Monday, November 1, 2010

Today's Best Reads

1--Economist Stiglitz: We need stimulus, not quantitative easing, Ezra Klein, Washington Post

Excerpt: (The Fed thinks that) the interest rate is a dial you can set and by setting that dial, you can regulate the economy. In fact, it operates primarily through the banking system, and the banking system is not functioning well. All the literature about how monetary policy operates in normal times is pretty irrelevant to this situation....Remember that quantitative easing's effect on interest rates, after all, is only 0.2 or 0.3 percent. So broadly, there are two categories of firms right now: the large enterprises flush with cash - they've got about $2 trillion and a slight change in the investment rate won't change their investment policy. Then there are the small and medium-sized enterprises that are cash-starved. And here, the funds need to be channeled through the banking system, and that part of the banking system is still sick. So if normally it might have a small effect, now it'll have a smaller effect. So that channel is blocked.

Then there's a second channel, which is the mortgage market. Those interest rates will go a little lower. But again, it won't directly affect very much. We have too much capacity already. Those lower interest rates will move some money around, taking it from the elderly who hold long-term government debt and put it into the hands of people with mortgages. That's just redistribution.

Third, it will have a very small effect on equity prices. But that won't have much effect on either consumption or investment. People recognize that this is a temporary intervention and the government won't maintain it for long, so they won't run to spend that money. There might be some help on collateral prices, but that won't be much.

2--"How Immigrants Create More Jobs", Tyler Cowen, New York Times

Excerpt: Over all, it turns out that the continuing arrival of immigrants ... is encouraging business activity here, thereby producing more jobs, according to a new study. Its authors argue that the easier it is to find cheap immigrant labor at home, the less likely that production will relocate offshore. ...

The study notes that when companies move production offshore, they pull away not only low-wage jobs but also many related jobs, which can include high-skilled managers, tech repairmen and others. But hiring immigrants even for low-wage jobs helps keep many kinds of jobs in the United States... In other words, immigrants may be competing more with offshored workers than with other laborers in America.

3--Angela Merkel forces Europe to protect euro from future collapse, The Guardian

Excerpt: Under the new system, to be in place by 2013, the Germans insist that highly indebted eurozone countries struggling to repay will be forced to restructure their debt in a process of "managed insolvency" and that their creditors will need to take large "haircuts".

The German chancellor said this was a quantum leap in the way the euro was run. "The inclusion of private institutions is very important to me," Merkel said. "We won't allow only the taxpayers to bear all the costs of a future crisis."...The summit agreed on "limited [Lisbon] treaty change" to "establish a permanent crisis mechanism to safeguard the financial stability of the euro area as a whole."

Jean-Claude Trichet, the head of the European Central Bank, objected to Merkel's formula....Trichet told the EU leaders that they did not understand the gravity of the euro crisis, prompting Sarkozy to interrupt him to declare that he was more concerned about the views of the French public than he was about those of central bankers.

4--US economy in Balance Sheet recession: What the US can learn from Japan's experience in 1990--2005, Richard C. Koo Chief economist Nomura research Institute

Note on text: "Must read" for understanding the current slump and what needs to be done policy-wise to spark a sustainable recovery. Without question, the best and most thorough analysis of the present downturn.

5--Trade union bureaucracy strangles French oil strike, Alex Lantier, WSWS

Port workers at France’s main oil terminals and workers at the last striking refineries voted to return to work yesterday, halting an oil strike against President Nicolas Sarkozy’s pension cuts and his plans for cuts and partial privatisations in the oil sector.

The oil strike was the workers’ most powerful weapon in a series of protests, including strikes and high school blockades, which have staggered the Sarkozy government over the last two weeks. Despite mass opposition to the pension cuts—65 percent supported further strikes against them in the latest polls, and another one-day protest is called for November 6—Sarkozy’s pension cuts were passed by the parliament on Wednesday.

The unions are pressing workers to return to work after refusing to defend them against police strikebreaking. From the outset, they pursued a treacherous policy of appealing to Sarkozy to modify the cuts, allowing financial hardship and the absence of resolute leadership and a political perspective to defeat Sarkozy to wear down the strikers and force them back to work with nothing to show for their struggle....

David Faure, the French Democratic Labour Confederation (CFDT) union representative on the refinery’s joint union-management committee, warned of rising anger among the workers: “People are only waiting for a signal from the unions to go into the streets. The next step will be the general strike. And at that point, the workers’ response will be violent”....

The oil workers were defeated not by “other job sectors” of the working class, who overwhelmingly supported strikes and opposed Sarkozy’s measures, but by the union bureaucracy. It refused to wage a political struggle to bring down the Sarkozy government, even after Sarkozy sent riot police to attack striking oil workers.

6--POMO Still Matters!, Barry Ritholtz, The Big Picture

Excerpt: Earlier this month we noted the stock market gains that occur on days the Federal Reserve conducts Permanent Open Market Operations or “POMO”. Let us update these findings.

The table and chart below continues to confirm what Goldman said on October 22. In our version we start on August 27, the day of Bernanke’s Jackson Hole speech which opened the door to what is now known as QE2.

• Since August 27, the Federal Reserve bought Treasuries via POMO on 20 different days. Cumulatively the S&P 500 was up 10.51% during these days on a total return basis.

• Conversely, since August 27 there have been 24 different days in which the Federal Reserve did not conduct POMO. Cumulatively the S&P 500′s total return during these days was 0.91%.

7--What goes up..., Edward Hugh, Credit Writedowns

Excerpt: Spain’s troubled banking sector is back in the news again. Despite the apparently successful stress tests carried out over the summer problems persist, and don’t seem likely to go away soon. Foremost among these is the steady rise in problem loans which have now risen to an all-time high, potentially endangering the credit rating of the country’s financial institutions, according to a recent report from the credit ratings agency Moody’s....

The volume of Spanish foreclosed mortgages that were taken to court grew by 126% in 2008 and 59% in 2009 on a year-on-year basis. In the first three months of 2010, 27,561 mortgages were foreclosed, a record since the economic downturn started in 2007....

At the present time the consumer protection organization Adicae estimate that 1.4 million Spaniards are facing potential foreclosure proceedings, and the number is likely to continue to rise in the months to come. A recent Standard & Poor’s report found that 8 percent of Spain’s housing is now worth less than the value of the mortgage, and with prices continuing to fall, and some experts believe that figure could rise to 20 percent before the price contraction is over. So with unemployment, problem loans, and property foreclosures all rising, the only thing that seems to be falling steadily towards earth is the level of bank profitability. It is only to be hoped that with their untimely descent Spain’s banks don’t bring the whole edifice of Spanish economic activity (and with it the institutional structure of the Eurozone) crashing down behind them.

8--Former Marxist Guerrilla Rousseff Elected Brazil's First Female President, Bloomberg

Excerpt: Dilma Rousseff, who had never before run for political office, won 56 percent of the vote yesterday compared with 44 percent for Jose Serra, the former governor of Sao Paulo state. The former cabinet chief dedicated her victory to Brazil’s women, and choked with tears as she remembered the legacy left by her mentor, President Luiz Inacio Lula da Silva....

Rousseff is a former Marxist guerrilla who was jailed and tortured by Brazil’s 1964-1985 military dictatorship. She joined Lula’s Workers’ Party, or PT for its Portuguese initials, on the eve of his election after serving as energy secretary in Rio Grande do Sul state. She served as Brazil’s energy minister and chairwoman of state-controlled oil company Petroleo Brasileiro SA before replacing PT stalwart Jose Dirceu as cabinet chief.

Rousseff said her main goal is to eradicate poverty in Brazil while maintaining a lid on spending after being elected the country’s first female president.

9--Why Marx supported Free Trade, readerswords

Excerpt: To sum up, what is free trade, what is free trade under the present condition of society? It is freedom of capital. When you have overthrown the few national barriers which still restrict the progress of capital, you will merely have given it complete freedom of action. So long as you let the relation of wage labor to capital exist, it does not matter how favorable the conditions under which the exchange of commodities takes place, there will always be a class which will exploit and a class which will be exploited. It is really difficult to understand the claim of the free-traders who imagine that the more advantageous application of capital will abolish the antagonism between industrial capitalists and wage workers. On the contrary, the only result will be that the antagonism of these two classes will stand out still more clearly....

Gentlemen! Do not allow yourselves to be deluded by the abstract word freedom. Whose freedom? It is not the freedom of one individual in relation to another, but the freedom of capital to crush the worker.....To call cosmopolitan exploitation universal brotherhood is an idea that could only be engendered in the brain of the bourgeoisie. ...

If the free-traders cannot understand how one nation can grow rich at the expense of another, we need not wonder, since these same gentlemen also refuse to understand how within one country one class can enrich itself at the expense of another.

Do not imagine, gentlemen, that in criticizing freedom of trade we have the least intention of defending the system of protection....

Moreover, the protectionist system is nothing but a means of establishing large-scale industry in any given country, that is to say, of making it dependent upon the world market, and from the moment that dependence upon the world market is established, there is already more or less dependence upon free trade. Besides this, the protective system helps to develop free trade competition within a country. Hence we see that in countries where the bourgeoisie is beginning to make itself felt as a class, in Germany for example, it makes great efforts to obtain protective duties. They serve the bourgeoisie as weapons against feudalism and absolute government, as a means for the concentration of its own powers and for the realization of free trade within the same country.

But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen, that I vote in favor of free trade.


  1. Marx and "free trade".
    Personally I tend to be in favor of fair trade, the idea of free trade is just another joke being played by the capitalists on the working class. The founders mentioned having civil relations and fair trade with all countries and entangling alliances with none. Would that we had kept to that idea.

  2. On the subject of immigrants, I find it quite odd how a nation of immigrants can always find some "newer" immigrants to blame for all of our troubles.
    If one goes back far enough, even the "native Americans" were immigrants at one time. Maybe it is something in our water that allows a nation of immigrants to continue to blame the "newer" immigrants for our problems. Fluoride?