Chart of the day: Labor force participation rate at 30-year low

The jobs data were the best we have seen in a long time and well above expectations. This and the first upward revisions to the annual revisions were a pleasant surprise. While a lot of people are in disbelief because of a present bearish bias, you have to take the numbers for what they are and they are bullish. I still feel that the US economy is at stall speed and expect a second recession by the end of 2013 but I am prepared to upgrade my assessment based on how things proceed. That said, this is just one month’s data in a notoriously noisy month for employment data (See the premium post Jobless claims jump may be seasonality)

Willem Buiter: “We will certainly have a panic stage before the debt crisis is resolved” (part 2)

Continuing from part 1 of the Willem Buiter interview with het Financieele Dagblad

Ignore Egan-Jones at Your Peril

If you are still inclined to give Greece the benefit of the doubt, I suggest you study the works of Egan-Jones, a credit rating company located in Haverford, Pennsylvania. Contrary to most other rating companies, Egan-Jones does not receive any compensation from bond issuers (a huge conflict of interest in the world of credit rating agencies) and, unlike most of its competitors who haven’t exactly covered themselves in glory in recent years, Egan-Jones has a formidable track record (see it here).

Sean Egan, co-head of Egan-Jones, predicts the eventual haircut on Greece to be close to 90%. He has done his homework and believes that Greece can support no more than €40 billion of debt through tax revenues. That amounts to only 10-15% of outstanding Greek sovereign debt. Sean put his case forward brilliantly in an interview in Barron’s earlier this year

S&P: More bailouts will lead to Germany’s eventual downgrade

Germany’s ability and willingness to pay will decrease as the economy falters. Remember, Germany is more indebted than Spain and has also long been in violation the Maastricht Treaty’s stability and growth pact provision on government debt to GDP. Germany is not a ‘paragon of fiscal probity’ nor is it a “rock to which all other shipwrecked European economies must turn in their hour of need”. It is has done well. But Germany is also a country that is aging and, hence, dependent on exports for economic growth. Germany too has limited resources. And this is important to note since Germany as a currency user can also be pulled into the sovereign debt crisis

Pension and Ponzi Schemes

In the US, there is a heated debate about America’s government pension scheme Social Security. The Republican frontrunner for President Rick Perry has called it a ‘Ponzi scheme’, for which he was derided by the previous Republican frontrunner Mitt Romney. Here’s the question: is Rick Perry right. Is social security a Ponzi scheme?

Here’s my take

Big in Japan

As I see it, Japan’s problem was that during the 1980s it was so addicted to investment-led growth and artificially cheap financing that it misallocated capital on a massive scale and failed to include the resulting implicit losses in its GDP calculations. If you look at real per capita household income and household consumption growth during the period of Japan’s stagnation, you will find that both of them rose fairly rapidly. This isn’t what typically happens during a US-style financial crisis, when household income suffers

Chart of the Day: Youth Employment Ratio Lowest on Record

In July, the employment-population ratio for youth—the proportion of the 16- to 24-year-old civilian noninstitutional population that was employed—was 48.8 percent, a record low for the series

What is the secret to Germany’s economic success, part 2?

There are a lot of reasons Germany has been doing well: wage restraint, educated workforce, low unemployment, etc. I could go on and on. But in a global growth slowdown, the Germans will not be immune any more this go round than they were last time when their contracted more violently than most along with the other export-dependent aging society, Japan. If Germany wants continued economic success, its government must do a much better job in leading the euro zone out of its existential crisis. If the periphery sinks, we all sink

Chart of the Day: US – European Gap in Employment Ratio Virtually Gone

The employment-to-population ratio had been much higher in the US than Europe. This gap narrowed dramatically in the last decade and had almost disappeared by the end of 2009. Draw your conclusions about what this says about the different American and European economic models

Notes from a Private Briefing with the Bank of Japan

The Bank of Japan held a private briefing with a small group of analysts from leading financial institutions in their NY rep office. The Director-General of the Research and Statistics Department led the presentation. This column summarises insights from that meeting

What Happens Next?

The question is not whether Greece will default but what will happen once it has. If Greece defaults but stays in the euro, not only will it not solve the underlying lack of competitiveness, but markets will immediately turn their attention to Portugal and Ireland and force those countries to default, and once they fold, Spain and possibly Italy will be next, so a Greek default on its own could quite possibly make matters worse for everyone. If Greece defaults and exits the euro at the same time, the market reaction won’t be much if any different to begin with, but things may actually take an interesting turn in one particular respect. Once the people of Portugal, Italy, Spain and Ireland see how the Greek economy actually benefits from the exit, they may in fact demand an exit in their countries too. It is therefore fair to say that a Greek default, with or without an exit from the eurozone, achieves nothing if the aim is to keep the eurozone intact. However, there is another way forward

India’s Economy Hits What Has To Be A Very Welcome “Soft Patch”

India is still an emerging economy, one which has made great strides forward in recent years. And despite many difficulties India has remained a democracy since independence. It is a country where human rights are by and large respected, and where institutional quality is gradually improving. As I am suggesting here, the central bank is becoming more and more independent. Corruption is still a BIG problem, but eventually this has solutions. At the same time India is a country of individuals, of creativity and strong entrepreneurial spriit and, to close with a professional bias: India produces economists of extraordinary quality