Friday, March 18, 2011

Weekend links

1--UN: Radiation to Hit U.S. By Friday, Washington's Blog via zero hedge

Excerpt: From the New York Times:

A United Nations forecast of the possible movement of the radioactive plume coming from crippled Japanese reactors shows it churning across the Pacific and touching the Aleutian Islands on Thursday before hitting Southern California late Friday.

The projection, by the Comprehensive Test Ban Treaty Organization, an arm of the United Nations in Vienna, gives no information about actual radiation levels but only shows how a radioactive plume would probably move and disperse.

The forecast, calculated Tuesday, is based on patterns of Pacific winds at that time and the predicted path is likely to change as weather patterns shift.

The Japan forecast shows that the radioactive plume will probably miss the agency’s monitoring stations at Midway and in the Hawaiian Islands but is likely to be detected in the Aleutians and at a monitoring station in Sacramento.

The forecast assumes that radioactivity in Japan is released continuously and forms a rising plume. It ends with the plume heading into Southern California and the American Southwest, including Nevada, Utah and Arizona. The plume would have continued eastward if the United Nations scientists had run the projection forward.

Similarly, Yoichi Shimatsu - former editor of the Japan Times Weekly, who led the field research for an architectural report on structural design flaws that led to the tsunami death toll in Thailand - wrote a couple of days ago:

The Pacific jetstream is currently flowing due east directly toward the United States. In the event of a major meltdown and continuous large-volume radioactive release, airborne particles will be carried across the ocean in bands that will cross over the southern halves of Oregon, Montana and Idaho, all of California, Nevada, Utah, Colorado, Wyoming, the Dakotas, northern Nebraska and Iowa and ending in Wisconsin and Illinois, with possible further eastward drift depending on surface wind direction.

2--Bernanke in Testimony Can Show Paul How QE2 Works, Bloomberg

Excerpt: The next time Federal Reserve Chairman Ben S. Bernanke appears before Congress, here are a few visual aids he can use to show critics that quantitative easing is working:

The Standard & Poor’s 500 Index of stocks has climbed 18 percent since he said Aug. 27 that additional asset purchases might be warranted.

The risk premium on high-yield, high-risk bonds has narrowed to 5.16 percentage points from 6.81 percentage points, Bank of America Merrill Lynch index data show.

Inflation expectations have jumped by 44.4 percent.

The unemployment rate has fallen to its lowest level in almost two years.

So much for 2008 Republican vice-presidential candidate Sarah Palin’s assertion that the “dangerous experiment” wouldn’t “magically fix economic problems.”

Quantitative easing “was a key factor in taking deflation risk off the table,” said Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York. “It certainly helped bolster longer-term inflation expectations, and it was a factor that contributed to the rally in the stock market. Overall, I give it a good grade.”

The Fed’s Nov. 3 decision to buy $600 billion of Treasury securities through June was dubbed QE2 by analysts and investors because it followed $1.7 trillion of asset purchases that ended in March 2010. The plan sparked the harshest political backlash against the central bank in three decades, with Republican lawmakers warning the additional stimulus risked causing a surge in prices. So far, they were wrong.

3--No Jolts to Complacency, Paul Krugman, New York Times via Economist's View

Excerpt: David Romer has a complaint about the recent IMF conference on new thinking in macroeconomics:

I had one major source of unhappiness with last week’s conference: the participants were largely silent about the dismal outlook in the advanced economies for the next several years. The current outlook for unemployment in the United States, Europe, and Japan is probably worse than it was in late 2008. Then, mainstream forecasts for 2009–2011 showed unemployment rising sharply—but generally to levels below what we are experiencing today—and then returning toward normal at a moderate pace. Today, not only is unemployment higher than most 2008 forecasts of its peak levels, but the expected pace of recovery is weaker.

Despite this deterioration, the dire sense of urgency in late 2008 has not increased. Indeed, it has largely disappeared. I find this complacency in the face of vast, preventable suffering and waste hard to understand.

Part of the answer, I suspect, is lack of nerve in the face of the ferocity of the austerians: anyone who suggests that we actually need to focus on unemployment instead of slashing spending now now now can expect to face harsh attacks, which leads all too many to shy away from the current policy debate in favor of longer-run concerns....

Although unemployment remains very high, at this point that’s mainly due to lack of hiring; layoffs are quite low. This means that people who still have decent jobs aren’t feeling much at risk of losing them. So any urgency would have to come from concern about those who don’t have jobs — those who lost them in the slump, and of course young people trying to get started on their working lives.

And those people — at least one in six workers, judging by U6 — don’t seem to have much political or psychological visibility. In effect, they’re being written off.

4--Growing productivity, stagnating compensation, The Streetlight blog

Excerpt: Yesterday Ezra Klein had a chart (from a paper by Larry Mishel and Heidi Shierholz at the EPI showing that both private sector and public sector wages have been stagnating for the past several years, and have certainly not kept up with productivity growth. I think it’s useful to look at the relationship between productivity and compensation over a longer time horizon.

The following chart shows labor productivity and real hourly compensation since 1950. (Data from the BLS.) Two things strike me particularly about this graph. The first is how closely the two series track each other between 1950 and 1980. During those 30 years labor productivity in the nonfarm business sector of the US economy rose by 92%; real hourly compensation paid to workers rose by a nearly identical 87%. Classical economic theory says that is exactly what we would expect – as workers become more valuable to firms by producing more output with every hour of labor, firms should compete with each other to employ them, driving up wages by an equal amount.

The second striking feature of this picture is, of course, how much the two series have diverged since the early 1980s. Output per hour of work in 2010 was 87% higher than in 1980, while real hourly compensation was only 38% higher.

The table below shows changes in labor productivity and hourly compensation by decade. Again, let me draw your attention to two features. First, this data confirms that the “great productivity slowdown” of the 1970s and 80s seems to have been vanquished; over the past 15 to 20 years US businesses have been improving productivity at rates as high as during the 1950s and 60s.

5--Who’s Afraid of Elizabeth Warren?, Simon Johnson, New York Times

Excerpt: The next big political battle in Washington -– whenever the budget debate is declared over –- is likely to feature the Consumer Financial Protection Bureau and whether Elizabeth Warren will become its first official head.

But will this fight feature a classic left vs. right set-piece confirmation showdown in the Senate? Or it will it be resolved with cloaks and daggers closer to the White House – with Treasury Secretary Timothy F. Geithner working to prevent Professor Warren’s nomination, or her confirmation if she were nominated?

Ms. Warren was put in charge of establishing the agency by President Obama, but the Treasury retains the powers of the bureau until a permanent director is nominated and confirmed by the Senate — at which point the agency will fall under the authority of the Federal Reserve Board, while operating with a high degree of independence. The president has not yet nominated Ms. Warren to the post nor indicated if he will....

Mr. Geithner and his people were instrumental in defeating the Brown-Kaufman amendment, which would have limited the size and the leverage (debt relative to equity) of the largest banks in the United States.

Will Mr. Geithner side with the Republicans in blocking Ms. Warren’s appointment? Will he now help prevent Ms. Warren, potentially the most effective modern regulator, from coming up for a vote in the Senate? That remains to be seen.

6--A plan that will damage Europe, Business Spectator

Excerpt: The agreements reached last Friday were substantial. Greece will be forced to privatize assets worth €50 billion in return for lower interest rates on its emergency loans. It is not clear whether this sum is realistic and achievable, given the fragile state of the Greek economy.

The German government finally agreed to extend the operation of the stability mechanism. It will be enlarged in order to spend its full capacity of €500 billion, though it remains to be seen how this will be possible without endangering its AAA rating....

After the Friday summit, the big issues facing the EU remain the same. Greece and Ireland both find themselves on a trajectory to sovereign default. All the celebrated emergency facilities only have the effect of prolonging their suffering. Saddling these over-indebted countries with more debt does not solve their underlying problems. It only postpones and aggravates the eventual and inevitable debt restructuring. In the meantime, the punitive measures will cripple their economies where unemployment, particularly among the youth, is endemic.

For the richer economies, on the other hand, the EU’s plans do not add up either. German, French, Dutch and Austrian taxpayers can look forward to guaranteeing an ever growing amount of loans to Greece and Ireland, and potentially to Portugal, Spain, Belgium and Italy in the future. It is only a matter of time until these guarantees will turn into actual liabilities. By then it will be too late for the richer economies to avoid paying for their leaders’ overgenerous commitments. Europe’s political class is guilty of infidelity to their taxpayers on a gargantuan scale.

While agreeing to pseudo-solutions for Europe’s problems, the real issues have once again been neglected. Many European banks still remain undercapitalised, particularly in Germany’s fragile banking sector. All the talk about including private bondholders in an eventual debt restructuring has not resulted in any concrete outcomes. Economies, whose core problem is a lack of competitiveness, will still not be allowed to leave the corset of monetary union.

The EU’s plans will burden the richer member states while failing to help the poorer ones. They are about subjugating struggling periphery economies to the dictate of Brussels and Berlin but the union will do nothing to aid their recovery.

7---Harvard's Rogoff: Greece, Ireland, Portugal, and Spain to Restructure Debt, Default, Shocked Investor

Excerpt: Harvard's Kenneth Rogoff is one more on the camp that Greece, Ireland, Portugal - and Spain's - debt restructuring is unavoidable.

Rogoff is currently the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University.

“I do think the eventual restructuring of two or three countries -- Greece, Ireland, Portugal -- is inevitable,”
“may be called something else, for face- saving reasons.”

“It’s inescapable to have public and/or private debt restructured in all four countries”
“The risk of waiting too long is that it gets bigger and it costs you more.”

“If Spain were to have a restructuring of central government debt, I don’t think it would end there”

“Spain is just too big.”

He says that Portugal will finally accept a financial bailout within the next few weeks. As for Greece "... a default will be difficult to avert.”

8--Europe's Austerity: a Grimm's Fairy Tale, Conn Hallinan, Counterpunch

Excerpt: ... the EU and the IMF agreed to bail out Ireland's banks for $114 billion, but only if the Irish cut $4 billion over the next four years, raised payroll taxes 41 percent, cut old age pensions, increased the retirement age, slashed social spending, and privatized many public services. When Ireland recently asked for a reduction in the onerous interest rate for this bailout, the EU agreed to lower it 1 percent and spread out the payments, but only on the condition of yet more austerity measures and an increase in Ireland's corporate tax rate. The newly elected Fine Gael/Labor government refused.

To pay back its own $152 billion bailout, however, the Greek government took the deal. But the price is more austerity and an agreement to sell off almost $70 billion in government properties, including some islands and many of the Olympic games sites.

But the "deal" will hardly repay the debt. Unemployment in Greece is 15 percent, and as high as 35 percent among the young. Wages have fallen 20 percent, pensions have been cut, and rates for public services hiked. Growth is expected to fall 3.4 percent this year, which means that Greece's debt burden is projected to increase from 127 percent of GDP to 160 percent of GDP by 2013. "Your debt will continue to increase as long as your growth rate is below the interest rate you are paying," economist Peter Westaway told the New York Times.

Austerity measures in Portugal and Spain have also cut deeply into the average person's income and made life measurably harder. In Spain, more than one in five workers are unemployed, and consumer spending is sharply off, dropping by a third this past holiday season. Portugal is actually in worse shape. It has one of the slowest economic growth rates in Europe, a dead-in-the-water export industry, and a youth unemployment rate of over 30 percent.

In Britain, the Conservative-Liberal government has cut almost $130 billion from the budget and lobbied for what it calls the "Big Society." The latter is similar to George H.W. Bush's "thousand points of light" and envisions a world in which private industry and volunteerism replaces government-funded programs. The actual result has been the closure of libraries, senior centers, public pools, youth programs, and public toilets. The cutbacks have been most deeply felt in poorer areas of the country—those that traditionally vote Labor, as cynics are wont to point out—but they have also taken a bite out of the Conservative Party's heartland, the Midlands....

But a massive program of privatization does mean enormous windfall profits for private investors and the banks and financial institutions that finance the purchase of everything from soccer fields to national parks. Those profits, in turn, fuel political machines that use money and media to dominate the narrative that greedy pensioners, lay-about teachers, and free loaders are the problem. And austerity is the solution.

9--Japan is not bankrupt, Pragmatic Capitalism

Excerpt: Make no mistake. Despite this horrible human tragedy Japan is a strong and stable nation. Their people are hard working, disciplined and remarkably innovative. Their economy is stable, dynamic and diverse. They are not bankrupt and they would welcome some inflation. The USA is in a very similar position. Thus far, we have walked a tightrope through this balance sheet recession without allowing the fear mongerers to scare us into austerity. As we can see in Ireland, Spain and Greece the austerity approach has been nothing short of disastrous.

Our approach has been far from perfect. We should have forced our banks to take more pain. The response should have been focused on Main Street and not Wall Street. The Fed’s powers and involvement in the markets should have been reduced rather than increased. But this doesn’t mean we need to convince ourselves that the entire recovery response has been a failure. In fact, a simple accounting identity shows that the government budget deficit is the only thing keeping us from sinking back in to recession. As I’ve said before:

“The deficit of the entire government (federal, state, and local) is always equal (by definition) to the current account deficit plus the private sector balance (excess of private saving over investment).”

“Since we are running a -3% current account deficit the government MUST spend to the tune of 3%+ of GDP if the private sector desires to save. And that’s exactly what is occurring. In fact, the 10% deficit is allowing the private sector to save quite a bit (roughly 7%). Make no mistake, the deficit spending of the last 2 years is what has generated recovery.”

Japan made the mistake of starting and stopping their stimulus at a time when the private sector was deleveraging. This only exacerbated their problems and ultimately resulted in a kick the can strategy. If there is one thing that we can learn from Japan it is that we are not going bankrupt and we are not suffering hyperinflation. And if we make the mistake of Japan, by stopping and starting the deficit spending during a balance sheet recession we will certainly slip back into the abyss. There’s a lesson to be learned from this human tragedy – don’t be scared into believing everything you read about our nation’s imminent bankruptcy. If we allow ourselves to be scared into believing we are insolvent we’ll soon find ourselves suffering our own human tragedy.

10--GOP begins rollback of Wall St. reform,

Excerpt: Republicans clearly want to strike at the heart of banking reform with legislation attacking new regulations on derivatives, credit rating agencies and private equity firms. But their piecemeal approach suggests they are trying to do so without appearing to favor Wall Street over Main Street...

“There’s no question they didn’t like financial reform,” Rep. Barney Frank (D-Mass.), one of the law’s namesakes and top Democrat on the committee said of Republicans. “But they’re more respectful of the public appeal of this and are going about this at the edges.”...

In a two-pronged approach that began with starving funds from relevant federal agencies like the Treasury, Securities and Exchange Commission, and Commodity Future Trading Commission, the GOP now has launched into the symbolic phase of floating repeal legislation favored by the banking lobby.

Republicans have proposed measures that would eliminate provisions in Dodd-Frank making credit-rating agencies like Standard & Poor’s or Moody’s liable if their initial ratings are faulty; destroy the establishment of a derivatives “clearinghouse,” through which companies using the complicated financial instruments to hedge commercial risk must exchange them; exempt private equity fund managers from having to register with the SEC; raise capital thresholds for companies needing to register with the SEC; and eliminate “burdensome” data collection requirements for publicly traded companies.

The GOP argues that Wall Street reform has been detrimental to economic recovery and has touted the fistful of bills introduced Wednesday as jobs legislation.

11--Aftershocks from Japan, Stephen Roach, Project Syndicate

Excerpt: Moreover, the Japan shock is not the only negative factor at work today. The impacts of sharply rising oil prices and ongoing sovereign debt problems in Europe are also very worrisome. While each of these shocks may not qualify as the proverbial tipping point, the combination and the context are disconcerting, to say the least.

Context is vital. Notwithstanding the euphoric resurgence of global equity markets over the past two years, the world economy remains fragile. What markets seem to have forgotten is that post-bubble, post-financial-crisis recoveries tend to be anemic. Economies grow at something much closer to their stall speeds, thus lacking the cyclical “escape velocity” required for a self-sustaining recovery. As a result, post-crisis economies are far more vulnerable to shocks and prone to relapses than might otherwise be the case.

Alas, there is an added complication that makes today’s shocks all the more vexing: governments and central banks have exhausted the traditional ammunition upon which they have long relied during times of economic duress. That is true of both monetary and fiscal policy – the two mainstays of modern countercyclical stabilization. Policy interest rates are close to zero in the major economies in the developed world, and outsize budget deficits are the norm. As a result, unconventional – and untested – policies, such as so-called “quantitative easing,” have become the rage among central bankers.

All along, such unconventional policies were viewed as a temporary fix. The hope was that policy settings soon would return to pre-crisis norms. But, with one shock following another, the “exit strategy” keeps being deferred.

Just as it is next to impossible to take a critically ill patient off life-support treatment, it is equally difficult to wean post-bubble economies from their now steady dose of liquidity injections and deficit spending. In an era of extraordinarily high unemployment, political pressures only compound the problem.

This raises perhaps the most troublesome concern of all: with a post-crisis world getting hit by one shock after another, and with central banks having no latitude to cut interest rates, it is not hard to envision a scenario of open-ended monetary expansion that ends in tears. The dreaded inflationary endgame suddenly looms as a very real possibility.

12--“We’re Poisoned. We’re Sick.”, Dahr Jamail's Dispatches

Excerpt: Residents who live along the coast of the Gulf of Mexico, all the way from Terrebonne Parish, Louisiana, to well into western Florida, continue to tell me of acute symptoms they attribute to ongoing exposure to toxic chemicals being released from BP’s crude oil and the toxic Corexit dispersants used to sink it.

Shirley Tillman from Pass Christian, Mississippi, and former BP Vessels of Opportunity oil cleanup worker wrote me recently:

“You can’t even go to the store without seeing sick people! You can hear them talking to people and they think they have the flu or a virus. I saw a girl that works at a local store yesterday that had to leave work because she was so sick! Others, throughout the entire store were hacking & coughing. It’s crazy that this has been allowed to happen to all of us!”

Oil continues to wash ashore. That which was already there, usually in the form of tar balls or mats of tar, is being uncovered by the weather....

As BP’s stock price continues to improve, the Coast Guard, NOAA, the Food and Drug Administration (FDA) and the Environmental Protection Agency all continue to go to great lengths to convince the public, particularly those living along the Coast, that the air, water and seafood are perfectly safe....

Denise Rednour, from Long Beach, Mississippi, has been suffering symptoms of toxic chemical exposure for months.

“I have pain in my stomach, stabbing pains, in isolated areas,” she told me. “Now I have a bruising rash all around my stomach. I’ve had shingles before, and that was like a rash … but this looks like bleeding under the skin. The sharp stabbing pain is all over my abdomen where this discoloration is. It’s in my armpits and around my breasts. I have this dry hacking cough, my sinuses are swelling up - not snotty nose or congestion, but the inside of my nose is swelling to where it’s almost closed. I also have an insatiable thirst. This has been going on, almost constantly, for about 2 months. It’s never gone away entirely. Sometimes I feel a little better, but it’s always with me.”

She recently had her blood tested for chemicals that are present in BP’s crude oil and dispersants. Her blood tested positive.

“I tested very high for most of the chemicals,” she told me on January 9. “I’m still having my symptoms and am not feeling better. I’m feeling worse, in fact.”

The chemicals in her blood include Benzene, Ethylbenzene, Hexane, 2- and 3-methylpentane and M,p-Xylene. Ethylbenzene is a form of benzene present in the body when it begins to break down; it is also present in BP’s crude oil. M,p-Xylene, is a clear, colorless, flammable liquid that is refined from crude oil and is used as a solvent. Ethylbenzene, m,p-Xylene and Hexane correlate to the volatile organic chemicals in the BP crude oil.

Independent blood testing by environmental groups and independent scientists along the Gulf is finding exceedingly high concentrations of these chemicals in people’s veins … people who live near the Coast, former BP cleanup workers and even one man who lives 100 miles from the coast … everyone is testing positive with BP’s toxic chemicals in their blood stream....

Many of the chemicals present in the oil and dispersants are known to cause headaches; nausea; vomiting; kidney damage; altered renal functions; irritation of the digestive tract; lung damage; burning pain in the nose and throat; coughing; pulmonary edema; cancer; lack of muscle coordination; dizziness; confusion; irritation of the skin, eyes, nose, and throat; difficulty breathing; delayed reaction time; memory difficulties; stomach discomfort; liver and kidney damage; unconsciousness; tiredness/lethargy; irritation of the upper respiratory tract; and hematological disorders

“We’re poisoned, we’re sick,” Denise added, furiously. “We’ve lost our livelihoods, we have nothing to look forward to. We’re destitute and depressed. I think everybody is walking around with PTSD [post-traumatic stress disorder], and the devastation continues in the Gulf. Yesterday I was at the beach, and the chemical smell would knock you over. There was oil sheen everywhere, tar balls, crews walking the beach picking up buckets full of them.”

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