Chart of the Day: Eurozone wage growth, pre-crisis

10% ‘internal devaluation’ in Germany took eight years. We are talking now about 20-30% wage and price cuts in Greece and Ireland. How realistic is that

The FHFA Complaints and Control Fraud

The FHFA complaints lose explanatory power and persuasiveness because they ignore compensation and accounting. It pays to understand accounting control fraud

Stagnant growth in UK take home pay

Annual growth on the VocaLink Public Sector Take Home Pay Index stands at 1.3% and in the private sector, growth has fallen to 2.9%

Britain: public sector income growth lags private sector after pay freezes

Below are the findings of the recently released VocaLink Public Sector Take Home Pay Index. The VocaLink Take Home Pay Indices measure after-tax income as opposed to pre-tax gross income. So they are designed to reflect what Americans call disposable personal income

Chart of the Day: UK Take Home Pay

Inflation is sapping spending power. Legitimately, one cannot expect pay to rise by 4 and 5% per annum in a still weak economic environment. Therefore, the only way to see more purchasing power for consumers over the medium-term is via reduced future inflation

Why is Germany doing so well?

There’s been a lot of talk since America’s dismal employment situation summary was released on Friday about why Germany has done so well during the global economic recovery. Here’s David Leonhardt of the NY Times: The brief story is that, despite its reputation for austerity, Germany has been far more willing than the United States

China: rebalancing through wage increases

Is China currently rebalancing? The currency has been appreciating, the PBoC has hiked interest rates four times, and wages have been surging. Because of all of this I am often asked if China has finally begun the long-waited rebalancing process and whether we have yet seen an improvement in the underlying economy caused by a rising consumption share. Those who were hoping the answer was yes will have been disappointed by the release Thursday of the World Bank’s China Quarterly Update – April

China losing competitiveness

As labour costs in China rise, economists are beginning to think about replacing labour with capital, something we have already seen as a major factor in suppressing wage gains in developed economies. This is also in line with what economists say developing nations need to do to counteract the problem. More importantly, developing economies that reach this juncture must move up the industrial ladder to production of higher value-added goods or they will see their export competitiveness severely eroded

Should Central Banks Focus On Core Inflation? Part 2

The latest figures from the US show that the consumer price index rose 0.5% in March, whilst the core personal consumption expenditure price index rose only 0.1%. This column explains the roles of these competing measures and argues that US monetary policymakers should pay close attention to headline inflation. It warns that neglecting headline inflation risks feverish boom-and-bust cycles with prolonged periods of high unemployment

Top Marginal US Tax Rates: 1916-2010

Here’s a great graph of US income tax rates back to when personal income taxes were started. You can see the marginal rate for personal income has come way down from its 1945 peak. A few months ago, Michael Hudson answered the question, “Why Did America Have A 90% Income Tax Under Eisenhower? “. Watch the video in the linked post for his answer, but the quote here from another post of his gives you the gist.

Hard landing possible as Chinese inflation spirals ‘out of control’

On Saturday I wrote about the Scylla and Charybdis of anchoring inflation expectations, geared toward developed economies in North America and Europe. You tighten too aggressively and you get unwanted disinflation or deflation. You remain too loose and inflation rises. Inflation expectations are rising but they are still anchored in large part due to labour market slack. China faces a completely different macro environment. The PBoC is well behind the curve and may have to become very aggressive in tightening and revalue their currency. That risks a hard landing

The Curve in the Road

Bernanke (and Dudley) have been testifying that inflation is not an issue. But what signs and maps are they reading? Bernanke specifically invokes inflation expectations as being most important, and he contends they are low. They both note that the “output gap” (more on it later) is still high and that wage inflation is unlikely in a period of high unemployment. But, as Greenspan recently said, “The problem is, none of these indicators will tell you when inflation is about to take hold.”

The Economic Cycle Research Institute wrote what I think is a very powerful editorial about the problem with Fed policy and inflation. I will quote some of the more important paragraphs:

“Central bankers need to stop clinging to policy orthodoxy and pay attention to proven cyclical leading inflation indicators that can actually tell them when inflation is about to take hold. Otherwise, if a well-meaning Fed stimulates the economy for too long, it will let inflation and/or asset prices get out of control, fostering boom-bust cycles that keep long-term unemployment at elevated readings as each short boom ends with a bust that pushes the jobless rate back up.”