Thursday, November 25, 2010

Today's links

1--Weekly Initial Unemployment Claims decrease sharply, Calculated risk

Excerpt: In the week ending Nov. 20, the advance figure for seasonally adjusted initial claims was 407,000, a decrease of 34,000 from the previous week's revised figure of 441,000. The 4-week moving average was 436,000, a decrease of 7,500 from the previous week's revised average of 443,500....

The four-week average of weekly unemployment claims decreased this week by 7,500 to 436,000. This is the lowest level for the 4-week moving average since August 2008. This decline is good news.

2--Credit rating agency reform: The best action is no action, Housingwire

Excerpt: n a strange turn of events, the Securities and Exchange Commission Tuesday extended its no-action position against the credit rating agencies.

It's strange, because it seems regulators are struck with an acute case of amnesia. And honestly, it's not such a bad infliction.

The SEC is currently reinventing itself as a regulator with some serious enforcement behind it, most notably in the Goldman Sachs $550 million levy. However, the message is now that the rating agencies, which largely escaped massive scrutiny under Dodd-Frank, are not only vital to the securitization process, but able to self-improve and self-regulate.

To be clear, the markets are all for no action against the credit rating agencies. The SEC announcement removes an element of uncertainty from asset-backed securitizations.

3--Devaluing History, Paul Krugman, New York Times

Excerpt: Menzie Chinn goes after Paul Ryan’s challenge: “Name me a nation in history that has prospered by devaluing its currency.” But why go back to the 1930s?

How about:

-Britain, which recovered strongly from its early 90s doldrums after it devalued the pound against the mark in 1992. (At the time, some wags suggested putting a statue of George Soros in Trafalgar Square.)

- Sweden, which recovered from its early 90s banking crisis with an export boom, driven by a devalued kronor.

- South Korea, which roared back from the 1997-1998 crisis with an export boom, driven by a depreciated won.

- Argentina, which roared back from its 2002 crisis with an export boom, driven by a depreciated peso.

And more. The truth is that every recovery from financial crisis I know of since World War II was driven by currency depreciation. In fact, that’s the biggest reason for pessimism now: because of the global scope of this crisis, the usual exit is blocked.

Now, I’m sure that the goldbugs will come up with ways to explain away all of these events. But at that point we’re not learning from history; on the face of it, history seems to suggest many cases of countries prospering through devaluation.

4--Iceland vs. Ireland, paul Krugman, New York Times this point Iceland actually looks a bit better than Ireland....The IMF’s latest report on Iceland is remarkably chipper:

Under the recovery program, Iceland’s recession has been shallower than expected, and no worse than in less hard-hit countries. At the same time, the krona has stabilized at a competitive level, inflation has come down from 18 to under 5 percent, and CDS spreads have dropped from around 1000 to about 300 basis points. Current account deficits have unwound, and international reserves have been built up, while private sector bankruptcies have led to a marked decline in external debt, to around 300 percent of GDP....

What’s going on here? In a nutshell, Ireland has been orthodox and responsible — guaranteeing all debts, engaging in savage austerity to try to pay for the cost of those guarantees, and, of course, staying on the euro. Iceland has been heterodox: capital controls, large devaluation, and a lot of debt restructuring — notice that wonderful line from the IMF, above, about how “private sector bankruptcies have led to a marked decline in external debt”. Bankrupting yourself to recovery! Seriously.

And guess what: heterodoxy is working a whole lot better than orthodoxy.

5--"Effects of the Financial Crisis and Great Recession on American Households", Michael Hurd and Susann Rohwedder, NBER

Excerpt: Conclusions The economic problems leading to the recession began with a housing price bubble in many parts of the country and a coincident stock market bubble. These problems evolved into the financial crisis. ...

According to our measures almost 40% of households have been affected either by unemployment, negative home equity, arrears on their mortgage payments, or foreclosure. Additionally economic preparation for retirement, which is hard to measure, has undoubtedly been affected. Many people approaching retirement suffered substantial losses in their retirement accounts: indeed in the November 2008 survey, 25% of respondents aged 50-59 reported they had lost more than 35% of their retirement savings, and some of them locked in their losses prior to the partial recovery in the stock market by selling out. Some persons retired unexpectedly early because of unemployment, leading to a reduction of economic resources in retirement which will be felt throughout their retirement years. Some younger workers who have suffered unemployment will not reach their expected level of lifetime earnings and will have reduced resources in retirement as well as during their working years.

Spending has been approximately constant since it reached its minimum in about November, 2009. Short-run expectations of stock market gains and housing prices gains have recovered somewhat, yet are still rather pessimistic; and, possibly more telling, longer-term expectations for those price increases have declined substantially and have shown no signs of recovery. The implication is that long-run expectations have become pessimistic relative to short-run expectations.

Expectations about unemployment have improved somewhat from their low point in May 2009 but they remain high: they predict that about 18% of workers will experience unemployment over a 12 month period. Despite the public discussion of the necessity to work longer, expectations about working to age 62 among those not currently working declined by 10 percentage points. In our view this decline reflects long-term pessimism about the likelihood of a successful job search.

The recession officially ended in June 2009. A main component of that judgment is that the economy is no longer declining. According to our data the economic situation of the typical household is no longer worsening which is consistent with the end of the recession defined as negative change. However, when defined in terms of levels rather than rates of change, from the point of view of the typical household the Great Recession is not over.

6--Kucinich Calls QE2 Hearing, Wall Street Journal

Excerpt: Rep. Dennis Kucinich, a consistant critic of the Federal Reserve, has scheduled a hearing next week to investigate the central bank’s latest round of debt buying, giving the Ohio Democrat an official forum to assail a policy backed by President Barack Obama

The hearing will examine the Fed’s decision earlier this month to buy up to $600 billion in long-term Treasury debt “in light of massive unemployment and the seeming inability of government to invest in infrastructure or to intervene to stop the loss of jobs,” according to a Kucinich press release.

Next week’s hearing presents Republicans on the Oversight and Government Reform Committee with a platform to further politicize an issue that has become a talking point for GOP leaders and presidential hopefuls alike.

7--HAMPing Europe's periphery, Paul Krugman, New York Times

Excerpt: The markets don’t seem impressed by the Irish bailout — nor should they be. As I read it, European policy makers are still — still! — viewing the crisis as a confidence problem, not a fundamental problem.

The basic situation is that given the cost of rescuing Ireland’s banks, and the damage harsh austerity is inflicting on Ireland’s economy, investors are understandably skeptical that the Irish government will actually be able to meet its commitments. That’s why rates are high — to compensate for a possible default.

Now, this process is self-reinforcing: higher rates make it even harder to meet Ireland’s commitments, which leads to still higher rates, and so on. The European bailout basically short-circuits this vicious circle.

But the bailout will only work if the vicious circle is at the heart of the story — as opposed to being a symptom of the fundamental unsustainability of the austerity-and-full-repayment strategy. That is, it will work only if Ireland is the fundamentally sound victim of a self-fulfilling panic. And that’s a hard claim to make.

What would Ireland (and Greece, and Portugal, and …) need if the problem is not essentially one of confidence and liquidity? Actual debt relief. Yet that is not on the table.

8--Here comes the quantitative tightening, FT Alphaville

Excerpt: Conclusion--Global imbalances still pose significant risks to the global economy. The unwinding of global imbalances is therefore one of the major challenges on the global policy agenda. It is a joint task of surplus and deficit, of advanced and emerging economies....

Mr. Bernanke should also ask himself what would happen to American standards of living were the Chinese, Arabs, the Germans and the rest to take him at his word.

If this meant they were henceforth to use their surplus dollars directly for consumption, rather than channelling them toward the kind of unthinking vendor finance which has helped suppress world prices for so long, with money already so easy, his country would face an inflationary wave which its hollowed out industries could not easily expand to counter.

If America is being ‘impoverished’ under present policies it is because their settings encourage it to consume too much of its precious capital. Given this premise, we cannot expect that same capital to materialize instantly and to begin pouring out a plethora of cheap goods the moment the external tap is turned off.

Nor is it certain — as the argument implicitly assumes — that (outside the farm belt, at least) the extra spending would find its way into US cash registers instead of being shared out between the great producing nations themselves in a kind of BMW-for-oil-for-plasma-TV triangular trade.

9--First a Hand on Your Crotch, Next a Boot in Your Face, Michael Scott, Counterpunch

Excerpt:If the American public does not stand up and oppose the TSA enforced false choice between potentially dangerous irradiating body scanners or what amounts to federally mandated sexual harassment, then the Republic is almost certainly lost.(1) In the cause of fighting the 'war on terror,' the evisceration of the Bill of Rights will have finally been achieved. Americans must draw the proverbial line in the sand over this issue. The body scans and the invasive pat downs violate the fourth amendment. Despite the statements issued by the TSA, American citizens do not cede their constitutional rights when they buy a plane ticket or enter an airport....

Since 9/11, we have given up many of our rights and our government has condoned practices like torture, legalized assassination, kidnapping, indefinite detention without access to council or trial – all in the name of keeping us 'safe' and 'free'. We have adopted practices and behaviors that we used to abhor in other nations and regimes. These practices, as demonstrated by the TSA, have nothing to do with keeping us safe or free – quite the opposite....

The TSA and DHS may have done the country a favor by implementing such draconian and unconstitutional practices. They might just make us remember what the US once stood for and what a monumental accomplishment our Bill of Rights is for all of humanity. They might have reminded some of us what is worth fighting for and what it really means to be free. Freedom most certainly does not mean that when you enter an airport, that you are the prisoner of the TSA and subject to the whims of often poorly trained 'agents' on a power trip. Freedom does not mean being forced to stand by as your child has a stranger rub his or her hands all over him or her. Freedom does not mean that we must submit to dehumanizing searches in the name of safety. Our forefathers and all those men and women deployed around the world in the armed services did not and are not fighting for the right of a government agency to force Americans in to making a false choice between passing through a radiating naked body scan or being felt up.

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