LyrArc Article Gist
The U.S. trade deficit widened sharply in March from February 2015, increasing by 43.1%, after the ending of a labor dispute at West coast ports. The deficit widened to $51.37 billion. This is more than expected from a strong dollar. This could make 1st quarter GDP figures show a contraction for the U.S. economy. Products imported from China were up 32%, compared with March 2014. Exports were up only 0.9%. Experts estimate GDP contraction of 0.4%- 0.5% for the 1st quarter 2015. In 2014 a similiar situation happened but growth was up for the rest of the year and experts see this happening again in 2015.

LyrArc Article Gist
Krugman points out that the federal tax rate for the top 1% is 34% in 2013, according to the Congressional Budget Office, because president Obama let the high end Bush tax cuts to expire. It is the number to remember says Krugman- 34. In 2008 the figure was 28.2. Under Hillary Clinton the average tax rate for the top 1% would go up by 3.4 percentage points, according to the Tax Policy Center. Some of this would help pay for the tution plan to provide access to the middle class to public universities. Under populist Trump, Krugman points to the elimination of the inheritance tax and tax rates going down substantially, and no such programs to promote the upward mobility that everyone is talking about, and no way to pay for a big infrastructure building effort for growth and jobs- upward mobility that is the focus of every candidate's election campaign including Sanders, Trump in appealing to older white working class families, Clinton, Ryan, Bush, and others in both parties.   ...

LyrArc Article Gist
A recent study by the IMF shows that China has accumulated foreign exchange reserves that are twice what would be needed for traditional purposes such as supporting the economy in a financial crisis. China is still very much a developing country with per capita annual income of $3000, low consumer spending, and rising inflation. This makes the policy of accumulating reserves and preserving an undervalued exchange rate to support export companies counterproductive. There is growing debate about this as inflation is becoming difficult to control. Yu Yongding, an advisor to the PBOC monetary policy committee says China as a developing country should not be exporting capital, which should be used to raise living standards. A rising exchange rate would increase spending power of people throughout China. Fan Gang, head of China's National Economic Research Institute, was a member of the central bank monetary policy committee. He wrote in a recent essay arguing for a higher exchange rate, and societal, tax and other changes that help increase China's household spending. Central Bank governor Zhou Xiaochuan said recently that China's foreign exchange reserves have exceeded reasonable levels that the country needs, adding to inflation risks and making it difficult to conduct monetary policy. The reserves are now over $3 trillion, pasing that mark in March 2011 after increasing 25% in the last year....

LyrArc Article Gist
Hilsenrath goes over some of the troubling signs behind the postive job numbers for April 2014. Part time workers looking for full time work actually increased in April 2014 to 7.5 million. More individuals in prime working years of 25-54 dropped out of the work force discouraged and stopped looking for work, with the percentage for this group who are working dropping to 80.8% in April 2014. Wage growth and worker productivity was stagnant. Donald Kohn, a former vice chairman of the Fed, joins other economists who are puzzled by the lack of wage growth and the large number of long term unemployed behind the positive job numbers of 288,000 for April 2014.

LyrArc Article Gist
Krugman addresses the question about the collapsing ruble in December 2014- why the extent of the collapse reflected more than the drop in oil prices? He focusses on the nature of the Russian system under Putin which is based on crony capitalism. Russian businesses borrowed heavily in dollars but generate much of their revenue in rubles, as a result the situation has imploded with the inability of these businesses to make payments as the ruble declined by about 50%. Russia has not generated trade deficits. Capital flight, money taken out of the country by oligarchs, and the nature of the borrowing in foreign currency has led to a serious compounding of the crisis.

LyrArc Article Gist
The Public-Private Investment Program of the U.S. Treasury Department has not had a good start. With most banks passing the U.S.government's stress tests and raising $50 billion in the markets, PPIP which was intended to to help resolve the situation of all the toxic securites siting on the bank's books, has gone the way of all the prior efforts to solve this problem. Simply postponed this time hoping that the housing market recovers. With the Rogoff-Reinhardt study showing that it takes about 6 years or longer before housing recovers from such aserious crisis as this one, it would be 2012, before one sees an improvement. See the link to the Business Week analysis that shows housing markets in the USA having some aspect of normalcy in 2012. Yet even this analysis is using an optimistic scenario, because it assumes Moodys Economy.com estimates of economic growth for GDP of 4-5% in 2011- 2012. This assumes the consumer debt that has reached over 100% of GDP will be reversed quickly in 2010, and the the factory capacity utilization currently at 68% and expected to drop further in 2009- with more automobile manufacturing capacity remaining to be scrapped -will recover quickly in 2010-2011. This is unrealistic considering the combination of factors at work. Here Devin Leonard talks to PIMCO chief Bill Gross, who with Warren Buffett and PIMCO CEO Mohammed El-Erian, are key proponents of the PPIP program. Both El-Erian and Warren Buffett say they conceived independently of such a program, in which toxic securties are taken off bank's books with government help. As PIMCO is one of the largest traders of mortgage bonds in the country and has years of successful experience in dealing with mortgage bonds, the New York Fed under Geithner turned to PIMCO for advice in 2008. By this time PIMCO was under ownership of Allianz, a German insurer, which bought PIMCO for $3.3 billion in 2000, with $233 million and a $40 million retention bonus going to Bill Gross. Bill Gross describes how the program would function. PIMCO puts up $500 million, and Treasury matches this with $500 million. Analysts estimate that this partnership would be able to attract as much as $ 4 billion in low interest financing from Treasury and the Fed. Gross says that some of these securities pay as much as 14% interest, and even with a 70% default rate, this partnership could make $250 million a year on the $5 billion partnership, or a 5% return, with PIMCO making a 25% return on its original investment. This isn't exactly pro bono work as Buffett had originally suggested to Bill Gross in the midst of the crisis. But a more fundamental concern is that no one really knows exactly how much of toxic securties the banks have on their books, even though estimates have been made. If this is closer to $1 trillion, PIMCO's expertise and efforts will simply fall short of dealing with a problem of this size, and the window dressing of a problem of this magnitude could only hurt efforts for the eventual resolution of this problem. If housing does not recover as is expected till 2012 at the earliest, and the economy continues to deteriorate in unemployment and factory utilization, then the toxic securities on the bank's balance sheets may pose a bigger problem that will require serious action....

LyrArc Article Gist
Apartment rents went up by 5% in the 12 months through April 2011, according to Axiometrics. Senior economists at Capital Economics say rental yields (the rent divided by the property price) is expected to go up in 2011 to the highest level in more than 20 years.

LyrArc Article Gist
Details of the $825 billion stimulus plan. Renewable energy does well under the plan including production tax credit for renewables, with $32 billion for a "smart" electrical grid for which GE makes components and lobbied for. Renewable energy producers win an extension of production tax credits now convertible into cash for companies whose losses leave them unable to use the credits. Transportation infrastructure green projects did not do so well, with $32 billion for transportation projects and only $10 billion for mass transit projects.The Natural Resources Defense Council had compiled a list of more than 80 environmentally friendly infrastructure and transportation projects worth about $405 billion. Only a small number of these projects made it. What is in the stimulus to create jobs and stimulate capital investment? Businesses get bonus depreciation, which speeds up depreciation deductions for companies that invest in plant and equipment. The stimulus doubles the amount small businesses can immediately write off for capital investments and purchasing new eqipment, and gives incentives for businesses to invest in renewable energy. States get help with $90 billion going to increase the federal share of Medicaid payments, and an additional $79 billion to help states avoid cutbacks in education and other services. And there is a "Make Work Pay" tax credit for $500 per worer and $1000 per couple. Experts say the effects of the stimulus will be felt in the latter part of 2009 and into 2010. Which is one reason the view of economists that there would be a second half recovery does not reflect conditions on the ground. Goldman has revised its view to 2010 and even that may be optimistic. One example of what has happened in the stimulus in this respect is that the earlier optimistic view of largeinvestments in science and technology, broadband networks, and transportation projects for fast rail and transit have all been trimmed down. Part of the reason may be that the bill for the nation's banking system revival may be larger than realized as an additional amount of $15-20 billion is being negotiated for Bank of America and more money will go to Citigroup. $6 billion is shown for highspeed internet access for rural and underserved areas. Science facilities get $10 billion. Repair of public infrastructure (read roads and bridges) gets $31 billion. School modernization gets $21 billion. And modernization of health information technology systems gets $20 billion which its hoped will provide equivalent or higher returns to pay for some of the universal health care costs, and preventative care gets $4 billion. There is a tax credit for R&D work on energy innovations and renewable energy production of $20 billion, and $32 billion for a "smart electricity grid." These are the proactive parts of the stimulus that create something new and make improvements. They add up to $144 billion. So much money goes to shore up the existing services and supplement incomes, and to relieve stresses on the banking system, and other ways to shore up the system, that the proactive expenditures are only a small fraction or 17% of the $825 billion stimulus. And all the time the federal deficit and debt increases with these huge outlays just to shore up the system. The Heritage Foundation Data Analysis Director Mr. Beach told Congressmen at a discussion chaired by Congressman Cantor (R), on January 16, 2009, that the federal debt would reach 92% of the nation's GDP in 2009 from 58 billion or 70% in 2008, with the $825 billion for stimulus. The federal deficit would go up to $1.31 trillion or 9.2% of GDP up from $541 billion in 2008. See the research paper on the Heritage website. ...

LyrArc Article Gist
U.S. Fed chairwoman Yellen moves cautiously to raise rates in December 2015. The Fed raises the benchmark federal funds rate-its overnight lending rate- from near zero to between 0.25% and 0.5%. Yellen emphasized her cautious approach by saying "we have very low rates and we have made a very small move." This follows seven years of near zero rates after the QE program for monetary easing under Ben Bernanke, the previous chairman, following the 2008 financial crisis. The Fed plans to raise rates gradually and slowly over 3 years. With oil prices falling below $35 the prospect that inflation may fall well below the 2% target could put off further plans to raise rates. Yellen said the Fed would "monitor inflation very carefully," and if it remained at unexpectedly low levels the Fed would reconsider its outlook and respond with "appropriate policy."

LyrArc Article Gist
Burton Malkiel says other ways to rebalance and adjust allocations after the surge in equity prices in the U.S. and Europe are to invest in high quality emerging market bonds, quality U.S. municipal bonds with rates of 7%, high quality large caps with dividends over 5%, and quality emerging market stocks which are at price earning multiples of 10.

LyrArc Article Gist
Monthly reports are issued on bank lending by the Treasury. The report for February shows business lending is down by 24% in its dollar value from the previous month, and a similiar decline in student, auto and credit card lending. The only increase is in mortgage lending as government efforts to hold down interest rates heave led to a refinancing boom. The two largest lenders Wells Fargo and Bank of America reported a 35% jump in mortgage lending in February over January. Businesses are charged more for loans by Chase, which it says is to reflect increased risks, and Chase has sharply reduced its business lending. This is bad news for the economy, because it means businesses will continue to pull back, and some businesses will layoff employees and others may close for lack of financing. The other link to the report in the WPost about the consumers who have jobs, but are acting flat broke suggests consumption will continue to decline, which puts stresses on businesses as sales revenues for all sorts of products decline across the spectrum of the economy. With less acess to costlier financing, and declining sales, the picture of continued large job losses is being etched, and will continue to be etched as these are becoming things that will not change for a long time. Banks are insolvent or close to being insolvent, so lending is only like to change if the government takesover the banks and puses through lending at attractive rates. But it has to do this quickly, before confidence drops to a level where the demand for loans just isn't there. China is able to push lending through the banks because government controls the banks, this cannot happen in the US unless the government actually steps in to take over the insolvent banks and push through a large lending program. In this sense the Obama program while admirable and helpful to stabilize things a bit, is only part effective, and can never really restore confidence or a serious measure of economic stability because of the three pillars of progress in this situation, it can impact only two directly- foreclosure prevention, and business plus consumer lending. The third consumption is something it can only indirectly control through foreclosure prevention and lending, but which is headed down as Americans convert to a frugal lifestyle. And in these two areas of foreclosure prevention and business lending the government is failing. The fourth pillar of progress in the recovery is employment, and this is also an area the government can only indirectly control through stimulus spending on infrastructure, education and energy, but is largely influenced by foreclosure prevention- which keeps home prices from falling rapidly and overshooting and reduces household wealth- and business/consumer lending. These are ER (f) FPL (CE). Economic Recovery as a function of Foreclosure Prevention and Lending, and Consumption and Employment, where indirect control is shown by ( ). With not much in place for FPL- the only two variables government can directly control if it takes strong and immediate action before its influence on these two variables begins to diminish over time- Obama's inexperience and learning curve and failure to take bold action to get serious results on FPL, may result in admirable demeanor and rhetoric but medicore results and a struggling economy for years to come. ...

LyrArc Article Gist
A study by the Pew Research center shows minorities are the ones hardest hit in the millions of foreclosures taking place in the US. Counties with black or Latino majorites and the New York region are hit severely. What appeared to be a boon five years ago as black home ownership rose sharply after decades of discriminatory lending and zoning practices, has now turned into a curse with families losing homes to foreclosure, neighborhoods seeing increasing crime and declining house values, and renters being evicted. Lenders like Mozilo's Countrywide and other similiar lenders simply used the idea of home ownership as a flag to get political support for a wild west in lending practices, which allowed predatory lending to take place in the deregulatory atmosphere of the time. See the link to the impact on minorities. Nowhere has it been shown more pointedly that prudence and character in leaders in all areas is the essential conditon for progress, making free enterprise a necessary condition but subject to this essential condition, than in the way the housing and foreclosure crisis is hitting the American and the world economy in so many ways. This is evident in neighborhoods like this one on 145th st. in Jamaica, Queens, whaere black households making more than $68,000 a year are five times as likely to hold high interest subprime mortgages as whites of similiar incomes. Defaults occur three times as often in minority census tracts as mostly white ones. And 85% of the worst hit neighborhoods have majority of black and Latino homeowners. Which may also explain why there is not agroundswell of support for serious government foreclosure prevention measures like bankruptcy legislation and other legislation such as that suggested by Martin Feldstein and others for homeowners nearly or already under water, when faced with fierce lobbying by the banks and financial institutions. Consumer advocates say years ago many banks drew red lines around black neighborhoods and refused to lend, then as deregulation became the rage five years ago, these banks under unscruplous leaders targeted these neighborhoods for subprime lending. A dozen banks and lending companioes that made big profits from subprime loans accounted for half the loans given to the New York region'sblack middle -income borrowers in 2005 and 2006, a case of reverse redlining that the N.A.A.C.P. says in its lawsuit against these lenders. Housing and Urban Development Sec. Shaun Donovan, in aspeech to New York University said that 33% of the subprime mortgages given out in New York City in 2007, went to borrowers with credit scoresthat should have qualitifed them for conventional prevailing-rate loans. For anyone taking out a $350,000 mortgage, says the NYT, a difference of three percentage points - a typical spread between conventional and subprime loans- tacks on $272,000 in additional interest over the life of a 30 year loan. ...

LyrArc Article Gist
With 40% of the unemployment shown as longterm unemployed, U.S. Federal Reserve policies are focussed on bringing down these levels, which pose a risk to the productive capacity in the U.S.

LyrArc Article Gist
Sheila Bair says she fears the next crisis will start in Washington. Bair points to the need for urgent action along the lines recommended by the Bowles-Simpson Deficit Commission. Areas identified by Bowles-Simpson should be tackled as early as possible, she says - tax subsidies for housing and health care that lead to misallocation of resources, defense spending, special-interest provisions. She points out that the increase in the deficit is a result of the unwillingness of governments over the last two decades to make the hard choices necessary to control the structural deficit. Total federal debt doubled in the last 7 years, to almost $14 trillion, or about $100,000 for every American household. Bair, as Chairman of the FDIC, played a critical role in the efforts to control the US financial crisis of 2008-2009. Relentless federal borrowing she says, undermines the confidence private investors have in US government obligations. The cost for bond investors and others to purchase insurance against a default by the US governmet went up from 2 basis points in January 2007 to 100 basis points in early 2009, and is now at 41 basis points. With 70% of US Treasury obligations held by private investors scheduled to mature in 5 years, a decline in investor confidence would lead to higher government and private borrowing costs. She writes this just as the debt crisis in Ireland is taking place, following the one in Greece, and contagion to Portugal and Spain is feared. Bair fears a similar loss of confidence in US public debt. High and volatile interest rates could lead to losses for financial institutions holding Treasury debt and raise funding costs for depository institutions....

LyrArc Article Gist
In a speech on June 6, 2011, Fed chairman Bernanke says "monetary policy cannot be a panacea." He points out that monetary policy can only do so much, in effect reducing expectations that the Fed can by itself tackle the problems stemming from the economic crisis of 2008, the overleveraging of the U.S. consumer and the banking sector, and the problems in housing. A Labor Department report shows 13.7 million unemployed in April 2011, and 3 million job openings at the end of April 2011. Bernanke forecasts growth in the second half will be "uneven" and frustratingly slow for reducing unemployment.

LyrArc Article Gist
Raghuram Rajan warns about the difficulty of central bankers worldwide to escape from the scenario of ultra low interest rates.