If a Stronger Yuan is Good, Can A Weaker Dollar be Bad?

If a Stronger Yuan is Good, Can A Weaker Dollar be Bad? – One of the top themes for 2010 in economics, politics, and diplomacy was the damage being done to the U.S. economy by an undervalued Chinese yuan. As the yuan began to appreciate in the second half of the year, slowly in nominal terms but more rapidly in real terms, everyone cheered. At the same time the yuan appreciated, the dollar depreciated, not just relative to the yuan, but to all foreign currencies on average. The broad weakness of the dollar was welcomed much less enthusiastically. Words like "unpleasant" and "grim" tended to be used instead. So what gives? If a stronger yuan is good, can a weaker dollar really be bad?
 
 
More on Ending the 30-Year Fixed-Rate Mortgage – Last May, I had a post asking "Should We End the 30-Year Fixed-Rate Mortgage?" That post featured the graph above illustrating how the significant interest rate risk of 30-year mortgages contributed to the 3,000 bank failures during the S&L crisis.  Because S&L’s were borrowing deposits at short-term, variable interest rates and lending mortgage money long at 30-year fixed rates, many banks became insolvent by the early 1980s when rising interest rates resulted in S&L’s paying short-term rates on deposits as high as 10-15% to finance 30-year fixed rate mortgage assets at rates as low as 5-7%. When a bank is paying 15% variable-rates on deposits and receiving only 5% on fixed-rate assets, that’s a sure prescription for bank failure.   A related article appeared in yesterday’s NY Times by Bethany McLean who asks "Who Wants a 30-Year Mortgage?"  Here are some excerpts
 
 
Why Is The US Taxpayer Subsidizing Facebook – And The Next Bubble? – Simon Johnson – Goldman Sachs is investing $450 million of its own money in Facebook, at a valuation that implies the social networking company is now worth $50 billion.  Goldman is also apparently launching a fund that will bring its own high net worth clients in as investors for Facebook. On the face of it, this might just seem like the financial sector doing what it is supposed to – channeling funds into productive enterprise.  The SEC is apparently looking at the way private investors will be involved, but there are some more deeply unsettling factors at work here. Remember that Goldman Sachs is now a bank holding company – a status it received in September 2008, at the height of the financial crisis, in order to avoid collapse.  This means that it has essentially unfettered access to the Federal Reserve’s discount window, i.e., it can borrow against all kinds of assets in its portfolio, effective ensuring it has government-provided liquidity at any time.
 
Fed Watch: Generally Positive – Today’s ISM nonmanufaturing headline figure provided further evidence the US economy left 2010 on firmer footing. Generally solid internals as well, with both production and new orders posting solid gains. Like its manufacturing cousin, the weak spot was employment, a critical determinant for the evolution of Fed policy this year.  In contrast, the ADP numbers were released with great fanfare, suggesting a 297k gain in private nonfarm payrolls. A potential blowout in the making given that expectations for Friday’s employment report was 140k overall. However, a word of caution regarding the ADP figure via the Wall Street Journal: But there is a seasonal quirk in the ADP number that may have inflated the December number. ADP and Macroeconomic Advisers do a seasonal adjustment that takes into account a typical December purge, where employers who have fired workers over the course of the year but don’t remove them from officials payrolls right away clear the rolls.

 

On the Dole, Corporate Style – Imagine that Congress or your state legislature passed a law tomorrow saying everybody except you got a tax break because the politicians in both parties disliked your business.  Even if the loser were Julian Assange’s WikiLeaks, that law would be struck down by the courts on any number of grounds, including violating the Constitution’s equal protection clause and perhaps the third clause under Article I, section 9, which prohibits bills of attainder.  But what about the opposite case? What if the government passed a law requiring every business to pay a tax except your competitor’s business?  That kind of government meddling in the market goes on every day in America

 
 Republicans’ Deficit Ceiling Bluff an Attack on Social Security – (Real News Video) William K. Black: Forces pushing for cuts in social security preparing conditions for its demise.
 

 Washington Post Somehow Doesn’t Realize People Care About The Economy – The Washington Post asks readers to rank eight issues they want the new Congress to address: Notice anything missing? Like, say "jobs" or "the economy"? Four of the eight options are geared towards deficit reduction — and there’s nothing about jobs, at a time of historic levels of sustained unemployment. Amazing. Unsurprisingly, real polls, conducted by people who aren’t as spectacularly out of touch as the Washington Post, find that far more people identify unemployment as the most important issue facing the nation than deficits. In a Bloomberg poll conducted last month, for example, 50 percent of respondents said "unemployment and jobs" is the most important issue — twice as many as those who said "federal deficit and spending." So, to the American people, unemployment is the top priority, by a huge margin. To the Washington Post, it doesn’t crack the top eight.

CBO’s Preliminary Analysis of H.R. 2, the Repealing the Job-Killing Health Care Law Act – Director’s Blog – The House of Representatives is planning to consider a bill (H.R. 2) to repeal the major health care legislation enacted last March—that is, the Patient Protection and Affordable Care Act (PPACA) and the provisions of the Health Care and Education Reconciliation Act of 2010 that are related to health care. CBO has not yet developed a detailed estimate of the budgetary impact of repealing that legislation, although it is working with the staff of the Joint Committee on Taxation (JCT) to complete such an estimate in the near future. Because Congressional deliberations on H.R. 2 are beginning, CBO today issued a less-detailed preliminary analysis of that legislation. Because CBO and JCT estimated that the March 2010 health care legislation would reduce budget deficits over the 2010–2019 period and in subsequent years, we expect that repealing that legislation would increase budget deficits. The resulting increase in deficits projected for fiscal years 2012 through 2019 is likely to be similar in size to—but not exactly the same as—the reduction in deficits that was originally estimated to result from the enacted legislation.
NSIDC: Lowest December Arctic sea ice extent in satellite record – The cold may make the news, but it ain’t the story – The National Snow and Ice Data Center has released its December report on Arctic sea ice.  The human-driven decline continues, spurred by a strong negative phase of the Arctic Oscillation, which leads to this regional air temperature anomaly:  Parts of Canada are astoundingly warm.  Nunatsiaq Online reports: … temperatures around South Baffin reached record highs as much as 20 degrees above normal.Iqaluit set new records with temperatures rising to +1.2 C Jan. 3 breaking the record of —1.7 C set in 1970, said Yvonne Bilan-Wallace, a meteorologist with Environment Canada. Jan. 4 saw another new record for the capital with a high of +1.5 C, breaking the old mark of —1.1 C set in 1969. “The normal around this time of year is around -22C,” she said. “So yeah, you’re way above normal.” Pangnirtung also set a record high temperature, peaking at +8 C Jan. 4,

 

 Repealing health-care reform would cost hundreds of billions of dollars — and Eric Cantor knows it  – House Republicans are in a pickle: One of their new rules says that new legislation must be paid for. But the health-care bill reduces the federal deficit by more than $100 billion over the next 10 years. Luckily, they’ve figured out an answer to their problem: They’ve decided to simply exempt the repeal bill from the rules. That means they’re beginning the 112th Congress by lifting their own rules in order to take a vote that will increase the deficit. Change we can believe in, and all that. Republicans are aware that this looks, well, horrible. So they’re trying to explain why their decision to lift the rule requiring fiscal responsibility is actually fiscally responsible. Majority Leader Eric Cantor got asked about this, and he returned the reporter’s serve with a volley of nonsense. "About the budget implications, I think most people understand that the CBO did the job it was asked to do by the then-Democrat majority, and it was really comparing apples to oranges,” Cantor said. “It talked about 10 years’ worth of tax hikes and six years’ worth of benefits. Everyone knows beyond the 10-year window, this bill has the potential to bankrupt this federal government as well as the states."

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