Nice to see congress finally raise the debt ceiling without the usual “strings” attached. Meanwhile there is more on the fictional impacts of the debt ratio done by Reinhart and Rogof. Could the hysteria finally be over?

“I’m pretty sure that the Reinhart and Rogoff “study” is the worst empirical research ever undertaken. They simply lumped together data of questionable verity taken across 800 years and 66 countries to get ratios of debt to GDP and growth rates. They summed across debt types, taking almost no notice of the exchange rate regime or the denomination of the debt. In other words, to R&R it makes no difference if a country pegs to gold or dollarizes, or if it issues debt in foreign currency. Further, at least in their public presentations, they habitually assumed that correlation is causation—ignoring the possibility that slow growth raises debt ratios. Their work was ideologically-driven: they wanted to stoke the deficit hysteria used as a justification for austerity”. – See more at:




We Just Don’t Understand

…how great the divide really is between the “Haves” and the “Have Nots”. Let’s not even look at the top few percent. Let’s look at someone we all know, teachers.

I saw these figures a while ago, intended to post. Life overtook writing and now Paul Krugman has done it for me….and better.

It’s all very well to talk vaguely about the dignity of work; but the idea that all workers can regard themselves as equal in dignity despite huge disparities in income is just foolish. When you’re in a world where 40 money managers make as much as 300,000 high school teachers, it’s just silly to imagine that there will be any sense, on either side, of equal dignity in work.”

Quite the perspective, good to keep in mind while we listen to the talk leading up to the 2014 elections. Maybe we can sort out who’s for adding to the burden of the poor, yet maintaining capital gains at 15%, subsidies to fossil fuel giants, and tax loopholes large enough to drive whole corporations through.




Income Inequality–Even the Right is in Agreement these Days

After all the writing and all the talking but none of the action required to fix this problem, here are some excerpts from Barry Ritholtz–54% of Republicans Say We’ve Got Too Much Inequality

“In fact, there are at least 5 solid conservative reasons – based upon conservative values – for reducing runaway inequality:

(1) It has now finally become widely accepted by economists that inequality drags down the economy. Conservatives like economic growth;

(2) Inequality increases the nation’s debt Conservatives don’t like debt;

(3) Runaway inequality leads to social unrest and violence. Conservatives like stability and order;

(4) Much of the cause of our soaring inequality is bailouts for the big banks and socialism for the buddies of the high-and-mighty at the Federal Reserve, Treasury, and White House.   The government has consistently picked Wall Street over Main Street, and virtually all of the big banks’ profits come from taxpayer bailouts. The Fed is still throwing many tens of billions a month at the big banks in “the greatest backdoor Wall Street bailout of all time”, which sucks the wealth away from the rest of the economy.  Conservatives don’t like bailouts or socialism; and

(5) One of the biggest causes of runaway inequality is that the big banks are manipulating every market, and committing massive crimes.  These actions artificially redistribute wealth from honest, hard-working people to a handful of crooks.  Conservatives hate redistribution … as well as crooks.  In addition, religious leaders have slammed the criminality of the heads of the big banks; and the Bible teaches – and top economists agree – that their crimes must be punished, or else things will get worse. On the other hand, if the crimes of the bankers are punished, inequality will start to decline, because a more lawful, orderly and even playing field will be reestablished.”

“This is an area of agreement between people of good faith on the left and on the right. As Robert Shiller said in 2009:

And it’s not like we want to level income. I’m not saying spread the wealth around, which got Obama in trouble. But I think, I would hope that this would be a time for a national consideration about policies that would focus on restraining any possible further increases in inequality.

If we stop bailing out the fraudsters and financial gamblers, the big banks would focus more on traditional lending and less on speculative plays which only make the rich richer and the poor poorer, and which guarantee future economic crises (which hurt the poor more than the rich).”

What we have is once again politicians not representing their constituents, but representing themselves. Time for action.


Future Inflation?

In the long-going inflation discussion, I keep hearing the same junk about “currency debasement” and the continual “It’s just around the corner’. I can hardly wait until one of my friends…after being wrong for now five years says “see, I told you so” at the first inkling of a rising, however small,  inflation index.

Like a Stu Glazer quote about playing the blues “if you hit a wrong note, just hold it till it gets right”. Fine idea when it’s fun and entertainment, not so at all when setting policy. Dangerous in fact, bad for economic growth, bad for jobs, and clearly we now have proved austerity policies have deepened and prolonged the recession.

Here is a piece from yesterday specifically on the future of inflation. Well done by EconoMonitors’ James Picerno.

“Let’s begin by recognizing the US dollar has strengthened over the last two years. The idea that the currency was headed for the ash heap of forex history looks foolish at the moment. The trade-weighted measure of the greenback against the major currencies has been trending higher since 2011 and is roughly unchanged from the months preceding the start of the Great Recession. So much for debasement.”




It is Not Heartwarming

To realize the U.S Government post 911 bestowed  private domestic policing powers on the 12 Federal Reserve Banks, including the New York Fed. You have to read about it here, just thinking about it makes me sweat. Remember the Fed is not really Federal…it is private. In essence we have the guys who seek market intelligence and make buku dollars every day off market intelligence, security trades, and equity markets policing themselves. Then the high ranking fed boys and girls move off to make the REALLY big bucks with the wall street firms. Suppose there is any insider information going back and forth there?  Anyone else perceive a major conflict of interest?

Devaluing the Dollar

Since yesterdays video about how the Fed makes (literally) money I’ve seen a few questions. On top of recent discussion of how and why we are not seeing inflation…thought I’d bring this recent piece from Barry Ritholtz to the tank. In 2010 Reminder: QE = Currency Debasement and Inflation he points to the long and (then) distinguished list of “experts” who wrote to the Fed Charman claiming how Quantative Easing (QE)  would debase the dollar, cause inflation, etc. It is interesting to me how many people I know, smart people to be sure, who believed this…some still do in spite of history proving them wrong.

QE has continued, pumped money into a weak economy creating jobs and keeping the system solvent. Like I said before it is not the best plan, that would have been direct government stimulous out of Congress. But some truely smart people credit QE with keeping us out of a full blown depression in spite of congressional efforts to allow, perhaps even make the economy worse. Yet as Ritholtz makes the point, none of the signitories on this letter, nor the others claiming inflation and currency debasement, have had no concequences in spite of being so wrong for so long. And here’s Krugman’s take, expectedly much more pointed, What to do When You’re Wrong.

Reader comments are interesting. One in particular points to the various signitures  “A Who’s who of the right wing, with a strong whiff of dead Rand…”

Yup, and they are just not learning.



Fed Tutorial

Perhaps some interest here on how the Fed actually creates money. Nothing earthshattering, simply helps describe how and why it is doing what it is doing.

A Litttle More Non-Inflation

Two links to posts here today. First by Ed Dolan: Falling Gasoline Prices bring Inflation to a Four Year Low.  See this chart.

Inflation per BLS

Well compare that to what I’ve said here. We see again (and again and again…) the folks yelling inflation have been wrong for years, are still wrong,and I surmise will be wrong over the next few more. It’s really OK to be wrong, after all it’s economics and sometimes things become a bit different than we expect. But truely smart people can usually learn from the mistakes and data. Not everyone.

Todays second winner is a takedown of the inflation hawks claiming the dollar has lost huge value in the past couple years. We know differently. Barry Ritholtz hammers them with facts: Has the Dollar Really Lost 97 Percent of Its Value? in this Bloomberg winner.

 “One of the favorite tropes of the “End the Fed” crowd is the “falling purchasing power of the U.S. dollar.” Google that phrase, and you will be rewarded with 91,100,000 results. (drop the “U.S.” and it doubles to 187,000,000 results).

The problem is, nearly all of these arguments are wrong.

As Matt Busigin of Macrofugue points out (echoed by Joe Wiesenthal of Business Insider), measuring the buying power of cash by functionally burying it in Mason Jars in the backyard is a misleading and inappropriate metric.”

But why can’t the wrong at least be quiet for a bit…maybe allow Congress to govern on the data, not the hope of a few.

Income Inequality

Great article from Bloomberg about record profits by manufacturers but stagnate wages for the folks doing the producing. If I’m reading the article right, profits after taxes have risen by ~300% since 2009 while wages have slid 1%, factory pay specifically has fallen by 3%. I guess those unions are just too powerful these days. Some quotes:

Factory pay hasn’t kept pace with inflation and has fallen 3 percent on that basis since May 2009, while average pay for all wage earners slid only about 1 percent.

“We need to focus on how many jobs there are that give an adult a chance to earn a decent living,” said Gordon Lafer, an associate professor at the University of Oregon’s Labor Education and Research Center in Eugene. “Too much of the discussion has been about the number of jobs, and that’s obviously important, but there’s also a crisis in the quality of jobs.”

“Manufacturers’ after-tax profits rose to a record $289.1 billion last year, more than three times 2009’s tally, the Commerce Department reported. The Standard & Poor’s 500 Industrials Index has more than tripled since its 2009 low, and topped the broader index by 59 percentage points over that span.

The average hourly wage in U.S. manufacturing was $24.56 in October, 1.9 percent more than the $24.10 for all wage earners. In May 2009, the premium for factory jobs was 3.9 percent. Weighing on wages are two-tier compensation systems under which employees starting out earn less than their more experienced peers did, and factory-job growth in the South.

Since the U.S. recession ended in June 2009, for example, Tennessee has added more than 18,000 manufacturing jobs, while New Jersey lost 17,000. Factory workers in Tennessee earned an average of $54,758 annually in 2012, almost 10 percent less than national levels and trailing the $76,038 of their New Jersey counterparts, according to the Bureau of Labor Statistics.”

Containing Cost of Health Care

Entitlement reform became the battle cry of one party not too long ago. I argued here how the real issue is the cost of health care. Social Security is easy, a few minor adjustments and it’s good for the foreseeable future. But look, untended consequence or not, this is great news.


CBO Projections

And from the CBO Report:

1. Health care spending is growing at the slowest rate on record:
According to the most recent projections,
real per capita health care spending has grown at an estimated average annual
rate of just 1.3 percent over the three years since 2010. This is the lowest
rate on record for any three-year period and less than one-third the long-term
historical average stretching back to 1965. This slower growth in spending is
reflected in Medicare, Medicaid, and private insurance.

2. Health care price inflation is at its lowest rate in 50 years: Measured using personal consumption expenditure price indices, inflation for health care goods and services is currently running at just 1 percent on a year-over-year basis, the lowest level since January 1962.  (Health care inflation measured using the medical CPI is lower than at any time since September 1972.)

3. The slowdown in health care cost growth is not due solely to the Great Recession; something has changed: The fact that the health cost slowdown has persisted so long even as the economy is recovering, the fact that it is reflected in health care prices – not just utilization or coverage, and the fact that it has also shown up in Medicare – which is more insulated from economic trends, all imply that the current slowdown is the result of more than just the recession and its aftermath.  Rather, the slowdown appears to reflect “structural” changes in the United States health care system, a conclusion consistent with a substantialbody of recentresearch.

4. The ACA is contributing to the recent slow growth in health care prices and spending and is improving quality of care: ACA provisions that reduce Medicare overpayments to private insurers and medical providers are contributing to the recent slow growth in health care prices and spending.  Other ACA reforms are reducing hospital readmission rates (see figure below) and increasing provider participation in payment models designed to promote efficient, high-quality care.

This is well worth watching and reading. Click the graph above for the Government release. Watch Krugman’s blog here. I’m sure he’ll have much more to say as the follow-on argument and further attempts to kill the ACA ensue.