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Jack Dunn
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Does IMF Stand for Impressive Macroeconomic Flexibility?
So the IMF is holding a meeting on rethinking macroeconomic policy (I was invited but couldn’t make the timing work.) And the Fund’s chief economist has already made it clear that he’s open to some serious revision of the prevailing paradigm.
The daily press seems to have read the reports from the summit conference. The stories I see are not happy.http://www.ritholtz.com/blog/
"Interesting observation (with caveats):
“In his latest market dispatch, the venerable technician Ian McAvity makes proper hash of the theory being bruited about by the usual suspect sources that gold is a bubble.
I have no problem with the argument that we’ve had a bubble in credit and an unfortunate reliance on printing and debt.
At $1,900 an ounce, he observes, gold was 2.2 times its early 1980 peak. U.S. gross domestic product and federal debt, he goes on, are some 5.5 times their early 1980 levels, while the Standard & Poor’s 500 and overall credit-market debt are 11 to 12 times their levels in the early ’80s.
Thus, “the real bubble,” he contends, has been the “issuance of debt that is increasingly stifling any recovery in the Main Street economy.” And there is no sign it won’t continue to do so any time soon.
Little wonder, then, that he’s convinced we’re in the fierce grip of a bear market that could get quite ugly between now and next year’s election day, with the already-battered housing and financial sectors pacing the decline.”
However, I find the rest of the argument hollow. The S&P in niminal terms may be up 12-fold, but so are earnings. So the value of the index has not risen, only its price.
Gold on the other hand is priced based on what the last guy paid for it (as are equities) — but without any other frame of reference. There are no earnings or yield, so it is strictly a function of last price paid. I don’t see how eventually, that does not end terribly.
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Pocketbook Love
ALAN ABELSON
Barron’s DECEMBER 10, 2011
http://online.barrons.com/article/SB50001424052748704221204577080552451095224.html "
http://www.telegraph.co.uk/finance/financialcrisis/8949723/Merkels-Teutonic-summit-enshrines-Hooverism-in-EU-treaty-law.html
"This is not at root a debt crisis. By endorsing fiscal fetishism, EU leaders are silently colluding in the Neo-Calvinist illusion that budget excess caused the debacle. They know this to be untrue. Ireland ran surpluses for years, reducing its public debt to 12pc of GDP at one stage (Germany is 82pc). Spain ran a surplus of 2pc of GDP. Italy has long had a primary surplus.
It is a trade and capital flow crisis, a regional variant of the US-China imbalance. The damage was hidden during the boom by cheap German, Dutch, and French capital -- and cheap Asian and Mid-East capital rotated through London banks -- flowing into southern Europe. It was cruelly exposed as soon as creditors shut off credit."
EU treaty: Business leaders play down veto fears
Britain's business leaders are far more worried about the eurozone's debt crisis than any fallout from the UK's diplomatic spat with Brussels, playing down fears that David Cameron's unprecedented treaty veto could trigger job losses or commercial retaliation.
11 Dec 2011| 4 CommentsUK is being 'left behind' ... a rickety cart drawn by pantomime horse Merkozy
The EU treaty agreement shows eurozone politicians continue to be obsessed with the symptoms, ignoring the the underlying macro problems.
11 Dec 2011Bundesbank rejects Europe's IMF funding ruse
Germany's Bundesbank has raised serious objections to EU summit plans to shore up Italy and Spain by channelling up to €200bn (£170bn) from central bank reserves through the International Monetary Fund (IMF).
11 Dec 2011| 165 CommentsMerkel's Teutonic summit enshrines Hooverism in EU treaty law
Angela Merkel’s summit has sealed a 1930s outcome for Europe, further entrenching Germany’s misguided and contractionary policies without offering any viable way out of the crisis at hand.
11 Dec 2011| 254 CommentsEU treaty: Britain's isolation not in Ireland's interests, says Gilmore
Irish Deputy Prime Minister Eamon Gilmore said Britain's isolation in the EU was not in Ireland's interest and he would be surprised if the UK was not involved in talks about greater fiscal union in Europe in coming months.
11 Dec 2011| 457 CommentsClegg: 'Nothing bulldog about hovering in mid-Atlantic'
Speaking on the Andrew Marr Show on BBC One, the Deputy Prime Minister pulled no punches as he described his disappoint at David Cameron's decision to veto the EU treaty and leave Britain "hovering in the mid-Atlantic".
11 Dec 2011
http://hat4uk.wordpress.com/
U.K. politics. Economy fans must suffer.
http://www.spiegel.de/international/business/
The threats of a renewed financial crisis have been especially pronounced in Europe in recent weeks, where new capital regulations have many institutions reducing lending in order to increase their capital ratios. Furthermore, because many of them hold large quantities of sovereign bonds from heavily indebted euro-zone countries on their books, other banks have become wary of lending to them. US money market funds, in particular, have sharply reduced lending to euro-zone banks.
And Europe has been doing little to reassure the markets that it will be able to solve its debt problems before it is too late. Pressure is on European leaders to quickly restore investor confidence as they prepare to gather in Brussels on Dec. 9. With interest rates on sovereign bonds issued by Italy and Spain stalled at or near the danger zone, and rates on French and Belgian bonds likewise rising, many fear that the survival of the euro zone is at stake.
Given that reality, German commentators on Thursday are doubtful as to whether the coordinated central bank action announced on Wednesday will have the desired effect.
http://www.nytimes.com/2011/12/12/opinion/krugman-depression-and-democracy.html?ref=opinion
Depression and Democracy
By PAUL KRUGMAN
Published: December 11, 2011
It’s time to start calling the current situation what it is: a depression. True, it’s not a full replay of the Great Depression, but that’s cold comfort. Unemployment in both America and Europe remains disastrously high. Leaders and institutions are increasingly discredited. And democratic values are under siege.
On that last point, I am not being alarmist. On the political as on the economic front it’s important not to fall into the “not as bad as” trap. High unemployment isn’t O.K. just because it hasn’t hit 1933 levels; ominous political trends shouldn’t be dismissed just because there’s no Hitler in sight.
Let’s talk, in particular, about what’s happening in Europe — not because all is well with America, but because the gravity of European political developments isn’t widely understood.
First of all, the crisis of the euro is killing the European dream. The shared currency, which was supposed to bind nations together, has instead created an atmosphere of bitter acrimony.
Specifically, demands for ever-harsher austerity, with no offsetting effort to foster growth, have done double damage. They have failed as economic policy, worsening unemployment without restoring confidence; a Europe-wide recession now looks likely even if the immediate threat of financial crisis is contained. And they have created immense anger, with many Europeans furious at what is perceived, fairly or unfairly (or actually a bit of both), as a heavy-handed exercise of German power.
Nobody familiar with Europe’s history can look at this resurgence of hostility without feeling a shiver. Yet there may be worse things happening.
Right-wing populists are on the rise from Austria, where the Freedom Party (whose leader used to have neo-Nazi connections) runs neck-and-neck in the polls with established parties, to Finland, where the anti-immigrant True Finns party had a strong electoral showing last April. And these are rich countries whose economies have held up fairly well. Matters look even more ominous in the poorer nations of Central and Eastern Europe.
Last month the European Bank for Reconstruction and Development documented a sharp drop in public support for democracy in the “new E.U.” countries, the nations that joined the European Union after the fall of the Berlin Wall. Not surprisingly, the loss of faith in democracy has been greatest in the countries that suffered the deepest economic slumps.
And in at least one nation, Hungary, democratic institutions are being undermined as we speak.
One of Hungary’s major parties, Jobbik, is a nightmare out of the 1930s: it’s anti-Roma (Gypsy), it’s anti-Semitic, and it even had a paramilitary arm. But the immediate threat comes from Fidesz, the governing center-right party.
Fidesz won an overwhelming Parliamentary majority last year, at least partly for economic reasons; Hungary isn’t on the euro, but it suffered severely because of large-scale borrowing in foreign currencies and also, to be frank, thanks to mismanagement and corruption on the part of the then governing left-liberal parties. Now Fidesz, which rammed through a new Constitution last spring on a party-line vote, seems bent on establishing a permanent hold on power.
The details are complex. Kim Lane Scheppele, who is the director of Princeton’s Law and Public Affairs program — and has been following the Hungarian situation closely — tells me that Fidesz is relying on overlapping measures to suppress opposition. A proposed election law creates gerrymandered districts designed to make it almost impossible for other parties to form a government; judicial independence has been compromised, and the courts packed with party loyalists; state-run media have been converted into party organs, and there’s a crackdown on independent media; and a proposed constitutional addendum would effectively criminalize the leading leftist party.
Taken together, all this amounts to the re-establishment of authoritarian rule, under a paper-thin veneer of democracy, in the heart of Europe. And it’s a sample of what may happen much more widely if this depression continues.
It’s not clear what can be done about Hungary’s authoritarian slide. The U.S. State Department, to its credit, has been very much on the case, but this is essentially a European matter. The European Union missed the chance to head off the power grab at the start — in part because the new Constitution was rammed through while Hungary held the Union’s rotating presidency. It will be much harder to reverse the slide now. Yet Europe’s leaders had better try, or risk losing everything they stand for.
And they also need to rethink their failing economic policies. If they don’t, there will be more backsliding on democracy — and the breakup of the euro may be the least of their worries."
http://www.economist.com/blogs/freeexchange
Economics
Free exchange
Recommended economics writing
Weekend link exchange
Dec 12th 2011, 1:32 by R.A. | WASHINGTONTODAY'S recommended economics writing:
• Charlemagne and Bagehot have outstanding coverage of the euro summit and its fallout.
• A deep seated hostility toward European construction? (Fistful of Euros)
• Supply chains and the future of globalization (Econbrowser)
• Europe's pro-cyclical fiscal policy (Geo-Graphics)
• The economics of Moneyball (Grantland)
• The European economy and U.S. exports (ESA)
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Susan Anderson
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A Stronger and Clearer Clean Water Act
President Obama’s new guidelines are an important step in restoring legal safeguards to threatened wetlands and streams.
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Keep the Clean Water Act Strong - NYTimes.com
Corporate resistance and ambiguous court decisions could hamper federal efforts to protect wetlands, marshes and shorelines from pollution.
Editorial
Latest Dirty Water Bill
Published: November 15, 2011
Republicans just won’t give up on their misguided attempts to subvert the Clean Water Act. Senators John Barrasso of Wyoming and Dean Heller of Nevada plan to offer a rider denying protections to one-fifth of the nation’s wetlands and as many as two million miles of small streams. The House has approved a similarly destructive measure, so it is crucial that the Senate majority leader, Harry Reid, and his Democratic colleagues block this legislation.
Op-Ed Contributor
Keep the Clean Water Act Strong
By WILLIAM K. REILLY
Published: November 28, 2011
San Francisco
NEXT year will mark the 40th anniversary of the Clean Water Act, a milestone for a series of landmark environmental laws that began with the creation of the Environmental Protection Agency in 1970. Those actions set our nation on a course to restore our damaged natural resources, but today, because of political pressures and court rulings, the extent and durability of some of those key protections are at risk.
Since its enactment in 1972, the Clean Water Act has encountered resistance from powerful business interests that have tried to fill wetlands, drain marshes, develop shorelines and allow pollution to flow off their property. One approach these developers have used to weaken the law has been to try to limit its jurisdiction, to say it shouldn’t apply to this or that water body. The rationale has always been to argue that the water on the particular property in dispute didn’t connect with interstate bodies of water and therefore should be exempt from federal regulation.
When the act became law, two-thirds of our nation’s lakes, rivers and coastal waters were unsafe for fishing or swimming, and untreated sewage and industrial waste was routinely dumped into our waters. The law was partly a response to the shock the nation experienced when the filthy Cuyahoga River in Cleveland erupted in flames. Since then, industrial pollution has declined significantly. Fish have returned to countless water bodies that were once all but lifeless. Progress has come in fits and starts — despite more litigation filed than the law’s proponents expected or wanted — but it is real and evident.
Still, there are reasons for concern.
One is the ambiguity introduced by two Supreme Court decisions — Solid Waste Agency of Northern Cook County v. Army Corps of Engineers in 2001 and Rapanos v. United States in 2006 — over which American waters fall under the law. The law was intended to protect “all the waters of the United States.” But the decisions can be taken to suggest that the law does not protect certain waterways — those that are within one state or that sometimes run dry, for example, and lakes unconnected to larger water systems. As a result, fewer waters are protected, and those who wish to build on land that requires dredging and the depositing of the fill elsewhere face confusion, uncertainty and delay as federal regulators try to determine which water bodies fall under the law.
The Environmental Protection Agency estimates that about a third of the nation’s waters are still unhealthy. About 117 million Americans — more than a third of the population — get some or all of their drinking water from sources now lacking protection. Given the deep antipathy to regulation on Capitol Hill — the House actually approved a measure in July to strip the E.P.A. of some of its authority to enforce the Clean Water Act — Congress has been unable or unwilling to clarify the law so that progress can continue in restoring and protecting these waters.
That has left it to the E.P.A. and the United States Army Corps of Engineers to draft new rules to make clear which waterways are protected. This guidance would keep safe the streams and wetlands that affect the quality of the water used for drinking, swimming, fishing, farming, manufacturing, tourism and other activities. The new rules would also bring clarity to the issue. Routine agricultural, ranching and forestry practices will not require permits under the Clean Water Act. Formal rulemaking will follow, though that will take time and will most likely be contentious.
The American economy has performed well over the past four decades: real per capita income has doubled since 1970 and pollution is down even with 50 percent more people. The choice between a healthy environment and a healthy economy is a false one. They stand, or fall, together. We’ve been blessed in the United States with abundant water resources. But we also face daunting challenges that are putting new demands on those resources — continuing growth; the need for water for food, energy production and manufacturing; the push for biofuel crops; the threat of new contaminants; climate change and just maintaining and restoring our natural systems.
If we narrow our vision of the Clean Water Act, if we buy into the misguided notion that reducing protection of our waters will somehow ignite the economy, we will shortchange our health, environment and economy.
The hydraulic fracturing people really hate the Clean Water Act.Under it they are outlawed.
http://www1.ncdc.noaa.gov/pub/data/cmb/drought/nadm/nadm-201110.jpg
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Tropical Storm Warning http://www.wunderground.com/severe.asp
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