Keeping the Good News in Perspective

The newest and best data on income inequality – Our findings suggest that the incomes of executives, managers, supervisors, and financial professionals can account for 60 percent of the increase in the share of national income going to the top percentile of the income distribution between 1979 and 2005. We also demonstrate significant heterogeneity in income growth across and within occupations among people in the top percentile of the income distribution, suggesting that factors that changed in the same way over time for all high income people are probably not the main cause of increasing inequality at the top. The incomes of executives, managers, financial professionals, and technology professionals who are in the top 0.1 percent of the income distribution are found to be very sensitive to stock market fluctuations. Most of our evidence suggests that financial market asset prices, corporate governance, entrepreneurship, and income shifting across corporate and personal tax bases may be especially important in explaining the dramatic rise in top income shares.
 

EU Leaders Commit To Bail-Out Fund
- European heads of government vowed on Friday that the eurozone’s bail-out fund would always have enough financial wherewithal to rescue any faltering country, but the leaders stopped short of saying they would increase its size. The promise, contained in their summit communiqué after two days of meetings, was the most explicit commitment to date by European Union leaders about their willingness to back a bail-out of even larger eurozone economies such asSpain and Italy, should those countries get cut off from the financial markets.But their unwillingness to enlarge the fund, which had been proposed by some EU finance ministers, was a sign that they believed setting a new, higher limit would only lead bond traders to assume EU leaders believed a Spanish or Italian bail-out was inevitable. The commitment came on the same day Moody’s cut Ireland’s credit rating five levels and said the outlook for Irish debt was “negative”. The downgrade was expected following last month’s €85bn Irish bail-out, but the severity of cut was more than anticipated. .

 China Leader Says Anti-Inflation Measures Needed – One of China’s top leaders said at a government meeting that measures needed to be taken to tamp down inflation in the coming year, according to a report on Friday by Xinhua, the state news agency. The comments were one of the clearest signs yet that Chinese leaders are increasingly concerned about popular resentment arising as a result of soaring living costs.  The leader, Li Keqiang, vice premier of China, said in comments made Thursday that “more efforts should be provided to stabilize prices next year.” Over the next five years, economic growth rates should be defined “reasonably,” he added, an indication that leaders could be anxious about an overheated economy.  Mr. Li’s remarks were made at a work meeting in Beijing in which the State Council, China’s cabinet, discussed policies and goals of a five-year plan for development that will begin next year.

Bankers Secretly Meeting to Control the World?!? Yawn – If you want to know why the powers that be hate the New York Times – read this! "The Paper of Record," one of the few remaining news entities not controlled by Rupert Murdoch or some other Billionaire or major corporation, still has the guts to tell it like it is as they are actually pointing a finger right at the Gang of 12 (well 9 of them) and those not-so-secret meetings they have been having for years where they sit down and think of new and exciting ways to control the World. It takes a lot of guts to write an article like this, especially one which actually names ICE (I got my ass handed to me with legal BS when I dared mention them in conjunction with the word "manipulation." Fortunately they straightened me out and we now know that clearly there is no manipulation in the energy markets – can I have my Grandma back now?).   Anyway, those fools at the NY Times have thrown caution to the wind without naming specific names using the phrase "giants LIKE JPM, GS and MS" – something I have learned to do as well because, if you don’t – THEY WILL GET YOU! And what are they saying about our friendly Banksters?:
 

The Federal Budget Deficit and the Looming Crisis – The US federal government is barreling towards a certain fiscal train wreck. While there is much being gleefully reported about the return of the shoppers – er consumers – uh patriotic citizens – spending more than they have, there is almost no hope of growth returning fast enough to offset the amount of budgetary deterioration that now seems to be baked into the cake. As always, one component of the problem is that the US political leadership has absolutely zero experience with even controlling spending let alone cutting spending. Where austerity is being attempted in Europe (at great pain too…if you have not seen this video of the recent Greek riots it is both remarkable and disturbing) the current civil unrest shows that citizens don’t necessarily dutifully accept their politicians’ belt-tightening policies. The plan, such as it is, for the US fiscal and monetary authorities seems to be to keep up the government spending (including the Fed’s QE efforts) for as long as necessary until self-sustaining growth returns.

 
Washington Has Your Checkbook – And They Won’t Stop Spending Your Money – Republicans have a chance to make billions, maybe trillions, of dollars for the country this weekend. With rare backbone, they should actually cut federal spending. If they did, it would utterly shock financial markets and global investors, causing the dollar to surge and the U.S. stock and bond markets to levitate. That adds to pension funds, lowers the cost of capital and would instantly be the biggest jobs program of the outgoing Congress. To date, the motto of the 2009-2010 Congress has been to “leave no spending undone.” The latest attack on fiscal sanity is the continuing resolution making its way through Congress this weekend. It spends more than last year and extends for nine long deficit-riddled months into 2011. The proposed bill defies the election results, costing as much as $1.2 trillion. It’s past time for an upheaval in Washington’s tax-and-spend culture. We can’t afford it even another week. Any final 2010 ‘continuing resolution’ should spend less than last year, not more.
 
Chinese Confusions – Krugman – Basic economics says that by deciding to keep the renminbi undervalued, the Chinese put themselves under inflationary pressure; and sure enough, inflation is rapidly becoming a serious problem. But political considerations seem to be ruling out all the reasonable responses. They won’t revalue, because that would hurt politically influential exporters. They’re reluctant to raise interest rates, because that would hurt politically influential real estate developers. They’re trying to impose quantitative limits on credit, but are finding that borrowers have enough influence to circumvent the limits. And now they’re trying price controls — which will inevitably come apart at the seams unless they do something about the underlying pressures.
 
Fannie Freddie Forked Tongue – Krugman – As I pointed out in today’s column, Republicans on the Financial Crisis Inquiry Commission are pushing a false story — that Fannie and Freddie, by pushing loans to low-income buyers, created the housing bubble and hence the crisis. The right way to refute this story is to point to all the contrary evidence. But catching the commissioners in some rank hypocrisy can’t hurt. And sure enough, Richard Green points us to this 2006 article by Peter Wallison in which he attacks Fannie and Freddie for … not doing enough to promote borrowing by low-income home buyers: There are many lenders aggressively competing to make the higher-amount loans, and the GSEs are not doing the job they should for low-income homebuyers. Fannie and Freddie should do a much better job of providing affordable home financing to a neglected portion of the mortgage market.  Less than a year after that article was published, by the way, the subprime meltdown began.
 
Keeping the Good News in Perspective – The most recent batch of economic data has been quite positive. On Thursday alone, three different reports showed that initial jobless claims had fallen, housing starts and the issuance of building permits had both risen and a Federal Reserve index of manufacturing activity rose too. But before getting too excited about these trends, let’s think back to the early part of this year. Back then, initial jobless claims were falling. Housing starts and the issuance of building permits were rising. A Federal Reserve index of manufacturing activity was rising too. And then what happened? The recovery stopped. Some people blame the debt crisis in Europe (which, of course, has not ended). Others think we’ll never know exactly what stopped the recovery, because the aftermath of a financial crisis tends to be difficult. That last point is important. The notion that a couple of weeks of decent news should cause the Fed to proclaim victory and halt its campaign to lift growth — a notion you’re starting to hear — seems misplaced.
 
When $250,000 Equals $315,000 –  There are two aspects of the high-end cuts that often get lost in the public discussion. The first is households with more than $250,000 a year in adjusted gross income would still get a tax cut — on their first $250,000 of such income. On average, this tax cut would equal about $6,500 a year, regardless of whether a household had $250,000 in adjusted gross income or $1 million (or much more) in adjusted gross income. If all the Bush tax cuts are extended, by contrast, households making at least $1 million a year would receive an average annual tax cut of $104,000. The second issue is that earning $250,000 in adjustable gross income is different from earning $250,000 in total income. High-income households tend to take a significant number of deductions. At our request, Roberton Williams at the Tax Policy Center analyzed the total income of households with $240,000 to $260,000 a year in taxable income. On average, they made $315,000 in adjusted gross income, including $32,000 in capital gains and dividends.
 
When Will The Fed Tighten? – Krugman – According to the Federal Reserve Bank of Atlanta (pdf), investors now expect the Fed to start raising rates next summer. But why? Yes, the latest news suggests improving growth prospects. But we are very deep in the hole, and it would take a lot of growth to get us to anything like full employment. Put it this way: suppose that you assume that the slump has raised the NAIRU to something like 6 percent (which I don’t believe); even so, it would take about five years of growth at 4 percent to get us down to that level. And if you apply any kind of simple Taylor rule to even the optimistic forecasts I’m seeing, it implies zero rates through to the end of 2012 and beyond.
 

Moody’s Slashes Ireland’s Credit Rating – Having pledged late Thursday to do “whatever is required” to contain the debt crisis and defend their embattled currency, European Union leaders reconvened for the final day of a summit meeting. In the draft of a closing statement, the leaders welcomed the “impressive progress” in Dublin toward meeting the stiff conditions set for its recent bailout, including adoption of steep budget cuts.  Moody’s Investors Service had a different assessment, however. It cut Ireland’s credit rating by five notches to Baa1, with a negative outlook, from Aa2 and said further downgrades could follow.  The downgrade represented a further blow for a county that has enacted deep austerity cuts — and it is likely to raise questions about whether the rating agencies are exacerbating the efforts of struggling euro countries to emerge from the crisis.

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