When the government sets the price

Housing’s Anemic Rebound to Give Little Boost to U.S. Economy – This may be the year the U.S. housing market starts crawling up from rock bottom. Held back by foreclosures, the pace will be so weak it won’t do much for economic growth. Home prices probably will start to gain in 2011’s third quarter and rise 0.6 percent for the year, the first annual advance since 2006, according to Fannie Mae, the largest U.S. mortgage buyer. Real residential investment, an inflation- adjusted measure of homebuilding, will increase 9.6 percent in 2011 after five years of declines to a record low, based on the median forecast of 30 economists at a Federal Reserve Bank of Chicago symposium last month. “There’s a good chance of a housing turnaround this year, but it’s not going to be enough to give much help to the economy,” said Karl Case, co-creator of the S&P/Case-Shiller Index that tracks U.S. home prices. “We’re coming off 50-year lows and we still have to deal with the foreclosure mess.”

 

Chamber of Commerce prez: Debt ceiling hike “will be done” – Some Republican officials have insisted in recent days that they cannot support hiking the debt ceiling unless Obama and Dems make major concessions on bringing down spending. Since many observers say failure to raise the debt ceiling would be catastrophic for the country, this effort by Republicans looks like an effort to use the showdown as a bargaining chip to force the Dems’ hand on spending cuts. That’s why the appearance above by Chamber president Tom Donohue is key. "We absolutely support the expansion of the debt," Chamber president Tom Donohue said. He added that officials should make a few gestures in the direction of spending cuts, but dismissed the brinksmanship as mainly political posturing. "We’ve got to do the debt ceiling," he said. "There’ll be a lot of political carrying on, but it will be done."

The business lobby takes on healthcare reform – What business, big or small, doesn’t like a government bailout? That’s what the Obama healthcare bill is, in oversimplified terms, from the point of view of employers: up until now they’ve been struggling with soaring healthcare costs, and now the government is stepping in to relieve some of that burden. David Wessel finds it necessary today to explain this at some length, thanks to the fact that the US Chamber of Commerce and the National Federation of Independent Business both want to repeal the bill. Wessel explains that the bill will help minimize the implicit subsidies that insured employees pay to the uninsured; will make it much easier for small businesses to shop for healthcare; will end Cobra obligations; and might even slow the pace of healthcare cost inflation. What he doesn’t explain is how the US Chamber of Commerce and the National Federation of Independent Business became party-political hack machines, lobbying for whatever’s good for Republicans politically rather than whatever’s good for businesses on a policy basis.  
 

Last Year: The Warmest On Record (Again) – Every January for the past decade, you’ve heard the same basic news story: It announces that last year was one of the warmest years on the planet since 1880, when record-keeping began in earnest. Well, it’s January, and yes, last year was one of the warmest years on record since 1880. In fact, 2010 ties the record with 2005 as the hottest year in the historical record. . "This is the 34th consecutive year with temperatures above the 20th century average." In fact, you need to go back to 1976 to find a year with below-average global temperatures, as measured on thermometers around the world. But what about rain and snow? "Preciptiation is highly variable from place to place, so there were lots of dry areas, lots of wet areas. But when we average those out, it was also the wettest year on record," Arndt said.

Rising Temperatures, Disappearing Coastlines – Interactive – Greenland and Antarctica hold the world’s largest reservoirs of fresh water, locked in their giant ice sheets. Global warming may cause large parts of these ices sheets to melt within centuries — changing the shape of coastlines around the world.

EPA Moves To Ban Pesticide That Leaves Fluoride Residue – After years of pressure from environmental groups, the Environmental Protection Agency is proposing to ban sulfuryl fluoride by 2014. Sulfuryl fluoride is used to fumigate places where food is stored, and the stuff gets sprayed on grains, dried fruit, coffee, cocoa beans and nuts.  The problem with sulfuryl fluoride is that it leaves fluoride behind as it degrades. A little fluoride is good for teeth, but too much causes staining and pitting. Although EPA says the pesticide is responsible for less than 3 percent of fluoride exposure, the government’s been on a bit of a tear lately to reduce kids’ exposure. It recently proposed reducing fluoride in drinking water.

Detroit Public Schools Facing Budget Apocalypse – You basically never read anything cheery about Detroit and these education cutbacks are no exception: Detroit Public Schools would close nearly half of its schools in the next two years, and increase high school class sizes to 62 by the following year, under a deficit-reduction plan filed with the state. The plan, part of a monthly update Emergency Financial Manager Robert Bobb gives the Department of Education, was filed late Monday to provide insight into Bobb’s progress in his attempt to slash a $327 million deficit in the district to zero over the next several years. Under it, the district would slim down from 142 schools now to 72 during 2012-13. The terrifying thing is that these don’t even seem like terrible ideas. The city really should be operating fewer school buildings, and though large class sizes aren’t ideal it’s more important for kids to have access to effective teachers than for kids to have low student:teacher ratios. But obviously this is death spiral stuff—the more the city pares back, the more the people with means and opportunity will leave and the worse things will become.

 Inequality among the rich in one graph and one thought experiment – Someone in the 80th percentile is a lot closer, in dollar terms, to someone in the 20th percentile than to someone in the 95th percentile. But are they more like someone in the 20th percentile than someone in the 95th percentile? That’s trickier. Kevin Drum posed a nice thought experiment to his readers the other day.  Let’s say that you’re in your 30s, married, two children, and you make $100,000 a year. I offer you a fair coin flip with the following possible outcomes:  Heads: You will be stripped of most of your assets and will earn $30,000 per year for the rest of your life. That’s all you get, and neither friends nor family can top it up for you. Tails: You will earn $1 million per year for the rest of your life. Treat this as a serious question. Would you take me up on my offer to flip the coin? Just about no one did. Drum didn’t conduct a scientific survey, but "it’s suggestive that in terms of lifestyle, if not political goals, a $100K wage earner actually feels somewhat closer to the zillionaires than to someone barely scraping by.

When the government sets the price – A simple and common justification for public sector unions is that the government is a monopsonist for many occupations, meaning they are the only employer. Yet when a natural monopoly exists, it is the government we often seek to entrust with the power to set prices at the efficient level, and we assume they will behave as a benevolent dictator.  There are many places where we trust the government to benignly set prices if they are going to fulfill some valuable role. For instance, gas taxes and road tolls. Yet we don’t worry that the government will behave as a monopolist here and set prices inefficiently high. In fact, in these cases quite the opposite occurs. An empirical problem with this argument for public sectors is that there is a clear public sector union wage premium just as there is in the private sector. If wages were being bargained up to market level, then this wouldn’t be the case.
 
Health Care Reform Contains Major Expansion Of Access To Mental Health Services –  The health care law that Republicans are targeting for repeal provides significant assistance and options for people with mental illness, an issue that has received increased attention as details emerge about the alleged shooter in Arizona on Saturday. As Igor Volsky of ThinkProgress points out, Rep. Mike Rogers (R-Mich.) similarly told MSNBC Tuesday, "A bad guy is going to get a gun. What we have to do is "intervene earlier in that cycle of violence when they have this kind of mental disability."  Lawmakers looking for a way to boost mental health services might want to start by checking out last year’s Patient Protection and Affordable Care Act, which both West and Rogers support repealing. Mental health advocates have hailed the law for its expansion of access.
 
No jobs for more than three out of four unemployed workers – This morning the Bureau of Labor Statistics released a discouraging November report from the Job Openings and Labor Turnover Survey (JOLTS), showing that job openings decreased by 80,000 in November, while revisions to earlier data reveal that there were 34,000 fewer job openings in October than previously reported.  The survey also showed other signs of weakness in November, as hires declined by 39,000, layoffs increased by 36,000, and quits decreased by 44,000.  The report underscores the rocky nature of the recovery.  The total number of job openings in November was 3.25 million, while the total number of unemployed workers was 15.0 million (the latter is from the Current Population Survey).  The ratio of unemployed workers to job openings was thus 4.6-to-1 in November, a deterioration from the revised October ratio of 4.5-to-1.  Despite November’s lapse, the job-seeker’s ratio has been generally improving since its peak of 6.3-to-1 in July 2009.  However, at 4.6-to-1 the ratio is more than three times its 2007 average of 1.5-to-1. 
 
Financial Armageddon: American Nightmare – Many, if not most, of us who have grown up in this country have been conditioned to believe in the American Dream — that vision, as James Truslow Adams described it, of "’a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement,’ regardless of social class or circumstances of birth." That was before the U.S. (and the rest of the world) got body-slammed by the worst financial crisis this century. Now, a growing number of ordinary Americans, like those the Orlando Sentinel writes about in "Recession Created ‘Epidemic’ of Homeless Families," are wondering if the dream of a better life has been transformed into the nightmare of seemingly never-ending hard times and the constant struggle to survive:
 
Will home prices fall back below 2009 low? – As I have noted in the past, since the home price index data provided by Radar Logic is more timely, unadjusted and un-smoothed it is particularly useful for gaining deeper visibility over our housing markets especially in light of the distortions created by the massive government tax gimmick and other malfeasance. By contrast, recognize that because the S&P/Case-Shiller (CSI) data is a two month lagged and a three month moving average, the index data will reflect price movement resulting from the government’s housing tax scam (asBostonBubble pointed out) until at least the February 2011 release. The Radar logic data, on the other hand, while lagged by 60 days is reported daily and, more importantly, is NOT SMOOTHED or adjusted so you can expect to see the underlying trends more precisely and substantially sooner than with the CSI. The latest data shows that as of the middle of early November, prices are 2.27% below the level seen in November 2009.
FDIC Set to Weigh Pay Revamp, Liquidation Authority –  The Federal Deposit Insurance Corp. plans next week to consider how to discourage executive-pay practices that spur too much risk taking, as well as regulations that start the process of giving the government power to seize and dismantle large, troubled financial firms. The agency’s board is scheduled to take up the two proposals at a Jan. 18 meeting, the FDIC said Wednesday. The FDIC, led by Sheila Bair, gained the authority to dismantle large, faltering financial firms as part of the Dodd-Frank financial-overhaul law signed by President Obama over the summer. The financial-overhaul law also requires regulators to bar incentive-based payments that encourage excessive risk taking among financial firms. They have been considering whether to require large financial firms to defer a chunk of executive pay to discourage risk taking that contributed to the financial crisis,
 

M2 Goes Stratospheric As Liquidity Deluge Accelerates – One look at the M2 chart below shows that the reliquification of the market by the Fed is proceeding according to plan: having increased for 23 of the past 25 weeks, the M2 has hit another all time high in the final week of 2010 at $8,848 billion, a $14 billion weekly increase, and a $316 billion annual increase. But that is not all: more important to those who believe that the Fed merely creates one and zeroes that never do anything practical, and most certainly do not add to inflation, will be delighted to learn that in addition to the $14 billion increase in M2 liquidity, reserve balances added another $26 billion in liquidity, as the absolute number declined from $1027 billion to $1001, or a gross addition of $40 billion in the week. The chart below shows the net liquidity addition from M2 and from excess reserves. Should reserves, which are currently poised just north of the $1 trillion barrier, continue collapsing, watch out below… or above (if one actually cares about things like inflation).

 

Inflation on the Rise in Latin America – Consumer prices are rising at a quick pace in the some of the largest economies in Latin America, complicating the task of governments that want to maintain high growth rates without sparking inflation. On Friday, Brazil announced that consumer prices in 2010 had increased faster than the government’s targeted levels, mainly driven by higher food costs. The news is likely to weigh on the new administration of President Dilma Rousseff, who has vowed to maintain policies that have led to the country’s economic boom of the past decade in which millions of Brazilians improved their living standards. In Mexico, the region’s second largest economy, consumer prices data also released Friday showed a higher than expected rise in December, pushing inflation for the full year to 4.4%, up from 2009 when the economy suffered a deep recession. Peru, another fast growing economy, is also taking measures to fight inflation. The country’s Central Bank on Thursday decided to take a preventive step, increasing its reference interest rate citing dynamic domestic demand, “in a scenario of increases in the international prices for food and energy.”

 

Brazil Inflation Puts Pressure On Government – Brazil’s consumer prices ripped past the government’s target last year, confirming that one of new President Dilma Rousseff’s most urgent battles is fighting inflation. Consumer inflation, as measured by Brazil’s official IPCA, reached 5.91% in 2010, the country’s statistics agency IBGE said Friday. The pressure came mainly from food, whose prices soared 10.39% last year. The 2010 figure was slightly above the 5.90% average forecast of 100 analysts and economists in the Brazilian Central Bank’s weekly survey Jan. 3, and notably higher than the 4.31% pace in 2009. It was the highest since 2004, when inflation hit 7.6%. Brazil’s government has stuck zealously to 4.5% inflation target for 2010. The Central Bank’s new head, Alexandre Tombini, said Thursday the government plans to continue to pursue an annual 4.5% target for 2011, while analysts already expect 5.32%.

OPEC Doesn’t Need Emergency Meeting as Oil Advances Above $90, Iran Says – OPEC has no reason to call an emergency meeting even as oil climbs above $90 a barrel because the market is well-balanced and doesn’t need further supply, Iran’s OPEC governor said. “Oil at $90 is not an extraordinary situation,” Mohammad Ali Khatibi said by phone from Tehran today. “There are some temporary supply issues, but stocks are high and there is no permanent shortage in supply.”  The Organization of Petroleum Exporting Countries, which produces 40 percent of global oil supply, will meet about a week later than scheduled, on June 7 or 8, to allow energy ministers to attend the Gas Exporting Countries Forum gathering on June 2, Khatibi said.  Surging oil and food prices are fuelling concern among central banks that rising inflation may threaten the global economic recovery.

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