•Participation Rate of 25 to 54 Age Men at Record Low –

Participation Rate of 25 to 54 Age Men at Record Low – The collapse in the labor force participation rate has been one of the key stories of the great recession. The participation rate is the percentage of the working age population in the labor force.  The labor force participation rate has fallen from 66.2% in May 2008 to just 64.5% in November 2010. A few weeks ago I looked at Labor Force Participation Rate: What will happen?. I looked at the aging of the population and concluded that the participation rate will probably increase to around 66% over the next 5 years before declining again – and that will keep upward pressure on the unemployment rate. However one of the key trends has been the decline in the participation rate of men – and that is continuing. This graph shows the changes in the participation rates for men and women since 1960 (in the 25 to 54 age group – the prime working years). The participation rate for men in this key demographic fell to a record low 88.8% in November.

The future of the euro: Don’t do it – The Economist – BOND markets have scorned the €85 billion ($113 billion) bail-out offered to Ireland on November 28th. Yields have risen not just for Ireland but for Portugal, Spain, Italy and even Belgium. The euro has fallen—again. As one botched rescue follows another, solemn vows from European Union leaders that a break-up of the single currency is unthinkable and impossible have lost their power to convince. And that is leading many to question whether the euro can survive. The case against it is that European citizens can no longer live under its yoke. In Europe’s periphery some are yearning to be spared the years of grinding austerity that may be needed for wages and prices to become competitive. In the German-dominated core they are fed up with paying for other countries’ fecklessness and they fear that, as creditors, they will suffer if the European Central Bank (ECB) inflates away the laggards’ debts. Deep down lurks the sullen suspicion that this is a drama that the euro zone may be condemned to relive time and again. So why not get out now?

The crisis in the euro area: No easy exit | The Economist – ONCE again a late Sunday night in Brussels ended with a bail-out for a stricken economy and a set of improvisations to stem the euro zone’s debt crisis. Ireland’s rescue had a similar script to Greece’s, but with a very different outcome. In May European policymakers trumpeted a €110 billion ($146 billion) bail-out for Greece and the promise of €750 billion in rescue funds for the whole zone. They succeeded, temporarily: yields on Greek government bonds plunged and Europe’s sovereign-debt markets calmed down for several months. On November 28th they tried to repeat the trick, announcing an €85 billion package for Ireland and the outline of the European Stability Mechanism (ESM), a permanent system to deal with debt crises, to come into effect after 2013. This time markets were not reassured. Irish bond yields fell for a few hours, but were setting new records by the end of November 29th. Contagion intensified: yields on Portuguese, Spanish, Italian and even Belgian bonds jumped (see chart). The gap between these countries’ borrowing costs and Germany’s became wider than at any time since the birth of the single currency. European stockmarkets fell. The euro hit a ten-week low against the dollar.

George Selgin on Replacing the Fed – In reply to one of my recent posts defending the Fed’s actions over the course of the recent financial crisis, a reader asked me to consider George Selgin’s recent talk, A Century of Failure: Why it’s Time to Consider Replacing the Fed. I’m a big fan of Selgin’s work and this is definitely a video worth watching. The main purpose of this lecture is to encourage people to be less complacent in their views of the modern day institution of central banking. I have some sympathy for many of the points made by Selgin in his lecture. But as it’s no fun agreeing with people, I want to offer some criticism.  I am trying to imagine myself as a layperson attending this lecture. What impression would I be left with? The main impression would be that the Fed has failed miserably in its "promise" to maintain full employment, maintain price stability, to stabilize the business cycle, and to prevent banking panics. Comparing pre and post Fed data shows this. The Fed is like the Wizard of Oz. It’s time to replace the Fed (he does not have time to say with what).
The Trouble With Fiscal Stimulus – There’s been a fair amount of blogospheric bemoaning of the failure of policymakers to adequately embrace the idea of fiscal stimulus as a macroeconomic stabilization policy. And as readers know, I’m very sympathetic to that point of view. But at some point when your side of the argument fails to carry the day, you do need to start thinking about why you’re not persuading people.  And in this case, I think the problem is pretty clear: In the absence of broad political consensus about the appropriate size and scope of the public sector, efforts at fiscal expansion will necessarily get bound up with these debates. Or at the state and local level, anyone who’s thinking seriously about the issue ought to see that the middle of a recession is a terrible time to implement major cutbacks in public spending. But at the same time, people who believe in good faith that state and local spending is above the optimal level will understandably agree with Rahm Emannuel that you don’t want to let a good crisis go to waste. After all, were center-left Keynesian economics bloggers issuing table-thumping condemnations of state and local spending increases in 2004-2007?

Globalisation’s impact on inflation in the European Union – Over the past two decades, Western European trade has become increasingly integrated with emerging economies. This column uses a novel empirical technique to show that import competition from East Asian low-wage countries – in particular China – has dampened inflation in five Western European nations. Increased integration with Turkey and Central and Eastern Europe, meanwhile, has had little effect on inflation.

Germany denies Merkel threatened to leave euro (Reuters) – Germany on Saturday categorically denied a British newspaper report that Chancellor Angela Merkel warned Berlin might leave the euro during a heated exchange at a summit of European Union leaders at the end of October. Citing non-German government figures at the Brussels meeting, daily The Guardian said Merkel made the comments following a dispute with Greek Prime Minister George Papandreou, who it said had accused her of making "undemocratic" proposals. "If this is the sort of club the euro is becoming, perhaps Germany should leave," it quoted Merkel as saying. Merkel’s spokesman Steffen Seibert said the report was untrue and that the chancellor had not made the remarks.

Texas, Ireland and Ten Little Indians – There is the childhood story and song about the ten little Indians. And of course the Agatha Christie tale of the same name, with 10 people invited to an isolated place, only to find that an unseen person is killing them one by one. And that seems to be what the markets want to do with European sovereign debt. First it was Greece, then it was Ireland. Very soon it will be Portugal, then Spain, and even Italy? Belgium perhaps? How many more Indians till it hits the core of Europe? My friend Dennis Gartman wrote a very humorous note yesterday about the following conversation between two Irishmen, Liam and Paddy, sitting in their local pub. The current Irish government has agreed to borrow something like $88 billion euros to shore up their banking crisis. That is about $27,000 for every man, woman, and baby in Ireland, a rather small country with a little over 4 million people. “Aye, Paddy, now that it’s all done, lad, we Irishmen owe the IMF; we owe the countries of the European Union; we owe those damned Englishmen; we owe the Danes; we owe the Swedes for God’s sake! Oh, and we owe the banks, and we owe ourselves. Aye, lad; we owe the whole bloody world it seems.” That they do. And a lot of that Irish debt is owed to German, French, and UK banks.

After stimulus, construction projects drying up – The end of the stimulus – the $787 billion that Washington approved last year in an effort to forestall another Great Depression – is more than a year away. But for Carter and thousands of other workers in the road construction industry, it has already arrived.  Road construction workers were among the first to benefit from the 2009 American Reinvestment and Recovery Act, which pumped hundreds of millions of dollars into "shovel-ready" road resurfacing projects in order to save or create millions of jobs.  The bulk of highway-related work will be done within a year and more than half of the funds for it have been paid out, said Ken Simonson, chief economist for the Associated General Contractors of America, an Arlington County-based trade group.  But with the economy continuing to lag, private-sector work has all but disappeared, and many states have cut back on road work in an effort to plug gaping deficits.

Germany and the euro: We don’t want no transfer union – “WHEREVER there’s a fire in the euro zone, the financial firefighters rush to the scene. That’s us,” jokes Oliver Welke, Germany’s version of Jon Stewart, an American comedian. Although the IMF and European Union are acting as co-rescuers of Ireland and Greece, Germans see themselves as rescuers-in-chief—and they resent it. “Will we finally have to pay for all of Europe?” asked Bild, a tabloid.  Other Europeans see Germany as an arsonist. Angela Merkel, the chancellor, has twice dithered, arguing about conditions for a rescue even as the flames took hold. Her demand that creditors must share in the losses triggered what is now being called the “Merkel crash”, which threatens to engulf not just Ireland but Portugal, Spain and even Italy. Luxembourg’s Jean-Claude Juncker, leader of the euro group of finance ministers, frets that the Germans “are losing sight of the European common good”. Spain’s problems start in Germany, wrote a Spanish analyst in the Financial Times. There is more than a grain of truth in this. Germans were loth to give up the D-mark in 1999 and have never warmed to the euro.

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