Monthly Archives: November 2013

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. http://wallstreetonparade.com/2013/11/the-official-video-from-the-federal-reserve-on-how-it-creates-electronic-money/

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.

112113krugman1-hpMedium

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.

What’s my Line–Real Mr. Fieler please stand up

I just read the USA today piece “Janet Yellen right for rocky times”.  Convinced it is important to look at more than one perspective I followed by reading the counterpoint. Sometimes we need that before making decisions, me included. But you really, really have to read this counterpoint to believe…or specifically to disbelieve.

The counterpoint author, Sean Fieler, takes an interesting position. er positions. He begins by stating Yellen will pretty much stay the current course, then moves on to critiquing current Fed policy, specifically Quantitative Easing (QE).

“While the Fed’s easy-money policies have not produced many jobs, they have produced a persistent, low rate of inflation that is choking the American middle class.”

Got that everybody? He says QE has caused a low rate of inflation. But then goes on to tell us readers:

Yellen’s extremism offers the Republicans the perfect opportunity to embrace sound money and send a clear signal to voters that they are listening to their concerns about rising prices and falling living standards.

If easy money delivers what it always has throughout history — growing inflation, growing inequality and growing government — a Republican embrace of sound money will offer America a way back to prosperity and the GOP a way back to a governing majority.

Yes you are reading it right  “rising prices“…“easy money“… “delivers growing inflation”. OK Mr. Fieler, which one is it? does QE cause low inflation or high inflation?

A look back here tells us there hasn’t been inflation since QE began. Not five years ago, not three, and not today. With congress failing to stimulate the economy the Fed has done what it can to get dollars into circulation. Meanwhile the pundits continue to howl about inflation. But this…this claims to see both…while pointing to bad of both.

The real Mr. Fieler, as the old TV show goes, works for the American Principles Project another of those radical religious right wing think tanks that will oppose anything not their (or their “god’s”) idea. That clearly explains how both low inflation, and high inflation are caused by the same policy. And no matter which one occurs really…it has to be wrong since a “liberal” is at the helm. Quite nice of him to discredit himself in just a few paragraphs of the same article though.

Wall Street is Broken

New piece out today about Elizabeth Warren citing a speech she made yesterday. Everyone should be paying attention. She is one of the few in DC who is both willing and able to take these guys on head-to-head. Short excerpt here but a worthy read.

U.S. Senator Elizabeth Warren delivered a speech warning her Congressional colleagues in strident tones that Wall Street is now more dangerous than it was five years ago when it crashed. Warren, again, called for the restoration of the Glass-Steagall Act to prevent another financial calamity.

Gallup released a poll showing the approval rating of Congress had fallen to nine percent, the lowest reading in the 39 years the firm has been asking the question.

A Quinnipiac University poll reported President Obama’s popularity has fallen to the lowest point of his presidency, with a majority of Americans, 54 percent, now disapproving of his performance.

And, finally, Americans for Financial Reform together with the Roosevelt Institute issued a 126-page report in conjunction with the speech by Senator Warren, outlining their own dire predictions for financial stability under the current Wall Street structure. Eleven separate scholars contributed to the study, including Jennifer S. Taub, an Associate Professor at Vermont Law School. One might anticipate what Taub had to say from the title of her upcoming book, Other People’s Houses: How Decades of Bailouts, Captive Regulators, and Toxic Bankers Made Home Mortgages a Thrilling Business – available from Yale Press in 2014.