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August 7, 2012

Latest Posts from Economist's View


Latest Posts from Economist's View


Posted: 09 Jul 2012 01:08 AM PDT
Why won't Romney release his tax returns? What's he worried about?:
Mitt's Gray Areas, by Paul Krugman, Commentary, NY Times: Once upon a time a rich man named Romney ran for president. He could claim, with considerable justice, that his wealth was well-earned, that he had ... done a lot to create good jobs for American workers. Nonetheless, the public understandably wanted to know both how he had grown so rich and what he had done with his wealth; he obliged by releasing extensive information about his financial history.
But that was 44 years ago. And the contrast between George Romney and his son Mitt ... dramatically illustrates how America has changed. ...
George Romney ... ran an auto company, American Motors. And he ran it very well... Romney ... restored the company's fortunes, not to mention ... saved the jobs of many American workers. It also made him personally rich. We know this because during his run for president, he released ... 12 years' worth of tax returns... Those returns ... reveal that he paid a lot of taxes ..., 37 percent over the whole period. ...
Now fast-forward to Romney the Younger... Unlike his father,... Mr. Romney didn't get rich by producing things people wanted to buy; he made his fortune through financial engineering that seems in many cases to have left workers worse off... George Romney was open and forthcoming..., but Mitt Romney has largely kept his finances secret...
Put it this way: Has there ever before been a major presidential candidate who had a multimillion-dollar Swiss bank account, plus tens of millions invested in the Cayman Islands, famed as a tax haven?
And then there's his ... I.R.A.'s..., with annual contributions limited to a few thousand dollars a year..., somehow Mr. Romney ended up with an account worth between $20 million and $101 million.
There are legitimate ways that could have happened... But ... voters have a right to know that truth..., what a man does with his money is surely a major clue to his character.
One more thing: To the extent that Mr. Romney has a coherent policy agenda, it involves cutting tax rates on the very rich — which are already ... down by about half since his father's time. Surely a man advocating such policies has a special obligation to level with voters about the extent to which he would personally benefit from the policies he advocates.
Yet obviously that's something Mr. Romney doesn't want to do. And unless he does reveal the truth about his investments, we can only assume that he's hiding something seriously damaging.
Posted: 09 Jul 2012 12:42 AM PDT
Via Brad DeLong, here's the schedule of speakers:
John Ellwood: 00:55
Jesse Choper: 15:00
Steve Shortell: 30:30
Brad DeLong: 45:50
Ann O'Leary: 55:30
Ann Marie Marciarille: 1:07:33
General Questions: 1:19:40
Posted: 09 Jul 2012 12:33 AM PDT
Tim Duy:
Employment Report Not Helpful, by Tim Duy: Still on vacation, but found time to review the employment report, a good six hours after the rest of the world had the first shot. Instead of the definitive report we were hoping for, we got a remarkably unhelpful report. On the margin, it points to additional easing. But I can't say it strongly points in that direction. It simply was neither bad enough or good enough to clear up any uncertainty about the impact of seasonal distortions in the data. And thus, it really should be generally neutral, at least on the basis of where the Fed appears to be sitting. Of course, I would argue that the Fed is sitting in the wrong place to begin with, and should already be easing further. But that is another story for another time.
The basics of the report are well known at this point. Nonfarm payrolls eked out a meager gain of just 80k while the unemployment rate held steady at 8.2%. The nonfarm payroll numbers continued to exhibit the trends we saw last year:
Nfp
I think Cardiff Garcia is on the right track when he says:
… we find the relationship between the seasonal shifts the past three years in these economic surprise readings to be a little too close to be all coincidence.
The Federal Reserve is struggling with this same question. While the average gain over the past 3 months is just 75k, the average over the past 6 and 12 months is about 150k. Arguably, 150k is not enough given the depth of the recession, and thus in and of itself calls for further action. But the Fed doesn't seem to think so, otherwise they would have engaged in more easing already. Which leads me to believe that while on the margin the headline numbers in this report suggest additional Fed easing, if the Fed choose to look through the possible seasonal distortions and see the longer term moving averages, they will not be inclined to act on this report.
If I look for good news in the employment report, I see a hint in the 5 cent/hour wage gain. That said, the long term trend looks pretty dismal still:
Wages
I know I should be hoping for wages growth to accelerate, but I worry the Fed will turn hawkish at the first hint of higher wages. I guess we will cross that bridge when we get to it. The uptick in temporary hiring is also a plus:
Temp
Still, I admit that I am putting a little lipstick on the pig by looking for the good news. Maybe a lot of lipstick. This was a pretty weak report.
In other news, MarketWatch reports that retail spending softened in June:
Total June sales at stores open at least a year — a key performance metric that strips out the impact of new and closed stores — rose 0.1%, missing the 0.5% gain Wall Street was looking for. That was the smallest pace since sales declined in August 2009, according to Thomson Reuters. Sales rose 6.7% a year earlier.
Which fits with the relative deceleration in the real consumer spending over the past year:
Pceyoy
Looking at the the path in levels, it is obvious that consumer spending remains in a whole different world compared to the pre-recession period:
Pce
Not exactly a bullish trend, but one that is not new either. As such, it is challenging to expect the Fed will react. A trend that should change Fed thinking, however, is the direction of inflation:
Inf
Headline inflation clearly rolled over, and we are seeing the first hints falling core inflation will confirm this move. This should be critical. Even if the Fed concludes that the employment report is inconclusive, a deteriorating inflation outlook should be a clear signal that the Fed has more work to do. After all, what is the point of setting an inflation target if you have no intention of trying to hit it?
Bottom Line: I continue to believe that neither an optimist not a pessimism should one be when assessing the path of economic activity in the US. Sticking by this rule would lead you to discount the last three employment reports as seasonally distorted, while also discounting the string of positive reports we saw earlier this year. That still leaves an underlying jobs growth rate that is uninspiring in comparison to the job market damage done by the recession. Combine that with a deteriorating inflation outlook, add in a dash of supposed dual-mandate, and you should have the recipe for an additional dose of quantitative easing. Yet I still fear such expectations are premature given what appears to be a relatively high bar for QE3. Yes, I see clear reason for Fed action given Fed forecasts, the evolution, and the Fedspeak of supposedly key members. But I have seen this for months, and the Fed has consistently failed to meet expectations. With the employment report failing to provide a conclusive policy direction, it is increasingly likely the next meeting is another nailbiter. Outcome still in flux.
Posted: 09 Jul 2012 12:24 AM PDT
A group of  German, Austrian, and Swiss economists led by Michael Burda post a reply/rebuttal to Hans Werner-Sinn's petition (the Sinn interventions are having a very corrosive effect on EZ resolution efforts):
In support of a European banking union, done properly: A manifesto by economists in Germany, Austria and Switzerland, by Michael Burda, Hans Peter Grüner, Martin Hellwig, Mathias Hoffmann, Gerhard Illing, Hans‐Helmut Kotz, Tom Krebs, Jan Pieter Krahnen, Gernot Müller , Isabel Schnabel, Andreas Schabert, Moritz Schularick, Dennis J Snower, Uwe Sunde , Beatrice Weder di Mauro, 9 Jul 2012: The EU Summit decision on banking union is being questioned by some economists in Germany. This column argues that a banking union is a critical step in ending the EZ crisis and building a more stable EZ financial architecture. It is a translation by Michael Burda of the German-language manifesto drafted by the First Signatories listed below and signed by over 100 economists.
The financial crisis has exposed a fatal flaw in the design of European monetary union which can be removed only by decisive policy action. Policymakers in Europe now have an opportunity to change the game. A central aspect of this problem is the conflation between debt of the private sector and that of European national governments.
In the course of the crisis, fiscal budgets are being tapped to refinance systemically relevant financial institutions. At the same time, financial institutions continue to play a central role in financing national governments, lending money to them and holding their debt. An unavoidable consequence is that bank failures have led to sovereign debt crises and sovereign debt crises have led to banking crises, leading to growing mistrust of both national banking systems and government finance. The situation is aggravated by the fact that international investors, driven by fear of total collapse, have withdrawn funding to struggling countries, both for governments and for banks.
This has in turn led to a balkanisation of national financial markets and threatens not only the European monetary union but the European integration project as a whole. Only by breaking the link between the refinancing of banks and the solvency of national governments will it be possible to stabilise the supply of credit in crisis countries. If the refinancing of banks – and the insurance of bank deposits – can be made independent of the financial state of the respective domiciling country, national sovereign crises can be decoupled from the private sector financing. In this way, contractionary demand shocks induced by corrective national fiscal policy can be softened by a broadening of the supply of credit. A European backbone to the refinancing of banks will dampen the impact of the coming fiscal consolidation. An indispensable requirement for this is a set of uniform regulatory banking standards which are implemented by a single European authority.
Deeper financial integration and a de-coupling of government and banking finance are essential elements for a more stable financial architecture in Europe. These steps are important for breaking the vicious circle between sovereign debt and banking crises. A monetary union with free capital flows cannot work reasonably without a unified banking framework. For this reason, the decisions of the last EU summit represent a move in the right direction. Now it is crucial to implement these decisions, in order to create a durable solution with uniform European structures. In no way does this endorse a collectivisation of bank liabilities. Rather it is essential to cede key powers of regulatory intervention in member countries to a banking supervision authority at the European level. This European banking supervision authority should have the ability to authorise rapid recapitalisation of troubled banks. In extreme cases, this may mean the expropriation of previous equity holders and the partial conversion of bank debt into equity. A unified resolution procedure must be capable of recapitalising, unwinding, or liquidating insolvent financial institutions in an impartial manner.
At the same time, creditors must be made liable for risky investments, so that the resolution of troubled financial institutions can be executed without taxpayer money. In order to secure the financial stability of a banking union, a common restructuring fund that can intervene and impose binding conditionality on reorganisation plans is needed. The ESM can play this role. A stronger Europe-wide deposit insurance system can also contribute to the long run stability of the banking system.
Only a European banking supervisory authority with sweeping intervention powers can break the linkage between the financing of governments and of banks. It would represent an important step towards solving the problems presently faced by the Eurozone. In contrast, it is much more difficult to intervene directly in the fiscal affairs of Eurozone states – this would require a process with democratic legitimacy, which remains a very remote option at the present. A banking union is thus only part of a complete solution. The mechanisms and budgetary controls that would be implemented in the framework of a European Fiscal Pact are also needed to restore public budgets to sustainable paths.
A banking union can help decisively to secure the financial integrity and stability of the European monetary union. For this reason, the signatories of this manifesto support the creation of a durable, unified framework at the European level which can serve to break the link between the funding of private banks and the public purse.
Editor's note: This is the English translation of the manifesto that has more than 100 signatories; The original, German-language version can be found here.
Posted: 09 Jul 2012 12:06 AM PDT

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