Category Archives: Economic fundamentals

Warning: Greece Can Break Glass and Leave the Eurozone

One of the things that has been intriguing about the handwringing among European policy-makers has been the general refusal to consider the idea that one of the countries being wrung dry by doomed-to-fail austerity programs might just pack up and quit the Eurozone. The assumptions have been three fold. One is a knee-jerk assumption that the costs of exiting are prohibitive (this argument comes from Serious Economists in Europe, but they never compare it to the hard costs of austerity and the less readily measured but no less real cost of loss of sovereignity). Second is that an exit would come via a country being expelled, since the Eurozone treaties prohibit unilateral departure. Third is that it would be too much of an operational mess to revive a defunct currency.

A very good piece by Floyd Norris in the New York Times fills this gap by describing that Greece has the motivation and the means to leave.

Bernanke Scraps Bold Congress Testimony for Lukewarm Version

By Gal Noir, an undercover investigator of hijacked economic truths and an occasional blogger at New Economic Perspectives

In his Congressional testimony on October 4th, Federal Reserve Chairman Bernanke uncharacteristically praised the benefits of fiscal policy, calling it “of critical importance” and conveying concerns with the looming deficit reductions. He cautioned: “an important objective is to avoid fiscal actions that could impede the ongoing economic recovery.”

Many economists expressed worry that such advocacy of fiscal policy will erode America’s (already) wavering confidence in the Fed and will further weaken their support for austerity measures. More troubling still, the economists said, was the possibility that the public may follow suit and start demanding from Congress bolder government action on the jobs front.

A few dissenting scholars thought that it was high time for Bernanke to put his money where his mouth was, so to speak.

Stuart Zechman: The Beatings Will Continue Until All Not-Yet-Right-Thinking Lefties Support the Infrastructure Bank Scam

Yves here. Stuart Zechman is a keen observer of how corporatist policies are peddled through various Rubinite/Hamilton Project organizations and other mouthpieces and skillfully messaged so as to snooker or co-opt bona fide progressives who ought to know better.

His article mentions Third Way. For benefit of those who have been so fortune as to have limited contact with the netherworld inside the Beltway, here is a brief description from an earlier post:

And make no mistake about the role of Third Way. Third Way runs the policy apparatus of the Democratic Party. In Congress, staffers attend regular Third Way policy briefings, where the group hands out pre-packaged legislative amendments in legal form, generic press releases, polling around those policy ideas, and talking points. It’s a soup-to-nuts policy apparatus. Most of these ideas are harmless – like increased volunteerism – but some are not, like various tax proposals.

The group has enormous juice.

Mark Provost: Occupy Boston – Day One (and Other OccupyWallStreet Updates)

Yves here. Police efforts to contain OccupyWallStreet have had the opposite effect to what the officialdom no doubt assumed would happen: that the demonstrators would either become discouraged or become violent, which would make it easy to discredit them. Instead, the macing of a group of women last weekend, followed by the arrest of over 700 people on Brooklyn Bridge on Saturdy, has given the movement legitimacy and media attention. It was the lead item on the BBC website over the weekend.

Press efforts to diminish the potential of this effort are now shifting.

Michael Hudson: Debt Deflation in America

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College. Edited Interview by Bonnie Faulkner September 2, 2011 (first aired on Pacifica, September 14, 2011).

“Without consumption, markets are going to shrink. Companies won’t invest, stores will close, “for rent” signs will spread on the main streets and local tax revenues will fall. Companies will lay off their employees and the economy will shrink more. Why aren’t economists talking about these effects of debt deflation, which are becoming the distinguishing phenomenon of our time? They advocate giving more money to the banks, hoping that somehow everything will be okay, as if the banks would lend out the money to fund new production and employment. Mainstream economics and political leaders in both parties are failing to ask why the banks are using these giveaways to speculate abroad, pay their managers bonuses and high salaries or to pay dividends rather than to lend to small businesses or do other things to actually get the economy moving again. This phenomenon cannot be explained without seeing that debt service is siphoning off revenue into the financial sector, which is not recycling it back into the production-and-consumption economy.”

Can European Politicians Beat the Clock and Stave Off a Crisis?

The Eurocrats finally seem to have realized time is running out. The abrupt market downdraft of last week appears to have focused their minds on the need for a much larger scale rescue mechanism of some form, with numbers like trillions attached, and that will move the Eurozone further towards fiscal integration, another badly needed outcome.

Europe Readying Yet Another “This Really Will Do the Trick” Bailout Package

Well, we are clearly in crisis mode. We are back to weekends being a period when you need to watch the news in a serious way.

And in another bit of deja vu all over again, the powers that be in Europe are readying yet another bailout plan, this one supposedly big enough to do the trick once and for all.

Matt Stoller: Did Geithner Really Undermine Obama on Nationalizing Citigroup?

By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller

The fight over the future, in the form of the fight over who writes the history of the Obama years, has begun in earnest.

Philip Pilkington: The History of Greed – An Interview with Jeff Madrick

Jeff Madrick is a journalist, economic policy consultant and analyst. He is also the editor of Challenge magazine, which seeks to give alternative views on economics issues, as well as a visiting professor of humanities at The Cooper Union, director of policy research at the Schwartz Center for Economic Policy Analysis, The New School, a senior fellow at the Roosevelt Institute and the author of numerous books. His latest book, The Age of Greed, is available from Amazon.

Interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.

Philip Pilkington: Your book The Age of Greed is a detailed historical survey of some of the key figures that facilitated — broadly speaking — the transition away from the progressive, government-regulated economy of the post-war years and toward the finance-driven, deregulated economy in which we now live. In this interview I don’t want to focus on all the figures that crop up in the book as that is done so there in great detail. Instead I want to explore the broad sweep of this history focusing both on some of the more recognisable of these figures and on the actual cultural, political and economic shift that took place over this period.

How markets interpreted the Fed’s Operation Twist as a sign of double dip

Edward here again. I just posted this up on Credit Writedowns. I am not in the right frame of mind here to give this topic the well-developed attention it requires, but, with things unravelling in global stock markets, I feel that I have to take it on. By the way, feel free to ping me […]

Jim Chanos on China’s Contingent Liabilities

Edward here. The overall gist of Jim Chanos’ comments on Bloomberg the other day were that China has off-balance sheet contingent liabilities due to its implicit commitment to state-owned enterprises which are knee-deep in land and property speculation. This speculative excess will lead to credit writedowns. Chanos repeated his contention from CNBC last week that […]

Economics Debunked: Chapter Two for Sixth Graders

Readers gave high marks to Andrew Dittmer’s summary of a dense but very important paper by Claudio Borio and Piti Disyatat of the BIS and asked if he could produce more of the same.

While Andrew, a recent PhD in mathematics, has assigned himself some truly unpleasant tasks, like reading every bank lobbying document he could get his hands on to see what their defenses of their privileged role amounted to, he has yet to produce any output from these endeavors that are ready for public consumption.

However, I thought readers might enjoy one of Andrew’s older works.

Randy Wray: The Biggest Bubble of All Time – Commodities Market Speculation

By L. Randall Wray, a Professor of Economics at the University of Missouri-Kansas City and Senior Scholar at the Levy Economics Institute of Bard College. Cross posted from EconoMonitor

Sorry, this is a day late (but hopefully not a dollar short).

Back in fall of 2008 I wrote a piece examining what was then the biggest bubble in human history: http://www.levyinstitute.org/pubs/ppb_96.pdf.

Say what? You thought that was tulip bulb mania? Or, maybe the NASDAQ hi-tech hysteria?

No, folks, those were child’s play. From 2004 to 2008 we experienced the biggest commodities bubble the world had ever seen. If you looked to the top 25 traded commodities, you found prices had doubled over the period. For the top 8, the price inflation was much more spectacular.

The Fed Twists in the Breeze

Mr. Market so far is not at all impressed with the announcement today that the Fed will be changing the composition of its portfolio by selling $400 billion of near-dated Treasuries and buying the same amount of longer maturity Treasuries. Since the Fed will maintain the same Fed funds target rate, the Fed’s intent is to keep short term rates low and also reduce longer term rates.

The fallacy with the Fed approach, as our Marshall Auerback has pointed out repeatedly, is that targeting a quantity means the central bank has no idea what result it will achieve.