Crisis in the States – Nice little briefing from Douglas Elliot at Brookings on the scope of the state and local pension problem:  Unfortunately, pension deficits are closely correlated with the overall economy, principally because of the high level of investments in the stock market.  Thus, pension deficits turn out to be worst when the economy is in bad shape, such as today, making it particularly hard for taxpayers to absorb the cost of the required additional pension contributions. In this respect, risk-taking in pension funds is the opposite of hedging – it is more like gambling the grocery money. Winning would be nice, but losing would be very painful. And how likely is this gamble to pay off? Not very. Deficits at state and local pension funds constitute a serious problem, with economic values of these deficits aggregating to approximately $3 trillion or more than 2 years worth of tax revenue. This problem has been building for a long time.  That’s the problem with retiree benefits–they can accumulate for quite a while before you notice that, oops, they’re budget killers.  Unfortunately for us, as with Medicare and Social Security, now is when these problems have gotten too big to ignore.  We have a triple-whammy of rising health care costs, a demographic bulge, and the historical legacy of a major expansion of government.
Hiring Plans Pick Up Across Globe – Employers in countries such as India and China expect more robust hiring heading into 2011, while U.S. hiring plans, though improved, are more modest, a new survey finds. Employers in 15 of 36 countries predicted their pace of hiring would improve in the beginning of 2011, compared with the end of 2010, according to a survey by staffing company Manpower Inc. The largest gains were expected in Italy, Germany, Hong Kong, Singapore and the U.S. Meanwhile, employers in Switzerland, Austria and Colombia projected weaker hiring in the beginning of next year, compared with the prior quarter. Even more employers expected gains, compared with the same time a year ago. Employers in 28 of 35 countries expected stronger hiring in the first quarter of next year, compared with the first quarter of 2010. The biggest gains in expected hiring from the previous year were reported in China, Italy, Mexico and Taiwan, according to the survey. The slowest pace of hiring was expected in Greece, followed by South Africa and Austria.
The mercantilist road to recovery – LEADERS from South Korea and America seem to have reached an agreement on a new trade liberalisation deal that looked doomed just a few weeks ago (thanks Kim Jong-Il!). The deal would slowly reduce barriers on a range of goods, from agricultural products to automobiles, and it could give momentum to ongoing trade talks between America and other trading partners. What does economist Paul Krugman think of the deal? If you want a trade policy that helps employment, it has to be a policy that induces other countries to run bigger deficits or smaller surpluses. A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not. If you want the Korea deal, fine; but don’t claim virtues for it that it doesn’t possess. Got it? If you want to create jobs, go as mercantilist as possible. Maximise your exports; minimise your imports. Just how does Mr Krugman arrive at this 19th century policy prescription? He starts here: Our macro problem is insufficient spending on U.S.-produced goods and services
Fed’s Lacker Warns QE2 Carries Risks – The Federal Reserve’s efforts to expand its balance sheet by up to $600 billion in the coming months aren’t without risk, Richmond Federal Reserve President Jeffrey Lacker said Monday. “Further balance-sheet expansion now could require more rapid balance-sheet reduction later on,” “Central banks should be careful not to steer monetary policy off course by targeting the unemployment rate,” he said. Lacker’s warning came a day after Federal Reserve Chairman Ben Bernanke made a rare appearance on CBS’s “60 Minutes” to defend the Fed’s controversial plan to buy additional U.S. government debt.
Inside Job – Krugman –  I finally managed to see the movie. Do see it if you can; it will make your blood boil, and in a good way. One side reaction: the movie showed the Hamptons, with the caption “two hours from Manhattan.” Only for the little people, guys. Almost 20 years ago — when Wall Street paychecks were small by modern standards — I asked some investment bankers whether getting out to their Hamptons places was a hard drive; there was a silence, then someone said, “It’s only half an hour by helicopter.” In a way, the point is that even Ferguson doesn’t quite grasp just how big the gaps in life experience have grown. I think this film will stay with us; when you ask how the even worse crisis of, say, 2015 happened, the fact that these people got away with it will loom large.
Bank assets as a percentage of gdp – Via Megan McArdle (from a good post on why it’s hard to leave the euro), we are offered this list: Bank assets as a percentage of GDP

Luxembourg 2,461
Ireland 872
Switzerland 723
Denmark 477
Iceland 458
Netherlands 432
United Kingdom 389
Belgium 380
Sweden 340
France 338
Austria 299
Spain 251
Germany 246
Finland 205
Australia 205
Portugal 188
Canada 157
Italy 151
Greece 141

(For comparison, total banking assets in the U.S. are equal to approximately 82 percent of GDP.)


Obama: New Spending Needed for Education, Innovation –President Barack Obama said the U.S.’s ability to compete in the global economy depends on making new investments in education, innovation and infrastructure. As Democrats and Republicans talk more about the need to cut federal spending, Mr. Obama argued that spending on tuition assistance, research and development tax credits and other initiatives cannot be reduced. He did not specify where new money should be spent or lay out any new policies; aides said those ideas would be unveiled ahead of the State of the Union speech early next year. Rather, the president laid out his own set of priorities and made clear he would resist efforts to cut federal spending in those areas. “We’re going to have to be bold and courageous in eliminating spending programs that we don’t need and we can’t afford,”
The Lame-Duck Congress: So Many Tax Issues, So Little Time – Everyone knows about the expiring Bush-era tax cuts—how taxes will jump for every taxpayer if the cuts sunset as mandated in the 2001 law. But that’s only the tip of the tax iceberg. Other issues, in no particular order here, also demand attention:  1. Patching the alternative minimum tax (AMT): Absent Congressional action, more than 28 million taxpayers will pay an average of more than $3,700 additional tax on their 2010 returns because of the AMT. Congress has repeatedly “patched” the AMT to protect those households but hasn’t done anything yet for 2010. 2. Estate taxes: People dying in 2010 will pay no estate tax, no matter how large their estates. Already five billionaires have taken advantage of that tax hiatus and—who knows?—others may have plans to join them this month. But miss the December window and everything changes—estates worth more than $1 million will face tax rates as high as 55 percent. 3. Stimulus Tax Provisions: Tax provisions in the 2009 stimulus act, most notably the Making Work Pay credit, also expire at year’s end. Expiration of MWP alone will cut workers’ after-tax income by an aggregate $60 billion next year. Other provisions that make the child credit more refundable, expand EITC for larger families, help pay for college, and exempt $2,400 of unemployment compensation from income tax will also disappear, pulling nearly $20 billion more out of taxpayers’ pockets. 4. Tax Extenders: Congress has yet to address the annual list of expiring tax provisions, all of which get extended every year. All this is a lot to deal with in the next ten days.
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