Category Archives: Economic fundamentals

Satyajit Das: European Debt – Wrong Diagnosis, Wrong Treatment!

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (forthcoming August 2011) and Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

Executed with Northern European creativity, charm, flexibility and humility and Mediterranean organisation, leadership diligence and appetite for hard work, the European rescue plan – “the grand compact” – is failing.

The politics of Fed policy

Cross-posted from Credit Writedowns Federal Reserve Chairman Ben Bernanke is due to speak before Congress. Let me say a few words about what’s going to happen with the Fed. Here’s the thing: The Federal Reserve Board is located in Washington, DC and Washington is a political town. As such, the Fed must mind its manners […]

Satyajit Das: “Progress” of the European Debt Crisis

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (forthcoming August 2011) and Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

In Oscar Wilde’s Importance of Being Earnest, Lady Bracknell memorably remarks that: “To lose one parent… may be regarded as a misfortune; to lose both looks like carelessness.” The Euro-zone’s need to rescue three of its members (Greece, Ireland and Portugal) with three others increasingly eyed with varying degrees of concern (Spain, Belgium and Italy) smacks of institutionalised incompetence.

Doug Smith: The Maximum Wage

By Douglas K. Smith, author of On Value and Values: Thinking Differently About We In An Age Of Me

We face severe and growing income inequality with negative effects on people and the economy. Yet, no surprise, the ‘can’t do’ right wing continues a scorched earth campaign against the minimum wage. These self-promoting haters actually prefer no wages and indentured servitude – for example using prisoners to replace employees and cheerfully promoting ‘internships’ for the unemployed.

They glory in income inequality and wish it to expand instead of contract. Enough of that. They are destroyers of the American Dream.

But people who seek to shrink income inequality — to insure life, liberty and the pursuit of happiness for all and not just some — must now focus as much on the maximum wage as the minimum wage.

So, be it proposed:

“That any enterprise receiving taxpayer funds shall not compensate that enterprise’s highest paid person in an amount greater than twenty-five times what the lowest compensated person receives.”

Eurozone Leaders Fiddling as Rome Starts to Burn? (Updated)

Worries about the Eurozone have heretofore been depicted as afflicting the periphery. But even though Italy is geographically on the margin, if the crisis engulfs it, it irreparably damages the core. And that time seems to be upon us.

More Proof That Obama is Herbert Hoover

Not only is Obama assuring that he will go down as one of the worst Presidents in history, but for those who have any doubts, he is also making it clear that his only allegiance is to the capitalist classes and their knowledge worker arms and legs.

You don’t need to go further than the first page of today’s New York Times for proof.

Marshall Auerback: Time to Panic (II)

By Marshall Auerback, a portfolio strategist and hedge fund manager. Cros posted from New Economic Perspectives.

Today’s unemployment data suggests that we are experiencing something far worse than a mere “bump in the road”, as our President described it last month. In fact, if last month was the time to panic, as Stephanie Kelton argued here, then today’s data should create real palpitations in the White House. This isn’t just a “bump,” but a fully-fledged New York City style pot hole.

The Sorrow and the Pity of Economists (Like DeLong) Not Learning from Their Mistakes

I hate to seem to be beating up on Brad DeLong. Seriously.

As I’ve said before, he is one of the few economists willing to admit error and not try later to minimize or recant his admission (unlike, say, Greenspan). And he seems genuinely perplexed and remorseful. This puts his heads and shoulders above a lot of his colleagues, at least the sort whose opinion carries weight in policy circles.

Even with DeLong making an earnest effort to figure out why he went wrong, his latest musings, via a Bloomberg op-ed, “Sorrow and Pity of Another Liquidity Trap,” show how hard it is for economist to unlearn what they think they know. And as the great philosopher Will Rogers warned us, “It’s not what you know that gets you in trouble. It’s what you know that ain’t so.”

So it’s important to regard DeLong as an unusually candid mainstream economist, and treat his exposition as reasonably representative if you could somehow get his peers to take a hard, jaundiced look at how wrong they have been of late.

DeLong’s mea culpa is about how he and his colleagues refused to take the idea that the US could fall into a liquidity trap seriously. As an aside, this is already a troubling admission, since many observers, including yours truly, though the Fed was in danger of creating precisely that sort of problem if if dropped the Fed funds rate below 2%. It would leave itself no wriggle room if the crisis continued and it had to lower rates further into the territory where further reductions would not motivate changes in behavior. That’s assuming we were in a “normal” environment. But the big abnormality is that we are in what Richard Koo calls a balance sheet recession. And as we will discuss below, Keynes (and Minsky) had a very keen appreciation of the resulting behavior changes, but those ideas were abandoned by Keynesians (it is key to remember that Keynesianism contains significant distortions and omissions from Keynes’ thinking.

But notice how he starts his piece:

On Dangerous Disconnect Between Economics and Ecology

William Rees is one of the pioneers of ecological economics and is the originator and co-developer of ‘ecological footprint analysis’. This video contains some basic facts about current consumption levels in advanced economies that are attention-grabbing. I’d normally say “Enjoy” but this is not that sort of video.

Randy Wray: A PROGRESSIVE APPROACH TO FEDERAL BUDGETING – Or, Can One Take Billionaire Pete Peterson’s Money and Remain Progressive?

By L. Randall Wray, a Professor of Economics at the University of Missouri-Kansas City. Cross posted from FireDogLake

Yves Smith set off a firestorm in her criticism of several progressive groups that have joined forces with Pete Peterson to whip up deficit hysteria. There are three issues that need to be addressed:

1. Can a progressive take tainted money and remain progressive?
2. Did the Roosevelt Institute (in particular) take tainted money and remain progressive?
3. What would a progressive approach to federal budgeting look like?

Ron Paul Suggests Using Fed to End Run Debt Ceiling Impasse

The only reason to think Republicans are serious about their threat to have the Federal government default rather than raise the debt ceiling is that they have an undue fondness for apocalyptic outcomes. I suppose I should actually favor this sort of thing; I’ve long thought the only hope for getting the US freed from rule by financiers was another financial crisis, provided it came soon enough and it was big enough. This one might fit the bill on those scores.

However, with the immediate trigger being pigheaded Congressmen, the banks might look like innocent victims, when the ballooning of public debt around the world was the direct result of their recklessness and the resultant global economy near-death experience. So a debt-ceiling-row-induced great big financial dislocation would probably not produce the opportunity to break the power of banks that yours truly and many others are looking for.

As the hour of reckoning approaches, more and more creative ideas to disarm the Republican weapon are being put forward, and an intriguing one comes from, of all places, a Republican, Ron Paul.

Summer Rerun – The Empire Continues to Strike Back: Team Obama Propaganda Campaign Reaches Fever Pitch

Readers new to this site may be unfamiliar with our summer reruns, in which we reprise vintage NC posts that we think have stood the test of time pretty well.

We’ve done these more or less in chronological order (our last one was our post on the unveiling of the TARP), but we decided to skip ahead to one in 2010 because it focuses on a crucial bit of history that is too often overlooked, and were were reminded of it by a very good Frank Rich piece in New York Magazine on Obama’s failure to bring bankers to account.

Even Rich’s solid piece treats Obama more kindly that he should be. He depicts the President as too easily won over by “the best and the brightest) in the guise of folks like Robert Rubin and his protege Timothy Geithner.

We think this characterization is far too charitable. Obama had a window in time in which he could have acted, decisively, to rein the financial services in, and he and his aides chose to let it pass and throw their lot in with the banksters. That fatal decision has severely constrained their freedom of action, as we explain below.

The U-Shaped Jobs Recovery

Cross-posted from Credit Writedowns Since the recession in 1990-91, the recovery of employment in the US has had a U-shape that is nothing like the previous post-World War II employment recoveries. This one will be the worst. Source: The Changing Shape of Unemployment

Andrew Sheng Says Sustainability Means Caging Godzillas

Andrew Sheng, Chief Adviser to the China Banking Regulatory Commission, is wonderfully straightforward and realistic for an economist. He is willing to say, as he does in this video, things that are obvious yet somehow unacceptable to ‘fess up to in policy circles, like the planet simply cannot support 3 billion people in Asia living European lifestyles. He warns of the danger of creating the mother of all crises if governments cannot stem the tide of leveraged capital flows, and also discusses the role of China on the global stage.

On Eurozone budgetary constraints

Cross-posted from Credit Writedowns “Slovenia becomes the new problem child of the EU”. This is the headline today in Handelsblatt, a leading German financial newspaper. Below is a translation of that article and a few comments: Slovenia was long regarded as a model country. But now it is becoming a new problem case for the […]