LyrArc Article Gist
John Taylor on the dangers of a loose U.S. monetary policy and the effects this had in fueling a housing bubble in Spain, Ireland and other EU countries. Taylor points to the bubble ocurring in emerging market economies from low interest rates. Taylor says the ECB's interest rate moves in 2003-2005 were affected by the Fed's low interest rates. He estimates the ECB set rates about two percentage points too low leading to housing bubbles in EU countries. A similiar process is taking place today with the Fed's near zero interest rate policy. Taylor points to interest rates in a group of 18 emerging market economies- including Brazil, China, India, Mexico and Turkey, which have held interest rates on average about 5 percentage points below widely used benchmarks fueling a doubling of global commodity prices between 2009-2011. The U.S. Fed's policies make it harder for central banks in emerging market economies to take aggresssive action against bubbles developing in these countries. Taylor says his does not mean that the Fed should not pay attention to the U.S. unemployment rate and long term unemployed, but should keep in mind the negative effects of slowing demand in emerging market economies and in the EU as a result of its monetary policy of keeping rates at near zero for long periods of time. This feeds back to the U.S. economy at a critical time....

LyrArc Article Gist
The failure of foreclosure programs under the Obama administration continues into 2012.

LyrArc Article Gist
A major problem for President Hollande of France in the 2014 budget is how to handle the deficits in the country's Social Security System. Over the years the deficits were transferred to a vehicle called the Cades, which is approaching its legal ceiling of 270 billion euros. The vehicle was originally set up in 1996 with the idea of separating past deficits, so that the state could balance its budget every year for the Social Security System, which covers health care, pension and family allowances. Previous governments have for the most part bypassed this and added new deficits to Cades instead of making cuts in spending. The Hollande administration says it is controlling health care expenses and increasing pension contributions as a way to bring the deficits under control. It will not assess a special tax for the deficit in Social Security in 2014, as new taxes are highly unpopular. Cades lifetime has been extended twice, first in 1997 to 2014, and during the 2009 financial crisis to 2025. In 2010 following the crisis, Cades chairman, Ract Madoux says, the short term borrowing had reached 60 billion euros. It is down to 30 billion euros, which he still considers too high....

LyrArc Article Gist
Saudi Arabia continued to follow a policy of high oil production in 2016, and reported that it produced 10.67 million barrels a day in July 2016. Iran is producing at a pre-sanction level of 4 million barrels a day. 2017 oil demand prediction by OPEC is at growth of 1.15 million barrels a day. Experts says that the interests of Iran and the Saudis may be converging to reduce production as they face low oil prices. Iran needs to make large investments and Saudis face budget cuts with low oil prices. They point to this cooperation being temporary as there are issues of competing politics in the region, and beyond that both countries seek to expand their market share.

LyrArc Article Gist
John Taylor on the dual mandate for inflation and unemployment and discretionary policies by the U.S. Federal Reserve that ended up creating booms and busts in the U.S. economy. He advocates replacing the dual mandate of "maximum employment" and "stable prices," which was inserted into the Federal Reserve Act in the 1970's, with a single mandate for "long-run price stability." Taylor points out that this will still give the Fed flexibility, as it is focussed on long run price stability. The Fed does not have to overreact to short run increases in inflation. And he points out that this actually will work well for unemployment as the booms caused by an overextended period of low interest rates such as that in 2003-2005, have led to booms followed by busts with high unemployment.

LyrArc Article Gist
Andy Street, Mayor of the West Midlands Combined Authority, says when you consider that London gets 7 times the infrastructure spending per person than West Midlands, "its not bloody surprising" that his region is not growing fast. West Midlands covers a large part of central England, including Wolverhampton, Birmingham and Coventry. Even life expectancy is lower by 8 years in Blackpool, and disposable income can be quarter in Camden compared to North London. Labor's Corbyn and Conservative's Thatcher in the British general election are both campaigning for reviving the regions outside London, that have seen investment in people and technology lag substantially behind London. Regional revival is the big issue in this election. Consider that London which accounted for about 15% of economic output in the 1980's now accounts for nearly 25% of economic output of Britain. Berlin is about 4% of Germany's economy, and Paris 10% of France's economy. A word of caution on Brexit is sounded by experts at the University of Birmingham, who say the whole process of Brexit is so complicated that it may detract from the task of reviving this region. Even though the political upheaval had origins in this discontent, was it more about shifting government attention to the gap between London and the rest of the country, and less about a complex process of withdrawal from the European Union. ...

LyrArc Article Gist
Matthew Slaughter of the Tuck School, Dartmouth, says that the principle of comparitive advantage should determine what America exports and imports. Under comparitive advantage each country concentrates its energies on the particular goods and services that it does better than other countries. Free trade operates under the idea of comparitive advantage, but in practice it is quite different than its textbook economic counterpart. It is constantly changing as new countries or industries in different countries try to upset the existing pattern. Under a textbook example Airbus should not exist because Boeing was the most efficient manufacturer upto that time, and new entrants in a industry are nurtured for years with support from the governments of their countries. And in some situations the governments may exclude certain companies or industries from support such as Komatsu and construction equipment in postwar Japan, and Infosys and software outsourcing in India, and still survive and grow. Under comparitive advantage Japan should still be importing construction equipment from Caterpillar in the US, and there would be no serious competition in that industry. This would work to the detriment of the principle of competition in free trade which is just as important to free trade as the idea of comparitive advantage, with new entrants in an industry upsetting the old way of doing things and creating price/quality improvements. Slaughter simply pulls back off the shelf the old idea of comparitive advantage without seriously considering its real life aspects. Without dealing with trade distortion from currency manipulation, from the impact on jobs, without considering the continuing critical role of manufacturing in developed economies to provide the standards of living for a large middle class, and creating the kind of society that people of developed countries aspire to. He mentions GE's Immelt and the President's Council on Jobs, but makes no effort to engage Immelt 's statement in his recent op-ed article in the Washington Post, that the concept of transitioning from a export-oriented economic powerhouse to a services led consumption based economy could be done without loss of jobs, prosperity and prestige, was fundamentally wrong. He has only one line for manufacturing's role in America's economy. This line says knowledge intensive industries such as education and software are just as important as manufacturing, but fails to mention that manufacturing has received less attention in recent decades. In so doing he is discounting his own profession of concern for the high rate of joblessness in the U.S., and the need for a new focus on manufacturing in the U.S. to reverse that trend. By saying that imports are not a sign of failure but can raise standards of living, and leaving it at that, Slaughter does not acknowledge that consumer debt that US consumers have taken on in the process certainly affects future prospects for the US economy. And he makes no mention of the need for rebalancing the world economy, which is exactly how free trade should work ideally. Countries that have high imports export more to rebalance the world trading system, as currency valuations are allowed to adjust makig their exports more attractive. By not taking into account the realities of free trade, and the need for practical measures to rebalance without policy induced distortions by state run economies, Slaughter ignores the idea of free trade that works as it should and for all countries. The irony is that Immelt's own committment to jobs and competitiveness has been questioned in online blogs and most recently by an editorial in the Wall Street Journal on January 26, 2011, titled "The Misallocators." That editorial refers to the outsize role of GE Capital in GE's earnings during the past decade, and the lack of credibility of a focus on competitiveness and jobs that this creates for GE. It mentions the loss of 34,000 GE jobs in the US during the last decade. ...

LyrArc Article Gist
David Leonhardt on the policy errors of the Obama administration in managing the economy. Why he asks did the Obama administration not take the risks it took for "undeserving" recipients in the auto industry to provide significant help to GM and Chrysler and at the same not provide large scale and situation changing help to millions of mortgage holders who were under water? The housing crisis with millons of foreclosures depressing home prices has played a significant part in the lagging economic recovery. He points out that Obama economic advisors had read Rogoff and Reinhart's book "This Time Its Different," about the longer times it takes for a economic recovery after a housing bubble, and still made the mistake of believing economists who suggested that the stimulus by itself would be sufficient and that recovery was underway in 2010. Others in the Democratic party had pointed to the lack of focus on unemployment by the Obama administration. Why were such voices not heard?

LyrArc Article Gist
IMF research by Ocampo and Erten shows that when adjusted for inflation since the 1970's, the prices of metals have remained about the same, food prices down 58%, and energy prices up 163%.

LyrArc Article Gist
Several experts point to a dangerous change in the nature of unemployment in this downturn. Heidi Shierholz of the Economic Policy Institute, says people are more likely to get stuck with unemployment now than at any time in the post war period. Andrew Stettner, deputy Director of the National Employment Law Project, says a larger share of the unemployed are not going to be able to go to the same line of work. They will need new skills, just like an auto worker in a permanently downsized industry would have to find new skills to make a product in the renewable energy field or health care. And the law as it currently stands does not help either. Because if an unmeployed worker looks for training or goes back to school he loses his unemployment benefits, something the Obama administration proposes to change. What this means is that many of the unemployed will end up as permanent job losers. Rob Valetta, an economist at the San Francisco Federal Reserve Bank says that throughout the the last 3 decades including good times, the unemployment pool is shifting towards permanent job losers. Lawrence Katz, a Harvard University economist, points out that once workers exhaust their unemployment benefits and don't get new training, they become disconnected to the labor market, and bascially end up on disability or become permanently unemployed. The statistics bear this out. In April 2009, 47.1% of the people collecting state unemployment insurance exhausted the usual 26 weeks of benefits without finding work, according to the Bureau of Laor Statistics, that is the highest rate on record. In December 2007, there were about 2 unemployed workers for every job opening, according to Labor Department data. In March 2009 there were five unemployed workers for every opening. Mark Beaupre, 49, of Providence, R.I. lost his $8 an hour manufacturing job an year ago, one of many manufacturing jobs he has held since the 1980's. His wife Cathy lost her customer service job a year ago. This couple who together made $50,000 a year, are now behind on their mortgage payments and have applied for food assistance. At a recent job fair in Providence he says three thousand people turned up and he could not even get into the parking lot. ...

LyrArc Article Gist
A study by the National Employment Law Project shows most of the job creation in the economic recovery to 2014 in the U.S. is replacing the better paying jobs with lower paying jobs in fast food retail and similiar low paying industries.

LyrArc Article Gist
A Sept 2012 Census Bureau report shows the median income of a typical U.S. family declined or was flat in almost all states in 2011. Median household income declined in Nevada by 6%, in California by 3.8%. In Arizona and Florida incomes declined by 2.9%. For the U.S. median income declined by 1.3% to $50,502 in 2011. Poverty continues to increase, with California showing 335,760 people falling into annual income levels below $23,021 for a family of four in 2011, giving the state a 16.6% poverty rate.

LyrArc Article Gist
Former U.S. president Bill Clinton's address at the 2012 Democratic National Convention in Charlotte, N. Carolina. He endorsed President Obama for reelection in an impassioned speech.

LyrArc Article Gist
GDP growth in the eurozone was 0.3% for the 4th quarter 2014. For 2014 eurozone GDP growth was 1.4%, according to Eurostat. Growth in GDP for Germany was 0.7% for the 4th quarter and 2.8% for 2014. Retail sales in December were particularly good in Spain and Germany, with sales up 2.8% for the eurozone over the prior year. Italy's GDP growth was stagnant and France's was 0.1% for the 4th quarter, showing that Germany and Spain are leading the way for eurozone recovery.

LyrArc Article Gist
Spain's plan to reduce corporate taxes by 5% and individual income taxes by average 12.5% in 2015-2016, reversing earlier austerity measures. A similiar move in Italy.

LyrArc Article Gist
El-Erian points to the risks posed by the long term unemployed in the U.S. He cites the 43.9% of the unemployed or 5.5 millon people out of work for 27 weeks or more. In fact the U-6 measure for unemployment that includes the people who have quit looking for work and parttime workers is abetter indication of where things are. This was an estimated 11% in November 2011, according to Ed Luce in the Financial Times, cited by Klein in the Washington Post.

LyrArc Article Gist
Hingh unemployment in important states including Florida, Pennsylvania, Colorado (8%). Unemployment has improved in Ohio (7%), Virginia and Iowa (6%).

LyrArc Article Gist
Richard Thaler, a Professor of Economics at the Booth School of Business, University of Chicago, on the reasons why millions of homeowners under water- owing more on their homes than their homes are worth- have not defaulted in large numbers. In places like Nevada nearly two thirds of homeowners are under water. Changing a home, changing school for children, losing one's credit rating, social stigma. He points out that the costs are outweighed by the benefits of getting out of an underwater mortgage, and research has shown this is contagious once the process of defaulting has started. So once the neighbors are defaulting its much easier to do so and the proces picks up momentum, the psychic costs simply decline. So he says the result is that we may face a tsumani of strategic defaults. Professors Posner and Zingales of the University of Chicago have a proposal. Banks should be required to provide loan modifications in neighborhoods with home prices having dropped over 20%. Banks would reduce the payment by the average price reduction in the area and get in return 50% of the average gain in prices when the house is eventually sold. This requires Congress to pass legislation....

LyrArc Article Gist
A ZDF poll in Dec. 2016 shows 64% of the German people support chancellor Merkel's decision to run for fourth term. Of CDU supporters 89% support Merkel. If the election were held today CDU/CSU would win 36%, SPD 21%, Greens 11% and FDP 5%. Schulz is a lot more popular than Sigmar Gabriel in the SPD. About 51% of the German people support Martin Schulz, current head of the European parliament, Gabriel gets only 29%. With SPD supporters Schulz has 64%. Merkel could form a government with Greens and FDP support. See the related article on Greens and CDU positions coming closer.