Credit Writedowns » Political Economy

Richard Nixon: 1971 Annual Message to the Congress on the State of the Union

Edward Harrison — Wed, 08 Feb 2012 14:24:50 +0000

I have highlighted some of the state of the union addresses by Herbert Hoover in the past because I see the Great depression as a time with certain parallels to the present economic hardship. Let's look at the 1970s instead now. Here's Richard Nixon from 1971, with what was considered a conservative agenda in 1971 based on balancing the federal budget and rolling back centralised governance. However, regarding details, Nixon proposes small government ideas on welfare reform and big government ideas in almost all other aspects of his State of the Union Address. I have bolded what I consider the most important parts

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The Elephant in the Room Is Spain, Not Italy

Marshall Auerback — Tue, 07 Feb 2012 21:30:47 +0000

The decision for Europe’s bosses is this: they must ultimately confront the consequences of their policy choices. They can destroy the eurozone by continuing with the same failed mix of policies or by salvaging it by adding what has been missing from the outset: a mechanism for shifting surpluses to the deficit regions in the form of productive investments (as opposed to handouts or loans)

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Greek protests turn very anti-Germany

Edward Harrison — Tue, 07 Feb 2012 15:05:48 +0000

This is how it's going down in Greece right now. The sentiment is very Anti-German on the eve of the austerity/bailout decision. The debt haircut and writedowns coming of upwards of 50% is a default in everything but name. Technical default is a real possibility as well

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Doug Casey on the Coming War with Iran

Casey Research — Fri, 03 Feb 2012 04:16:04 +0000

It could just be saber rattling during an election year, but Western powers have been provoking Iran for years now - two decades, really. I just saw another report proclaiming that Iran is likely to attack the US, which is about as absurd as the allegations Bush made about Iraq bombing the US, when he fomented that invasion. It's starting to look rather serious at this point, so I do think the odds favor actual fighting in the not-too-distant future

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Chart of the Day: Government Deficits as Far as the Eye Can See

Edward Harrison — Thu, 02 Feb 2012 21:51:17 +0000

The chart below from the blog Pragmatic Capitalism shows the U.S. Federal government deficit for each quarter since 1952. As you can see, almost the entire period is marked by deficits

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Auerback: Austerity during recession is equivalent to medieval bloodletting

Edward Harrison — Thu, 02 Feb 2012 15:30:27 +0000

Here's a good video performance by Marshall Auerback on BNN's Business Day program. Marshall thinks the Greek default deal is actually a relatively good one. But sees a Portuguese default after the Greek default as a real possibility and envisions a scenario in which Portugal and Spain look to extract similar terms. Moreover, the quid pro quo for Greece is austerity - and that makes getting debt loads down harder when implemented during a downturn

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Obama Administration propaganda on prosecuting elite financial frauds

William Black — Thu, 02 Feb 2012 14:00:47 +0000

The Obama administration’s record of prosecuting elite financial frauds is worse than the Bush administration’s record, which is a very large statement. Neither administration has prosecuted any elite CEO for the epidemic of mortgage fraud that drove the ongoing crisis. This contrasts with over 1,000 elite felony convictions arising from the S&L debacle. The ongoing crisis caused losses more than 70 times greater than the S&L debacle and the amount of elite fraud driving this crisis is also vastly greater than during the S&L debacle

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Is the Greek PSI Sweetener Enough?

Marc Chandler — Wed, 01 Feb 2012 19:30:10 +0000

Even if the private sector participation sufficiently high, will it be enough to put Greece's debt on a sustainable path? This seems unlikely and there is increasing risk that the ECB forgoes getting anything but its initial investment back

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Chart of the Day: Permanent Zero and Personal Interest Income

Edward Harrison — Fri, 27 Jan 2012 22:22:38 +0000

If you are a retiree, you're not happy these days. Five years ago, you were getting a decent return on your fixed income investments. But since then, the Fed has trashed the fixed income market by reducing interest rates to zero percent for "an extended period". The thinking is that this will get people to take on more credit. But the reality is that a lot of people are stuffed to the gills with existing credit and are not creditworthy. The Fed is pushing on a string

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The Twilight of the Leisure Class

Rick Bookstaber — Fri, 27 Jan 2012 19:51:51 +0000

Taken to its end, industrialization class distinctions are revealed by conspicuous consumption. This points to the objective of industrial production: goods in the realm of common consumption become removed from social distinction. This is what Mumford meant when he stated that the machine is a communist. Products bear the same impersonal imprint. They either function or do not. There is no difference between the light bulb – or phone, or computer, or Kindle – of the common and the wealthy to signal a difference in status. The consummation of the industrial revolution, and insofar as we link the industrial revolution to capitalism, of capitalism as well, will occur when the same can be said in all areas of production

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I repeat: The Fed’s Permanent Zero rate policy is toxic

Edward Harrison — Fri, 27 Jan 2012 14:20:05 +0000

Permanent zero can work over the medium-term but the economy is dependent on employment growth and monetary policy doesn't drive that

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The stark contrast between European economic policy and US economic policy

Edward Harrison — Thu, 26 Jan 2012 20:00:10 +0000

I was on CNBC yesterday ahead of Ben Bernanke's speech explaining the FOMC's recent decision to add an explicit inflation target to its decision to extend its rate easing/permanent zero policy. My conclusion: the Obama mortgage plan and Bernanke easing campaign are bullish for the US economy

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Why I am not optimistic about Europe

Edward Harrison — Wed, 25 Jan 2012 16:30:01 +0000

I am not at all optimistic about the euro zone in terms of policy makers fashioning a solution to the problem. The euro leaders have the diagnosis all wrong. They keep harping on government debt and deficits as if that's the problem. And this has caused them to go all in for austerity without a backup plan. The reality is that the sovereign debt crisis in Europe is not about government debt; it's about private debt and intra-euro zone imbalances

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First Act of Greek Default Proceedings Drawing to a Close

Claus Vistesen — Mon, 23 Jan 2012 13:30:04 +0000

n the short term, one of the only remaining stumbling block in the form of the ongoing default proceedings in Greece seem to be no match for the ongoing positive animal spirit of the equity market. Only a week ago, we got news that talks in Greece had stalled, but most recently we have been reassured that talks are back on track

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A Month In Spain That Didn’t Shake The World

Edward Hugh — Mon, 23 Jan 2012 13:00:00 +0000

Spain’s economic problems are very grave. The country is facing a decade long depression, and if enough young qualified people leave during this period then the country could enter a negative dynamic from which it will never properly recover. At the outset (2007) I and others argued for a 20% internal devaluation to shift resources over to the export sector. This did not happen, and virtually no one is interested in the idea. The main priorities are still reducing the deficit, and restructuring the financial sector without injecting any significant quantity of public money. Both these policies are contractionary in their impact. In addition the proposed labour market reform is timid, and won’t act quickly enough to stop the rot on the growth front

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Spanish government doubts it can achieve deficit target

Edward Harrison — Fri, 20 Jan 2012 13:14:05 +0000

I have been saying for a few months now that all of the periphery would miss their targets as depression took hold. Belgian newspaper De Standaard reports that the new Spanish government is fearful. My translation from Dutch below

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The Importance of the Mario Brothers

Marc Chandler — Thu, 19 Jan 2012 01:00:10 +0000

They are not really brothers, but Mario Draghi and Mario Monti are countrymen and are doing a great deal to respond to the European debt crisis in ways that were unimaginable until very recently

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Münchau: We are fighting the wrong crisis

Edward Harrison — Wed, 18 Jan 2012 16:00:11 +0000

To me this situation looks pretty hopeless frankly. Policy makers in Europe just don't get it. The best we are going to get is austerity and partial monetisation by the ECB until the union breaks or sovereign debtors default and banks are recapped. The question is why are they leading us down the abyss

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The ECB is Engaging in Massive QE

Marshall Auerback — Tue, 17 Jan 2012 21:25:12 +0000

Despite the ongoing hawkish rhetoric from the ECB, there are signs that they are getting it: The LTRO can't work, as you're essentially just swapping one liability for another one (albeit more long term in duration, therefore making it better for the banks). But note the way the ECB balance sheet is expanding: The consolidated assets of the European system of Central Banks is now 4.4 billion euros or $5.7 billion. In effect, the consolidated ESCB balance sheet is almost two times that of the Fed and its increase over the last 6 months is almost equal to the entire increase in the Fed’s balance sheet over the last several years. Bottom line: the system of European Central Banks (ESCB) has been engaged in massive QE and much more is in the pipeline. With such massive injections of “liquidity” into the European banks, a European Lehman type failure with Lehman’s systemic consequences becomes ever less likely

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EU leaders are already backtracking on the agreement of 5 weeks ago

Guest Author — Mon, 16 Jan 2012 14:00:39 +0000

The big news out of Europe on Friday was not S&P’s downgrade of 9 countries, France included. The ratings agency told us weeks ago that it might do this. No, much more important was the ECB’s saying in the bluntest possible terms that the EU leaders are backtracking on the fiscal compact agreed just 5 weeks ago by 26 of the 27 countries

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Buiter: “The temporary pause in the European debt crisis is as deceptive as the frenzy before the New Year”

Edward Harrison — Sat, 14 Jan 2012 02:22:37 +0000

The countries of the eurozone will eventually emerge from the sovereign debt crisis -- with pain and difficulty

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Playing Chicken And Rooster With Hungary

Edward Hugh — Fri, 13 Jan 2012 00:15:15 +0000

Tension surrounding the application of a series of so-called “unorthodox policies” by Hungary’s Fidesz government has certainly been rising in recent days. While Washington has been reasonably quiet as government emissary Tamas Fellegi meets with top IMF officials, Brussels has seen a veritable avalanche of official statements and policy initiatives. Despite constant rumours that an agreement with the IMF is near, I find it pretty implausible that any deal can be reached without some kind of EU assent. At the present time this assent is unlikely to be forthcoming, and indeed the ”ante” has been pushed up and up

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Green Energy – Too Many Subsidies, Too Little Performance

Casey Research — Wed, 11 Jan 2012 00:00:36 +0000

Any politician who talks of a green, utopian US - where wind and solar produce most of our energy, electric cars put power back into the grid, green fields of corn produce clean fuels, and millions of Americans work in green technology factories - is creating a fanciful vision so far detached from reality it should really be called a lie. Such tales are designed to encourage a public that is increasingly despondent about the future, but the policy moves that have been made in support of these fantasies have cost taxpayers tens of billions of dollars

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PIMCO’s El-Erian: QE3 won’t produce the outcomes we want

Edward Harrison — Tue, 10 Jan 2012 13:24:17 +0000

Bloomberg wrote the following paragraphs about a recent interview with Mohamed El-Erian. What i thought was interesting was his belief that the Fed is out of bullets. Monetarists and Keynesians believe the Fed can still be effective by managing expectations. So the Fed is on a mission to improve its communication of interest rate policy. Like El-Erian, I am sceptical of this policy turn, but what else can the Fed do? They say they have lots of tools left. Do they

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Poll: Readers believe the latest deal in Europe will not solve the debt crisis

Edward Harrison — Mon, 09 Jan 2012 21:40:19 +0000

The results are in from the poll I began a month ago. By an overwhelming majority, Credit Writedowns readers believe the crisis will continue

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The Job Guarantee, Kleptocracy and Blogging

Edward Harrison — Mon, 09 Jan 2012 16:30:45 +0000

A post about the job guarantee idea in the context of a historic economic crisis

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Is MMT’s Job Guarantee Crucial?

Guest Author — Mon, 09 Jan 2012 15:00:00 +0000

Pavlina Tcherneva argues that the job guarantee is not just an afterthought to MMT but a crucial component that has so far offered the most coherent counter-cyclical economic stabilizing mechanism

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What has the Fed done to avoid the US becoming the next Japan?

Guest Author — Mon, 09 Jan 2012 14:15:00 +0000

Imagine being on the FOMC and in the mainstream paradigm. In 2008 you moved quickly to make sure the US would not become the next Japan. What do you have to show for it, 3 years later

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Korea

Marc Chandler — Mon, 09 Jan 2012 14:00:00 +0000

The death of North Korea’s Kim Jong-il in the middle of December can be either a bump or grind. More likely, the change of leadership will mark a continuation of the status quo. Not only do North Korea’s elite and military seem firmly in control, but the international focus is North Korea’s acquisition of nuclear weapon capability

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If no trade reversal now, then when?

Michael Pettis — Mon, 09 Jan 2012 13:00:00 +0000

The best resolution, and the one Keynes urged without success on the US in the 1920s and 1930s, is that Germany take steps to reverse its trade surplus. It could boost disposable household income and household consumption by cutting income and consumption taxes. If Germany imposes austerity, unemployment will force the peripheral countries into the unenviable choice either of absorbing that surge in unemployment themselves, or of forcing the unemployment back onto the core countries by abandoning the currency that is at the heart of their lack of competitiveness

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From Here To Eternity, Hungarian Style

Edward Hugh — Sun, 08 Jan 2012 18:00:28 +0000

It was in Hungary that the new orthodoxy of relying on “non-Keynesian” effects related to expectations and credibility was formally announced and put to work. However, private consumption, unfortunately, has notably failed to rise. Perhaps there will be more than a little historic irony involved in Hungary being the country where the whole experiment eventually went badly wrong, although I doubt the Hungarians themselves will se it that way

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My comments on MMT’s job guarantee idea

Edward Harrison — Tue, 03 Jan 2012 13:30:24 +0000

Over the holidays, a debate broke out in the blogosphere about the so-called job guarantee idea that the MMT folks have bandied about. I call this controversial idea "Unemployment Insurance for the 21st Century", something I first addressed in 2009, based on a post by Randall Wray. My view: a job guarantee will never happen in the US unless we have a deep Depression like the one that began in 1929. Politically, this idea is a non-starter on this side of the Atlantic

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A Quiet Putsch in Hungary?

Marc Chandler — Mon, 02 Jan 2012 13:00:09 +0000

A putsch, as any dictionary will tell you, refers to the violent overthrow of a government. Hungary has not been subject to that kind of action per se, but rather a more insidious grab for power. Its new constitution goes into effect today, and while perfectly legal, marks the end of Hungary's flirtation with liberalism (meant in the classical sense of "liberty" and not the modern partisan sense)

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A Quiet Putsch in Hungary? originally appeared on Credit Writedowns

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The Rain In Spain Falls Mainly On The Journalists, It Seems

Edward Hugh — Mon, 02 Jan 2012 12:30:49 +0000

Nothing in Spain is exactly as it appears to be, and that few of the arguments politicians and so called “experts” advance are entirely innocent. Most “information” circulating in Spain is highly politicised. Really “independent” analysts are virtually unknown

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Japan and China: Small Beer

Marc Chandler — Tue, 27 Dec 2011 02:47:51 +0000

Understanding the financial agreement within the context of that rivalry is more important than what it means for the future of the dollar as the world's more important reserve currency, invoicing currency and vehicle currency. Nor will the agreement impact the outlook for either the yuan or the yen

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