He has an essay on what went wrong with the Euro that is positively brilliant.
Category: Economy
ADP Got it Wrong
Employment in the US rose by just 103,000, and private payrolls rose by just 113,000, with unemployment falling to 9.4%, though over ⅔ of that is because of people becoming discouraged and leaving the workforce.
It’s Jobless Thursday
Initial unemployment claims rose by 18,000 to 409,000 last week, though the 4-week moving average fell by 3,500 to 410,750, with continuing claims fell by 47K to 4.103 million, and I can’t seem to find the data on extended claims.
In related, and rather surprising news, payroll processor ADP is predicting that private employment increased by 297,000 last month.(!)
If true, this is good news, though I’ll wait for the official data tomorrow.
Gee, You Think?!?!?!
After it was revealed that something like ½ of the top flight academic economists have taken hundreds of thousands of dollars from Wall Street, and then enthusiastically endorsed the policies of deregulation and “financial innovation” which lined their patron’s pockets, it now appears that the members of the American Economic Association are considering adopting a code of ethics.
Let’s see
- Stanford Business Prof. Darrell Duffie wrote a book on Wall Street regulations without mentioning that is on the board of Moody’s
- Laura D’Andrea Tyson, Bill Clinton and Barack Obama, business school UC Berkeley, is a director of Morgan Stanley.
- Richard H. Clarida, Columbia: executive vice president at the bond behemoth Pimco
- R. Glenn Hubbard, dean of Columbia Business School: director of MetLife
- Frederic S. Mishkin, Columbia Business School: high priced consultant to Wall Street Firms
- Martin S. Feldstein, George F. Baker Professor of Economics at Harvard University: former board member, American International Group
- Larry Summers
- Larry Summers
- Larry Summers
- Larry Summers
Why would anyone think that economists might need a small dose of ethics?
Yes, This is a Big Deal
Initial unemployment claims fell below 400,000 for the first time in over 2 years, hitting 388,000, down 34K, and the less volatile 4 week moving average fell by 12.5K to 414,000.
We are actually at a number that if sustained, might show a meager recovery in the unemployment rate.
The longer term numbers, continuing claims rose by 57K to 4.13 million, and extended benefits fell by 151.5K to 4.53 million.
I would expect the numbers to rise next week, the Christmas season is over, and this sort of move one week tends to have a rebound, but if somewhere around 375K is the new normal, then things are turning up a big.
Well, It Looks Like the Banks Have Worked Their Way Through the Robosigner Problem
Because foreclosures jumped 31.2% in the 3rd quarter.
We are not going to see an economic recovery led by the housing market.
Economics Update
It was a mixed day, with the Conference Board’s Consumer Confidence index falling in December on job worries, it was well below forecast, and the Case-Shiller home prices fell for the 4th straight month in October.
On the plus side, actual consumer spending actually rose.
So, I guess the consumer felt depressed, and went shopping to cheer themselves up.
It’s Jobless Thursday
We had 420,000 initial claims last week, a small drop, but the less volatile 4-week moving average rose for the first time in 6 weeks, from 423,500 to 426,000, though both continuing and extended claims fell.
Initial claims, and unemployment, is too damn high, but it continues to trend a bit better.
Economics Update
The final numbers for US GDP in the 3rd quarter came in, and they were slightly lower than estimates, with a 2.6%, as opposed to the 2.7% forecast, growth rate, while core inflation was at a 50 year low.
So I don’t think that either inflation or a robust recovery are around the corner, particularly with oil rising above $90/bbl, a 2 year high, which has in turn driven gasoline prices near to $3.00/gallon.
Unfortunately, the dollar has continued to fatten up versus the Euro, because people see more pain and woe from Ireland, Greece, Portugal, Spain, and Italy.
Brains…Brains…Brains…Brains…
Paul Krugman laments the fact that failed economic ideas are now the conventional wisdom:
When historians look back at 2008-10, what will puzzle them most, I believe, is the strange triumph of failed ideas. Free-market fundamentalists have been wrong about everything — yet they now dominate the political scene more thoroughly than ever.
How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says “I don’t think we need regulators,” about to take over a key House panel overseeing the Fed? How, after the experiences of the Clinton and Bush administrations — the first raised taxes and presided over spectacular job growth; the second cut taxes and presided over anemic growth even before the crisis — did we end up with bipartisan agreement on even more tax cuts?
……
Yes, politics is the art of the possible. We all understand the need to deal with one’s political enemies. But it’s one thing to make deals to advance your goals; it’s another to open the door to zombie ideas. When you do that, the zombies end up eating your brain — and quite possibly your economy too.
Go read.
It is a good analysis, but I think rather incomplete.
He seems to think that Barack Obama, in his attempts to appease Republicans, has given them cover to promulgate these failed ideas.
I think that this is too Byzantine an explanation. The simpler explanation is that Barack Obama gives lip service to these failed ideas because he actually believes in these ideas.
It explains his unwillingness to prosecute the banksters, their fraud against consumers in the HAMP, their attempts to water down financial reform, etc.
This is not cowardice. This is corporatist thinking to a degree that makes Bill Clinton looks like Karl Marx.
EuroFail
The Euro Zone monetary authorities are crowing about the success of Latvia, because they held the hard peg to their currency.
It appears that their GDP may grow this quarter, after as Matthew Yglesias observes, their GDP feel by 4.2% in 2008, 18% in 2009, and will fall slightly this year.
This is not success. As Paul Krugman writes, “They have made a desert, and called it successful adjustment.”
Compare their progress to those of the Icelanders, Dr. Krugman supplied the graph pr0n) who devalued, and eschewed austerity.
Note also that Iceland’s meltdown was the most severe this far seen, but, because they eschewed the nattering nabobs of negativism that are the pain caucus, they had what amounts to the mildest and shortest downturn.
Economics Update
Click for full size
That may be a bottom, but it ain’t a recovery
It’s jobless Thursday, and initial claims fell by 3,000 to 420,000, and the 4-week moving average fell by 5,250 to 422,750, another 2+ year low, but continuing claims rose by 22,000 to 4.14 million, and emergency/extended claims rose by 324,537 to 4.83 million.
I would call that mixed. Fewer people losing their jobs, but people looking for work are not finding it.
In real estate news, home prices declined 1.9% in October, and by 3.93% year over year, so we are still not seeing any signs of recovery there.
How to get a Nobel in Prize Economics
You have to cover an area of economics that has not been studied in detail before, and is relevant.
Even better if you create a new field of study.
And commenter Hugh at Corrente Wire finds just such an area, though I am unsure if he is aware of this:
… This is my primary criticism of virtually all current economists. None of them write on, or try to construct an economic theory for, kleptocracy either because they are still in denial or because the sheer notion undercuts almost everything they believe and were taught. …
The economics of kleptocracy, whether it be Afghanistan, Zimbabwe, or the United States, tremendously relvant and almost completely unexamined, at least by economists.
Certainly, it does lend itself quite as well to neat equations as do, for example, monetarism or the efficient markets hypothesis, but there is clearly gold, or at least academic glory, in “them thar hillls.”
Interestingly enough, I do think that a lot of the framework has already been laid with the fields of behavioral economics (already Nobels there, Allais, Becker, and Simon) and the the theory of asymmetric information in markets (Stiglitz, Akerlof, and Spence won their Nobel for this).
It seems to me that in the intersection of these two fields, we can find the makings of a rigorous, and relatively quantitative, study of the operations of the economy of a kleptocracy, though I am neither an economist or an Academician, I am an engineer, dammit,* so your mileage may vary.
Even if this does not result in a Nobel, it would certainly generate a buzz, leading to tenure, and the inevitable academic economist groupies.†
*I LOVE IT when I get to go all Doctor McCoy!!!
†I’m not certain about the groupies, but that is what classic economic theory seems to imply.
Economics Update
The Federal Reserve’s Open Market Committee held its benchmark rate at effectively 0%, and said that it will continue its policy of monetary easing. (printing money)
It’s really no big surprise, but the other two pieces of news, that the small business optimism survey hit a 2 year high, and that retail sales rose for the 5th straight month are a bit of a surprise, though definitely ont he plus side of the ledger.
China’s Central Bank Hold Rates Steady
Considering China’s recent problems with inflation, this decision is a bit of a surprise.
My guess as to what is going on here, I think that this is a reflection of the fact that the People’s Bank of China is more concerned about the Yuan appreciation than it is about inflation, and increases in interest rates would tend to drive their currency up.
Consumer Sentiment and Exports Surge
Both good pieces of news:
A rise in U.S. consumer confidence to its highest in six months and a much bigger-than-expected contraction in the country’s trade deficit pointed to a firmer economic recovery on Friday.
………
Consumer sentiment in December rose to its highest level since June and was at its third-highest since the start of 2008, according to a Thomson Reuters/University of Michigan survey. Government data showed U.S. exports in October rose a robust 3.2 percent while imports declined slightly.
………
The survey’s preliminary December reading for consumer sentiment came in at 74.2, up from 71.6 in November. That was above the median forecast of 72.5 among economists polled by Reuters.
This is unalloyed good news.
It’s particularly good news because we are in the Christmas shopping season that accounts for a disproportionate amount of consumer spending.
My guess is that the the exports are helped by the general trend down with the dollar over the past month. (see graph pr0n)
In an odd way, if Obama’s disastrously bad tax capitulation compromise may actually help our economy if it convinces the currency markets to go short on the dollar.
It’s Jobless Thursday
And initial unemployment claims fell to 421,000, with the less volatile 4-week moving average falling to a 2¼ year low of 427,500, continuing claims falling by 191,000 4.09 million, and extended and emergency claims fell by 393,200 to 4.51 million.
Better news, but still somewhere between 30K and 60K too high to indicate a recovery in the labor market.
A lot of what happens for the next 6 months will be driven by the what happens in the Greed Day Christmas shopping season, I guess.
More Invisible Bond Vigilantes
Treasury yields fell today, after rising sharply on news of the Obama-Republican tax deal:
Treasuries rose, following the biggest two-day slump in two years, as yields at the highest level in six months lured investors on prospects the Federal Reserve will discuss a possible extension of purchases.
Ten-year notes rallied before the Fed meets next week to review its program to buy $600 billion of U.S. debt through June. The yield advantage of 10-year Treasuries over Japanese bonds increased to the widest in five months, boosting the allure of U.S. assets. Treasuries tumbled the past two days, pushing 10- year yields up by 35 basis points, the most since Sept. 19, 2008, when they fluctuated following the bankruptcy of Lehman Brothers Holdings Inc.
Those invisible bond vigilantes are a fickle lot.
Iceland Out of Recession
Unlike Portugal, Ireland, Greece, and Spain, the PIGS, Iceland has a currency, which it has allowed to devalue, and it has largely defaulted on its banks debts, though its government had to be dragged into this kicking and screaming through a plebiscite, but now Iceland’s economy grew sharply in the 3rd quarter:
Iceland’s decision two years ago to force bondholders to pay for the banking system’s collapse appeared to pay off after official figures showed the country exited recession in the third quarter.
The Icelandic economy, which contracted for seven consecutive quarters until the summer, grew by 1.2% in the three months to the end of September.
Iceland famously agreed in a referendum to reject a scheme to repay most of its debts that were once worth 11 times its total national income.
In contrast to Ireland, Iceland’s taxpayers refused to foot the bill for the debts accumulated by the banking sector. Bondholders were told to accept dramatic reductions in the value of repayments on bank debt after the sector borrowed beyond its means to fund ambitious investments abroad.
By contrast, Ireland guaranteed all depositors and all bond holders, and will be crushed by that debt for years.
Rule number one of these sorts of meltdowns is that the bond holders are professionals, and they get interest because they are taking a risk, and risk means a chance of default.
The argument that is made against Greece, or Ireland, or the rest of the PIGS taking a similar approach is that it they need to maintain the confidence of the markets in order to prosper economically.
This is wrong. It is literally a confidence game.
Friday’s Pathetic Job Numbers
Well, it turns out that the ADP estimate was wrong, and the job creation numbers were absolutely pathetic, there were only 39,000 jobs created in November, somewhere around 100K less than is needed to account for growth in the labor market, the unemployment rate went up 0.2% to 9.8%.
And in case you are wondering, that increase in unemployment is not an artifact of the discouraged looking for work, because there was no increase in the labor participation rate, which means that we just had a really bad month.
One month does not a double dip make, but when you realize that this is juxtaposed with the stimulus money tapering down, it is an issue of concern.
Then again, my anecdotal data, job shops calling me, is pretty strong, so YMMV.