Ireland – The Questions Nobody Seems to be Asking
– Talk about deja vu all over again. Here’s Tyler Cowen
talking about the Ireland bailout, and linking to Megan McArdle
discussing the same. Its deja vu, for me, because it seems just about everyone commenting on the issue is ignoring what should be an obvious point, namely that a bail-out is at best a possible solution to the wrong problem. Interestingly enough, this wrong problem has been around for a very long time, and the same cast of characters have been busily ignoring it (or even praising it) for a very long time. I said this is deja vu all over again for me, because the last time I gave much thought to the issue (back in 2006), I wrote a post that linked to both Tyler Cowen and Megan McArdle. I’d like to quote myself extensively if I may: There seems to be some discussion about why Ireland is growing as quickly as it is. I am completely ignorant about this, and haven’t even been to Ireland. But I do have a question… Is it possible that part, even a large part, of the Irish boom, is fictional?
State’s fiscal crisis leaves 16 CNY farms waiting for cash (NY)
LA County libraries in a bind – Los Angeles County’s library system — one of the largest public libraries in the nation — is in financial distress and cannot sustain its level of services over the next decade, according to county library officials. A proposed solution — increasing property taxes — seems to be getting a tough reception. The Library Commission’s recommendation last week prompted no action by the Board of Supervisors. Library officials have declined to be specific about what will be eliminated if a new tax isn’t passed. But the size of the deficit — about $22 million a year over the next decade — may mean even deeper cuts into hours of operation and services that include homework help, children’s story time and gang prevention efforts. The current budget is $160 million.
Oregon Timber Counties Face Financial Collapse – The loss of federal timber payments is pushing some Oregon counties already suffering from the recession toward possible financial collapse. To make things worse, the Legislature is trying to pare down a projected $3.5 billion state budget deficit that likely will result in cuts to services that counties provide under shared funding or contracts with state and federal agencies. Federal timber payments are set to expire in 2012, carving big holes in the budgets of 18 Oregon counties, The Oregonian reported.
Russians to gain US uranium foothold – A Russian state-owned company is set to control up to half of US uranium output by the middle of the decade, after American authorities gave the go-ahead to the partial takeover of Uranium One of Canada by ARMZ. The deal is the latest sign of how, after a three-decade hiatus in new reactor projects, the US has lost control of key parts of the nuclear supply chain. It also comes amid a sharp rise in the price of uranium on hopes that reactor construction will accelerate, led by China and other emerging economies. ARMZ, the uranium mining division of Russia’s state-owned Rosatom nuclear power group, has taken a 51 per cent stake in Toronto-listed Uranium One which owns mines in Wyoming.
Moody’s Cuts Hungary Close to Junk, Warns of Risks (Reuters) – Credit rating agency Moody’s cut Hungary’s sovereign rating by two notches, to just above "junk" grade, on Monday and said it may cut further if the government fails to put public finances on a sustainable footing. Hungary’s government has rejected austerity and aims to close its budget deficit with hefty new taxes on banks and other businesses as well as a diversion of private pension savings into state coffers."The negative outlook reflects the uncertainties regarding the government’s financial strength, as the country’s structural budget deficit is set to increase and external vulnerabilities make the country susceptible to event risk."
European bonds: For and against
– The chairman of the Euro group, Jean-Claude Juncker and the Italian finance minister, Giulio Tremonti, talk up the merits of common European sovereign bonds – or E-bonds – in today’s FT
. There are some positives, which were widely discussed when the rules for the euro were being drawn up. One is to provide deeper markets for European sovereign bonds. Another is to express the irreversibility of the euro and the strength of the countries’ common commitment to make the single currency work. Another advantage – not discussed at that time but sorely missed by the ECB – would be to give the central bank a way to ease monetary policy by buying bonds, without appearing to prop up individual governments or underwrite their borrowing. This gets us to the big unanswered questions in the article, which explain why Germany remains opposed to the idea (it was German opposition that skuppered E-bonds at the start of the euro.)
Obama’s Tax-Cut Retreat, Through Two Lenses
– Letting all of the tax cuts expire surely would have an economic effect, and not a positive one. At a time when the economy is weak, when job growth has proven disappointing yet again and when Europe is again struggling with debt crises, the national discussion would be dominated by an across-the-board tax increase. Households would have less money, and everyone would be talking about how households had less money. That situation seems very likely to push back the date when real improvement would begin and push back the date — still a long way off — when the economy would feel healthy again. One politician, above all, would be hurt by those events: the president.
Trade Does Not Equal Jobs
– One thing I’m hearing, now that all hope of useful fiscal policy is gone, is the idea that trade can be a driver of recovery — that stuff like the South Korea trade agreement can serve as a form of macro policy. Um, no. Our macro problem is insufficient spending on U.S.-produced goods and services; this spending is defined by Y = C + I + G + X – M
where C is consumer spending, I investment spending, G government purchases of goods and services, X is exports, and M is imports. Trade agreements raise X — but they also lead to higher M. On average, they’re a wash. This, by the way, is why claims that the Smoot-Hawley tariff caused the Great Depression are nonsense. Yes, protectionism reduced world exports; it also reduced world imports, by the same amount. There is a case for freer trade — it may make the world economy more efficient. But it does nothing to increase demand.
Germany rejects calls for larger rescue fund and "E-Bonds"
– The European finance ministers are meeting today in Brussels. As we discussed over the weekend, some ministers are pushing to increase the bailout fund and others are arguing for "E-bonds" – joint European government bonds. As expected, Germany reject both suggestions … From the Irish Times: Germany rejects calls over debt fund German Chancellor Angela Merkel said she saw no need to increase the size of the bailout mechanism. Mrs Merkel also said the European Union treaty did not allow for issuing common bonds, which would anyway reduce the element of competition and the interest rate incentive for fiscal good behaviour.
The German view is the higher spreads are the penalty for bad behaviour.
Branson Says Crude Oil Prices Might Hit $200 a Barrel Without New Policies
– “It’s certainly conceivable unless we can start to conserve energy quickly and come up with alternative fuels,” Branson said yesterday in Cancun, Mexico, where countries are meeting to negotiate a new accord to combat climate change. Branson predicts an “unbelievably painful” economic slump if governments don’t do more to encourage renewable energy as an alternative to fossil fuels such as oil. In the U.S., where efforts to cap carbon-dioxide emissions failed in the Senate earlier this year, unemployment could reach record highs, the British billionaire said. “We are going to have the mother of all recessions if we don’t sort out our energy policy fast,” Branson said earlier yesterday at the World Climate Summit in Cancun. “We think we’ve got it bad today. In five years time unemployment could go to 15 percent without any difficulty at all in America.”
No, The Big Banks Have Not "Paid Back" Government Bailouts and Subsidies – The big banks claim that they have paid back all of the bailout money they received, and that the taxpayers have actually made money on the bailouts. However, as Barry Ritholtz notes: Pro Publica has been maintaining a list of bailout recipients, updating the amount lent versus what was repaid. So far, 938 Recipients have had $607,822,512,238 dollars committed to them, with $553,918,968,267 disbursed. Of that $554b disbursed, less than half — $220,782,546,084 — has been returned. Whenever you hear pronunciations of how much money the TARP is making, check back and look at this list. It shows the TARP is deeply underwater. Moreover, as I pointed out in May, the big banks have received enormous windfall profits from guaranteed spreads on interest rates:
GOP, Dems nearing deal on taxes, jobless benefits
— An outline of a bipartisan economic package is emerging that would temporarily extend the Bush-era tax rates for all taxpayers, while extending jobless benefits for millions of Americans.Differences remained over details, including White House demands for middle- and low-income tax credits. But the White House expressed optimism Monday, raising the possibility of a deal in Congress by the end of the week. "They are making progress," said White House spokesman Bill Burton. "The president is confident that within the next couple of days or so we’ll find a way to extend tax cuts to middle class families and do some other things that the president thinks are important, helping to grow the economy and create jobs." Questions remained about how many concessions Obama could extract from Republicans in exchange for extending current tax rates for high earners, a proposal he opposed.
Eurozone under pressure to aid euro with more cash
— European officials wrestled over whether to commit more money to help stabilize the euro as the European Central Bank revealed it has stepped up purchases of government bonds in an attempt to restore confidence in the EU’s single currency bloc. Finance ministers gathered Monday in Brussels to find ways to fight the debt crisis that has rocked the currency bloc, while the European Central Bank said it splashed out euro1.965 billion ($2.57 billion) buying government bonds in the week leading up to Tuesday. That was up from euro1.345 billion the week before and the highest weekly amount in months. Next week’s figures will be key as they will contain purchases by the bank last Friday, Dec. 2, when it held its monthly policy meeting. Market participants suspect the stabilization in European bond markets since the meeting has been largely due to even more purchases by the central bank, under pressure from policymakers to do more to prevent Europe’s debt crisis from spreading to Portugal, and more dangerously to much larger Spain, following earlier bailouts of Greece and Ireland.
Market Power: "Ethanol on the Run"
– It’s nice to see Congress finally coming around to something so many of us have known for years: subsidies to ethanol were a waste of money
. I particularly liked this part. The ethanol industry is responding by predicting disaster if it loses its taxpayer feeding tubes, with the Renewable Fuels Association evoking massive job losses and another Dust Bowl. But what kind of business can’t survive without subsidies when government also mandates that consumers buy its products? As the Senators dryly noted, "Historically our government has helped a product compete in one of three ways: subsidize it, protect it from competition, or require its use. We understand that ethanol may be the only product receiving all three forms of support from the U.S. government at this time."
And it still can’t get off the ground. If an infant industry cannot convince private investors to lend it money so it can get off the ground, it’s probably not that hot. If people must also be forced to use it, then it’s probably pretty cold. If it also must be protected from foreign competition, that’s absolute zero, baby.
Overmatched Wolfgang Munchau
suggests that we need a German word — ueberfordert
— to describe the condition of Europe right now. I think he’s wrong about the lack of an English equivalent; “overmatched” seems fairly close. European leaders, and the European system, just seem not up to dealing with the crisis. But then, who in the West is? It has been 22 months since I gave vent to a growing sense of despair
about the US response; events have not, I’m sorry to say, proved me wrong. One thing that is peculiarly distressing to people like me, by the way, is the determination of key players to rewrite history. Wolfgang Schaeuble
tells us that “deficits were one of the main reasons for the crisis”; in what universe? Ireland and Spain were running surpluses on the eve of the crisis; the US crisis was clearly driven by private-sector, not public-sector debt; unless you define the crisis entirely in terms of Greece, this makes no sense at all. So we’re ueberfordert, both in terms of will and in terms of intellectual clarity.
Bernanke turns obfuscatory
– When Ben Bernanke appeared
on “60 Minutes” in March 2009, he was immediately embraced by middle America and overnight became considered the foremost explainer of economic concepts to the nation. This time around
, Bernanke’s much more embattled. And his answers are much less clear, much more political, and much more contentious. This is not how impartial technocrats should speak: One myth that’s out there is that what we’re doing is printing money. We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way.
Yes, Ben, you are
printing money. It’s how you pay for those Treasury bonds you’re buying. Greg Ip
says so, and so does Scott Grannis
, who helpfully provides this chart
from the first round of QE: Look at the y-axis, and you’ll see that $600 billion is a lot of money, even if it’s less than we saw in QE1. Clearly the monetary base is changing in a significant way.
Are underwater homeowners breaking the Beveridge Curve?
– There are two important questions in the economy today that may be related: 1) is negative equity causing a decrease in geographic mobility? and 2) why is the Beveridge Curve breaking down? Wait! Don’t stop reading yet, I can explain it in non-econo-jargon, I promise. House prices have obviously fallen a lot since the peak of the bubble, and this has left many homeowners “underwater”, so to speak, meaning they owe more on their mortgages than their house is worth. This is potentially causing a big decrease in people’s willingness to move, which includes moving for a job. This, in turn, is potentially causing higher unemployment by preventing people from moving. The question is, how big of a deal is this? The second question relates to the Beveridge Curve, which shows the relationship between the unemployment rate and the number of job vacancies. The idea is that when unemployment is high, job vacancies should be low, and vice versa. If people are having a hard time finding work, then employers shouldn’t be having a hard time finding workers, since there are plenty of unemployed people looking for work. However, as the graph below shows this relationship has broken down somewhat over the recent recession.