimately realized the profundity of the difference between the businessman and the bureaucrat. The businessman’s standard of efficacy is a solution to the problem, and the more responsive he is to external reality, the better. The bureaucrat’s standard of efficacy is obedience to the rules and respect for the vested interests of the hierarchy, however unyielding of a solution; response to external reality is often irrelevant. That is why bureaucracies so often produce nothing but wastepaper and destroy the productive institutions they supervise." –Former Treasury Secretary William E. Simon, A Time for Truth (1978)

"Did You Know"
The U.S. shed 2.3 million jobs since February 2009, Obama's first full month in office. Going back to World War II that is by far the worst record for any president in his first 17 months, outpacing the job destruction experienced in the early Bush years by more than 800,000 jobs.

6/17/10 Post

BUZZ: U.S. Debt and the Greece Analogy

FCC Split as It Launches Internet Regulation Effort
What promises to be a contentious debate about government's role in controlling Internet traffic and access.
Consumer Price Drop Squeezes Profits
U.S. consumer prices fell 0.2% last month from April, even as commodity prices from metal to fuel to food remain higher than they were a year ago.
What Crisis? The Euro Zone Adds Estonia
According to economists, the preparation to join the euro zone created some disadvantages for Estonia compared with neighboring countries, which have enjoyed a relative degree of flexibility by hanging on longer to their legacy currencies.
State pension plans in crisis: underfunded by $1 trillion?
According to the Manhattan Institute for Policy Research pension plans for public school teachers, which comprise about half of states' total pension liabilities, were underfunded by $933 billion dollars in fiscal year 2008
House passes bill to increase lending by small banks as Senate defeats GOP jobless aid bill
A $30 billion government fund would be available to community banks to increase lending to small businesses under a bill passed by the House.
Foreclosure crisis hits minorities harder
Of the total homeowners, 17% of Latinos, 11% of African-Americans have lost their homes to foreclosure or are at imminent risk of losing their homes.
Estate tax in limbo
Unless Congress acts, the estate tax will be back next year and no more than $1 million of a person's estate would be exempt from it. That's below the $3.5 million exemption of last year.
Philippine Price Controls Hamper Rise of Generics
The recent embrace of drug-price controls to lower the cost of life-saving medications is creating unexpected problems.
Senators voted against scaled-down Republican package of extended jobless benefits and tax breaks
Thune's proposal would have cut funds for state and local governments to invest in infrastructure, dropped a temporary funding increase to help states pay for Medicaid, and eliminated a proposal to raise taxes on hedge-fund managers.
The euro is still trash
The euro may have enjoyed a slight bounce in the past week against the dollar. But it's still a long way from where it was in late 2009.

Blogs
State Unemployment Rates: Slightly lower in May
Sixteen states and D.C. now have double digit unemployment rates. New Jersey is close.
Regulation Grows Faster than Government Spending
"...the growth in dollar terms over the last ten years is more than double that of any previous decade."
Paul Samuelson Misread Hayek
Samuelson was mistaken to say that their socialism is of the sort that Hayek believed paved the road to serfdom. Those countries have reasonably free trade, only light regulation of capital markets and business, and strong private property rights. In short, all Scandinavia retains what for Hayek was the most significant protection against serfdom: competitive economies.
Zingales Joins the Swamp
Even if you think that the IMF truly would do the best job of resolving international bank failures, does anyone believe that there would be no further expansion of world-government power once this precedent has been set?
European Bond Spreads continue to widen
Greece is up to 668 bps, Ireland 290 bps, Portugal 293 bps, and Spain 211 bps. Oh, and Hungary is up sharply to 495 bps.
Drudge and Huffington Post Push the “Internet BS Switch”
Suddenly the Internet is full of chatter about Senator Lieberman (and Collins and Carper) proposing an “Internet kill switch.” It’s the one issue that Huffington Post and Drudge have agreed on in months: there’s a kill switch coming and they don’t like it.
Bruce Bartlett on Debt Default
On the prospect of U.S. government default on its debt...
Hail Interfluidity!
…we should expect a lot more austerity theater than actual austerity, for better and for worse.

Research, Reports & Studies
Oil, Automobiles, and the U.S. Economy: How Much have Things Really Changed?
…the effects of oil shocks on the mix of vehicle sold and on capacity utilization appear to have been proportional in recent decades to the effects observed in the 1970s.
Lugar’s Energy and Climate Plan: More Big Government, Less Consumer Choice
The bill does not contain a cap-and-trade or carbon pricing provision; however, it does include a host of mandates and regulations that would hurt the consumer.

"Did You Know"
Nevada passes Michigan for the level of unemployment; the State’s unemployment rate climbed to 14% in May, the highest in the state since 1976. It is now the highest in the country.

Graphic of the Day
After the recession ends, trillion-dollar deficits will persist
See also: The Post-Housing Tax Credit Slump Begins

Economists’ Comments & Opinions
Another Myth: Gov't Can Cure Economy's Ills
While the market produced a peak unemployment rate of 9% — briefly — after the stock market crash of 1929, unemployment shot up after massive federal interventions in the economy.
Durbin's antitrust fantasies
Instead of engaging in a serious economic analysis of interchange fees... the Durbin amendment is based on the simple-minded epithet of "duopoly" with no understanding of the past 30 years of antitrust economics. In the end, it will be consumers who will pay for this ignorance.
Obama’s actions prevent timely clean-up by U.S. allies
…even the staunchest supporters of the Jones Act are now distancing themselves from refusals to accept foreign help…
$7-a-gallon gas?
That's a Harvard University study's estimate of the per-gallon price of the president's global-warming agenda.
Financial Reforms Threaten Innovative Lending Option
The P2P business grew as the availability of traditional credit tightened during the recession.
Reality of America’s fiscal mess starting to bite
A report from the US Center on Budget and Policy Priorities issued last month estimates that in fiscal 2010 the US states collectively posted a $200bn-odd budget shortfall, equivalent to 30 per cent of all state budgets.

Bank bailouts: Institutionalizing debt overhang. –Garrett Jones, Twitter

Book Excerpts
"A mere enumeration of government activity is evidence -- often the sole evidence offered -- of "inadequate" nongovernment institutions, whose "inability" to cope with problems "obviously" required state intervention. Government is depicted as acting not in response to its own political incentives and constraints but because it is compelled to do so by concern for the public interest: it "cannot keep its hands off" when so "much is at stake," when emergency "compels" it to supersede other decision making processes. Such a tableau simple ignores the possibility that there are political incentives for the production and distribution of "emergencies" to justify expansions of power as well as to use episodic emergencies as a reason for creating enduring government institutions." –Thomas Sowell, Knowledge and Decisions

6/17/10 Post

BUZZ: Fed up Americans want to take scissors to the federal budget

News
The End Is Near For Free Checking
Banks say they stand to lose billions of dollars in revenue from separate new restrictions on credit cards and overdraft transactions announced earlier this year. They could lose even more from legislation winding its way through Congress.
Inflation Tame Amid Continued High Jobless Claims
The elevated level of claims has worried economists. The sluggish pace of their decline may suggest that employers are still reluctant to hire, and are relying on existing workers to help fill demand.
Home Construction Fails to Lift Recovery
Homebuilders are sending a message: They won't be able to contribute much to the economic recovery now that government home-buying incentives have vanished
Start-Ups Get Free Chance to Pitch to Angel Investors
Start-ups hungry for cash are often expected to pay a fee to pitch to angel investors. But some free services are cropping up to counter the so-called pay-to-pitch model.
New Obama-backed stimulus package fails in Senate vote
A dozen Democrats joined Republicans in voting against a stimulus package that would add $80 billion to the deficit.
More Than 90 Banks Miss TARP Payments
More than 90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government under its main bank bailout program, signaling a rising number of lenders are struggling to meet their obligations.
Va. Gov Sees 2010 Budget Surplus after Money Woes
McDonnell's administration said the state will finish the current fiscal year by month's end in the black if it can collect $1.7 billion in June.
Fed taking steps to beef up oversight to prevent replay of recent financial crisis
"Regulatory agencies must thus supervise financial institutions and critical infrastructures with an eye toward overall financial stability as well as the safety and soundness of each individual institution and system," Bernanke said.
Current account deficit rises in first quarter to $109 billion
The 8% increase in the first quarter deficit marked the third straight quarterly increase in the deficit, which now stands at the highest point since the final three months of 2008.
Consumer prices dip for second straight month
CPI dropped 0.2% in May, following a 0.1% dip in April. Less expensive energy bills were the main factor pulling down prices.

Blogs
Interch-ch-ch-changes
If regulatory measures push down interchange fees, …it may also mean that the least affluent credit card holders have to start paying annual fees again (or won't get cards at all) because interchange revenues no longer cover the cost of providing the card.
Do you know your broadband speed? Do you care?
…shame on anyone who tries to use my willful ignorance as an excuse for some new policy initiative.
The final tally isn’t in yet
…the final bill for the TARP bailout might not be the $50 to $100 billion that Alan Blinder mentions.
An initial double-dip indicator
The number to focus on as an indicator for the shape of the US recovery, Wells’ chief investment strategist Jim Paulsen says, is not the monthly payroll figure, but initial unemployment insurance claims, reported every Thursday.
Rajan and Reinhart
Raghu Rajan spoke at Cato about his new book, Fault Lines. One of the discussants was Carmen Reinhart, of Reinhart and Rogoff fame.
Jeffrey Sachs and the Keynesian Conundrum
Either Keynesians must come up with a better theory of when the Keynesian moment is over or they must follow Keynes himself and advocate the permanent state or quasi-state stabilization of investment. Of course, we need not accept the basic Keynesian framework. That would be best.
Philly Fed Index "decreased notably" in June, Employment turned slightly negative
The index has been positive for ten months now, but turned down "notably" in June.
Squam Lake or Swamp?
If you want to prevent bailouts, the issue is not so much the behavior of bankers as it is the behavior of government officials.
Priority-Based Budgeting, or Shoot the Cocker Spaniel
This is just another way of saying that the last increment of any item you spend money on should be the item with the lowest benefit and the highest cost.
Measuring Government Dependency: The Moocher Index
Is there a greater willingness to sign up for income redistribution programs, all other things being equal, from one state to another?
The Austerity Files
…the least likely arguments you will hear addressed.

“Did You Know?”
Arizona is spending $1.25M to save 250 endangered squirrels on rope bridges expected to save five squirrels a year from being road kill. The DOT plans to install 41 of the "canopy tunnel crossings" at a cost of $400,000. Another $160,000 will be spent on cameras to monitor the bridges, and the rest of the money will fund a project to monitor the rodents. That works out to about $5,000 per squirrel.

Graphic of the Day
Weekly Initial Unemployment Claims increase to 472,000
See also: How the World Spends Its Time Online
INTERACTIVE: Map: Where Americans Are Moving

Economists’ Comments & Opinions
The Bad News about ObamaCare Keeps Piling Up
It's obvious many millions will lose the coverage they have.
Deficit Doves v. Budget Hawks—Can America Grow Itself Out of Debt?
…deficit doves focus on the cyclical deficit, which is manageable, and the hawks worry about the structural deficit, which is unsustainable.
The President's Animosities
Since when was the American idea us versus them?
Bailout Nation Will Thrive as Long as AIG Lives
An end to bailouts? We can only dream.
Stop This Horror Before It Starts Again
…many auditors today are salivating at the fees they'll collect from the mammoth, laborious procedures necessary to "evaluate" millions of individual loans.
Vigilantes Out to 'Get' Equity Firms Will String Up Tax Policy
Congress is in a hurry, and when that happens, we should all be nervous about the potential for unintended consequences from rash action.
Monster stimulus brought more debt and fear, not jobs and recovery
…very scary: the increased prospect of massive debt that’s eroding public faith in what’s to come.

Research, Reports & Studies
Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from 2008-09 Global Crisis
We find that the level of reserves in 2007 appears as a consistent and statistically significant leading indicator of the current crisis, in line with conclusions of the earlier literature.
When Central Banks Buy Bonds
Central bank independence is not primarily a matter of reputation, but of reality – what matters is what central banks do, not whether they maintain an appearance of public disdain towards the messy realities of economic life.
Freedom and Exchange in Communist Cuba
Fidel Castro’s socialist revolution promised to satisfy the basic needs of the Cuban people, but the price demanded was the surrender of freedoms. Now that the state is out of money and there are no more rights to exchange for benefits, the demand for freedom is on the rise.

Book Excerpts
“Unfortunately, all that rhetoric about deficits and balanced budgets obscures the real danger that confronts us: the gradual disintegration of our free society… The real issue is the government’s share of the Gross National Product—of the earnings of every productive citizen in this land. That is the issue on which we should concentrate. What does it mean for our way of life? What does it mean for our free enterprise system? What is our free enterprise system? Isn’t free enterprise related to human freedom, to political and social freedom? God Almighty, our forefathers understood that. The millions of immigrants who came to participate in the American dream understood it. When we see this monstrous growth of government, we must realize that it is not a matter of narrow economic issues. What is at stake is equity, social stability in the United States of America.” –Former Treasury Secretary William E. Simon, testifying before the Subcommittee on Democratic Research Organization, A Time for Truth

6/16/10 Post

BUZZ: Debit Amendment Runs Into Buzz Saw of Opposition

News
Stimulus Bond Program Has Unforeseen Costs
Build America Bonds, part of President Obama’s economic stimulus plan, are also building something else: controversy.
A Face-Off over Sale of Spectrum by FCC The federal government has raised billions of dollars from previous wireless auctions. If the new wireless spectrum is set aside for public emergency use without an auction, the government might have difficulty paying for it.
House Passes Tax-Cut for Small-Business Investment
Offsetting tax increases include one raising $5.3 billion over the next decade by limiting taxpayers' ability to avoid gift taxes by setting up grantor retained annuity trusts.
Employers Race for Retiree Funds …some companies worry that the early-retiree fund will be exhausted quickly.
Weak Euro Casts Uneven Benefits Across Bloc The euro zone's trade balance swung to a surplus in April, indicating that a weak euro and strong demand in overseas markets such as the U.S. and China are offsetting strains in trouble spots along Europe's southern fringe.
High Default Rate Seen for Modified Mortgages Fitch Ratings Ltd. forecasts that most borrowers who get lower mortgage payments under a federal government program will default within 12 months.
Louisiana leaders say drilling ban could be worse than oil spill
As the president attempts to curb the nation’s spewing anger over the oil spill in his national address, leaders and experts in Louisiana say the administration is continuing to strike out.
Euro-Zone Inflation Rises
CPI rose to highest level in 18 months in May
Fannie Mae, Freddie Mac to delist from NYSE
Mortgage finance giants Fannie Mae and Freddie Mac posted combined losses of $93.6 billion in 2009 and another $18.2 billion in the first quarter. They were ordered by their federal regulator to no longer trade their shares on the NYSE.
Wholesale prices drop in May for second straight month as cost of energy and food both decline…prices dropped 0.3% in May following a 0.1% decline in April. Core inflation, excluding energy and food, rose 0.2%.
More families are homeless and on the streets
The economic downturn has likely spurred the surge in homeless families... In 2009 some 170,000 families of 535,000 people needed shelter last year.

Blogs
The Symmetry of the Interchange Debate
The argument over interchange fees has largely focused on the merchants' side of the equation. But this ignores the banks' side of the market, which is just as important for overall consumer welfare.
It's Official: You Won't Be Able to Keep Your Health Insurance Remember when Obama promised that if you like your health insurance, you can keep it? Well, Obama to America: Tough noogies.
Required Repeating: Fiscal Responsibility Is Not a Bad Thing Bottom-line: cut the budget, limit taxes, tie the ruler's hands with respect to monetary policy, and open up the economy for trade from afar as well as near. In short, economic freedom works if only political leaders would give it a chance.
Industrial Production, Capacity Utilization increase in May
Industrial production advanced 1.2% in May after having risen 0.7% in April. Manufacturing output climbed 0.9% last month, its third consecutive monthly gain of about 1%, and was 7.9% above its year-earlier level.
Game Over for Illinois Teachers’ Pensions
Illinois’ Day of Reckoning is imminent and they aren’t alone.
Morning Recommendations
A well-written review and a new metaphor for the economy.
Can We Expect Real Reform from BASEL III?
You can be for or against these interventions, but I find it amazing (though not surprising) that the biggest financial crash in recent history hasn't so much changed the political equilibrium.
Employment and Real GDP, Real GDI
Expect a 2nd half slowdown in GDP growth this year - and the unemployment rate will stay near the current level for some time.
What’s the Fuss about Financial Seismology?
What seems to be missing from the idea of financial seismology is that bad institutions and/or bad policy disconnect the financial system from the feedback mechanisms vital to its survival.
Keeping Up with the Jones Act
The President's continued refusal to request an emergency waiver of one piece of legislation is slowing down the oil spill response.

Research, Reports & Studies
The Roaring Twenties and the Austrian Business Cycle Theory [CH 3]
Could the downturn have been avoided, or was there something about the boom years that destined them to come to an end?
Married Fathers: America’s Greatest Weapon against Child Poverty
The poverty rate in 2008 for single parents with children was 35.6 % Compared to 6.4 % for married couples with children. Being raised in a married family reduces a child’s probability of living in poverty by about 80%.

Economists' Comments & Opinions
Panic and populism will not fix the US deficit…the question is not whether the dollar will retain its haven status, because it will, but how much damage will be done as global investors offer US policymakers the rope with which to hang themselves.
Failing Successfully
I asked Dr. Jones about the fallout from the bailouts of 2008, how to prevent bailouts in future financial crises, and the possibility of speed bankruptcies as an alternative to the current regulatory reform legislation's "resolution authority" that would give federal regulators the ability to take over and wind down financial institutions in crises.
One reason to support fiscal tightening: It lowers relative political price of looser, innovative monetary policy. –Garrett Jones, Twitter

"Did You Know"
Congress will soon consider a $23 billion spending measure for public education. The Obama Administration estimates that another $23 billion in taxpayer money would save between 100,000 and 300,000 public education jobs. If that is the case, then 300,000 education jobs would cost taxpayers $76,000 each; exceeding the average teacher salary by nearly $30,000. If 100,000 jobs were saved, each one would cost taxpayers $230,000.

Book Excepts
“Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends. And whoever has sole control of the means must also determine which ends are to be served, which values are to be rates higher and which lower, in short, what men should believe and strive for.” –F. A. Hayek, The Road to Serfdom

Graphic of the Day

Deficits and debt will rise to unprecedented levels in coming decades without major changes in federal budget policies

See also: Financial Habits of the American Youth

Economic Indicators

6/15/10 Post

News

Targeting Energy Industry Advantages
President Obama has renewed his call to end or change several tax advantages for oil and gas companies in the wake of the oil spill in the Gulf of Mexico. See what Obama proposes in his fiscal 2011 budget.

Is a housing shortage coming?

The nation is simply not building enough homes to keep up with the long-term run rate needed to meet the nation's natural population growth.
Employer health care costs to jump 9% in 2011

Companies that offer health plans will see their costs jump 9% in 2011, and most employees will pay higher deductibles as a result.

Global Demand for U.S. Assets Rises More Than Forecast, Led by U.K., Asia

Net buying of long-term equities, notes and bonds totaled $83 billion in April.
Home builders' index dives after tax break expires
Pessimism among U.S. home builders grew in June after a tax break for home buyers expired. All three components of the index fell in June, and home builders were more discouraged in all four regions of the country
What happens if your state government shuts down?
States are facing the threat of shutdowns because of their financial situation. Governors and lawmakers have been reluctant to make cuts, particularly to education, health and social services, but have also been loath to raise taxes
Dollar Falls on Strong European Manufacturing Data

The dollar fell against the euro and other major currencies Monday as strong manufacturing data from Europe reassured investors
U.S. Data Indicate Slow Growth, Tame Inflation

The U.S. economy continues to expand at a gradual pace and inflation remains tame, data showed Tuesday, an environment that should make the Federal Reserve comfortable with keeping interest rates near zero.

Fed Weighs Growth Risks Officials Keep Fresh Eye on Slowing Inflation, Europe

How the New Wealth Taxes Will Hit You

Each tax signals a radical change in policy.

Giving in on Trading, Bankers Turn to Other Losses
Bankers are now focusing on battles like heading off a prohibition on derivatives trading.

Blogs
Social Security in the Red
Social Security deficits have officially arrived. Social Security tax receipts for the first half of 2010: $346.9 billion; Social Security benefits payments same period: $347.3 billion.
Catching Up & Returned from Europe
Various things that came up while Arnold Kling was traveling…

NAHB Builder Confidence Declines Sharply in June
…any number under 50 indicates that more builders view sales conditions as poor than good.

Fed’s Bullard on the Economy

…comments by St Louis Fed President James Bullard today were a little odd.

Welfare Reform Reduced Drug Use

When the U.S. government overhauled welfare programs in the 1990s the primary goal was to promote work, but a new study suggests reform brought another unexpected benefit: reduced drug use.

Secondary Sources: Rescuing Europe, Double Dip, Inflation vs. Socialism

A roundup of economic news from around the Web.

A Look inside the Fed’s Balance Sheet
Assets on the Fed’s balance sheet contracted a bit in the latest week, falling to $2.314 trillion from $2.318 trillion.

Book Excerpts

“To explain the modern global economy’s bottomless nut bowl, you must explain where the perpetual innovation machine and its increasing returns came from. They were not planned, directed, or ordered. They emerged, evolved, bottom up, from specialization and exchange. The accelerated exchange of ideas and people made possible by technology fueled the accelerating growth of wealth that has characterized the last century. Politicians, capitalists, and officials are flotsam bobbing upriver on the tide of invention.” –Matt Ridley, adapted from his book The Rational Optimist

Economists’ Comments & Opinions
Society needs prudent leaders and risk-taking error-prone followers; we got the opposite. –Nassim Taleb, Twitter
GSEs: $1 Trillion Dumping Ground for Bad Bank Loans
If everything goes precisely wrong, taxpayers are potentially on the hook for another $1 trillion bailout.

Immigration: What Would Reagan Do? The Gipper repeatedly declared that openness to immigration represents a defining aspect of our national identity.

“Did You Know?”
Under TARP, the government provided companies with about $384 billion. The Treasury Department reported last week that $194 billion, or slightly more than half, had been repaid.=150635

Graphic of the Day

The United States has a greater structural deficit than Greece
As expected, housing starts boomed in April as builders began 672,000 new homes.
See also: How Much the Average American Spending on Entertainment
VIDEO: The Job-Killing Impact of Minimum Wage Laws
VIDEO: Dealing with Deflation35

Economic Indicators

6/14/10 Post

BUZZ: “A New Government Agency I Can Support”

News
Wall St Rallies in spite of retail sales dip
US stocks closed higher on the day and on the week on Friday in spite of weaker-than-expected retail sales figures.
Economic News in the Week Ahead
Reports this week will include import prices, producer price index, housing starts, and industrial production and capacity utilization, weekly jobless claims, consumer price index, and leading economic indicators for May; Philadelphia Fed manufacturing index for June.
Treasury Auctions Set for This Week
…on Friday, the rate on the outstanding three-month bill was 0.07%. The rate on the six-month issue was 0.15%, and the rate on the four-week issue was 0.03%.
New Rules on Changes to Benefits
The White House on Monday will issue new rules that strongly discourage employers from cutting health insurance benefits or increasing the costs of coverage to employees…
Democrats Target Corporate Tax Rules
Democrats attacking corporate tax rules they say encourage U.S. multinationals to send jobs overseas.
Number of the Week: Default, Not Thrift, Pares U.S. Debt
122%: U.S. household debt as a share of disposable income
Obama’s State Aid Proposal in Doubt Concern over the nation's mounting debt could snarl the passage of Obama's proposal to provide more aid to state and local governments hit by the economic downturn.
Euro-Zone Industrial Output Surges
The stronger-than-expected outcome goes some way to disguise the weaker performance of those member states struggling with too-large deficits and credit downgrades.
State Plan Makes Fund Both Borrower and Lender…in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.
Obama Presses for Aid to Cities and States
Mr. Obama did not propose to offset the cost of any state aid with savings from other spending cuts or tax increases...
Moody’s Downgrades Greece Ratings to Junk Status
Moody's slashes Greece to 'Ba1' from 'A3'.
Obama calls on Republicans to stop blocking Medicare bill…forestalling a 21% cut doctors receive under Medicare.
Manufacturing surging, but housing will falter
Slack in economy remains huge, keeping inflation at bay.

Blogs
Q1 2010: Mortgage Equity Withdrawal strongly Negative
The following data is calculated from the Fed's Flow of Funds data and the BEA supplement data on single family structure investment.
AUDIO: Clay Shirky on Cognitive Surplus
Shirky talks about social and economic effects of Internet technologies and interrelated effects of social and technological networks.
Peltzman on the Financial Crisis
Peltzman emphasized… that safety and soundness regulation actually got tougher over the past twenty years.
Tax Credit Extension Could Help Tax Cheaters
The danger is that this extension would also give more time to people who are merely pretending they were under contract in April and intend to backdate their documents.
Weekly Summary and a Look Ahead
Two housing related reports will be released this week…
AUDIO: Blakely on Fashion and Intellectual Property Johanna Blakely of the University of Southern California talks with EconTalk host Russ Roberts about the fashion industry and the role of intellectual property.

Research, Reports & Studies
Economics Group: Weekly Financial & Economic Commentary The moderate recovery continues, but is it sustainable? The Hudson Institute Economic Report: June 11, 2010Americans are not confident enough in the recovery to spend. Instead, they are saving in case of further deterioration in their employment or assets.
The Economic Clashes of the Last Hundred Years [CH 1] …following the course of events over the last hundred years, we will examine the connections between major economic policy experiments and the economic ideas on which they were founded.
Discretionary Defense Spending CBO’s Presentation to the National Commission on Fiscal Responsibility and Reform
The Great Trade Collapse of 2008-09: An Inventory Adjustment? With more severe frictions on international transactions, in a downturn, the calibrated model shows a larger decline in output and an even larger decline in international trade, relative to a more standard model without inventories.

Book Excerpts
“…more than 50% of individuals can be wealthier than average. Consider that you have a very small number of very poor people and the rest clustering around the middle class. The mean will be lower than the median. Take a population of 10 people, 9 having a net worth of $30,000 and 1 having a net worth of $1,000. The average net worth is $27,100 and 9 out of 10 people will have above average wealth.” –Nassim Nicholas Taleb, “Almost Everybody Is Above Average,” Fooled by Randomness, 106

“Did You Know?”
The average [New York] state employee earns a whopping $92,332 total compensation for an average workweek of 37.5 hours, according to the Empire Center for New York State Policy (based on figures from the state comptroller’s office).

Economists’ Comments & Opinions
Only confidence can save banks from the dark side “Fear leads to anger, anger leads to hate, hate leads to suffering.” Exactly this process is now under way in the economy, as fear and hatred combine to threaten Europe’s banks, hurting the economy.
Ship of fools
We learned a simple thing this week: that the BP clean-up effort in the Gulf of Mexico is hampered by the Jones Act.
Money Managers May Face New Tax Increase At best, this is a retroactive tax that will discourage investment in an important industry. At worst, it is a job- creation program for global competitors in an industry historically dominated by U.S. firms.
The all-too-real phantom balance sheet
…for countries, at least, there are three balance sheets with which we need to deal in order to assess financial risks accurately. This third might be called the “phantom balance sheet”.
America's Municipal Debt Racket State and local borrowing as a percentage of U.S. GDP has risen to an all-time high of 22% in 2010.
“When most money is bank-created, household and firm net worth drive NGDP growth.” –Garrett Jones, Twitter

Graphic of the Day
A Decade of Growth in the Regulators’ Budget
See also: The Economics of the World Cup
INTERACTIVE: Average Tax Rates on Salaries Up to $1,000,000 [2009]