6/29/10 Post

BUZZ: Finance Bill's Fate Uncertain in Senate

News
Consumer Confidence Tumbles
U.S. consumer confidence dropped sharply in June, as concerns over the sustainability of economic recovery and the outlook for jobs brought one closely watched indicator's three-month streak of consecutive gains to an end.
G20 deficits
The goal is the same, but the paths to deficit reduction are separated by a transatlantic rift.
Dow Slips on Deficit Vow
Investors again favored bonds over stocks, with major stock indexes slumping late in the day due to swirling fears about global growth.
For Sale: Government Tower, Ideal for Business Startup
Facing the prospects of a $1.4 trillion budget deficit for the second year in a row, President Obama has called for a major effort to cull the federal government’s property holdings in search of fresh revenue.
Consumers Stay Tightfisted
Gains in wages and salaries helped lift U.S. personal income 0.4% in May from April, the Commerce Department reported Monday, but consumer spending rose a more muted 0.2%.
Pentagon Looks for $100 Billion in Cost Savings
Defense Secretary Robert Gates said Monday he wants to trim some of the billions of dollars the Pentagon spends on weapons systems and contractor services, part of a Pentagon-wide effort to find $100 billion in savings in the next five years.
BIS Warns Countries About Risks of Debt
The Bank for International Settlements delivered a stern message to central banks and governments that keeping interest rates low for too long, or failing to act quickly to cut budget deficits, could sow the seeds for the next crisis.
Tax Amnesty Programs: Source of Quick Cash for States
To fill their coffers and avoid hiking taxes or enacting new ones, states are flocking to taxpayer amnesty programs, which encourage delinquent taxpayers to pay up in return for escaping penalties and interest, in some cases.
Interest rates keep falling as investor view of economy dims further
A darkening view of the economy sent bond market interest rates to their lowest level in 14 months and kept many investors out of the stock market.
States struggle to balance budgets after Congress refuses to offer more stimulus money
Now, with a new fiscal year just days away in most states, many governors are proposing to make up for the shortfall with tax increases, cuts in essential services and potential layoffs of thousands of public employees.
$5 billion for the uninsured
The Obama administration will dole out $5 billion to states to provide insurance for people who don't have coverage because of pre-existing medical conditions.
Pass the statins
Between 2000 and 2008 health spending per person increased by 4.2% a year on average, according to the latest data from the OECD, a rich countries' club. Average spending over the same period was 8.4% of GDP; last decade the average was 7.3%.
In Ireland, a Picture of the High Cost of Austerity
Wage cuts were easier to impose here because people remembered that leaders moved too slowly to overcome Ireland’s last recession. This time, Mr. Cowen struck accords swiftly with labor unions, which agreed that protests like those in Greece would only delay a recovery.

Blogs
The Euro and Armageddon
Individual debts matter for individuals. Government debts matter for constituents. But what is the significance of aggregate non-government debt of specific geographic territories within a currency union?
Economists React: Sustained Upturn in Confidence Remains Elusive
Economists and others weigh in on the June drop in consumer confidence.
Paul Krugman, Ipse Dixit 2
...we face government created uncertainties in the healthcare markets, the coming bankruptcy of Medicare and Medicaid, difficulties with Social Security as the population ages, state and local governments which have refused to make sensible reforms in the provision of their “vital” services for decades, and so forth. ...And the root of our problems, says Krugman, is the lack of Aggregate Demand.
A Look at Case-Shiller, by Metro Area (June Update)
The S&P/Case-Shiller Composite 20 home price index, a broad gauge of U.S. home prices, posted a 0.8% gain in April from a month earlier and rose 3.8% from 2009, as the expiration of a federal tax credit boosted prices.
Reject All Energy Subsidies, Not Just the Ones for Fossil Fuels Make no mistake, subsidies for fossil fuels are no better than subsidies for wind and solar. You may get more bang for your buck in terms of energy produced, but only in the short term. Subsidies create complacency within the industry and reduce the incentive to innovate
The United States: Deficit Champion
Evidence that the current Administration is taking a different tack on economic policy was abundant at the recent Group of 20, budgets must be cut.

Research, Reports & Studies
Are Free Trade Agreements Contagious?
This paper presents a new model of the domino effect which is used to generate an empirical index of how “contagious” FTAs are with respect to third nations... contagion is present in our data and is robust to various econometric specifications and samples.
Knowing What the Federal Government Owns
With millions of acres and thousands of assets in government portfolios, officials should take steps to identify what they own, determine whether government or private ownership is most effective, and streamline the efficient transfer of all unneeded real property.
Financial Reform in Congress: A Disorderly Failure
The goal of the legislation is clear: to minimize the chances that another financial crisis will occur. Unfortunately, the massive bill on the whole would hurt consumers and the economy, and rather than decrease the chances of another crisis or bailout, it would make them more likely to occur.

Graphic of the Day
State and Local Tax Revenue increased slightly compared to Q1 2009
See: Recession Continues to Depress Revenues
See: Federal Spending Is Growing Faster Than Federal Revenue

Economists’ Comments & Opinions
The End of Community Banking
Creditworthy borrowers will be denied loans as small banks devote more and more energy to regulatory compliance.
The Unemployment Insurance Crisis
As of this summer, unemployment insurance trust funds in 30 states were insolvent.
Prime Numbers:Inflation May Be Ahead Despite Federal Reserve Outlook
If the economists are right, a pickup in inflation next year may well be a greater risk than consumers — and even policymakers — now expect.
Paul Krugman's Depression
Nobel Prize-winning economist Paul Krugman says the U.S. is in the "early stages of a third Great Depression." If he's right, it's only because American policymakers have been following his advice.

Book Excerpts
"It is your mind that matters economically, as much or more than your mouth or hands. In the long run, the most important economic effect of population size and growth is the contribution of additional people to our stock of useful knowledge. And this contribution is large enough in the long run to overcome all the costs of population growth." -Julian Simon, The Ultimate Resource (1981)

"Did You Know"
Consumers' view on the present economic situation fell to 25.5 in June from 29.8 in May. Respondents saying current business conditions are "good" fell to 8% in June from 9.7% in May, while those saying jobs are "hard to get" rose to 44.8% from 43.9%. Respondents saying they expect business conditions to be worse in six months rose to 14.9% in June from 11.9% in May, while the percentage of those expecting better business conditions fell to 17.2% from 22.8%. Those expecting fewer jobs rose to 20.8% from 17.8%, while those expecting more jobs fell to 16% from 20.2%.

6/28/10 Post

BUZZ: IMF Report Shows Deeper Cuts Would Boost Growth

Economic Outlook: Worsening picture in the US
Investors will this week be bracing themselves for signs that the US recovery is slowing, as a slew of economic data on the world’s largest economy is expected to paint a downbeat picture.
Finance Bill: How Changes Could Affect You
The sweeping finance legislation negotiators wrapped up early Friday morning would constitute the biggest overhaul of U.S. financial regulations since the 1930s.
On Finance Bill, Lobbying Shifts to Regulations
The surge in hiring has sent a joke bouncing around Washington: Congress finally passed a jobs bill — full employment for lawyers.
Growing Deficit Concerns Are Trumping Spending
In a poll by the Pew Research Center for the People & the Press earlier this month, 60 percent of those surveyed said the president’s stimulus plan had not helped the economy. Only 33 percent thought the stimulus had helped.
G-20 Agrees to Cut Debt
Rich Nations Back Halving Deficits by 2013, Signaling Intent to Ease Stimulus
Handicapping a Double Dip
According to a model developed by Credit Suisse, there's scant possibility of a relapse into a recession.
Wall Street Hiring Jumps Most Since 2008 as Guarantees Return
Firms are adding jobs for the first time in two years, rebuilding businesses cut during the financial crisis and offering guaranteed payouts to lure top bankers.
Economic damage caused by oil spill may not go beyond the Gulf region.
Analysts say the spill will reduce economic growth by only about one-half of 1 percentage point this quarter, and even less during the second half of the year.
Personal income edges higher
Personal spending ticked higher in May, while income rose for a 7th straight month.
Job blues for gray-haired workers
The nationwide unemployment rate for older workers -- while lower than that of younger workers -- has barely moved since hitting a record high of 7.2% in December. It's currently 7.1%.
Congress blasts Medicaid hole in states' budgets
Officials in Massachusetts and 29 other states that counted on the funds to balance their budgets are left with the task of slashing services and payrolls once again.
Obama urges Congress to pass Wall Street reforms
President Barack Obama on Saturday urged Congress to pass the financial reform bill aimed at strengthening consumer financial protection and enhancing transparency in derivatives trading.

Blogs
Secondary Sources: Austerity, Financial Illiteracy, Free Trade
A roundup of economic news from around the Web.
The Future According to Dividends, Mid-2010 Edition
...the S&P 500's trailing year dividends per share have been projected to change into the future since 14 July 2009 for each quarter where we have dividend futures data available...
Chicago Fed: Economic Activity increased in May
This is a composite index based on a number of economic releases.
“In the Long Run We Are All Dead” What Does It Mean?
If we are all dead in the long run, then Keynes-Krugman must argue that we are all dead in the short run as well, too.
Personal Income up 0.4%, Spending Increases 0.2% in May
The increase in income was good news, but personal income less transfer payments are still only 1.4% above the low of last year.
The new financial regulation bill
The best equilibrium is to have discredited ratings agencies, not revamped and reregulated agencies.
Housing Supply Metrics
Various housing supply measures compiled from various sources.
Signal and Noise in Economics Writing
...non-economists should express opinions about macroeconomics only with great humility. ...economists, too, need to show humility.
Weekly Summary and a Look Ahead
The key economic report this week will be the June Employment Report to be released on Friday.
Will We Learn from Greece?
If Mr. Hoenig is right and Greece is a lesson, let’s hope that policy makers in the US learn it before the pension crisis hits.
The Constitution is Still Number One
Majority of people strongly agreed with the statement that judges should “Uphold the values of those who wrote the U.S. constitution long ago".
Protecting the Second Amendment
In what is probably the most important Second Amendment case in Supreme Court history, the Court today held that the “right of the people to keep and bear Arms” cannot be infringed by the states.
Economic Insights from Fed President Hoenig
“Artificially low interest rates tend to promote consumer spending over saving and, over time, systematically affect investment decisions and the relative cost and allocation of capital within the economy.”
BIS Warns Central Banks Against Keeping Rates Low for Too Long
...keeping rates low for too long, and other actions like buying government bonds, creates risks to financial stability and opens central banks up to political pressure.

Research, Reports & Studies
Hudson Institute Economic Report
This week saw disappointing data for GDP and housing, suggesting that the economy's rebound is not imminent.
Wells Fargo Economics Group: Weekly Economic & Financial Commentary
Despite disappointing data, the recovery is still on.
Adverse Selection, Reputation and Sudden Collapses in Secondary Loan Markets
...a variety of policies that have been proposed during the recent crisis to remedy market inefficiencies do not help resolve the adverse selection problem.
Obama Discovers One More Crisis for a Toxic Tax
Obama's team seems to believe that even though doubts over new regulations and higher taxes may undercut job creation, the sacrifice is worth it because Democrats get a legislative win.
Americans Relate to Founders, Not Progressives
A nation of property owners is less willing to plunder the property of others in search of some promised gain than a nation where most people don't and will never own significant property.

Graphic of the Day
PER SECOND Debt Increase during Obama Presidency Exceeds ANNUAL Household Income
See: Inflation-Adjusted Cost of a K-12 Public Education and Percent Change in Achievement of 17-Year-Olds, since 1970
See also: Average Federal Tax Rates by Quintile
PODCAST: Caplan on Hayek, Richter, and Socialism
VIDEO: Obama Calling "Bluff" Of Those Complaining About "Deficits And Debt"

Economists’ Comments & Opinions
Why Friedrich Hayek Is Making a Comeback
With the failure of Keynesian stimulus, the late Austrian economist's ideas on state power and crony capitalism are getting a new hearing.
A Pendulum Swing Toward Austerity
In many respects, the expansionary phase of big government is coming to an end, and quickly.
Hillary Clinton: Accidental Supply-Sider
She's right about Brazil's growth. She's wrong about its tax rates.
The Keynesian Dead End
Spending our way to prosperity is going out of style.

Don't talk abt "progress" in terms of longevity, safety, or comfort before looking at zoo animals compared to those in the wildrnss. -Nassim Taleb, Twitter

Book Excerpts
"Representative democracy cannot subsist if a great part of the voters are on the government pay roll. If the members of parliament no longer consider themselves mandatories of the taxpayers but deputies of those receiving salaries, wages, subsidies, doles, and other benefits from the treasury, democracy is done for." -Ludwig Von Mises, Bureaucracy (1945)

"Did You Know"
According to preliminary estimates by The Heritage Foundation’s Center for Data Analysis; Americans’ dependence on government grew by 13.6 percent in 2009. The Index’s dependence variables that grew the most over that past year are: Health and Welfare at 22 percent, Rural and Agricultural Services at 20 percent, and Housing at 15 percent. The Index has grown by 49 percent since 2001. Americans’ dependence on the government was 14 times greater in 2009 than it was in 1962.

6/25/10 Post

BUZZ: House, Senate leaders finalize details of sweeping financial overhaul

News
Mortgage Rates, Stocks Drop
Treasury Yields Fall Amid Hunt for Safety, Pushing Home-Loan Rates to Lowest in Nearly 40 Years.
A New Plan for Valuing Pensions
At the heart of the dispute is the way governments gauge the value of the pensions they owe future retirees in today’s dollars — a commonplace financial calculation known as discounting.
Jobless Bill Dies Amid Deficit Fears
Spooked by concern about deficits, the Senate shelved a spending bill that included an extension of unemployment benefits, suddenly cutting off a federal cash spigot opened by President Barack Obama when he took office 18 months ago.
Greece starts putting island land up for sale to save economy
Desperate attempt to repay debts also driven by inability to find funds to develop infrastructure on islands
Sanders Estate-Tax Proposal Would Hit Wealthy Harder
Under the proposal, as in 2009, the exemption would be $3.5 million for an individual, or as much as $7 million for a couple, with a tax rate of 45%. But estates with taxable assets between $10 million and $50 million would pay a 50% rate, and estates valued above $50 million would pay 55%. A further 10% surtax would apply to assets above $500 million.
Two Ships Passing in the Night: Asian Millionaires Pass European Counterparts
According to a report out by Merrill Lynch, the number of individuals with at least $1 million in investable assets in Asia surpassed the number of Europeans bearing the same distinction.
In Europe, U.S. Allies Target Defense Budgets
U.K. Is Latest to Seek 'Ruthless' Cuts, Auguring Trouble for Afghan Effort
Banks win battle for limits to Basel III
Plans by global regulators to compel banks to set aside billions of dollars in extra capital to cope with future crises are to be pared back after intense lobbying by the industry.
For Gold Investors Who Want It 'To Go'
The bull market in gold has sparked a new growth industry: providing a venue for investors to buy and store their personal stash.
Dollar Weakens Against Euro, Yen
The U.S. dollar declined against the euro and yen but gained against some other growth-linked currencies as the Federal Reserve's subdued statement on the economic outlook kept demand for risk in check.
Seeing Economic Rebound, Firms Step Up Spending
Companies are stepping up spending on equipment as the recovery that first took hold in manufacturing broadens to other areas of the economy.
U.S. economic growth revised lower to 2.7% for first quarter
First-quarter growth, originally estimated two months ago at a 3.2% annualized rate, was revised down to 3.0% growth in last month's estimate and now is down to 2.7%.
Highlights from the financial regulation bill
A 10-member Financial Services Oversight Council made up of the treasury secretary, Federal Reserve chairman, a presidential appointee with insurance expertise, heads of regulatory agencies and a new consumer protection bureau would monitor financial markets and watch for threats.
Congress reverses Medicare cuts
The House voted Thursday to reverse a 21% cut in government fees paid to doctors who treat Medicare patients.
Corporate Bond Sales in U.S. Slump 19%
U.S. corporate bond sales tumbled from $140.1 billion in March, the most since January 2009, to $32.9 billion last month amid concern among investors that the sovereign debt crisis in Europe would stifle global economic growth.

Blogs
Conference Agrees on Financial Regulation Details: "We'll See How It Works..."
My first reaction to news that the Congressional conference had finally agreed on language for the financial services regulatory overhaul: numbness.
Time to Take on the Welfare State
Trillions in welfare spending will drive America to bankruptcy unless Congress puts on the brakes and encourages able-bodied adults to seek work and act responsibly.
Misc: Quote of the Day, Greece Bond Spreads increase Sharply, and Market Update
"Given the depth of the nation’s recessionary impacts on homeowners, a considerable number of customers will transition from homeownership over the next two years."
What Do Mortgage Lenders Want?
...it is not in the interest of private sector lenders to deliberately make loans that have a high probability of default.
Not from the Onion: EPA Classifies Milk as Oil
New Environmental Protection Agency regulations treat spilled milk like oil, requiring farmers to build extra storage tanks and form emergency spill plans.
Secondary Sources: Krugman on Yuan, Home Buyer Credit, Fiscal Adjustment
...the net benefits from the home buyer tax credit were small compared to the cost.

Research, Reports & Studies
Immigration, Remmittances and Business Cycles
During recessions, established migrants are deterred from returning to their country of origin, which places an additional downward pressure on the wage of native unskilled workers. Thus, migration barriers reduce the ability of the stock of immigrant labor to adjust during the cycle, enhancing the volatility of unskilled wages and remittances.
News and Sovereign Default Risk in Small Open Economies
News shocks affect equilibrium outcomes because they contain information about the future ability of the government to repay its debt.
Confronting the Unsustainable Growth of Welfare Entitlements: Principles of Reform and the Next Steps
As government spending on means-tested welfare approaches $1 trillion per year, it is time to reboot the other poverty programs to control costs and promote greater self-reliance.
Should We Raise Taxes on the Middle Class? We Already Are
But by 2020, income tax receipts are projected to rise to 9.5 percent of GDP, even if all of President Bush’s tax cuts are made permanent. By 2030, income tax receipts will rise to 10 percent of GDP, 22 percent higher than the historical level.
Current Regulatory Developments in the United States
The danger is that politicians will not bother to learn the proper lessons of the causes of the financial crisis and will sow the seeds for the next crisis.

Graphic of the Day
Oh, To Be a Government Worker
See: Real GDP Q1 2010 revised to 2.7%
See also: New Home Sales Plunge

Economists’ Comments & Opinions
What the U.S. can learn from Canada at the G20
...President Obama would be smart take a long moment during his Toronto visit to learn some lessons from the Canadian way of growing an economy. It starts by relying on the private sector for job growth instead of government help, as Obama has so far futilely offered.
Why banks aren't afraid of reform
JPMorgan Chase and other big banks are betting that when the rules are written, they will permit the activities that banks deem crucial.
Financial Reform Bill Won't Stop Next Crisis
Until Washington takes a long, deep look at its own role in causing the financial crisis, we will have little hope for avoiding another one
A Budget Deal That Did Reduce the Deficit
Budget experts now agree that the Budget Enforcement Act of 1990, which was strengthened in 1993 by another budget deal that was opposed by all Republicans, deserves much of the credit for the subsequent improvement in the deficit, which shrank from 4.7 percent of GDP in 1992 to virtual balance in 1997 and gave us budget surpluses from 1998 to 2001.

It takes extraordinary wisdom & self control to accept that many things have a logic we do not understand that is smarter than our own. -Nassim Taleb, Twitter

Book Excerpts
"I genuinely do not know whether we will or will not ultimately survive the desperate damage our government has done to our economy. The potential power of the economy is immense, and its regenerative power in freedom is incalculably great. I am prepared to say, however, that a financial collapse is not only possible but probable unless we reverse almost half a century of irrational and unrealistic policies." -William E. Simon, A Time for Truth (1978)

"Did You Know"
Government now spends 13 times more on welfare, adjusting for inflation, than when LBJ declared the nation’s War on Poverty some 45 years ago. Welfare is the fastest-growing portion of government spending, nearly quadrupling from fiscal 1979 to fiscal 2008.

6/24/10 Post

BUZZ: Confidence waning in Obama, US Outlook

New
US 30-yr mortgage rate drops to 39-year low
Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.69 percent for the week ended June 24, the lowest since Freddie Mac started the survey in April 1971.
DJIA, Euro, Treasurys Rise
The Dow Jones Industrial Average eked out a slight gain, as investors across financial markets digested the Federal Reserve's cautious remarks on the state of the global economy. Other stock indexes fell, the dollar dropped and Treasury prices ended higher. The 10-year note's yield fell to 3.119%, the lowest level since mid-May.
World leaders, their standing and their issues heading into summit meetings in Canada
Leaders of the world's major industrial countries, representing 85 percent of the global economy, will meet in Canada starting Friday for economic summits. Take a look at selected countries and their leaders’ stances.
Weekly jobless claims fall but remain elevated
The number of people filing first-time claims for jobless benefits fell last week by 19,000, the largest drop in two months. New claims declined to a seasonally adjusted 457,000.
Drilling ban: The jobs at stake
There are as many as 10,000 people that work on deepwater oil rigs in the Gulf of Mexico. Another 25,000 jobs could be affected by the six-month ban imposed by President Obama.
Durables fall in May after five straight gains
The steady upward trend in the manufacturing sector hit a bump in May as a big drop in orders for new airplanes pushed total durable-goods orders down 1.1%.
House panel drops demand for $150 billion bank fund
House members of a conference committee agreed to drop their demands for a $150 billion fund to be used to dismantle a failing mega-bank so its collapse wouldn't damage the markets.
Car Dealers Close to Winning Exemption From Consumer Law
The nation's car dealers appeared on the verge Wednesday of securing a measure that would largely protect them from Congress's wide-ranging financial-regulation overhaul, after an aggressive, months-long lobbying campaign.
Five States Get U.S. Funds to Aid Homeowners
State housing agencies in Arizona, California, Florida, Michigan and Nevada will receive a total of $1.5 billion from the Obama administration's "Hardest Hit Fund."
Democrats Would Cut Budget Below Obama's Plans
The cut amounts to less than 1 percent of the more than $1.1 trillion proposed for agency budgets funded by lawmakers each year through the spending bills.
States Face New Pinch as Stimulus Ebbs
Tax Receipts Aren't Rebounding Quickly Enough to Offset Declining Federal Aid; Push for Additional Medicaid Help Stalls

Blogs
Telling Congress to Reduce the Deficit by Cutting Spending
June 26, America Speaks will host a national town hall meeting in which any and all Americans will be able to voice their opinions on what Washington’s growing deficits will have on the U.S. economy.
European Weakness Is Fuelling U.S. Profligacy
The European debt crisis has demonstrated the painful costs of fiscal profligacy and short-sighted Keynesian stimulus.
A Closer Look at the Recent Trend in Layoffs
The data indicates that the Cash for Clunkers program did not significantly alter the established trend in layoffs during this period, which was declining in any case.
Home Sales: Distressing Gap
...expect that eventually this ratio will return to the historical range of new home sales being around 15% to 20% of existing home sales.

Research, Reports & Studies
Wells Farge Economics Group: New Home Sales Drop to its Lowest Level on Record
New home sales plummeted 32.7 percent in May likely reflecting the expiration of the homebuyers’ tax credit. April was significantly downwardly revised to 446,000 units. Seasonal adjustments may also be at play.
Appropriations and Fund Transfers in the Patient Protection and Affordable Care Act
...creates a mandate for most U.S. residents to obtain health insurance and provides for the establishment of insurance exchanges through which certain individuals and families will be able to receive federal subsidies to reduce the cost of purchasing that coverage. In addition, the new law expands eligibility for Medicaid; reduces the growth in Medicare spending that had been projected under preexisting law; imposes an excise tax on insurance plans determined to have high premiums; and makes other changes to the federal tax code, Medicare, Medicaid, and numerous other programs.
Do Developed and Developing Countries Compete Head to Head in High-tech?
While measures of across product specialization suggest China and other Asian economies have been moving into high-tech exports, the within-product unit value measures indicate they are doing so in the least sophisticated market segments and the gap in unit values between their exports and those of developed countries has not narrowed over time.

"Did You Know"
In France, firing a printing plant employee is hugely expensive. The gent is paid €50,000 per year, works 32 hours per week and 164 days per year. Firing him costs about €466,000 – that’s a French government estimate...

Graphic of the day
Durable Goods Orders dropped by 1.1% in the month of May
See: Initial Claims for the Week Ended Jun 19
See also: Federal Payments to Individuals (% GDP) 1940-2010

Economists’ Comments & Opinions
The best stimulus? Spend less, borrow less
The best stimulus is a solid, credible plan to radically reduce government spending, starting right now.
The Family Business Revenue Act
A tax on the wealthy becomes a tax on mom and pop.
Whither the Euro: Safe Harbor or Fractured Fate?
Even though some countries have taken steps to curb future meltdowns, comprehensive regulation has been stymied by a lack of agreement on the fundamental question of how much regulation is necessary...
Volcker and Derivatives
Financial reform in the hands of a Democratic Congress is looking eerily similar to health-care reform: Public skepticism is proving to be no brake on the liberal ambitions, and substance is increasingly divorced from the problems Washington claims to be solving.

Financial crisis: Worse bank balance sheets + Worse private balance sheets + worse government balance sheets. -Garrett Jones, Twitter

Book Excerpts
"It is often argued that Governments are in a position to inflate by carrying out ambitious schemes of public works. Undoubtedly during the earlier stages of the crisis such measures might have produced the desired effect. At present, however, they could hardly be adopted on any large scale. Practically every Government has a huge budgetary deficit, which makes it difficult, if not impossible, to raise loans for meeting the extraordinary expenditure of such public works. Any attempt to borrow for such purposes would inevitably lead to a further accentuation of distrust, which must be avoided at all costs." -Paul Einzig, The World Economic Crisis 1929-1932, (1932)

6/23/10 Post

BUZZ: Europe spurns Obama's plea for more spending

News
Caution's the word as Fed wraps up meeting
As they wrap up a two-day meeting to review the U.S. economy, interest rates and monetary policy, Federal Reserve officials are expected to issue a cautious statement keeping rates on hold at record-low levels.
Derivatives: No special deals for Wall Street
As Congress debates the final language for reforming Wall Street, a behind-the-scenes battle is raging over the arcane details of derivatives regulation.
After a year off, millionaires back in bloom
After plummeting by a record amount in 2008, the number of millionaires in the world recovered last year despite ongoing weakness in the global economy.
Housing Market Threatens U.S. Recovery as Slide Resumes
The end of the tax credit in April is putting a strain on a market still hurting from the worst collapse since the Great Depression. Foreclosures may reach 1.9 million this year after a record 2 million in 2009.
Consumer Financial Protection Bureau closer to reality
House and Senate negotiators near agreement on creation of the controversial new agency.
Cities Grow as Housing Bust Slows Movement to Suburbs
Several of the nation's biggest cities saw populations grow faster last year than any year in the 2000s as the recession and housing bust kept people from moving out of state or to the suburbs, the Census Bureau said.
Hidden Costs of Moving to a New Home
Don’t forget to factor transportation, utility, and insurance costs into your moving decision
Daunted by deficits
Across the world - from the US to Greece - plans are under way to cut spending and raise taxes.
Medicaid’s Ticking Bomb Could Wipe Out State Budgets
A new study claims the costs of Medicaid’s long-term care services could cripple states’ already-fragile budgets.
What Would You Do With an Extra Hour?
Americans Are Spending More Time Watching TV and Sleeping as Unemployment Rises, Survey Finds

Blogs
Speak Out on Out-of-Control Spending
Can Washington really be trusted to use new revenues to close the deficit gap, or would they just spend the money on new programs?
Morning Bell: Obama’s Leadership Vacuum
There are several crises confronting America and President Obama isn’t quite sure what to do about it.
The Real “Anti-Stimulus” – The Nation’s Growing Debts
There is no magic in debt-financed infrastructure and economic-development, only a deferred tax bill to pay for the government’s gambles.
How high will Existing Home Months-of-Supply increase this summer?
...expect house prices to fall in the 2nd half of 2010 and into 2011 - probably another 5% to 10% for the major house price indexes (Case-Shiller and CoreLogic).
The Glories of Competition
Early Monday, Barnes & Noble Inc. cut the price of its Nook e-reader to $199 and introduced a Wi-Fi-only model for $149. Hours later, Amazon.com Inc. lowered the price of its Kindle e-reader to $189.
Estimate of June Decennial Census impact on payroll employment: minus 243,000
The Census Bureau released the weekly payroll data for the week ending June 12th this morning...
Another view of the structural versus cyclical unemployment question
...the relatively disappointing May private-sector payroll jobs numbers released last Friday and the improving but low level of job openings reported in the JOLTS data for April are reminders that weak labor demand is still the dominant factor inhibiting the overall employment recovery.

Research, Reports & Studies
Lots of Regulatory Expansion but Little Reform
The U.S. Senate’s financial “reform” bill, consisting of over 1,500 pages of regulatory expansion, is unlikely to achieve its own goal of preventing another crisis. But it is certain to produce an efflorescence of bureaucratic interventions, red tape, and costs.
In Russia, a Climate of Fear Is Stifling Innovation
Paralyzed with fear and uncertainty, Russian entrepreneurs are investing very little in their country beyond their immediate production needs.
The Crisis in Public Sector Pension Plans
A Blueprint for Reform in New Jersey.

"Did You Know"

According to a recent poll, 71% of people expect cancer will be cured by 2050, 66% expect artificial limbs to be working better than real ones and 53% say ordinary people will travel in space. 72% of people are expecting a major energy crisis, 58% saying there is likely to be another world war and 53% anticipating a terrorist attack on the U.S. involving nuclear weapons.

Graphic of the Day
New home sales plummeted to their lowest level in the history of the data set as only 300,000 contracts were signed.
See: Government Debt Issuers Most Likely to Default
See also: Government Spending on Defense, Social Security, and Medicare (%GDP)

Economists’ Comments & Opinions
Threat of Another Economic Stumble Is Real
The danger of deflation is still there. The risk of another stumble in our economy is real, including the continuing fragility of community banks over commercial real estate loans.
Schumpeter 2.0
A great thinker’s contribution not only appears in his or her finished works and arguments, but also within the rich intuitions or core ideas that underlie the arguments.

Book Excerpts
"...Suppose that it will cost six francs to repair the damage [of a window broken by a child]. If you mean that the accident gives six francs' worth of encouragement to the aforesaid industry [for glass], I agree. I do not contest it in any way; your reasoning is correct. The glazier will come, do his job, receive six francs, congratulate himself, and bless in his heart the careless child. That is what is seen.

But if, by way of deduction, you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.

It is not seen that, since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library. In brief, he would have put his six francs to some use or other for which he will not now have them. -Frédéric Bastiat, The Broken Window, What Is Seen and What Is Not Seen, (1848)

6/22/10 Post

BUZZ: Rust Belt Cities See Decline in Population

News
Existing-home sales dip 2.2% in May
Resales of U.S. homes and condos fell 2.2% to a seasonally adjusted annual rate of 5.66 million.
Price hikes hammer individual health coverage
When health insurance costs rise for individual buyers, they soar: The average premium rose 20% in its most recent increase.
White House budget director is leaving
Peter Orszag has told President Barack Obama that he plans to leave his position as White House budget director in July.
Swipe-fee compromise won't help consumers
In the U.S., debit-card transaction fees alone add up to about $20 billion annually. However, it's unlikely any savings will be passed on to consumers, mainly because the banks will find other ways to drum up the lost revenue.
As Law Takes Effect, Obama Gives Insurers a Warning
Obama plans to sternly warn industry executives against imposing hefty rate increases in anticipation of tightening regulation under the new health care overhaul.
Taking on two economic summits
Much of the president’s focus in Canada this weekend will be on keeping global leaders on the path they set last year.
House defies President Obama on financial regulation reform
House negotiators on a Wall Street reform bill will push to shield auto dealers from new consumer protection lending rules — a move that bucks President Barack Obama, who has called on lawmakers to reject any carve-outs for special interests.
Geithner Says Access to Credit Improving, May Fuel U.S. Economy
“Credit conditions overall, which dragged our economy into a deep recession in 2007, no longer pose an obstacle to growth,”.
Can We Balance The U.S. Budget? Yes, But Only If We Cut Spending
With our nation headed toward a financial cliff, there is an urgent need and a will among the American people to change course and put our fiscal house in order.
FCC Holds Talks on Internet Rules
Regulators Meet With Phone, Cable Firms Over 'Net Neutrality' Compromise
Tighter Scrutiny For Bank Salaries
The Federal Reserve adopted sweeping new rules Monday that will give banking regulators more power over how the nation's thousands of banks compensate employees ranging from senior executives to traders.
Dems won't pass budget in 2010
The House has never failed to pass an annual budget resolution since the current budget rules were put into place in 1974.

Blogs
Some New Data on Income Inequality
The bottom line is that income mobility is alive and well and seems pretty consistent regardless of who is president or who controls Congress.
The Good Old Days Are Now
How much better off the average American is today than in the past?
Moody's: Commercial Real Estate Prices increase 1.7% in April
It is possible that commercial real prices have bottomed - in general - but it is hard to tell because the numbers of transactions are very low and there are a number of distressed sales.
Existing Home Sales: Inventory increases Year-over-Year
The key is the inventory and months-of-supply, and if these two measures increase later this year as I expect, then there will be additional downward pressure on house prices.
Will Yuan Revaluation Trigger Another Financial Crisis?
Watch for US long-term rates to rise, the risk here is US long-term rates start to spiral higher unless (ha ha!) Uncle Sam starts to borrow less.
Economic Reality: Nowhere to Run, Nowhere to Hide, Part 2
The onset of the Global Sovereign Crisis marks a new dangerous phase of the credit crisis.
Economists React: ‘Next Few Months Will Be Tough’ for Housing
Economists and others weigh in on the drop in May existing home sales.
When to Rely on Coercion
On the one hand, it is a great achievement to have worked out the precise conditions under which decentralized, competitive markets are optimal. On the other hand, mainstream economists do not seem to care about working out the conditions under which government will succeed where markets fail.
Like Taking Cyanide for a Headache
Far from being a momentary side-effect of stimulus spending, uncertainty is a systemic problem with interventionist economic policy. The poison is worse than the medicine.

Research, Reports & Studies
The Three Biggest Myths About Tax Cuts and the Budget Deficit
Balancing the budget by 2020 would require either eliminating one-third of all spending, raising taxes by 50 percent, or a combination of the two.
Controlling Federal Spending
Using Past Budgets as Guides for Spending Restraint
The Prospects for Ending Obamacare: Learning from Health Policy History
Washington’s obsession with controlling, defining, regulating, and restricting private-sector health insurance options overlooks the obvious. Congress must recognize that real cost control begins with the nation’s largest entitlements Medicare and Medicaid.
The Value Added Tax
Too Costly for the United States
EU Bailout: Impact on the United States
To watch developments in Europe today is to peer through a clear window into America’s own future. As the nation runs deficits in the Grecian mode and its own public debt soars toward 100 percent of its economy, a future crisis becomes as predictable as the sunrise—and just as widely predicted.
Weekly Economic and Market Review
The economic data continued its mixed performance last week with little in the way of surprises.
School accountability and teacher mobility
...accountability shocks influence the distribution of the measured quality of teachers (in terms of value added measures) who stay and leave their school, though the average differences are not large.
The Economy Hits Home: International Trade
If you look at the evidence, it’s clear that American and foreign workers, our economy, and the environment are all better off to the degree that we enjoy free trade.
Penalty APR Study
The CardHub.com Penalty APR Study evaluates the post-CARD Act Penalty APR policies of the top 10 credit card issuers, based on outstanding balances.

Graphic of the Day
Extra Taxes Required from Each Taxpayer to Erase the Deficit
See also: How Do Americans Save Money?
VIDEO: Bootleggers and Baptists: A Conversation with Bruce Yandle

Economists’ Comments & Opinions
Is U.S. Now On Slippery Slope To Tyranny?
Those who cannot see beyond the immediate events to the issues of arbitrary power — vs. the rule of law and the preservation of freedom — are the "useful idiots" of our time. But useful to whom?
Spain's Emerging Banking Crisis
The Spanish government narrowly passed a $15-billion austerity package in May. Tomorrow it faces the next big legislative challenge in a move towards more fiscal responsibility.
Bam's Climate Rx: All Pain, No Gain
The cap-and-trade bill won't lower global temperatures but merely make life more expensive. It'll force you to use energy sources that all have to be massively subsidized with your tax dollars.
Europe cuts deep, the U.S. spends on
Some experts think the United States should follow the lead of Britain and other nations in Europe and take steps to cut the deficit. Others warn it's too soon to worry about debt
Wells Fargo Economics Group: China Reintroduces Currency Flexibility
Chinese currency move: much ado about nothing?
Is Illinois the New California?
Illinois has overtaken California as the worst credit risk among American states.
Misguided housing subsidies promote unfairness, bailouts
Over the past half-century, the homeownership rate has risen only modestly, from 62% in 1960 to 68% at the height of the housing bubble. In Canada, which has no mortgage deduction or many of the other subsidies present here, the ownership rate is about the same.

The little secret of most New Keynesian models: they explain unemployment as voluntary vacations, just like RBC models. -Garrett Jones, Twitter

Book Excerpts
"The curious task of economics is to demonstrate to men how little they know about what they imagine they can design." F.A. Hayek, The Fatal Conceit (1989)

"Did You Know"
In 2000, the top quintile paid 66.6% of taxes, a share that dipped to 64.8% in 2002 and then rose, peaking at 69.3% in 2006 and settling at 68.9% in 2007. In 2009, 47% of households owed no income tax.