LyrArc Article Gist
U.S. Federal Reserve chairman Bernanke, says the Fed will keep interest rates low till unemployment reaches 6.5%, as long as inflation remains at about 2%. If unemployment reaches 6.5%, and this is because more people are dropping out of the labor market, he will take this into account. If unemployment stays high the Fed indicated in its statement that it would tolerate a higher inflation of 2.5%, as long as the longer term outlook was for inflation to be at 2%. Bernanke said this doesn't mean monetary policy is on autopilot, because the Fed will watch conditions carefully and will leave room for flexibility- keeping an eye out for new asset bubbles that could develop, and monitoring labor market conditions and inflationary pressures and inflation expectations. If inflation falls well below 2%, or unemployment rate falls mainly because of people dropping out of the labor market, the Fed may continue to keep interest rates low. This policy was announced as U.S. fiscal cliff deficit negotiations continued in Dec. 2012 with one scenario being considered by both political parties being going over the Jan. 1 deadline before coming to an agreement. Bernanke pointed to this, saying "this is a major risk factor right now." The Fed's activist policy in economic policy has given financial markets and business a measure of stability not provided by government and Congress. Fed policy is to buy $40 billion of mortgage securities, and $45 billion of long term Treasury securities for each month in 2013. It will fund the purchases by adding reserves to the banking system, which is to say that it will print money to buy more bonds. This is a major decision by the Fed in that the Fed has shied away from unemployment targets in the past. Bernanke described this action as a new"automatic stabilizer" in the U.S. financial system- if unemployment rises investors know this pushes the Fed's interest rate increases further down the road and would drive interest rates down, if unemployment drops sooner than expected, investors anticipating Fed's rate increases would drive long term interest rates up, to keep stable growth....

LyrArc Article Gist
Bill Marriott tells Adam Bryant about an encounter with Eisenhower at his father's family farm in Virginia in 1954. Eisenhower asked the young Bill about whether his dad, Eisenhower and the Secretary of Agriculture should go outdoors hunting quail on a stormy wintry morning- "What do you think we should do?"

LyrArc Article Gist
Britain's Treasury chief Osborne faces a difficult period as the economy shows flat growth for 2012 and 2013. The targets he set for eliminating the structural deficit or budget gap by April 2017 may need to be shifted to 2018. The target for net debt to decline as a percentage of GDP by 2015 may also be unachievable if growth is flat in the coming year. An accounting change in how profit from the Bank of England's bond buying program are shown is designed to reduce Treasury's borrowing and bring Britain closer to this target. Osborne says Britain's actions for austerity measures, spending cuts and increasing taxes have helped keep interest rates low to pay off debt.

LyrArc Article Gist
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.

LyrArc Article Gist
WSJ reporters Corkery and Yoon give a remarkable account of the individual homeowners and investors inside one toxic subprime mortgage security from Countrywide Financial Corp. named CWABS- 2006-2007. There is Amanda Gavini of Fort Myers who continued making mortgage payments against the odds after a illness and death in the family. And a couple Donald Mudd- Patricia Starr who were approved by Countrywide for a $171,000 adjustable rate mortgage loan at 8% with a $10,000 down payment for a home in Port Charlotte, Florida. The approval came only 3 months after the couple emerged from personal bankruptcy in 2006, and by 2009 Mudd was missing payments. Other borrowers such as Mrs. Gavini in Florida took out two loans at 7% and 11% in 2006, have continued making payments and are still unable to refinance under the HAMP or HARP government programs. It is because of these homeowners who continue to make payments helping the security price recover, that one of PIMCO's funds which owns a stake in this security has made good returns. Hedge fund Marathon Asset has also made good returns on this security because of the U.S. government's Public Private Investment Program to help banks recover by providing government incentives for purchase of these securities from banks. This was a way to get banks holding these subprime securities to resume normal lending in financial markets....

LyrArc Article Gist
What is happening here appears to be that the whole American system of government as it operates today has some serious weaknesses, which if exposed in a critical situation- and with some life threatening situation for an industry group- can subvert the whole system and the economic life of the country. The serious weaknesses are the lobbying of Congress that is legal, and the financing of Congressmen and Senators election campaigns by industry groups which is legal. The life threatening situation for an industry group are the accounting rules and nuances that require that the banking and financial industry that holds these mortgage home loans, if they change one loan to lower payments in one geographic area, have to then show the lowered value of that loan in their books on all other loans of that type in that geographic area. Without this the banks and financial institutions were already or close to insolvent with losses of over $1 trillion. With that accounting change the industry losses would make large parts of the industry insolvent. This becomes incentive enough to fight loan modifications at all costs for the industry, and explains why Hope for Homeowners has generated only 25 loan modifications when it was advertised to generate 400,000. This creates a once in a lifetime or once in a hundred year chance of the whole system of democratic government working to destroy the economic life of the country. How? By providing a big enough reason for the banking and financial industry to fight loan modifications almost to the death, against even their better judgement when in late 2008 and January 2009 this would mean suicide for the economic life of the country, and the chance that they would both go down into the depths, the industry and the boat that is the American economy. This is what this story tells us, all key Congressmen and Senators were taken into their fold by the lobbying groups with large donations to their election funds, both Republican and Democrat, Shelby, Frank, Dodd, Durbin, and their aides. After Hope for Homeowners program failed, the new Hope Now program was again designed with the connivance of lawmakers in both parties by the banking industry representatives. It was designed so it would largely fail by not doing enough to keep homeowners in their homes. The industry faced with a life threatening situation did the wrong thing. Instead of saying lets get the government to help to change the accounting rule, and advocating that the government join the industry to share the losses and go out aggressively to restructure the loans in a three way loss sharing arrangement with homeowners, government and the industry, the industry instead decided to stick its head in the sand and let nobody do anything period. To do this it had to create the illusion that somehow the problem would fix itself with housing recovering on its own. In addition to the donations many Republicans like Preston, Secretary of HUD with oversight of FHA, and others in the Bush administration, may have had the mistaken notion that somehow the housing industry would recover without much help, that the economy was basically still healthy, that the crisis was not as bad as it appeared, that freemarket principles were still the best guide, and that toxic assets of banks and foreclosures were two entirely different things, with foreclosures for those who had borrowed recklessly not a bad thing....

LyrArc Article Gist
Kristof reminds readers of the NYT that the more that the British acted to suppress the American insurgents, the more that fueled the insurgents fighting the British. After all the land they were on was theirs they felt and not Britain's. The same is true for the $0 million Pastuns on both sides of the border, the Afghan side and the Pakistan side. He says Americans are not sensitive enough to nationalism abroad. The war in Afghanistan is costing $60 billion ayear. Adding another 40,000 troops will cost $10 billion, enough to send 2 million disadvantaged children to a solid preschool, or could be as high as $40 billion extra, which over 10 years would pay for almost half of health care reform. Kristof doesn't see the 40,000 troops doing enough to change the picture much, except increasing support for Taliban as the American footprint grows as foreign occupiers. He mentions that standard counterinsurgency ratios of troops to civilians would require 650,000 troops including Afghans.

LyrArc Article Gist
David Stockman was Budget Director under President Reagan and known for his prodigous grasp of statistics in the national budget. Here he takes on what he describes as disproportionately large and destructive banking system for the U.S. economy, which he says the nation desperately needs less of. He supports the small tax of 0.15% of the debts other than deposits of financial conglomerates. His words are some of the strongest yet to come from one of the most prominent people on Reagan's economic team about how the nation's banking system has beome unproductive in supporting economic activity which is its reason for existence. The destructive effects on social cohesion and the middle class is emphasized. He says for years the Fed has run an insanely loose monetary policy that has encouraged this behaviour and socially detrimental profit seeking by the banks and other companies. He sees the big banks as dangerous institutions in today's economy engaged in a bull market culture which believes in entitlement and profitseeking behaviours regardless of its detrimental nature for the national economy. The recent profits of the banks in 2009 and the resulting bonuses are a result of the Fed's easy money policy and bank's gambling at the Fed's monetary casino as he puts it, with money obtained at little cost from Fed-controlled money markets. This article helps to eliminate the distorted perspective in today's climate that paints criticism of splitting up the banks, or otherwise restricting banks in engaging in proprietary trading and risky behaviours, as government interference. As Stockman puts it these banks are already in some sense wards of the state and not private enterprises and this issue is not relevant. The question now is how to set things right and this involves possible solutions such splitting up banks that are too big to fail, restricting risky behaviours and preventing proprietary trading, and other actions as unusual steps for unusual times to get things working back to normal. In other times Stockman would not have said this in an op-ed piece if this were not so....

LyrArc Article Gist
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.

LyrArc Article Gist
The head of Italy's statistics agency Istat, Enrico Giovannini, says Italy's manufacturing sector has performed quite well, and the problem is with the services sector, in lagging sectors such as transport, communications, tourism, retail and social services. The manufacturing sector is only one sixth of the economy. He says productivity is poor and there is lack of investment in human capital and information technology for the services sector. IT's contribution to growth in Italy's labor productivity is the lowest in Europe, according to the European Investment Bank. Italy's total efficiency gains declined one half percentage point from 1995-2005. Retail and tourism sectors lack the needed productivity gains. This means actions taken by prime minister Monti to change labor laws and related changes will not be enough to generate confidence in the economy and economic growth. Giovannini says investment in human capital and productivity is badly needed, and shifting education and training to where there are new job opportunities....

LyrArc Article Gist
Gao Xiqing, vice chairman, president of China Investment Corporation, told a panel discussion during meetings of the International Monetary Fund, on September 24, 2011, China cannot be expected to provide solutions to the eurozone debt crisis. Xiqing said: "We're not saviors. We have to save ourselves." He added that CIC would consider buying bonds of troubled eurozone countries -"if it has a risk profile that fits into our allocation, but don't expect us to buy more than our risk appetite would take." And the head of China's central bank, Zhou Xiaochuan, told the panel that China cannot raise its growth rate because of inflation and other problems from unsustainable growth.

LyrArc Article Gist
When George Osborne took over at the British Treasury the deficit was 10.2% of GDP. Osborne's hope in 2010 was that the budget could be balanced by 2015, now it looks like this will happen in 2019 or later.The forecast for the end of the 2015 fiscal year is a deficit of 5% of GDP. Lower than expected tax receipts are a big reason for the difficulty in lowering the deficit. The Office for Budget Responsibility, the budget agency, has reduced the forecast for tax receipts for 2015-2019 by 87 billion pounds. This means further spending cuts will be needed, according to OBR. Budget surplus is not expected before 2019. This is happening even though lower inflation and lower market interest rates have helped reduce outlays to service the debt. OBR assumes productivity will increase to 2% for the budget to be balanced in 2019. At the average productivity growth rate of 0.5% seen since 2008, the budget deficit will still be 2.2% in 2019, in another scenario of numbers run by OBR.

LyrArc Article Gist
Applebaum talks to two researchers at the University of Chicago and Princeton, Prof. Sufi and Prof. Mian, on the record of U.S. president Obama and Fed chairman Bernanke in helping homeowners facing foreclosure and underwater borrowers, comparing that record with their record in helping the banks. The issue is relevant as the policy and handling of homeowners had to be part of an overall effective plan for recovery in the U.S. economy, because ultimately without the U.S. consumer any recovery would be weak in the long run- a situation the U.S. faces in early 2014. The response to the issue of irresponsible homeowners borrowing beyond the limit without an equally robust response to irresponsible bank management that allowed wildly excessive leveraging of assets, and successful aggressive lobbying by banks in a shortsighted policy of going through with a wave of foreclosures; besides creating questions of fairness and equitable handling of the problem, also had major ramifications for the future of the U.S. and global economic growth. Here Christina Romer and other administration advisors say Bernanke was right in tackling the problem from the perspective of the banks needing to be recapitalized. Thoughtful advisors looking at the entire problem, Martin Feldstein and Sheila Bair strongly pushed for providing the same help to homeowners without getting caught up in the issue of who was responsible home buyers or the banks, and looking at the interests of the U.S. economy and the U.S. people. Proposals by Feldstein and Bair were equally robust in helping banks as they were in helping homeowners, only the banks understood their interests narrowly and had more access to policymakers in the Bush, as well as the Obama administration, Paulson as well as Geithner. This leaves us with the ultimate irony of the Obama administration pushing for the minimum wage, even to the point of electoral posture, when lasting damage had been inflicted on homeowners from the weaker portions of America's middle class by a policy that went against what two respected financial and economic experts from the Reagan period, Sheila and Bair had strongly advocated. See links and groups on Feldstein and Bair. Applebaum has followed most aspects of this problem closely and continues to provide exceptional reporting including the piece on the thinking of new Fed chairman, Janet Yellen. Private enterprise rules that require management at banks just as for other companies to take responsibility for failures, and be replaced with new management, was largely avoided leading to a fundamental failure in how a free market economy such as the U.S. and western European economies are supposed to function. Rules aggressively pushed by Geithner's mentor Treasury Secretary Rubin for a vigorous cleanup at banks in South Korea during a similiar situation in 1997, were not followed in any way here, also setting wrong precedents for the long run. ...

LyrArc Article Gist
Serious concern about lower consumer spending in the U.K that would reduce growth and reduce government tax receipts. The unemployment rate has remained at 7.6% for 22 months. Wage levels are not keeping up with inflation of about 4.5%. The increase in the sales tax from 17.5% to 20% has added three quarters of one percent to the inflation rate, according to the National Statistics Office. VocaLink says annual wage growth in the three months through May 2011 was 1.8%, much lower than the inflation rate. Deep spending cuts are going into effect in 2011-2012, and about 300,000 jobs would be lost in the public sector with spending cuts by 2015. The IMF has reduced its estimate for growth in the U.K. to 1.5% from 1.7%. At the same time the Bank of England is under pressure to increase the interest rate of 0.5% (which is a record low), to control inflation. Britain under prime minister Cameron plans to cut government spending from 47% of GDP to 40% of GDP over six years. This will take 6 years of spending cuts, something even a previous prime minister Margaret Thatcher was not able to do. The government's Office of Budget Responsibility predicts a drop in the deficit from 11% of GDP to 7.9% by March 2012. Yet a lot depends on government tax receipts which in turn depend on economic growth. Britain showed a large deficit of 10 billion pounds in April 2011, and the situation is fraught with a high degree of uncertainty....

LyrArc Article Gist
After over two decades of focus on GDP growth targets, China under prime minister Li Keqiang is giving more emphasis to job growth and problems of air pollution, education, and quality of life indicators. Premier Keqiang tells a news conference in Beijing in March 2014 that China needs to create 10 million new jobs each year. More bond defaults can be expected as the financial system is being changed with new rules. Li says China will no longer be "preoccupied" with GDP growth targets. Li made the new priorities clear-"The GDP growth we want is one that brings real benefits to our people, helps raise the quality and efficiency of economic development and contributes to energy conservation and environmental protection."