Paving the Way for QE2

Europe Failed to Clear ‘Skepticism’ on Debt Crisis, IMF Says – Europe has yet to allay investor “skepticism” about the sustainability of the region’s debt, and any spread of the crisis would cloud global economic prospects, the International Monetary Fund’s number three official said. “At least for now it looks like the spillover from the European sovereign crisis to areas outside of the region will be limited,” Naoyuki Shinohara, deputy managing director at the IMF, said in an interview in Tokyo yesterday. “However, if the European sovereign debt problems were to become bigger, we need to keep in mind that that could bring about considerable downside risks.”
Global warming will cause further extreme weather patterns, climate change chief saysONE of Julia Gillard’s top climate change advisers has warned that global warming may cause more extreme rain events.  Climate change committee member Professor Will Steffen, the executive director of the ANU Climate Change Institute, said there was no direct link between global warming and the tragic flash flooding in Toowoomba which has killed at least nine people in southeast Queensland. But he told The Australian Online that climate change would lead to heavier, more frequent rain. "As the climate warms, there is more water vapour in the atmosphere," he told The Australian Online. "This means that there is a probability that there will more intense rainfall events around the world. There is some evidence that we can see them now. I think the place where the best data is the US."

Qld floods ‘linked to climate change’… Climate change has likely intensified the monsoon rains that have triggered record floods in Australia’s Queensland state, scientists said, with several months of heavy rain and storms still to come. But while scientists say a warmer world is predicted to lead to more intense droughts and floods, it wasn’t yet possible to say if climate change would trigger stronger La Nina and El Nino weather patterns that can cause weather chaos across the globe. "I think people will end up concluding that at least some of the intensity of the monsoon in Queensland can be attributed to climate change," said Matthew England of the Climate Change Research Center at the University of New South Wales in Sydney. "The waters off Australia are the warmest ever measured and those waters provide moisture to the atmosphere for the Queensland and northern Australia monsoon," he told Reuters.

Fed’s Fisher Says Monetary Policy Not Cure for Nation’s `Fiscal Pathology’ – Federal Reserve Bank of Dallas President Richard Fisher said monetary policy isn’t a “salve for the nation’s fiscal pathology” and that Congress should focus on reducing the federal deficit and creating incentives for companies to grow.  “There are limits to what we can do on the monetary front to provide the bridge financing to fiscal sanity,” Fisher, 61, said in a speech in New York today. “The Fed has done much, in my words, to provide the bridge financing until the new Congress gets to work restructuring the tax and regulatory incentives American businesses need to confidently expand their payrolls and capital expenditures here at home.”  Through its asset purchases, known as quantitative easing, the Fed runs “the risk of being viewed as an accomplice to Congress’ fiscal nonfeasance,” said Fisher, who votes this year on the FOMC. The program “roughly means we are purchasing the equivalent of all newly issued Treasury debt through June.”

Could Federal Spending be Capped at 20 Percent of GDP? Should it Be? – As the budget debate heats up, we will hear much about capping U.S. federal government spending at 20 percent of GDP, roughly its level for several decades leading up to the global financial crisis. Likely presidential candidate Rep. Mike Pence (R-Ind.) has been among the most vocal backers of this idea. Together with colleagues, he has packaged it in the form of a proposed Spending Limit Amendment.  Part of its attraction is that the 20 percent solution appears to require no real sacrifice. If we were content with the level of government services enjoyed in past, pre-crisis decades, why would there be any hardship in holding to that level in the future? Unfortunately, the pretense that it would be possible to maintain the same level of real government services as in the past without future increases in spending is an illusion. The reality is that holding government spending to past levels would require a significant reduction in real public services
The End of Procyclical Labor Productivity? – The fact that falling hours have been accompanied by rapidly-rising productivity is what has given us not a jobless recovery but a massive job-loss recovery. The normal pattern we would expect from the past two years’ output growth would be that employment and hours would have been nearly flat. Why the different pattern this time? We think that it is because firms are no longer "hoarding labor" when times are slack because the industries losing jobs no longer expect employment to bounce back. These days U.S. labor productivity looks to be countercyclical: firms take advantage of downturns in demand to rationalize operations and increase labor productivity, pleading business necessity in the face of the downturn to their workers. It seems fairly clear to me that calling this "structural change" is somewhat of a misnomer. . For workers to lose jobs in contracting industries and to not find them in expanding industries is not "structural change" but rather something else.

 Northern Hemisphere warming rates: More than you may have heard. During the last 50 years, large parts of Europe warmed at 2-3 times the "average" global rate – Winter is the time of year when denials of global warming seem to come from all sides.  It is therefore a useful time to determine just what our current rates of warming are. The very thorough Skeptical Science post, "Assessing global surface temperature reconstructions," put the average global warming trend at 0.140.16 °C/decade. This rate is typical of the linear trend of modern temperature records, which in some cases go back to 1880.  And some skeptics take comfort in this rate, claiming that it is nothing to worry about.  But is this rate of change an accurate description of what we are currently seeing? A more in-depth look at surface temperature trends reveals obvious differences in hemispheric warming rates.
European Banks Addicted to ECB Lending – The European Central Bank’s addicted bank problem continued through December, according to the latest lending figures from national central banks. Irish banks borrowed 132 billion euros from ECB facilities as of the end of December, a 4.4-billion-euro drop from November, according to figures Friday from Ireland’s central bank. Irish banks still account for almost one-quarter of all ECB lending even though the economy accounts for less than 2% of euro zone GDP. But that small drop was offset by a 6.4-billion-euro rise in the “other assets” component of Ireland’s central bank balance sheet, to 51.1 billion euros. That category includes emergency loans made to commercial banks directly from the Irish central bank, and not the ECB. Banks can post lower-quality collateral for these loans, but there’s a catch: the full ECB has to approve use of this facility at each governing council meeting.

 Tumbling from middle-class security, and struggling to regain it – There is the single mother from Manassas who after losing her job and going on public assistance could no longer afford to pay her mother to watch her children and had to send her mother to child development and CPR classes to qualify for public child-care assistance. There is the laid-off TV repairman who 30 years ago received a degree after studying Greek, Latin and Hebrew and now, facing meager job prospects, regrets having chosen to work with his hands. There is the well-dressed couple who after losing their jobs in the auto industry pulled into a food pantry in Gaithersburg in a gleaming, gas-guzzling four-door truck they had bought for fun a few years ago and now wish they hadn’t.  The recession exposed how precarious a hold many middle-class families had on their status. The housing meltdown and credit crunch wiped out nest eggs and the ability to maintain a credit-fueled lifestyle.

Campus Notes – UNC estimates more job losses – A 5 percent cut to the UNC system budget – which officials say is a reasonable expectation –  could result in the loss of 900 jobs across the state. Of those, 400 would like be faculty cuts, according to data being presented this morning to the UNC system’s Board of Governors. After several years of budget cuts, the system appears ready to reduce its budget again, doing its part to help the state patch a hole in its budget estimated now at more than $3.5 billion. A 10 percent cut would more than double those job eliminations – to 2,000 positions across the UNC system, including 1,000 professor slots. UNC-Chapel Hill has already instituted a permanent 5 percent budget cut effective July 1. In dollars, that’s $26 million. And fewer instructors means fewer classes offered. The data also suggests the loss of 2,750 course sections across the UNC system with a 5 percent cut. With a 10 percent cut, 6,400 class sections would get the axe.

All the wrong stars aligned for perfect storms  – THE strong La Nina pattern taking moisture to north-eastern Australia has been exaggerated by record high ocean temperatures, a combination not seen on this scale since the deadly Brisbane flood of 1974 which claimed at least 14 lives. And while Queensland’s already saturated catchments are lashed with heavy rain, south-western Western Australia is experiencing an extreme dry – and bushfires.  But the wild extremes being experienced by the continent were in keeping with scientists’ forecasts of more flooding associated with increased heavy rain and more droughts as a result of high temperatures and more evaporation. ”On some measures it’s the strongest La Nina in recorded history … [but] we also have record-high ocean temperatures in northern Australia which means more moisture evaporating into the air,” he said. ”And that means lots of heavy rain.”
Extreme Flooding Around The World Caused by Climate Change, Scientists Say (ABC video) The pictures today from around the world of dramatic rooftop rescues from raging waters, makes it seem as though natural disasters are becoming an everyday occurrence. But they’re not all that natural; climate scientists say man-made global warming is the sudden force behind the forces of nature.  In the mountains of southeast Brazil, more than 340 people have died after fierce mudslides swept away homes. At least 50 are still missing and victims continue to search for loved ones. On the other side of the globe, floods in Queensland, Australia have ravaged an area the size of France and Germany combined..  And in Sri Lanka, officials say flooding there has affected more than a million people, and the death toll has risen to 23. Sewage lines and holding tanks have overflowed in the floods, and a spokesperson for the health ministry there said officials are concerned about waterborne diseases like typhoid and diarrhea.  "If left unchecked, climate warming will continue so the things that we’re having hints of now, foretastes of now, will come stronger,"
Uncle Sam Wants His AAA Rating – Two major credit ratings agencies warned Thursday that the United States might tarnish its triple-A credit rating if its national debt kept growing. It was not the first time the agencies, Standard & Poor’s and Moody’s Investors Service, warned that the nation’s gilt-edged rating might fall into jeopardy.

But the two statements, made within hours of each other, were seized on by deficit hawks as further evidence that the government must reduce spending and debt to avert disaster. But many economists say the reckoning, if it comes, is still years or even decades away. The bond market shrugged at Thursday’s news. Indeed, even some experts who want to see the deficit reduced said now is not the time to cut federal spending drastically, given the weakness in the economy and high unemployment.

 Traders’ Smaller Bonuses Still Top Pay for Brain Surgeons, 4-Star Generals – Wall Street traders discouraged by declining bonuses this month can take solace: They still earn much more than brain surgeons and top U.S. generals.  An oil trader with 10 years in the business is likely to earn at least $1 million this year, while a neurosurgeon with similar time on the job makes less than $600,000, recruiters estimated. After a decade of deal-making, merger bankers take home about $2 million, more than 10 times what a similarly seasoned cancer researcher gets (see table below).  The pay gap between finance and other professions widened between the 1980s and 2006, exceeding the record set before the Great Depression, according to a 2009 study by Thomas Philippon, a professor at New York University’s Stern School of Business. After the 2008 financial crisis, Wall Street started paying a larger portion of bonuses in stock and restricted cash. Yet there’s little sign the gap with Main Street is narrowing.


House Republicans To Take Up Repeal Of ObamaCare 1099 Reporting Rules – Among the most criticized provisions of the Affordable Care Act are the new 1099 reporting requirements, which greatly expand the circumstances under which businesses are required to report transactions to the Internal Revenue Service. By some estimates, the new rules will costs businesses $ 6,000 per year, or more, in additional administrative expenses. A small amount for large businesses, but a potential game changer for small businesses. Both Republicans and Democrats have criticized the rules and tried, unsuccessfully, to repeal them during the last Congress. Now, House Republicans are trying again:
New Hit to Strapped States – With the market for municipal bonds tumbling, cities, hospitals, schools and other public borrowers are scrambling to refinance tens of billions of dollars of debt this year, another sign that the once-safe market is under duress. The muni bond market was hit with the latest wave of bad news Thursday, prompting a selloff that sent the market to its lowest level since the financial crisis. A New Jersey agency was forced to cut the size of a bond issue by about 40% because of mediocre demand, and pay a higher rate than expected. And mutual fund giant Vanguard Group shelved plans for three new muni bond funds, citing market turmoil.
 India’s annual inflation accelerates past 8% – India’s inflation rose again to 8.43 percent in December, data showed Friday, as the government announced steps to curb food prices amid mounting public anger over the cost of living. The wholesale price index, used as the main measure for inflation in India, accelerated to 8.43 percent in December from 7.48 percent in November, raising the prospect of another interest rate hike later this month. The figures will further worry the left-leaning Congress-led government, which has been buffeted by several high-profile corruption scandals and is looking to dampen frustration over spiralling food prices. Onions have been front-page news for the last month after prices more than tripled from their normal level due to unseasonable rains that spoiled crops late last year. Food inflation of 16.9 percent over 12 months was at "unacceptable levels," Finance Minister Pranab Mukherjee said on Friday.
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