LyrArc Article Gist
A slight shift in American opinion favoring a deal with Iran is shown in a WSJ/NBC poll in July 2015 compared to the poll in April 2015. Support for reaching a nuclear deal with Iran remains stable at 36% in both polls, the opposed drops by 6 percentage points to 17% from 23%, and the percentage of people who say they do not know enough to formulate an opinion goes up to 46% from 40%. The intricacies of a nuclear technology deal and the sites involved lead to a high percentage of don't know enough to give an opinion. Factors hindering a deal include inspection of military sites, and Iranian intentions. Factors favoring reaching a deal now is the risk that this would mean Iran would go back into isolation and the opportunity to work with moderates might be lost. The Rouhani administration was an effort by voters to elect a government that could ease or remove sanctions to improve the economy and living conditions- its failure would lead to Iran losing an opportunity to open up to the world. The pressure from the U.S. Congress and Israel served to push for a verifiable and effective agreement to control development of nuclear technology for weapons systems. Behavioural factors involved are the very young population in Iran which has no memories about the period before the revolution in 1979- 70% of the population of 74 million are people under the age of 35. This group is eager for ties to the outside and could change Iran's outlook and policies int the future towards moderation. Risks in not reaching a deal also include the possibility of the Saudis developing nuclear technology and nuclear proliferation. Winners from a deal because of the flow of Iranian oil to world markets and a period of extended low oil prices are the U.S., Europe, China and India. Germany gains new markets to replace the growth in the Russian market after sanctions. Lifting of an arms embargo, an added risk in the last days of the talks, would be mitigated by making the lifting of that embargo very gradual....

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In private conversations, Paul Volcker has advised administration officials, that in implementing the Volcker Rule, regulators should follow the practice in money laundering laws. There the government bans a certain behaviour, and then the burden is on the banks to screen for red flags and to ensure compliance. His advice is to ban banks from trading with their own funds if they benefit from any kind of government guarantee. Banks would be required to police their own actions, and the Fed examiners ensuring they are in compliance. The recently passed regulatory reform bill left a lot to the regulators, who have to fill in the blanks. Volcker's concern is that narrow rules would invite gamesmanship from the banks to evade the intent of the law. At one Congressional hearing Volcker suggested a Potter Stewart type of approach- Stewart as Supreme Court Justice said about pornography: "I know it when I see it." For Volcker bankers know what proprietary trading is and is not, and he does not want to let bankers tell anybody anything different. Thw new Financial oversight Stability Council is charged with the task of coming up with a course of action by January 2011, and then writing the rules by October 2011. The fear among a group of 18 senators is that bankers will weaken the Volcker rule protections. A letter pointing this out was sent by the group to the Oversight Council last week....

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Britain's Tax Service reports the number of taxpayers reporting incomes of 1 million pounds a year declined by over 60% in fiscal 2010-2011 from the prior year. In 2010 the Labor government of Gordon Brown introduced a 50% income tax rate for this income group, up from 40%. The number of million dollar incomes filed declined to 6000 from 16000 in 2009-2010, and revenues declined from 13.4 billion pounds or 9% of total taxes from taxpayers to 6.5 billion pounds or 4.4% or about half. The Labor government had hoped for additional 2.5 billion pounds in revenue, showig unintended consequences and surprises in economic policies.

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Over 50% of respondents in a Pew Research center survey conducted in December 2014 view with disapproval president Obama's handling of race relations, only 40% approve. This includes a steep drop among African-Americans of 16 points since the previous polling in summer 2014. Obama's statement that change is "hard and incremental" comes up short for many Americans who look for leadership in race relations. A cautious presidency fails to speak up for ideals it espoused, for human rights overseas and building a better future for minorities at home, losing precious opportunities at every turn.

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Anxiety in financial markets about exposure of French banks to Greece pulled down French bank stocks on August 10, 2011. Societe Generale shares were down 15%. A British tabloid the Daily Mail published an article on Societe Generale saying that it was in a perilous condition, and on the "brink of disaster." The Daily Mail later retracted its report. The rumors spread quickly in a jittery market, reminiscent of the rumors that affected Morgan Stanley at the height of the U.S. financial crisis in 2008. Sanford Bernstein analysts say in a report that the selloff in French banking stocks was based more on anxiety and the rising price of insurance of thinly traded credit default swaps, and not based on rational concerns about earnings and raising capital. Societe Generale says it has no exposure to Greek bonds maturing after 2020 on its books- to deflect fears of additional bank bondholder haircuts beyond 2020- and has taken a 395 million euro provision against losses on Greek sovereign bonds maturing upto 2020. The jittery condition of markets was also affected by rumors that France was about to be downgraded. Moody's, Fitch, and S&P reaffirmed that French credit ratings of triple A and stable outlook would not change....

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The problems with a second phase of quantitative easing, go back to asking why the first phase hasn't worked to prevent the economy from sliding back. So far the Fed has engaged in buying $1.7 trillion in bonds in that first phase. This shows the limitations of this approach. A lot of money was injected into banks. And the banks have $1 trillion on their books that is not being used for lending. The reason being its hard to find borrowers, as borrowers are cautious and concerned about the economic future. The Quantitative Easing in this second phase is supported by the reasoning that deflation risks remain. But this raises another question, what level of quantitiative easing would work, and would such enormous levels itself cause bigger problems.

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Ireland and Portugal both have debt to GDP ratios of more than 100%. Still Ireland is better positioned to weather the eurozone crisis. Foreign investment attracted by low taxes and an educated labor force gives Ireland signficant advantages to return to growth. Citigroup forecasts show a 5.5% decline in GDP for Portugal in 2012, and large probabilities that the deficit will overshoot. Ireland expects 0.5% growth in 2012. Ireland's exports are 60% of GDP, compared to 24% for Portugal. Yields on Portuguese bonds due 2020 are at 13%, compared to less than 7% for Ireland. But funding Portugal through the end of 2015 is expected to cost 40 billion euros, according to Capital Economics estimates, or only 0.4% of eurozone GDP, making the problem in Portugal very manageable for the EU.

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Edward DeMarco is head of the Federal Housing Finance Agency (FHFA), which is the independent regulatory agency overseeing U.S. housing lenders Fannie Mae and Freddie Mac. The FHFA was formed in 2008 after merging two existing agencies. Later that year Fannie and Freddie were taken over by the government. FHFA head, DeMarco, is reluctant to help homeowners with underwater mortgages on their homes with reduced payments because this would mean losses to the taxpayer. He sees his mandate as protecting the taxpayer. Sheila Bair, former head of the FDIC, says she understands DeMarco's mandate is not to provide fiscal stimulus, and the Obama administration has been all over the place when it comes to providing homeowner assistance. The result is that there is little help by the U.S. government to homeowners with underwater mortgages since 2008, and this creates larger headwinds for the Federal Reserve Bank to provide momentum to the U.S. economy. Many experts see this as a serious problem and a well respected economist, Martin Feldstein, has made repeated proposals for structuring the help to homeowners since 2008. ...

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A recent Deutsche Bank study points to the pro-cyclical nature of oil prices in this decade where oil price increases do not lead to decreased worldwide consumption. The IEA forecast is for 1.64 million barrels of oil a day in increased coonsumption in 2013 compared to 2011, which hides a drop in consumption of 640,000 barrels a day in OECD countries. That is offset by higher demand in China, the Middle East and Russia. Middle East consumption is about 80% of consumption in China, and oil price increases lead to higher growth in these countries and Russia leading to increased oil consumption reinforcing a pro-cyclical cycle. What is not clearly understood is how this changes with weaker economic growth. Additional factor to consider is future increasing growth of oil consumption in India, Pakistan, Bangladesh, Indonesia, Vietnam and other developing countries that offset reductions in Chinese consumption as China's growth rate slows.

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Joe Nocera compares the German insistence for tough austerity measures in Greece, Italy, Spain and Portugal, to the insistence ofthe Allies for large reparations from Germany after the First World War, which Germany was not able to pay and left it bankrupt by the late 1920's. He cites the failure of orthodox positions on financial and monetary policy to tackle complex issues such as the overvalued currencies of southern Europe, as productivity moved in opposite directions between Southern Europe and Germany. Austin Goolsbee, a former chairman of Council of Economic Advisors, makes the same point in an op-ed piece in the Journal, 11/29/2011. Nocera says this position is simiiar to the position on debt reduction for homeowners facing U.S. foreclosures with government intervention, where little action has been taken worsening the housing crisis and derailing the U.S. economy.

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PC shipments worldwide declined by 14% in the first quarter of 2013, compared to the prior year quarter, according to IDC. Gartner Research's estimate for the first quarter PC shipments shows a decline of 11.2%. IDC analysts say the introduction of Windows 8 with touch screen capabilities has not reversed this trend. It may have exacerbated the trend because Windows 8 made changes that reduced the PC experience to bring in touch screen and other features available on tablets, and made the product more confusing to use. This view of IDC is confirmed by some companies which say the incremental value of Windows 8 is not worth the cost of training employees to use the new PC's with Windows 8.

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Chief Justice Roberts and President Obama both excelled at Harvard Law School, one as managing editor of the Law Review and the other as President of the Law Review. One raised in suburban Indiana, and going to small Catholic boarding school started 5 years earlier by Chicago and Indiana businessmen like his father, a steel company executive. The other fatherless trying to construct his own identity at a school in Hawaii founded in 1841 to educate the children of white missionaries. Roberts adminstered the oath of office to Obama in January 2009.

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How GM is seeing the value of new technologies not just for their value in commercialization but in the value in brand image. To be seen as the innovation leader does a lot for brand image and this does a lot for selling cars across a whole lineup which does't remotely use that technology. This is the case with hydrogen fueled cars and GM is now taking this challenge seriously. Refueling remains an issue but all untested technologies have to start somewhere and GM wants to be seen as an innovator from now on.

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In an interview with the Wall Street Journal Deutschland, Hans Werner Sinn, head of the Ifo Institute in Germany, says Greece's bondholders are overly exaggerating the effects on the eurozone of an exit by Greece. He sees it in the best interests of Greece to improve its competitiveness and return to growth by going back to the drachma. Just to get to the level of Turkey Greece would need to reduce prices by 31%, which is impossible to do within the eurozone without risking a complete breakdown in civil order. The best way to use the 130 billion euro second bailout package is to use it to recapitalize its banking system, says Sinn. Sinn says Portugal's faces the risk of a debt crisis following the crisis in Greece.

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The IMF's changing views on the value of fiscal austerity. In the current debate about the value of fiscal austerity, there is the IMF view, a German view based on its own experience, and the views of other countries in Europe. The IMF's view has shifted over time. The IMF World Economic Outlook 2010, describes its view of the effects of austerity measures in the form of spending cuts and tax increases- "Fiscal consolidation typically has a contractionary effect on output. A fiscal consolidation equal to 1% of GDP typically reduces GDP by about 0.5% within 2 years and raises the unemployment rate by about 0.3% percentage points." Over the longer term there are benefits as the private sector is not crowded out in the search for captal funding by the excessive government borrowing. The IMF's economic models suggest that it would take 5 years before reaching the breakeven point when the benefits of austerity measures exceed the effects of austerity. The German view held by German central bankers is that the actions stimulate growth in the short term. Manfred Neumann, professor emeritus at the Institute for Economic Policy at the University of Bonn, says this is called the "German hypothesis" as it reflects the experience of Germany from austerity actions taken by Germany. Laurence Ball, professor of Economics at John Hopkins University, is critical of the "German hypothesis" and its application across Europe in different situations. Germany is a large exporting nation and exports helped counterbalance the effects of austerity measures. Within the eurozone with fixed exchange rates the exports of less competitive countries cannot be boosted through devaluing the currency to gain price competitiveness. The other problem is that with interest rates close to zero in the euro zone the central banks cannot cut rates aggressively to counteract the effects of spending cuts. The problem gets compounded when a number of countries are taking austerity measures at the same time accentuating the downturn....

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The government's rescue of Fannie Mae and Freddie Mac has so far cost $145.9 billon. According to the Congressional Budget Office its eventual cost could reach $389 billion. The federal government has put the companies on conservatorship and has a 79.9% stake in the companies. The federal governmet also provides a guarantee that investors will be repaid. By buying loans from banks and other companies that originate loans, Fannie and Freddie were ostensibly in the business of promoting home ownership. The implicit governmet guarantee of Fannie and Freddie's activities in the housing market had the potential to create a huge government liability if the activities are not run well, and this is exactly what happened. By pushing hard for increasing home ownership to unsustainable levels - setting a target in 2001 of creating six million homeowners by 2014 for instance way beyond what was sustainable for the finances of prospective homeowners- it only fueled speculation, easy money and a bubble in housing in the U.S. As investors get paid with the government guarantee, it is Fannie and Freddie that is ending up with ownership of foreclosed homes- one every 90 seconds in the the first quarter of 2010, according to an estimate. The two companies owned 168,000 homes in March 2010....

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Congressional Budget Office figures show the share of government benefits going to the bottom fifth of American households in income declined from 54% in 1979 to 36% in 2007.

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A WSJ/NBC poll of Sept 20, 2012 showing Obama with a eight percentage point lead in Iowa, and a five point lead in Colorado and Wisconsin.

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How Martin Feldstein weighs the risks of inflation and of moral hazards in helping those who fueled the subprime crisis with their mistakes with the risks of a sharp downturn, and what thoughts he has on the issue of lowering rates just as the Bernbanke Fed prepares for its policy meeting September 18, 2007. He looks for a cut starting from the current 5.25% to 4.25% or even less depending on the situation as it evolves. Feldstein gives a measure for household wealth that will be lost and what will be lost in consumer spending as a result. His measure is for a 20% cumulative fall in house prices that would reduce household wealth by $4 trillion which would impact consumer spending by about $200 billion, thats about 5% consumers would spend more if they had that $4 trillion. This works out to about 1.5% of GDP which he suggests would tip the US economy into a recession. This is not counting the loss of access to spendable cash that the consumer has used for the last decade in terms of mortgage equity withdrawals which totaled $9 trillion this last decade and financed a lot of the sustained consumer spending, these mortgage equity withdrawals to finance spending would decline significantly in the new conditions. In addition with more defaults and falling prices in a vicious circle the process could accelerate quickly, further impairing the portfolios of banks and financial institutions causing some to collapse. ...

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Feldstein points out that other recent recessions were of short duration because the the Fed tightenend monetary policy to get back to price stability so that the Fed had some control over duration. This time the six years of steady house price increases has created a bubble which is the cause of this recession, and to make things worse it has affected the creditworthiness of institutions, as a cloud hangs over the assets carried by financial institutions because complex securities were created with risky mortgages and dispersed throughout assets of these financial institutions. So there is only so much the Fed can do. Feldstein is pessimistic about how long this recession could last. Feldstein faults the poor supervision and bank examinations of the Fed over banks and institutions they lend to such as nonbank financial institutions.

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In this essay in Der Spiegel, Charles Hawley says that the Trump movement has become a movement of patriotic downtrodden whites, with a whole range of interests-of extreme right talk show hosts, Tea Party politicians, white power supremacists, those left out by globalization in the working class especially in the midwestern states. The danger he says is that this movement of which Trump has become a part, rejects the narrative on which America is based of the Constitution and the Founding Fathers establishing a country based on principles of "the inalienable rights of man," that have evolved through the years to include black people, women, and minorities.  To put this in perspective, president Obama writing for The Economist magazine in October 2016, puts this movement in a different context- that of the Alien and Sedition Acts of 1798, Know Nothing Movement of the 1800's, the anti-Asian sentiment in the late nineteenth and early twentieth century, periods when anti-immigrant or anti-foreign sentiment gained prominence. Obama's view is that it is not fundamentally economic. In this he is right in that some of the forces on the far right do not stem from globalization. Yet he would be missing a great deal if he did not address the economic problems for the middle and working class that have given such views the support of a broad segment of the population, especially in some midwestern and older industrial states compared to say the economy of California or New York. Obama is aware of the problems in his essay as he points to the problems of workers trying to get a decent wage, of job losses through globalization, and the aggravation of these problems by the financial crisis of 2008 when some of the potential physicists and engineers as he calls them went into the financial sector to create faulty mortgages. Yet he goes back to the free trade and global networks of supply chains as having reduced global poverty, without showing a keen awareness of how it has through a combination of events and decades of policy indifference to manufacturing communities in the U.S.- as documented by experts and shown in Lyrarc, with David Autor and Gordon Hansen in the WSJ, 2016- 08-16. A Gallup Study, WSJ, 2016-05-16, supports Obama's assertion by showing that many of Trump supporters are actually self-employed and not in economic distress. Yet the movement would not have taken its proportions without the merging of different groups particularly largely disadvantaged working class voters, and fortunately Hillary Clinton, Bernie Sanders, have a better sense of this than the president. It is by their efforts that income and wealth disparities can be tackled in a way that restores the social fusion of all parts of society- in Hillary Clinton's emphatic words in the final debate by "growing the middle," growing the middle class. This is the task of the next decade, or possibly two decades. (For Gallup study see WSJ, How Economic Anxieties Explain Trump's Appeal- And Where They Fall Short, Nick Timiraos, 08-16-2016. And for Autor, Hanson, see Tallying the Toll of U.S.-China Trade, Justin Lahart, 08-27-2011)   ...