Thursday, March 3, 2011
Who Will Buy US Treasuries When the Fed Stops Buying?
Bill Gross runs the largest US bond fund and he raises the title question. He believes that the Fed did the right thing when it initiated quantitative easing to replace the funds available for bank lending by the deleveraging that followed the Lehman bust.
The three graphs that he included in this article tells the story. The Fed and other sovereigns have been purchasing the treasuries while private investors have been spectators. In order for the story to have a good ending, private industry must start investing in the economy to produce the economic growth that is needed to keep our debt to GDP ratio in a save zone. Otherwise, the Fed's program of quantitative easing will have been a failure.
Wednesday, March 2, 2011
Michael Lewis Explains the Economic Collapse of Ireland
link here to article
The failure of the banking system in Ireland, as a consequence of the mistakes made in its banking system, is a sad story that must be told. Nobody tells the story better than Michael Lewis. This article is not only informative about the Irish economy but it is told in a way that is easy to understand. Moreover, it helps us to understand the personalities behind the collapse and it develops sympathy for the struggles that the Irish face going forward. (Thanks to Manan Shukla for the link).
The failure of the banking system in Ireland, as a consequence of the mistakes made in its banking system, is a sad story that must be told. Nobody tells the story better than Michael Lewis. This article is not only informative about the Irish economy but it is told in a way that is easy to understand. Moreover, it helps us to understand the personalities behind the collapse and it develops sympathy for the struggles that the Irish face going forward. (Thanks to Manan Shukla for the link).
Clare Lecture on Implications of Financial Crisis
link here to lecture
The financial crisis is mostly behind us so we turn to understanding the causes and to considering the best ways to prevent future crises. This lecture deals with three important issues: Have we made the right reforms to promote financial market stability? What is the social value of the increasing financial intensity in the economy and its impact on income inequality? How has the financial crisis affected the orthodox economic theories that dominate public policy proposals? This is a 32 page PDF and there is a link to his Powerpoint slides. This is one of the better discussions of these important issues that I have read. (Thanks to Manan Shukla for the link)
The financial crisis is mostly behind us so we turn to understanding the causes and to considering the best ways to prevent future crises. This lecture deals with three important issues: Have we made the right reforms to promote financial market stability? What is the social value of the increasing financial intensity in the economy and its impact on income inequality? How has the financial crisis affected the orthodox economic theories that dominate public policy proposals? This is a 32 page PDF and there is a link to his Powerpoint slides. This is one of the better discussions of these important issues that I have read. (Thanks to Manan Shukla for the link)
Trains are for Communists and Cars are for Americans
link here to article
George Will, a conservative ideologue, is given a platform by Newsweek to tell us that this administration is driven by progressive ideology to diminish our individualism and to make us more amenable to collectivism. He claims that this must be the purpose of the plan to develop high speed rail transport between major cities because someone at the conservative Cato Institute has proven that its a bad idea economically and that it will do nothing to reduce our oil consumption. We have the curious situation in which a conservative uses a conservative spokesperson from a conservative "think tank" to accuse the administration of having an ideological motivation to destroy American individualism. Investing in rail transportation is not only inspired by visions of collectivism, it will also make our country insolvent just as the geniuses from the Tea Party proclaim. Discretionary federal spending on anything that they don't like is the road to insolvency and perhaps even to that hot place where sinners are sent for all eternity.
George Will, a conservative ideologue, is given a platform by Newsweek to tell us that this administration is driven by progressive ideology to diminish our individualism and to make us more amenable to collectivism. He claims that this must be the purpose of the plan to develop high speed rail transport between major cities because someone at the conservative Cato Institute has proven that its a bad idea economically and that it will do nothing to reduce our oil consumption. We have the curious situation in which a conservative uses a conservative spokesperson from a conservative "think tank" to accuse the administration of having an ideological motivation to destroy American individualism. Investing in rail transportation is not only inspired by visions of collectivism, it will also make our country insolvent just as the geniuses from the Tea Party proclaim. Discretionary federal spending on anything that they don't like is the road to insolvency and perhaps even to that hot place where sinners are sent for all eternity.
Fed Chairman's Warning to Senate
link here to article
Bernanke did not mince words in his testimony in the Senate. He told them that cuts in federal spending in the current year were counterproductive and that they would slow the recovery. Moreover, he stated that they did little to impact the long-term budget deficit problems that we may face unless Congress puts a plan in place to deal with the real deficit problems. The GOP and the administration have been proposing cuts in federal spending in the current year as part of their 2012 electioneering. Bernanke told them to focus on a 5-10 year plan instead. Ordinarily, Congress takes comments from the Fed Chairman seriously. Its unlikely, however, that Congress will put a budget in place that interferes with a good campaign strategy. The economy takes second place to winning elections.
Bernanke did not mince words in his testimony in the Senate. He told them that cuts in federal spending in the current year were counterproductive and that they would slow the recovery. Moreover, he stated that they did little to impact the long-term budget deficit problems that we may face unless Congress puts a plan in place to deal with the real deficit problems. The GOP and the administration have been proposing cuts in federal spending in the current year as part of their 2012 electioneering. Bernanke told them to focus on a 5-10 year plan instead. Ordinarily, Congress takes comments from the Fed Chairman seriously. Its unlikely, however, that Congress will put a budget in place that interferes with a good campaign strategy. The economy takes second place to winning elections.
Tuesday, March 1, 2011
Economic Policy Institute Study on State Pension Shortfalls
link here to article
There has been a lot of media coverage of state pensions and the extent of their unfunded liabilities. As one might expect much of the coverage has been about headline numbers and very short of analysis. Its just another reason for cutting state spending and for preventing unions from negotiating benefits. This study argues that much of the shortfall is the result of stock market losses between 2007 and 2009. Unfunded liabilities are around $1 trillion. If the pension funds had invested in 30 year treasuries during this period $850 billion would have been gained relative to the loss from stocks. This does not argue for restricting states from investing in stocks. The gains in the stock market during 2010, which are not reflected in the measure of unfunded liabilities at the end of 2009, may have already reduced much of the shortfall. Stock market gains in 2011, if they continue, will also cut into the unfunded liabilities.
The real concern that we should have about unfunded liabilities is their size as a share of future state GDP. On average, they are around 0.2 percent of future state revenues. The study includes data on each state's pension funds. Some are in worse shape than the average. You may want to take a look at the data on the states to see how your state is doing relative to future revenues.
There has been a lot of media coverage of state pensions and the extent of their unfunded liabilities. As one might expect much of the coverage has been about headline numbers and very short of analysis. Its just another reason for cutting state spending and for preventing unions from negotiating benefits. This study argues that much of the shortfall is the result of stock market losses between 2007 and 2009. Unfunded liabilities are around $1 trillion. If the pension funds had invested in 30 year treasuries during this period $850 billion would have been gained relative to the loss from stocks. This does not argue for restricting states from investing in stocks. The gains in the stock market during 2010, which are not reflected in the measure of unfunded liabilities at the end of 2009, may have already reduced much of the shortfall. Stock market gains in 2011, if they continue, will also cut into the unfunded liabilities.
The real concern that we should have about unfunded liabilities is their size as a share of future state GDP. On average, they are around 0.2 percent of future state revenues. The study includes data on each state's pension funds. Some are in worse shape than the average. You may want to take a look at the data on the states to see how your state is doing relative to future revenues.
Another Good Law From Canada
link here to article
In Canada the right to use the public airwaves is not determined by market forces. They have a law which requires radio and TV broadcasts not to tell lies or to mislead the public. This law prevented Ruppert Murdoch from expanding into Canada. It also makes Canadian politics less subject to propaganda which is what Fox is all about in America and elsewhere. When Ruppert Mlurdoch was asked about Fox and talk radio he replied that the market has spoken. Indeed it has, talk radio and Fox News have large audiences in the US. In the US if the market has spoken it is above criticism despite the consequences.
In Canada the right to use the public airwaves is not determined by market forces. They have a law which requires radio and TV broadcasts not to tell lies or to mislead the public. This law prevented Ruppert Murdoch from expanding into Canada. It also makes Canadian politics less subject to propaganda which is what Fox is all about in America and elsewhere. When Ruppert Mlurdoch was asked about Fox and talk radio he replied that the market has spoken. Indeed it has, talk radio and Fox News have large audiences in the US. In the US if the market has spoken it is above criticism despite the consequences.
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