Real Time Economics – WSJ

 F.C.C. Chairman Has Plan to Regulate Broadband Providers –Thwarted by the courts, by lawmakers on Capitol Hill and by some of his fellow commissioners, the Federal Communications Commission chairman will try again on Wednesday to devise a new strategy for regulating broadband Internet service providers.  In a speech he plans to give Wednesday in Washington, Julius Genachowski, the F.C.C. chairman, will outline a framework for broadband Internet service that forbids both wired and wireless Internet service providers from blocking lawful content. But the proposal would allow broadband providers to charge consumers different rates for different levels of service, according to a text of the speech provided to The New York Times.  Mr. Genachowski has decided not to use the commission’s telephone regulatory powers to govern broadband Internet service, a move that he proposed in May that would potentially open Internet service to heavier government regulation. His proposal would also allow broadband providers to manage their networks to limit congestion or harmful traffic.
 
Euro zone periphery hammered as default fears rise (Reuters) – The euro zone‘s debt crisis deepened on Tuesday, with investors pushing the single currency lower and the spreads on peripheral bonds up to new highs amid concern weak member states may ultimately be forced to default. European policymakers came out in force to try to calm markets, with European Central Bank President Jean-Claude Trichet warning that pundits were underestimating the determination of governments to keep the euro zone stable. But markets paid little attention, pressuring Portugal, Spain and Italy only days after the EU agreed to an 85 billion euro ($110.7 billion) bailout for Ireland. The borrowing costs of countries like Belgium and France also rose as investors looked beyond the euro zone periphery and targeted core founding members of the bloc. A Reuters survey of 55 leading fund management houses showed U.S. and UK investors had significantly cut back their exposure to euro zone bonds this month, piling into equities instead despite a weakening in global shares.
 
The G-20’s New Thinking For the Global Economy –The Seoul G-20 summit was notable for the increasing political weight of the emerging economies. Not only was it located in one, but, in many ways, it was also dominated by them. In two crucial areas, macroeconomics and global economic development, the emerging economies’ view prevailed. And an excellent proposal to link the two agendas – macroeconomics and development – emerged from the summit, and should be implemented in 2011.A key feature of the world economy today is that it is running at two speeds. The United States and much of Europe remain mired in the aftermath of the financial crisis that erupted in the fall of 2008, with high unemployment, slow economic growth, and continuing bank-sector problems. Emerging markets, however, have generally surmounted the crisis. Whereas 2009 was a tough year for the entire global economy, emerging markets bounced back strongly in 2010, while rich countries did not.Recent data from the International Monetary Fund’s World Economic Outlook tell the story.
 
The European crisis = the Euro crisis? – "The Euro is to blame for the current crisis in Europe". I am sure this sentence sounds familiar to many. The argument is simple: as Euro members cannot devalue their currencies anymore, they do not have an option to improve their economic conditions (by favoring exports), growth suffers and their high levels of debt become unmanageable. The Euro area is not an optimum currency area (it lacks labor mobility, fiscal transfers, etc.) so this was a crisis waiting to happen. Paul Krugman says it here, Simon Johnson says it here and you can find many more articles in the business press repeating these arguments. Let me (partially) disagree with that statement and just bring an alternative view to this issue. It is not a view that denies the importance of exchange rates or the fact that the constraints of the Euro area (one monetary policy might not fit all) might be hurting Euro economies but I think that it is healthy to question our priors on the importance of the exchange rate in explaining some of the empirical phenomena we observe these days in Europe. A couple of disclaimers before I present my arguments:
 

The Showdown On Tax Cuts for the Rich – The President met with Republican leaders at the White House this morning to talk about whether the Bush tax cuts should be extended to top taxpayers, as Republicans want. No decision has been reached, but this is the first test of the President’s resolve with the new Congress — and he should be tough as nails. The economics and politics both dictate it. Taxpayers in the top 1 percent don’t need it (they are now getting almost a quarter of all national income, the highest percent since 1928). They don’t deserve it (they got the lion’s share of the benefits of the 2001 and 2003 Bush tax cuts, and have had no reason to expect a continuation of their windfall).  They won’t spend it to stimulate the economy (top earners save a much higher proportion of their income than the middle class).  And giving it to them blows a giant hole in the budget (the Joint Tax Committee estimates the cost of extending the Bush tax cuts for the top 1 percent to be $61 billion in 2011 alone.)

 

Europe and China: is this deja vu all over again? –The autumn of 2010 is in some ways a replay of what we saw last spring. Is what we saw then a guide to what’s going to happen next?Last spring the yield on 10-year Greek sovereign debt spiked up 600 basis points as concerns rose about the country’s ability and willingness to meet future interest payments. After a significant bailout from other European countries and the IMF, yields settled back down. They crept back up this summer, fell in September and early October, and are now back up almost to the peaks reached at the height of the crisis. Their long-term sovereign debt yields were up 100 and 200 basis points on the Greece concerns last spring, but have shot up much more than that over the last month. As Paul Krugman notes, the really scary thing is that Spain and Italy, which were relatively untouched by the fears last spring, have also seen dramatic moves up in their apparent risk premia. There’s another interesting parallel with last spring’s concerns. The developments in Europe have coincided with efforts by China to raise interest rates and tighten credit.

Putin says dollar hegemony ‘dangerous’ and calls for Russian-EU economic trade zone – Russia and Germany should increase their economic co-operation. This is the message Russian Prime Minister Vladimir Putin delivered to some of Germany’s top business leaders in Berlin. Putin went so far as to suggest a Russian-EU free trade zone "from Lisbon to Vladivostok." The under-current from Putin’s remarks has much to do with anti-US Dollar sentiment because he said specifically that having the U.S. dollar as the sole reserve currency "is definitely something negative." Putin is serious about ditching the dollar. But will this gain any traction? RT video below. Watch the last portion as well in which Max Keiser says the re-emergence of Germany as a super power is the trend to watch.

 

Democrats’ Dwindling Options on Tax Cuts – Democrats have left themselves in a tough spot on the Bush tax cuts. After delaying the issue until after the election and then being trounced in that election, they find themselves with little leverage.  If they cannot come up with a plan that can win 60 votes in the Senate, which means at least two Republican votes, Republicans can filibuster any bill. All of the tax cuts would then expire on Dec. 31. When the new Republican House majority arrives in January, it will be able to make its first order of business a retroactive tax cut — forcing President Obama and Senate Democrats to choose between a purely Republican plan and an across-the-board tax increase.  So the big question is whether Democratic leaders can come up with any compromise that centrist Democrats and a couple of Republican senators — Scott Brown, who represents liberal Massachusetts? George Voinovich of Ohio, who is retiring? — are willing to accept.

Fed’s Kocherlakota Wants Inflation Expectations Increase – The Federal Reserve would welcome a small rise in inflation expectations as a result of its bond-buying program, a U.S. central banker said Tuesday. To a limited extent, this should be a good thing in some sense, to have more expected inflation,” Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said.He explained that when monetary policy is set essentially at 0% and the Fed wants to stimulate demand, a small rise in inflation expectations could help spur activity. Central bankers believe what people think about the future of inflation is a big influence on what price pressures will do in the near term.Kocherlakota explained he believes “very efficient, very rational” financial markets understand what the Fed is doing and don’t see the action as the harbinger of an inflation meltdown. When it comes to a price pressure breakout, the policy maker said, “I don’t think traders really embed that in a major way.”

Bernanke: Job Creation Is Top Problem – Federal Reserve Chairman Ben Bernanke Tuesday said job creation is probably the most important problem facing the U.S. economy right now. “We’re not growing fast enough to materially reduce the unemployment rate,” Despite some recent improvements in labor markets, Bernanke underlined how only one million jobs have been recouped after 8.5 million were lost due to the recession. The slow economic recovery has kept about one in 10 Americans unemployed since the recession ended in June 2009. Fed officials predict the jobless rate could still be around 9.0% in a year from now, with Bernanke having already cautioned it could even rise if growth remains at the current sluggish level.

Debt Panel to Delay Vote Until Friday –The chairmen of President Obama’s debt-reduction commission say they will release a final plan by Wednesday morning, technically meeting the president’s deadline, but they delayed the panel’s vote until Friday to give members time to consider the far-reaching tax and spending proposals. Talks with people familiar with the panel’s deliberations indicate that the 18-member commission is far from consensus. The two chairmen and perhaps three appointees who are not elected officials are said to be in general agreement, but the 12 members of Congress are described as split along party lines – the six Republicans opposed to tax increases and the six Democrats to reductions from future health-care and Social Security benefits.  “We just finished the plan; we’re putting the final touches on it now.” It would not be fair, he added, “to not give people a chance to review it before they’re asked to vote.”

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