Fed Official Says Debt-Buying Will Help Economy – The Federal Reserve’s new effort to support the recovery by purchasing $600 billion of Treasury securities will create roughly 700,000 jobs in the private sector, according to a new study by researchers at the central bank. The study amounts to the first concrete estimate by the Fed of the economic effects of the debt-buying program it announced on Nov. 3. The program has been politically controversial, with conservatives accusing the Fed of printing money, financing the federal deficit and devaluing the dollar. In a forum here on Saturday during the annual meeting of the American Economic Association, the Fed’s vice chairwoman, Janet L. Yellen, used the new study to offer a staunch defense of the program, which is supposed to last through June. “It will not be a panacea, but I believe it will be effective in fostering maximum employment and price stability,” Ms. Yellen said, referring to the two parts of the Fed’s legal mandate.
The decoupling of Europe – – Rebecca Wilder – I decided to look at Eurozone unemployment rates to pass the miserable time. According to the Friday Eurostat press release, The euro area1 (EA16) seasonally-adjusted unemployment rate was 10.1% in November 2010, unchanged compared with October4. It was 9.9% in November 2009. The EU271 unemployment rate was 9.6% in November 2010, unchanged compared with October4. It was 9.4% in November 2009. The Eurozone started growing again in Q3 2009. But since then, the regional labor forces show a sharp divergence in resource utilization, as measured by the unemployment rates: the weak (Periphery) from the strong (core). Here’s how it looked in 2007 before the Eurozone entered recession.The 2007 unemployment rates were quite similar in levels, where the differences in unemployment rates across the Eurozone are defined primarily by structural, rather than cyclical, factors. Here’s how it looks now, where the weakness in resource utilization due to cyclical factors is hitting the Periphery hard compared to the core countries, especially Germany.
Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events? – SF Fed (pdf) Abstract Before the recent recession, the consensus among researchers was that the zero lower bound (ZLB) probably would not pose a significant problem for monetary policy as long as a central bank aimed for an inflation rate of about 2 percent; some have even argued that an appreciably lower target inflation rate would pose no problems. This paper reexamines this consensus in the wake of the financial crisis, which has seen policy rates at their effective lower bound for more than two years in the United States and Japan and near zero in many other countries. We conduct our analysis using a set of structural and time series statistical models. We find that the decline in economic activity and interest rates in the United States has generally been well outside forecast confidence bands of many empirical macroeconomic models. In contrast, the decline in inflation has been less surprising. We identify a number of factors that help to account for the degree to which models were surprised by recent events. First, uncertainty about model parameters and latent variables, which were typically ignored in past research, significantly increases the probability of hitting the ZLB. Second, models that are based primarily on the Great Moderation period severely understate the incidence and severity of ZLB events. Third, the propagation mechanisms and shocks embedded in standard DSGE models appear to be insufficient to generate sustained periods of policy being stuck at the ZLB, such as we now observe.
Yellen Says Fed Asset Purchases Create 3 Million Private Jobs – The Federal Reserve’s two rounds of asset purchases totaling $2.3 trillion will have helped boost private payrolls by about 3 million jobs by 2012, said Fed Vice Chairman Janet Yellen, citing research by four central bank economists. Policy makers’ November decision to start a second round of asset purchases of $600 billion through June “is intended to support economic recovery from an exceptionally deep recession,” the 64-year-old central banker said in the text of a speech today in Denver. “I believe it will be effective in fostering maximum employment and price stability.” Yellen gave the most detailed accounting yet of the benefits the central bank sees from its stimulus, adding her voice to a defense of the policy by Chairman Ben S. Bernanke and other officials. Republican lawmakers and officials in China, Germany and Brazil have criticized the purchases, saying they threaten to weaken the dollar and stoke asset-price bubbles.
Germany and France want Portugal to accept aid: report (Reuters) – Germany and France want Portugal to accept an international bailout as soon as possible in order to prevent its debt crisis spreading to other countries, German magazine Der Spiegel reported on Saturday. Without citing its sources, the magazine said government experts from both European heavyweights were concerned Lisbon will soon not be able to finance its debt at reasonable rates, after its borrowing costs rose at the end of last year. Berlin and Paris also want euro zone countries to publicly commit to do whatever it takes to protect the bloc’s single currency, including topping up a 750 billion euro ($968 billion) rescue fund if necessary. Portugal is viewed by many economists as the peripheral euro zone country that is most likely to follow Ireland and Greece to seek an international bailout as it grapples to cut its debts and borrowing costs. It holds its first bond auction of the year next week.
Facing Scrutiny, Banks Slow Pace of Foreclosures – Over the last several months, some banks have been reluctant to seize homes from distressed borrowers, economists and government officials say, as they face scrutiny from regulators and the prospect of sanctions when investigations wrap up in the coming weeks and months. The Obama administration, in its most recent housing report, said foreclosure activity fell 21 percent in November from October, the biggest monthly decline in five years. Here in Phoenix, foreclosures fell by more than a third in the same period, reflected in the severe drop in foreclosed homes being auctioned on the courthouse plaza. The pace of foreclosures could be curtailed further by courts. In a closely watched case, the highest court in Massachusetts invalidated two foreclosures in that state on Friday. The court ruled that two banks, U.S. Bancorp and Wells Fargo, failed to prove they owned the mortgages when they foreclosed on the homes.
REAL ESTATE: Commercial delinquencies rising as landlords struggle – Trepp measures loans that were bundled into bonds, called commercial mortgage-backed securities. Commercial loans are a telltale for the economy, though one that lags. . As tenants disappear, owners of hotels, shopping malls, and offices stop making loan payments, which can push building owners into default. The rapid rise in commercial debt delinquency comes three years after a spike in residential foreclosures kicked down the national economy. Some economists worried that a similar collapse in commercial debt could drag the national economy into a second recession, but recent signs of increased transactions suggest the commercial borrowers may be digging their way out. Unlike residential loans, which are generally owned by big lenders or pension funds, commercial loans are often held by small and regional banks that wanted a chance at big returns during the construction boom of the 2000s. As a result, some local banks carry investment portfolios laden with delinquent construction loans or commercial mortgages.