Will Economists Ever Learn? – Prior to the recent crash of financial markets, there was a widespread belief that monetary policy was all that was needed to stabilize the economy. However, one important thing we learned recently is that central banks are not all powerful. They cannot prevent all large downturns in the economy and they cannot, on their own, always provide the help that is needed to stabilize the economy. How did we come to have so much faith in monetary policy? Why did we assume that monetary policy alone would be enough to stabilize the economy always and everywhere, that fiscal policy was no longer needed as a stabilization tool?
What a Sovereign-Debt Crisis Could Mean for You – WSJ – Investors in sovereign bonds, those issued by governments, are getting rattled. Greece’s bonds have just been downgraded by Standard & Poor’s. The Gulf emirate of Abu Dhabi has been forced to step in to rescue creditors of Dubai World, a corporation owned by the Dubai government. Prices to insure other government bonds, from Iceland to Venezuela, have ticked up. Prof. Rogoff and his longtime collaborator Carmen Reinhart, at the University of Maryland, probably know more about the history of financial crises than anyone alive. The pair have just published their broad survey of financial crises, "This Time Is Different: Eight Centuries of Financial Folly" In an era when most "analysts" rely on maybe 30 or 40 years’ worth of financial history—and then only that of the U.S.—the authors’ knowledge of financial crises and government bond defaults going back to the Spanish empire and before offers a richer perspective.
Goldman Sachs denies betting against its clients on CDOs – Goldman Sachs has moved to justify spending millions of dollars short-selling some of the financial products it made and sold to clients. In a rare statement of defence, the American investment bank has offered a detailed explanation of its dealings in mortgage-backed products, particularly regarding collateralised debt obligations (CDOs), in the years preceding the financial crisis.
Chinese Dynamics Mean Exploding Global Inflation – When China appreciates yuan in response to 2010 Food Crisis, it will do more than damage the US treasury market. More importantly, “cheap Chinese consumer goods” will stop being so cheap anymore. Prices will jump at Walmart and other retailers around the world, leading CPI numbers everywhere into the double digits.”
China: US Dollar Important For Reserves; 2010 Key Year "BEIJING (Dow Jones)–The U.S. dollar will continue to be a key reserve currency in the near term and the main asset in China’s foreign-exchange reserves, but diversifying the country’s reserves "appropriately" will help spread out risk, China’s forex regulator said Thursday, reiterating Beijing’s currency stance as the year closes."
IMF:Global Reserves Up; Dollar Share Of Allocated Reserves Slips – WSJ -Data released by the International Monetary Fund on Wednesday showed global official foreign exchange reserves rose to $7.52 trillion at the end of the third quarter from $7.18 trillion at the end of the second quarter.Allocated reserves stood at $4.43 trillion, up from $4.27 trillion in the previous quarter. The amount of allocated reserves held in U.S. dollars stood at $2.73 trillion, an increase from $2.68 trillion in the second quarter but below the $2.81 trillion recorded in the third quarter of 2008.The data showed U.S. dollar reserves account for 61.65% of allocated reserve holdings, a decline from 62.82% in the previous quarter.
Cardiologists Sue Sebelius Over Medicare Fee Cuts – Heart specialists filed suit against Secretary of Health and Human Services Kathleen Sebelius in an effort to stave off steep Medicare fee cuts for office-based procedures such as echocardiograms. The lawsuit charges that the government’s planned cutbacks will force thousands of cardiologists to shutter their offices, sell diagnostic equipment and work for hospitals, which charge more for the same procedures. "What they’ve done is basically killed the private practice of cardiology."
PG&E Customer Revolt may threaten rollout of Obam’s Smart Grid (joemanc)Consumer backlash and cost concerns may cause delays in the nationwide rollout of “smart” utility meters at the center of the Obama administration’s $8 billion push to update the U.S. electricity grid. PG&E Corp., owner of California’s largest utility, halted meter installations in Bakersfield, north of Los Angeles, after hundreds of customers complained that readings weren’t accurate. The meters, part of a so-called smart-grid initiative billed as clearing the way for more renewable-energy use, are designed to help consumers conserve power during periods of peak demand.
Fitch Rates Illinois’ $3.5B GOs ‘A’; Assigns Watch Negative –Fitch Ratings has assigned an ‘A’ rating and placed on Rating Watch Negative $3.466 billion of State of Illinois general obligation bonds (GOs) taxable series of January 2010. The bonds are expected to sell via negotiation on Jan. 8, 2010. In addition, the ‘A’ rating on $19.4 billion of outstanding Illinois long-term GOs is also placed on Rating Watch Negative, as are ratings related to the state based on its appropriation, as noted at the end of this commentary. –The Rating Watch Negative placement reflects the magnitude and persistent nature of the state’s fiscal problems and will be resolved after an assessment of the extent to which the state addresses its funding imbalances in the context of the legislative session that begins in February and the development of a budget for fiscal year 2011.
State faces fiscal abyss New York is about to achieve a dubious milestone: For the first time in history, the state’s main bank account is poised to end the year in the red. After months of plunging revenues and weeks of budget battles, New York had a negative balance of $174 million in its general fund on Wednesday, with nearly $1 billion in bills owed by day’s end. Every sign pointed to the account still being in the hole when 2010 begins. To fill the gap, New York will be forced to rely on its own version of overdraft protection by raiding its short-term investment pool — a kind of statewide checking account. But that account itself is dangerously low, with only about $800 million on hand, compared with a balance in more flush years of as much as $16 billion."
Total State Tax Collections (WSJ) State revenues fell 11% in the third quarter of 2009 versus the same period a year ago with big drops in sales and income taxes, according to a report released by the Census Tuesday. The report shows state and local governments are only now catching the full brunt of the recession. (See total state tax collections table for the third quarter of 2008 and the third quarter of 2009.)
How Our American Dream Unraveled – After World War II, we believed that prosperity would create the ultimate good society. We were wrong. If you grew up in the 1950s, you were constantly treated to the marvels of the time. At school, you were vaccinated against polio, until then a dread disease. At home, you watched television. Every so often, you looked up into the sky and saw the white vapor trails of a new jet. You stared until the plane vanished. There was an endless array of new gadgets and machines. No problem seemed beyond solution. Good times and the power of American technology: these were not lessons learned, they were experiences absorbed. You took prosperity for granted, and so, increasingly, did other Americans. Thus quietly began the Age of Entitlement. We came to believe that prosperity was inevitable-and that it would automatically create the Good Society. On these two pillars of faith rested our national identity and hopes for the future.
Die Now – If you’re single, not in great health, and are worth a lot but not a really huge lot, you could do your heirs a favor and die today or tomorrow. Sure, you may want to hang around to ring in the New Year but that could cost the beneficiaries of your will a chunk of change. Wait a minute, you say, wouldn’t it be better to wait a few days and die in 2010 when, because the Senate didn’t act, the estate tax will disappear for a year and all inheritances will pass free of federal taxes? That’s true, as I discussed a couple of weeks back, but only if you’re really wealthy—worth more than $3.5 million ($7 million if you are married). If your estate totals between $1.3 million and $3.5 million, it’s cheaper—from a tax perspective—to die this year. The little wrinkle causing that oddity is the 2010 limitation on “step-up in basis.”
France’s Highest Court Strikes Down Carbon Tax – Earlier this year, France enacted a carbon tax of €17 per ton (approximately $25), which was to go into effect January 1, 2010. But this morning, the Constitutional Council, which passes on the constitutionality of laws, rejected the tax. Much like our own House of Representatives with the cap-and-trade bill, the French evidently crammed the carbon tax bill with exemptions for politically connected industries and businesses, with the net result that only consumer purchase of gasoline and heating oils would really take a hit.