The Lender of Last Resort

The Lender of Last Resort – Nick Rowe – What Paul Krugman is saying about Ireland and the Eurozone is not wrong. But he keeps missing the most important point. And it’s bugging me. Sure, the scale of Ireland’s bank guarantees is much bigger than the US’s TARP, as a percentage of GDP, and that matters.  And sure, the Eurozone is less of an Optimal Currency Area than the US, and that matters too. But the lender of last resort matters more. The US has an effective lender of last resort. The Fed has the political authority to print as many US dollars as are needed. The only effective limits are the risks of inflation and moral hazard. The Eurozone does not have an effective lender of last resort. The individual Eurozone countries do not have their own central banks. The ECB lacks the political authority to print as many Euros as are needed. Suppose you abolished the US Federal government. So you needed all 50 State governments to agree before the Fed could act as lender of last resort to one of those State governments. And suppose some of those US State governments had as much debt as Greece, or were bailing out their banks like Ireland. Think all 50 State governments would agree on anything?
 
The Great Liquidity Demand Shock  – I  have been arguing here for some time that the Great Recession of 2007-2009 was nothing more than a pronounced money demand shock that the Federal Reserve failed to fully offset.  As a consequence, nominal spending collapsed and given sticky prices the real economy crashed too.  This seems self evident to me and other so called quasi-monetarists (a term coined by Paul Krugman) like Scott Sumner, Bill Woolsey, Nick Rowe, and Josh Hendrickson. Some folks, however, do not buy it.   They disagree that the fundamental problem was a money demand shock and by implication they disagree that the Fed could have done anything to offset it.  This thinking can be vividly seen in the responses to my National Review article where I make the case for QE2 with a money demand shock story. 
 A more thoughtful response to my argument comes from Brad DeLong who says rather than a narrow money demand shock being the underlying cause of the Great Recession, it was a broader liquidity demand shock.  Thus, the demand for all highly liquid assets increased and derailed nominal spending.  Though some of the quasi-monetarists may disagree with him on the details, I think they would agree with DeLong in general and might even call him a closet quasi-monetarist

Water Pricing and Coping with Drought in the Southwest – Given the growth of population and jobs in the Southwest and the basic need for water, if the supply of water is threatened by drought — how can this region continue to flourish?  An economist would say that allowing water prices to reflect scarcity would take care of this problem.   Consider Peter Gleick’s quote; "Part of the challenge we face in the Southwest is old-style thinking," said Peter Gleick, president of the Pacific Institute and an author of another analysis. "We brought to the Southwest very European ideas about water, developed in water-rich areas. … That worked OK for a while, although not really. But now it’s clear that green lawns and unlimited swimming pools and inefficient irrigated agriculture can’t be sustained."  Gleick says the solution lies in a combination of encouraging the development of untraditional water sources, such as reclaimed wastewater, policies to encourage more efficient water use, efforts to coordinate water policy at local, state and federal levels, and planning to help water utilities adapt to climate change.

 
LPS: Over 4.3 million loans 90+ days or in foreclosure – LPS Applied Analytics released their November Mortgage Performance data. According to LPS:
• The average number of days delinquent for loans in foreclosure is a record 499 days
• Over 4.3 million loans are 90 days or more delinquent or in foreclosure
• Delinquency rates are down across all products as more loans entered foreclosure and new delinquencies declined.
• Foreclosure inventory increases are being driven both by elevated levels of foreclosure starts as well as a very limited amount of foreclosure sale activity.
This graph provided by LPS Applied Analytics shows the percent delinquent, percent in foreclosure, and total non-current mortgages. The percent in the foreclosure process is trending up because of the foreclosure moratoriums.  According to LPS, 9.02% of mortgages are delinquent (down from 9.29% in October), and another 4.08% are in the foreclosure process (up from 3.92% in October) for a total of 13.10%. It breaks down as:
• 2.61 million loans less than 90 days delinquent.
• 2.16 million loans 90+ days delinquent.
• 2.16 million loans in foreclosure process.

 
Sacred Cows – Paul Krugman – I was looking at Republican plans to cut spending without touching Social Security, Medicare, defense, etc., and ran across this: Cutting non-security discretionary funds by $100 billion means a 21% annual reduction in the part of the budget that includes funding for education, health and human services and housing and urban development, among other things, according to the Center on Budget and Policy Priorities, a liberal think tank. In other words, the sacred cows of domestic Democratic policy.  Ahem. Let’s look at the budget for the biggest of these agencies (pdf), HHS. About half of that budget goes for the Centers for Disease Control and the National Institutes of Health. I didn’t think that preventing epidemics was a “Democratic” sacred cow; and despite the anti-science tendencies of the right, I don’t think they’re against medical research in general.
 
What happens to people when their unemployment insurance runs out and they still can’t find a job? – The average length of a spell of unemployment now sits at 30 weeks, after hitting a high of 35 weeks in July. About 6.3 million people, 42 percent of all unemployed Americans, have been out of work for more than six months. And more than 1 million have exhausted their unemployment benefits. They’re called 99ers. (The term, coined this year, refers to the maximum weeks of benefits in the states with the highest unemployment rates.) There are about 1.6 million of them, according to the Department of Labor. And they raise the question: What happens when unemployment insurance ends? There is no reliable way to measure what happens to 99ers, whether they find work, return to school, remain unemployed, or move on to programs such as disability and welfare. (The Department of Labor does not follow the same individuals longitudinally.) But economists know with a reasonable amount of certainty that their unemployment does not end when their unemployment insurance does.
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s