21 December 2008
At first I thought the insane labor costs of the Big 3 were the reason they are unable to generate profits in an era of true competition against foreign manufacturers that are efficient and producers of quality products. Then I learned that labor costs are only 10% of total costs for these companies. After reading this post I've changed my mind.
An oligopoly exists in domestic auto manufacturing and the labor supply to this oligopoly is monopolized; this isn't new information to me. What is new information to me is the way these two elements interact. It's not so much about them being able to make money by reducing the cost of generating quality output, but the lack of incentive to actually produce quality products. If they actually made good cars that people wanted to buy they could make money given current costs. Hell, they've done it in the past. Their brand is now so tarnished and there are so many better alternatives available that demand for their products is finally diminishing. Quantity demanded has fallen at every given price level.
It's pretty clear to me now, and I don't know why I didn't realize it earlier. Common sense: if you build a crappy product people won't buy it...period. It doesn't matter if you produce it inefficiently or efficiently. If sales revenues are zero then you're going to lose money. I'm now a believer that people just don't want to buy American cars any more (at least not as much as they used to). And that changes the whole business model.
17 December 2008
Up until today I haven't seen any real excitement in any of the Rebels performances. Come to think of it, even last year didn't impress me that much. But tonight. Oh yes, I saw some things I really liked tonight.
Rene Rougeau has been catching my eye every game since the start of this season, and after tonight's performance I'm ready to ask for his jersey for Christmas. He hustles every damn game; plays his heart out, scores points and gets boards.
DID YOU SEE THE OOP?!? Damn that was sick! The feed to Santee down low for the dunk was also great! Then there were a couple of flat-out rejections on the Broncos. I was jumping up and down in front of my TV screaming silently at every exciting play that happened. It's good to see the Rebels asserting themselves and really demonstrating some good, selfless teamwork and exciting basketball. Wink seems to be coming out of his slump and Joe Darger is finally making some three's. Bellfield is looking good, as is Willis. All around the team was just looking much better.
As Coach Kruger was heard saying in practice on Tuesday: "We have to dictate more!...We have to deny!" And we certainly showed tonight a little bit that we are capable. Let's keep it up Rebels and dominate Arizona on Saturday!
11 December 2008
More important than regulatory change is the need for a cultural shift to better
emphasize long-term issues, Useem says. Utlimately, he notes, Americans
may adopt a disdain for short-term risk taking similar to the disgust they have
developed for smokers who light up in crowded rooms. A new
risk-consciousness held by the public should work its way into the boardroom and
executive suite, he says. "Rebuilding the national culture becomes
That's from a piece over at Knowledge @ Wharton.
In some of my conversations with friends, family and colleagues about the current economic and financial situation I have asserted that the cultural values of Americans concerning business matters are fundamentally flawed. The quote above resonated with me and succinctly summarizes what I had in mind when speaking of this. More generally, a lack of concern for longer-term issues is causing bad decisions to be made in the present.
Consider the fight for a U.S. auto industry bail-out as an example. We know that the U.S. auto industry is not competitive against foreign manufacturers and their operations are inefficient, partly because of the use of union labor. The same people fighting for the bail-out even admit this. But how will a bail-out help if their operations are inefficient and unprofitable? The kind of change needed in domestic auto manufacturing won't come in a few months (the bail-out is probably only going to sustain operations until March of 2009). It will take years, if not a decade to change. Does the American taxpayer continue to subsidize operations during the transition period? I certainly hope not, because it is not improbable that they will take tax dollars and still not change, leaving us in the same position years from now. No, the answer is to adopt a long-term view of what is best for the nation. Oh yes, their will be many jobs lost if the U.S. auto industry goes under. But is that really such a bad thing? I mean, in the long-run? Resources are not being used efficiently right now; workers labor and material could be put to better use. Sure, it will take some time for new industries to develop and utilize the resources, but they will use them more efficiently and more importantly, profitably. The problem is that darn trade-off between short-term comfort and long-term viability. A society focused only on the former can never achieve the latter.
01 December 2008
If the automakers’ difficulties can be traced to a single, essential failure, it is their belief that they could avoid change. This is evident in their management structure, their labor contracts, and, most consequentially, their cars. For the past thirty years, the Big Three have been promising one hyper-efficient vehicle after another—the electric car, the “super car,” the hydrogen car—only to produce bigger and bigger gas guzzlers. (It was while the carmakers were supposedly working together, and with a billion dollars of federal money, to create a “new generation of vehicles” that G.M. purchased the rights to the Hummer.) The only compelling argument the companies can make at this late date—if a man strapped with explosives can be said to be making an argument—is that they will not suffer alone.
That's from the New Yorker. And the fact that many will suffer if the Big Three go under is not being disputed by anyone. The question is whether or not avoiding that suffering is worth doling out free money to save inefficient firms that are unwilling to change. It's obvious to me that without the proper incentives they will not change their behavior. Let them save themselves or fail, but don't ask for my tax dollars.
30 November 2008
If it gets pricier to stay liquid with Treasury securities then it will be less attractive to acquire said securities. However, this does not solve the counter-party trust issues. If firms still don't trust each other they will still demand some type of collateral. If it's too expensive to use Treasury securities then what will be used? Cash?
18 November 2008
Let them fail, let them fail, let them fail. Purge the inefficient producers and move on to the next stage.
14 November 2008
Bush and other leaders from the Group of 20 nations, representing the world's
richest economies plus major developing nations such as China, Brazil and India,
were expected to agree during two days of talks to set up a new "college of
supervisors" to oversee the global financial system. The group would include
financial regulators from many nations.
A flashing thought ran through my mind: this sounds ominously like nascent one world government.
Maybe I'm just a nut.
11 November 2008
I find myself regarding existence as though from beyond the tomb, from another world; all is strange to me; I am, as it were, outside my own body and individuality; I am depersonalized, detached, cut adrift. Is this madness?So, the point? I'm not sure what the point is, but I know that reality and consciousness are wildly difficult things to fully comprehend and understand; and that is a great thing.
“My house is underwater, so I’m not doing too much impulse shopping or any renovation. But I’m not cutting back on this,” said Ray Lopez, a database administrator, as he placed a $24 petite sirah on the counter. “Life’s too short.”...says a man about wine. I'm not cutting back on the booze either....only I'm drinking Miller Lite instead of fine wine. And it could very well be Keystone soon. I bet cheap beer is a counter-cyclical asset.
From a story in the New York Times.
10 November 2008
The Rebel Blog
With college basketball starting up and a hot Runnin' Rebels squad to watch all season, this is one of your best sources for Runnin' Rebel info. The posts are splendid. Take this one for example.
I've been visiting this site for the past two seasons, and will continue to visit as long as it remains up.
06 November 2008
Condorcet rigorously demonstrated that, in large elections, many heads are better than one. Consider a contest between two candidates. Each voter has some information about which candidate will be better, but no individual can be sure that his or her information is accurate. If any one individual has to make the decision, he or she would choose according to the information available. However, there is a significant probability that the decision would be incorrect.
On the other hand, if each person's information is somehow correlated with the truth, then, even though no single individual is well-informed, the electorate in the aggregate is very well-informed. Condorcet's theorem demonstrates that if people vote according to the information they have at hand--even if it is scarce or incomplete--then, in large elections, the outcome will be the same as it would be if all voters were perfectly informed. That is, elections successfully aggregate information and produce results better than any individual acting alone.
Thanks to Greg Mankiw for finding this piece at Forbes.
04 November 2008
02 November 2008
After this man has wrecked the economy and destroyed constitutional law with his judicial appointments, what can he do for an encore? He can cripple the military and gamble America's future on his ability to sit down with enemy nations and talk them out of causing trouble.
"There is no getting around the fact that Mr Obama’s résumé is thin for the world’s biggest job. But the exceptionally assured way in which he has run his campaign is a considerable comfort. It is not just that he has more than held his own against Mr McCain in the debates. A man who started with no money and few supporters has out-thought, out-organised and out-fought the two mightiest machines in American politics—the Clintons and the conservative right."
29 October 2008
This makes me sad and ashamed of not only my fellow countrymen, but of humanity in general. My pessimistic world view has just been given new life.
I like the guy with the Acorn banner; he isn't even coherent.
I support neither McCain nor Obama. It doesn't matter who the hate is directed towards, the fact that it's bred in ignorance and thrives in a modern society is unacceptable.
Thanks to Rob Pitingolo for the post.
23 October 2008
Honest, I just heard a Fox News employee say that he has been in the media for 10+ years and that the media is absolutely biased (except for Fox News, you know, because they're "fair and balanced"). Well that's a shocker! For some crazy reason I thought the media had my best interests in mind. I mean, why would they be concerned about drawing the largest audience possible to make profits from advertisers? The media wants to bring me the truth. Anyone who believes that is a damn fool.
On top of telling us something that any intelligent person already knew, this guy goes on to complain that bias causes unfair coverage of the candidates and the "liberal media's" excessive positive coverage of Barrack Obama is going to discourage McCain supporters and thus ultimately shape the outcome of the elction in favor of Obama! Are you serious! I didn't really just hear that.
I guess that the biggest problem I have is the supposed premise behind this type of complaint. For whatever reason, some people seem to think that the media has a responsibility to the public to be fair and balanced. I'm not sure if I believe media outlets have any responsibility to the public. They are competitive firms, offering a product to people who desire it. The cost to the consumer is advertisements, which firms make a tidy profit from. End of story. They can get up and say anything they want, spin the facts any way they wish and endorse (implicitly or explicitly) whomever they prefer. Don't whine about unfair coverage and the possible effects on voters actions as a result. If McCain supporters are going to admit defeat and not cast their ballot because the media made it look like a landslide victory for Obama then so be it. They're responsible for their own actions (however stupid those actions may be). But don't get up and whine about fairness because things aren't going your way.
22 October 2008
21 October 2008
Bernanke suggests that “prompt passage of the financial rescue legislation” will allow financial firms to fulfill “their critical function of providing new credit”, but even there he misreads the problem. Banks don’t so much lack money to lend as they don’t trust the balance sheets of other banks. The latter in mind, the alleged financial rescue plan will only serve to make the health of banks and the securities on their balance sheets even more opaque due to the insertion of money not from market-disciplined investors, but from the federal government itself.
This part of the piece really hit the nail on the head in my mind. Tyler Cowen posted a while back over at Marginal Revolution on the same idea. His example was something along the lines of this:
Suppose there are 10 banks in an economy, 3 of which are insolvent. The public doesn't know which ones are insolvent, but the insolvent banks know who they are. If the Fed steps in and starts giving all 10 of them money then we end up prolonging the process of discovering which banks are the bad apples and should be allowed to fail.
It makes sense when you think about it. Masking the problem doesn't fix it. But I guess some would argue that giving the bad banks money may actually resolve their problem of insolvency...changing the bad apples into solvent institutions. But this would only happen if the insolvent banks received enough cash. The biggest banks in America are only receiving a proposed $125 billion. If you're a bank in serious trouble then a relatively small injection from the government will only delay your failure. The banks that are in good shape know that there have to be some minimum number of insolvent banks out there that will go under in time. The smart thing would be to shorten the amount of time it takes for the discovery to take place. Injecting capital into financial institutions is only increasing the amount of time needed; we should be doing exactly the opposite to hasten this crisis of trust.
The market responded to the price signals given by the Fed and loaned money that the Fed deemed nearly worthless. When the price of anything is held artificially low the logical result is a future shortage. Thus we now have a shortage of credit just as one would predict based on past experiences with price controls.
At first reading I completely disagree with this statement. "Easy money" no doubt contributed to the current debacle, but it was not the primary reason. Government policies that encourage excessive levels of home-ownership (and thus artificially high demand for mortgages) and the absence of anything else profitable to invest in are a much bigger cause of this mess.
During the tech boom of the late 1990's the big investment banks like BearStearns and Lehman Bros were making profits on the deals they brokered to bring ".com" ventures online. After the bust of that bubble they were caught sitting on their hands with not many ways to generate the large level of profits they had during the boom, so they got into a new market: mortgages. The only way to make big profits is to take big risks. But nobody wants too much risk, so enter the MBS (mortgage backed security). Let's bundle mortgages together and issue bonds that pay from the interest stream of the mortgages. The risk gets spread around to everybody; the risk is mitigated now, so let's keep demanding more mortgages to securitize, encouraging the banks originating mortgages to increase their risk tolerance (really not even tolerance, since they didn't hold the loans on their portfolio's anyway---they were sold off for fat premiums). Hello subprime! Banks will originate mortgages to nearly anyone, because they're not holding the loan for it's life. Brokerage houses package them up and "distribute" the risk and collect a hefty fee for the securitization services. And the ultimate investors buy the bonds backed by the mortgages because house prices never decline!--the interest will keep on coming because any mortgage borrower in trouble can simply refinance.
The point of my ramble is that "easy money" wasn't the sole issue. There were artificially high levels of demand too, leading to the inflation of a bubble that how now burst.
Investor's were used to the excessive profits of the tech boom and demanded that Wall Street continue to perform; and Wall Street delivered, by finding new ways to make boatloads of money without ever creating any real value. It was a repeat of the tech boom, with mortgage assest substituting for tech stocks.
The rest of the article is good though; I actually agree with the idea of letting the market work everything out on it's own, even though Keynes is probably surely looking at me incredulously for saying that.
20 October 2008
15 October 2008
"...outdoor equipment such as camping gear was one bright spot, as households gravitated towards low-cost vacation options."
Low cost vacation or preparation for 1929 again? Well, if we do end up with Hooverville's again,
at least we'll have some very nice camping gear (thanks to technological improvements) to get us through.
06 October 2008
There is a very real danger, fellow citizens, that the Icelandic economy, in the
worst case, could be sucked with the banks into the whirlpool and the result
could be national bankruptcy.
The task of the authorities over the coming days is clear: to make sure that
chaos does not ensue if the Icelandic banks become to some extent
It's crazy to hear the leader of a nation talking like this. Could this ever happen to the United States? I'm a pessimist, so you know my answer. I fear, "Yes."
04 October 2008
It sort of is. I'll admit now that I don't know much about how rates typically move together and my simple conjecture is probably inadequate, but it's the best thing I can think of off the top of my head so I'm going to make it.
There's obviously great uncertainty out there about what's going to happen in the near future and in the medium-run/long-run as a result of the crisis we're in and the attempted rescue by the federal government. That said, even though 5 year government bonds are probably a pretty safe bet, I would think that most savers want to maintain liquidity right now. A 3 month T-bill is a much better purchase compared to bonds considering that nobody knows what's going to happen over even the next few months, let alone 5 years (Even though the bonds are inflation adjusted people may be so freaked out right now that they are only concerned about the return of their money and not the return on it [thanks to Mark Twain for that phrase]). As a result, demand for longer term assets is not as strong as that for very short-term assets such as T-bills. People holding longer term assets may actually be selling off and putting their cash into the T-bills.
Adidas has a good slogan for the current times: Impossible is Nothing. We've seen things happen over the past year that basically had a P(0) or damn close to it; so why would faith in the government's going concern not be shaken. It's not very likely, but there is that slight chance that the government might not be able to pay back those 5 year bonds, and with all the fear out there right now people are considering such a default more seriously.
Thanks to NPR's Wait Wait... Don't Tell Me!'s website for the tip.
28 September 2008
23 September 2008
3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, Americas dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.Thanks to Marginal Revolution for the post.
22 September 2008
19 September 2008
When bank credit does contract, the impact on the real economy will be more marked than we have seen thus far. The reason is that most bank credit is the sort of money that gets spent in shops and garages, or is used by the corporate sector to invest in real assets. NDFI money is used to invest in financial markets, causing security prices to rise and fall, which only indirectly affects the real economy by changing the value of wealth.
17 September 2008
A large expansion in debt will impose enormous fiscal costs on the US,
ultimately hitting growth through a combination of higher taxes and lower
spending. It will certainly make it harder for the US to maintain its military
dominance, which has been one of the linchpins of the dollar.
The shrinking financial system will also undermine another central
foundation of the strength of the US economy. And it is hard to see how the
central bank will be able to resist a period of allowing elevated levels of
inflation, as this offers a convenient way for the US to deflate the mounting
cost of its private and public debts.
So even if all the magic tricks work and we avert a complete meltdown caused by exotic finance and the folly of making too much money off of money, the repercussions of our rescue efforts (whether successful or unsuccessful) will be felt for years to come.
15 September 2008
"No disrespect to them, but we let them hang around in the game, and look what
happened -- they beat us," ASU safety Troy Nolan said.
Well, just take a look at the stat sheet and try to tell me again that ASU "...let [UNLV] hang around in the game..."
Owned son! 'Nuff said. Good luck against Georgia next week....CHUMPS!
10 September 2008
In essence we already agreed to the bail out some time ago. Have you ever spent $17,000 on a car and asked the dealer what the warranty for the car "really meant"? Well, the Chinese spent $340 billion on agency debt and probably asked the same question at least once or twice. They live in a world of secret agreements with leaders, not transparent democratic arrangements. So when it comes to the U.S government decision, we're not just starting from scratch here. How many phone calls do you think Hank Paulson has received from the Chinese central bank since August 2007?
"Are you *sure* that paper is safe enough for us to keep on buying?"
We'll never know exactly what kind of verbal dance Paulson concocted in response, but just look at the resulting flow of purchases and the relatively slight mark-up over Treasuries over that period of time. The Chinese (among others) thought we were standing behind the securities, at least in any world-state short of federal government quasi-bankruptcy. (In fact Paulson is in a total bind once that phone call comes in. He doesn't have much incentive to just say "tough luck" and precipitate a crisis when otherwise no crisis is on the horizon.)
So should we try this: "Oh, is that what you thought? Guaranteed? Did we use that word? Sorry, try reading our signals better next time. We love you. Great job with those Olympics. And when it comes to those Treasury Bills, we really do still mean it. And don't forget to support us on Iran and North Korea."
I think Mr. Cowen has brought up an important point that I haven't heard many (if any) people talking about, and that is the political implications of this credit crisis. The global economic implications have been pondered. But the political have yet to be speculated upon.
There's no shortage of people arguing against the bailouts, but they seem to fail to understand that we cannot just tell all the foreign institutions that bought Fannie and Freddie debt to eat crap. We still have to maintain relations with them. The common (and even preferred) shareholders are more ambiguous entities that are easy to forget, and we can wipe them out without fear of significant negative repurcussions; but foreign countries that bought hundreds of billions of dollars in debt from these companies can't be disregarded. Take the Chinese for example, as Mr. Cowen has. They've been buying American debt (both private and public) for probably the past decade (I'm not sure how long exactly and haven't looked up the figures). Their investment has fueled American economic growth from the late 90's on. If we crap out on them now by refusing to guarantee the debt they've bought then we won't be seeing much capital coming from them for the next decade or so, severely limiting our government's ability to borrow money and our national economy to grow.
The political implications are mentioned in Mr. Cowen's hypothetical situation. Where do foreign relations end up if we screw them over on this? They probably won't be likely to back us in foreign disputes and could potentially become hostile regarding trade.
I was skeptical at first about the bailouts, even a bit weary. But as more light is shed on the situation, it's becoming more and more clear that this is a necessary action, even though it's putting taxpayers on the hook for potentially hundreds of billions of dollars.
08 September 2008
Arnold Kling thinks you should have to put 20% down to get a mortgage.
07 September 2008
"The Treasury Department on Sunday seized control of the quasi-public mortgage finance giants, Fannie Mae and Freddie Mac, and announced a four-part rescue plan that included an open-ended guarantee to provide as much capital as they need to stave off insolvency."
But will this really help make things better in the short-run? I don't believe so. The downward spiral of housing price declines will continue nonetheless because the supply of homes is simply too great. When the new equilibrium is reached prices will settle and stay low for quite a while.
05 September 2008
Want is the desire to fill need.
Most people don’t understand this. Most people view need as the superior to want. Everyone agrees that want is a desire; but most people think that need is something beyond human control, beyond human manipulation.
‘Tis not so. Need is not above want. It is the other way around. Want is beyond anything in the world, anything in existence.
I’ve come to this conclusion after analyzing the standard interpretation of want and need. What put me on to this subject of thought was the idea of value. I know that my life is pointless, so is everybody elses. There is no purpose, no point, no value in this life. The only value that exists is that which we create.
The general consensus is that for people to feel valued they must be needed. I feel differently. For me to feel valued I must be wanted. For people to need me gives me no value; at least not to myself. Everybody needs other people, but when somebody, or other people, want you, you become a commodity in demand. It’s basic economics. When I am in demand I am of value, both to myself and to others. Anybody can satisfy a need, but only those who strive to please and fulfill the needs of others are wanted. The only way to place any value on oneself is to be desired by others.
It’s simple, really. When others need you they just utilize you because you will do the job. You will suffice. I don’t want to suffice. I want to go beyond expectations, to go beyond need. When you are wanted others desire you; others will go out of their way to use you.
It’s far to common, people being used just because they are available. We see it everyday. Relationships, jobs, friendships. They are all out of need.
21 August 2008
Jesse, I thought you'd find this interesting.
08 August 2008
Greg Mankiw has a source in the White House with the scoop.
07 August 2008
Growth can bounce back and forth relatively quickly, compared to inflation expectations. Raising rates might not be such a bad move.
06 August 2008
From an interesting post on the blog Interesting Times at The New Yorker.
05 August 2008
"Economic activity expanded in the second quarter..." and "...the inflation outlook remains highly uncertain."
And once again Dallas Fed President Richard W. Fisher voted to increase the target for the federal funds rate (I agree with his action).
This statement is nearly identical to that of the June 25 meeting. However, the Committee did express a "singificant concern" about the upside risks to inflation, something not mentioned in previous statements. Inflation indicators are ticking up ever faster and it seems as though the Fed has lost traction in reagards to the use of the federal funds rate; mortgage rates and interest rates for corporate debt are not being signifcantly affected. So instead of keeping the federal funds rate low and adding to the upside risks to inflation, why not start raising the federal funds rate slowly?
30 July 2008
"The huge spike in global commodity price inflation is prima facie evidence that the global economy is still growing too fast...The world has just experienced perhaps the most remarkable boom in modern history."
"...Absent a significant global recession (which will almost certainly lead to a commodity price crash), it will probably take a couple of years of sub-trend growth to rebalance commodity supply and demand at trend price levels...In the meantime, if all regions attempt to maintain high growth through macroeconomic stimulus, the main result is going to be higher commodity prices and ultimately a bigger crash in the not-too-distant future."
"...In the light of the experience of the 1970's, it is surprising how many leading policymakers and economic pundits believe that policy should aim to keep pushing demand up. In the US, the growth imperative has rationalised aggressive tax rebates, steep interest rate cuts and an ever-widening bail-out net for financial institutions."
Some are arguing that we don't have much to worry about; that we're out of the woods now. But a depreciating dollar and continued growth in demand for basic commodities and essential goods as a result of both real supply shock and misguided macroeconomic policy will only make the inflation that ensues that much harder and longer. Stabilizing inflation expectations after such unscrupulous policy decisions will take years, if not up to a decade, making it much harder for the economy to expand when uncertainty about price stability is high. One of the things necessary for the U.S. economy to expand and stay strong is stable prices. But policymakers seem to be abandoning their caution when it comes to inflation these days (except for Dallas Fed President Richard Fisher, as evidenced in his vote to increase the federal funds rate in the June 25 meeting of the FOMC), something that will most likely come back to bite us in the ass. As Mr. Rogoff points out:
"...as goods prices rise, wage pressures will eventually follow. As Carmen Reinhart and I have shown in our research on the history of international financial crises, government in every corner of the world showed themselves perfectly capable of achieving very high rates of inflation long before they had the assistance of modern unions*." (*:See end of post for the research cited)
"...Inflation stabilisation cannot be indefinitely compromised to support bail-out activities. However convenient it may be to have several years of elevated inflation to help bail out homeowners and financial institutions, the gain has to be weighed against the long-run cost of re-anchoring inflation expectations later on."
We had a good run for a while, but now it's time to let things cool and restructure while we await the next economic boom. But let's not try to keep this thing going forever. It's time to buckle down and deal with reality. Instead of keeping lackluster business' alive and breathing by letting the federal government bail them out, we should let them fail, allowing the lesson to sink in that excessive risk has a cost that eventually gets paid. And instead of maintaining lax regulation on the financial industry, we should beef up oversight and regulations to prevent future occurrences of excessive risk tolerance in exchange for fat profits (and to prevent another future financial crisis). Continued bail outs will increase the federal governments liabilties and drive further devaluation of the dollar. Instead of trying to keep interest rates low (I say trying because that's exactly what is happening; real interest rates aren't responding like they used to with changes in the federal funds rate--> See Paul Krugman's post on this), let's start slowly bringing them back up to encourage less spending, thus reducing pressure on demand for resources and give the world some time to increase supply for essential commodities. I like that way Mr. Rogoff says it:
"For a myriad reasons, both technical and political, financial market regulation is never going to be stringent enough in booms. That is why it is important to be tougher in busts, so that investors and company executives have cause to pay serious attention to risks. If poorly run financial institutions are not allowed to close their doors during recessions, when exactly are they going to be allowed to fail?"
And it's a bit resonant of one of my previous posts, in the sense that he points out that U.S. has a "growth imperative" that leads to a rationalization of actions like tax rebates, dramatic interest rate cuts and financial institution bail-outs to stimulate demand and growth. He also thinks, as I do, that the good times must end for a while: "...policymakers must refrain from excessively expansionary macroeconomic policy at this juncture and accept the slowdown that must inevitably come at the end of such an incredible boom."
To bring everything to a close, the continued attempts to prevent growth from slowing are utlimately going to make the inevitable crash much worse than it could have been. Mr. Rogoff agrees:
"In policymaker's zealous attempts to avoid a plain vanilla supply shock recession, they are taking excessive risks with inflation and budget discipline that may ultimately lead to a much greater and more protracted downturn."
* This Time is Different: A Panoramic View of Eight Centuries of Financial Crises, NBER Working Paper 13882, March 2008
28 July 2008
"We are relearning an old lesson: The business cycle isn't dead. Prosperity's pleasures breed complacency and inspire mistakes that, in time, boomerang on financial markets, job creation and production. Just as expansions ultimately tend to self-destruct, so downswings tend to generate self-correcting forces. People pay down debts; pent-up demand develops; surviving companies expand."
24 July 2008
"Most people, the government assumes, ultimately put profit before principle."
It's ironic; a communist government operating like a capitalist firm.
22 July 2008
"These prolonged recession-like episodes probably reflect the changing nature of the business cycle. Earlier recessions were more or less deliberately engineered by the Federal Reserve, which raised interest rates to control inflation. Modern slumps, by contrast, have been hangovers from bouts of irrational exuberance — the savings and loan free-for all of the 1980s, the technology bubble of the 1990s and now the housing bubble."
"Ending those old-fashioned recessions was easy because all the Fed had to do was relent. Ending modern slumps is much more difficult because the economy needs to find something to replace the burst bubble."
Hopefully that something isn't another bubble. My previous post touches on unsustainable growth and the inevitable consequenses of it. Instead of having more frequent mild recessions we try to to stay pain free for as long as possible (doing anything necessary to achieve this goal) in the present even though ultimately we must come crashing down to reality. It just doesn't make sense to me.
21 July 2008
"...ours is a free-market system. More and more, our version of free markets holds that they are free only when asset values rise. When they fall, the markets must be managed." [From NY Times]and from The American Prospect (thanks to a post at Marginal Revolution)...
"The decision to intervene against short-selling is completely inconsistent with the belief in the wisdom of the markets. Of course short-sellers can be wrong and depress stock prices more than is justified by fundamentals, but so what? The government doesn't intervene when it thinks investors have exaggerated the true value of a stock. The public has no more reason to fear under-valued stock prices than over-valued stock prices."Growth, growth, growth. The government, business people, nearly everybody wants everything to be good all the time. But it just cannot be so. It seems like nearly everybody has forgotten about the fact that there is absolutely a business cycle that brings good times and bad times. And although we don't have to accept the bad times with no resistance or efforts to minimize the negative effects, we do need to accept the reality of the situation. Things will be tough for a while. Tough shit. Deal with it. Bailouts of Bear Stearns and potentially FannieMae and FreddieMac. Limiting short-selling by the SEC. Cutting the Federal Funds Rate drastically. We're doing everything we can to keep from hurting now. But eventually we will have to hurt. People either don't realize this or are very good at suppressing it...and it's just flat out amazing.
17 July 2008
"Pools of mortgages, for example, could be structured so that all the loans
in them share many of the same traits. One pool might only contain loans from
prime borrowers who have fully documented their income and their assets, put
down a down payment of at least 20% and have credit scores of 720 or
"On the other hand, more risk-tolerant investors might prefer a piece of a pool featuring all subprime borrowers with low credit scores that would offer a higher rate of return. The key is that each of these investors would know what they are buying."Why didn't they think of this years ago?
16 July 2008
Here is the full piece.
"On Tuesday, Nancy Pelosi of California, the speaker of the House, and other House Democrats met with economists to draft another stimulus package, saying it was likely to include spending for roads, bridges, schools and other public facilities, as well as aid for states confronting smaller tax revenues in the face of the housing downturn."
"The White House and Congressional Republicans maintain that the best way to reinvigorate the economy is to adopt legislation to limit home foreclosures and expand domestic production of oil."
More spending seems to be the wrong solution to me. Continued dollar depreciation isn't going to slow inflation. I'm not quite sure what "expand domestic production of oil" means. I will assume the repeal of off-shore drilling bans, as curtailing additions to the strategic reserves seems to be neither a viable long-term solution nor a solution that has significant impact on oil prices given that only about 3 million barrels per month could be diverted to the market (in a very good month) [DOE SPR Data]. The United States consumes over 20 million barrels per day. Limiting home foreclosures might slow declining home prices, but they will still fall nonetheless and continue to cause problems for the financial markets. We're just going to have to ride this thing out.
15 July 2008
"...the Labor Department reported that wholesale prices had risen 1.8 percent in June, meaning that inflation rose in the 12 months at its fastest pace in more than a quarter-century."
More on stagflation: here and here
10 July 2008
09 July 2008
08 July 2008
“We take it very seriously. Fundamentally, we believe it is wrong to sell your
vote,” said John Aiken, a spokesman for the office. “There are people that have
died for this country for our right to vote, and to take something that lightly,
to say, ‘I can be bought.’
I didn't know it was against the law to sell your vote. What's so wrong about that. I can sell my labor and my personal property, why can't I sell my vote? Can somebody elucidate on why selling your vote is considered such a heinous thing?
23 June 2008
The Internal Revenue Service allows businesses to invest funds, tax free, in
alternative transportation for employees. Currently, employers can provide up to
$115 a month in qualified transportation benefits. These can include van pools,
bus tickets and other mass-transit options.
And even if my employer isn't hip to paying for my transportation costs to get to and from work everyday, I can always try this:
If the employer can't afford to do that, another option that's available is
to implement a flex-spending plan for employee transportation.
Under this provision, employees can have up to $115 a month deducted, pretax, for
transportation expenses and another $200 a month can be deducted pretax for
"That has no cost to the employer, but because it is pretax, that would
help employees," Thalacker said. "You don't see this used often. I've only had
one employer call me about that provision."
22 June 2008
21 June 2008
Recent history says that when a financial trend gets popular, it gets riskier too. Think subprime mortgages.Any lending venture involves a degree of risk, but the more I think about it I don't see "micro-finance" causing any "major" problems. The whole idea is to make small loans. Even if default rates skyrocket on these loans at some point in the future, there won't be billions of dollars at stake.
Related Links: Private Sector Development Blog, Marginal Revolution