EXCERPTS:
"In 1937, after several years of partial recovery from the Great Depression, the U.S. economy fell into a sharp recession. The episode has become a lightning rod in the ongoing debate about whether the economy needs further increases in government spending to keep employment from declining even more.
Real government spending, measured in 1937 dollars, declined by less than 0.7% of GDP between 1936 and 1937, and then rebounded in 1938. It is implausible that such a small and temporary decline reduced real GDP by nearly 3.5% in 1938 or reduced industrial production by about one-third.
But in 1936, the Roosevelt administration pushed through a tax on corporate profits that were not distributed to shareholders. The sliding scale tax began at 7% if a company retained 1% of its net income, and went to 27% if a company retained 70% of net income. This tax significantly raised the cost of investment, as most investment is financed with a corporation's own retained earnings.
The tax rate on dividends also rose to 15.98% in 1932 from 10.14% in 1929, and then doubled again by 1936. Research conducted last year by Ellen McGratten of the Federal Reserve Bank of Minneapolis suggests that these increases in capital income taxation can account for much of the 26% decline in business fixed investment that occurred in 1937-1938.
Meanwhile, after the 1935 National Labor Relations Act, union membership rose to about 25% in 1938 from about 12% in 1934. The increase in unionization was fostered by the sit-down strike.
In late 1936 and early 1937, for example, members of the United Auto Workers (UAW) occupied a General Motors auto body plant in Flint, Mich. Without auto bodies, production plummeted, and the company was forced to settle the strike and recognize the union.
The GM strike effectively unionized the auto industry, as UAW membership rose more than 15-fold the following year to about 500,000 members. Just the threat of a sit-down strike by steelworkers led to a unionized U.S. Steel in 1937. An unprecedented increase in union power increased manufacturing wages by nearly 10% between 1936 and 1938, which increased costs and reduced employment.
There are important parallels between the tax and labor policies of FDR and those of President Obama. As in the 1930s, tax rates on capital income will be rising sharply with the expiration of the 2001 and 2003 tax cuts. Beginning in 2011, dividends will be taxed as ordinary income with rates increasing up to 39.6% for many taxpayers, more than double the current 15% rate. The capital gains tax rate will rise to 20% from 15%....
Saturday, August 28, 2010
Spill Damage Claims Absent the Spill - WSJ.com
EXCERPTS:
"Not a drop of oil from the Gulf spill washed ashore at Tradewinds Island Resorts on Florida's St. Pete Beach, yet the company is seeking as much as $1 million in compensation for lost profits from the $20 billion fund set up by BP PLC.
The sprawling resort's proprietors say fear of soiled beaches scared away vacationers.
A fierce debate over the value of bad publicity is now roiling political and legal circles in Florida. Hoteliers and state officials say jitters over the spill have cost them billions of dollars in tourism revenue, even though the bulk of the state's Gulf Coast beaches haven't suffered direct hits from the Gulf oil spill.
"Not a drop of oil from the Gulf spill washed ashore at Tradewinds Island Resorts on Florida's St. Pete Beach, yet the company is seeking as much as $1 million in compensation for lost profits from the $20 billion fund set up by BP PLC.
The sprawling resort's proprietors say fear of soiled beaches scared away vacationers.
A fierce debate over the value of bad publicity is now roiling political and legal circles in Florida. Hoteliers and state officials say jitters over the spill have cost them billions of dollars in tourism revenue, even though the bulk of the state's Gulf Coast beaches haven't suffered direct hits from the Gulf oil spill.
Vietnam Moves Ahead With Price Measures - WSJ.com
EXCERPTS:
"HANOI—Vietnam is enacting measures allowing it to slap price controls on foreign and private companies starting Oct. 1 in a move designed to contain inflation but that risks stifling business sentiment.
An official at Vietnam's Finance Ministry confirmed Thursday that the measures will go into effect Oct. 1. The orders will let the Vietnamese government intervene and impose controls if it believes that prices on a variety of items—ranging from cement and steel to sugar and rice—are moving unusually or out of step with the cost of other component goods.
So far, there is no indication Vietnam will move to control prices in the immediate future. But its frequent bouts with inflation suggest the measures might be imposed on at least some goods at some point.
***
The move is likely to produce a fresh outcry among investors about state intervention. It also comes after a series of problems at state-sector companies have damaged Vietnam's reputation as one of the standout success stories in a new wave of frontier emerging markets.
***
The new power to impose price controls seems designed to limit any social tensions from any further rising prices. But the downside is that Vietnam risks becoming a less attractive place to do business, strangling foreign investment, encouraging locals to invest overseas and worsening its balance of payments.
"HANOI—Vietnam is enacting measures allowing it to slap price controls on foreign and private companies starting Oct. 1 in a move designed to contain inflation but that risks stifling business sentiment.
An official at Vietnam's Finance Ministry confirmed Thursday that the measures will go into effect Oct. 1. The orders will let the Vietnamese government intervene and impose controls if it believes that prices on a variety of items—ranging from cement and steel to sugar and rice—are moving unusually or out of step with the cost of other component goods.
So far, there is no indication Vietnam will move to control prices in the immediate future. But its frequent bouts with inflation suggest the measures might be imposed on at least some goods at some point.
***
The move is likely to produce a fresh outcry among investors about state intervention. It also comes after a series of problems at state-sector companies have damaged Vietnam's reputation as one of the standout success stories in a new wave of frontier emerging markets.
***
The new power to impose price controls seems designed to limit any social tensions from any further rising prices. But the downside is that Vietnam risks becoming a less attractive place to do business, strangling foreign investment, encouraging locals to invest overseas and worsening its balance of payments.
Friday, August 27, 2010
Not everyone agrees with Adam Smith
Donald Berwick, current head of the administrative agency which oversees Medicare and Medicaid, is an example.
Thursday, August 26, 2010
Crafting Coffins for Sale, Monks Go Up Against Louisiana's 'Casket Cartel' - WSJ.com
EXCERPTS:
"COVINGTON, La.—Five years ago, Hurricane Katrina gave the Benedictine monks at St. Joseph Abbey a new calling.
After the storm pummeled much of a pine forest they had long relied on for timber and income, the monks hatched a fresh plan: They would hand-craft and sell caskets.
But now, local funeral directors are trying to put a lid on the monks' activities. The state funeral regulatory board, dominated by industry members, is enforcing a Louisiana law that makes it a crime for anyone but a licensed parlor to sell "funeral merchandise." The morticians are serious. Violators such as the monks can land in jail for up to 180 days.
***
If found guilty of illegal casket sales, each official would face fines of between $500 and $2,500 per violation, the board warned. The hearing, scheduled for mid-August, was cancelled due to a tropical storm.
By then, the monks had already prepared their own federal lawsuit, citing Louisiana's "casket cartel."
The state funeral board has nine members, eight of whom are funeral industry professionals. The board "really has it in for the abbey," complains Jeff Rowes, senior attorney at The Institute for Justice, an Arlington, Va., libertarian public-interest law firm representing the monks. The law, he says, "is an unconstitutional invasion of the right to earn an honest living."
***
Boyd Mothe Jr., a member of the fifth generation of his family to run Mothe Funeral Homes outside New Orleans, says Louisiana's law should remain on the books because licensed directors have the training to sell caskets—transactions he calls "complicated." For instance, he says, "a quarter of America is oversized. I don't even know if the monks know how to make an oversized casket."
"COVINGTON, La.—Five years ago, Hurricane Katrina gave the Benedictine monks at St. Joseph Abbey a new calling.
After the storm pummeled much of a pine forest they had long relied on for timber and income, the monks hatched a fresh plan: They would hand-craft and sell caskets.
But now, local funeral directors are trying to put a lid on the monks' activities. The state funeral regulatory board, dominated by industry members, is enforcing a Louisiana law that makes it a crime for anyone but a licensed parlor to sell "funeral merchandise." The morticians are serious. Violators such as the monks can land in jail for up to 180 days.
***
If found guilty of illegal casket sales, each official would face fines of between $500 and $2,500 per violation, the board warned. The hearing, scheduled for mid-August, was cancelled due to a tropical storm.
By then, the monks had already prepared their own federal lawsuit, citing Louisiana's "casket cartel."
The state funeral board has nine members, eight of whom are funeral industry professionals. The board "really has it in for the abbey," complains Jeff Rowes, senior attorney at The Institute for Justice, an Arlington, Va., libertarian public-interest law firm representing the monks. The law, he says, "is an unconstitutional invasion of the right to earn an honest living."
***
Boyd Mothe Jr., a member of the fifth generation of his family to run Mothe Funeral Homes outside New Orleans, says Louisiana's law should remain on the books because licensed directors have the training to sell caskets—transactions he calls "complicated." For instance, he says, "a quarter of America is oversized. I don't even know if the monks know how to make an oversized casket."
Wednesday, August 25, 2010
Bean-Counters and Baloney - Thomas Sowell
EXCERPTS:
"In countries around the world, all sorts of groups differ from each other in all sorts of ways, from rates of alcoholism to infant mortality, education and virtually everything that can be measured, as well as in some things that cannot be quantified....
The bean-counters are everywhere, pushing the idea that differences show injustices committed by society. As long as we keep buying it, they will keep selling it-- and the polarization they create will sell this country down the river.
"In countries around the world, all sorts of groups differ from each other in all sorts of ways, from rates of alcoholism to infant mortality, education and virtually everything that can be measured, as well as in some things that cannot be quantified....
The bean-counters are everywhere, pushing the idea that differences show injustices committed by society. As long as we keep buying it, they will keep selling it-- and the polarization they create will sell this country down the river.
Monday, August 23, 2010
Credit Cards Are Exception to Lower Consumer Rates - WSJ.com
EXCERPTS:
"Interest rates continue to tumble for the U.S. Treasury, companies and home buyers alike. But for a large portion of 381 million U.S. credit-card accounts, borrowing rates have been moving only one way: up. And average rates are likely to climb further in the near future. New credit-card rules that took effect Sunday limit banks' ability to charge penalty fees. They come on top of rule changes earlier this year restricting issuers' ability to adjust rates on the fly. Issuers responded by pushing card rates to their highest level in nine years.
***
The moves are driven by a combination of forces. The Credit Card Accountability Responsibility and Disclosure Act of 2009 has given card issuers less flexibility to raise interest rates as they wish. At the same time, issuers are still dealing with credit-card delinquencies that remain above historical levels.
The rules have changed and the goalposts of risk have changed," says Paul Galant, chief executive of Citigroup Inc.'s Citi Cards unit.
Banks used to boost rates in a hurry on borrowers who fell behind on payments or otherwise turned out to be surprisingly risky. However, under the Card Act, financial institutions must warn customers at least 45 days before making substantial changes to rates or fees. People can avoid future rate increases and pay off existing balances over time.
***
The sponsor of the Card Act, Rep. Carolyn Maloney (D-NY), said that despite the rising rates, the law benefits consumers because it eliminates unwelcome surprises and provides them with a clear picture of the costs they will face. "Better that consumers should know up-front what the interest rate is, even if it's higher, than to be soaked on the back-end by tricks and hidden fees."
At Discover Financial Services, a diminished ability to boost rates is causing the Riverwoods, Ill., company to offer fewer interest-free balance transfers for new customers, says Discover President Roger Hochschild.
"Interest rates continue to tumble for the U.S. Treasury, companies and home buyers alike. But for a large portion of 381 million U.S. credit-card accounts, borrowing rates have been moving only one way: up. And average rates are likely to climb further in the near future. New credit-card rules that took effect Sunday limit banks' ability to charge penalty fees. They come on top of rule changes earlier this year restricting issuers' ability to adjust rates on the fly. Issuers responded by pushing card rates to their highest level in nine years.
***
The moves are driven by a combination of forces. The Credit Card Accountability Responsibility and Disclosure Act of 2009 has given card issuers less flexibility to raise interest rates as they wish. At the same time, issuers are still dealing with credit-card delinquencies that remain above historical levels.
The rules have changed and the goalposts of risk have changed," says Paul Galant, chief executive of Citigroup Inc.'s Citi Cards unit.
Banks used to boost rates in a hurry on borrowers who fell behind on payments or otherwise turned out to be surprisingly risky. However, under the Card Act, financial institutions must warn customers at least 45 days before making substantial changes to rates or fees. People can avoid future rate increases and pay off existing balances over time.
***
The sponsor of the Card Act, Rep. Carolyn Maloney (D-NY), said that despite the rising rates, the law benefits consumers because it eliminates unwelcome surprises and provides them with a clear picture of the costs they will face. "Better that consumers should know up-front what the interest rate is, even if it's higher, than to be soaked on the back-end by tricks and hidden fees."
At Discover Financial Services, a diminished ability to boost rates is causing the Riverwoods, Ill., company to offer fewer interest-free balance transfers for new customers, says Discover President Roger Hochschild.
Saturday, August 21, 2010
Gates and Buffett Take the Pledge - WSJ.com
EXCERPTS:
"Bill Gates and Warren Buffett announced this month that 40 of America's richest people have agreed to sign a "Giving Pledge" to donate at least half of their wealth to charity. With a collective net worth said to total $230 billion, that promise translates to at least $115 billion.
It's an impressive number. Yet some—including Messrs. Gates and Buffett—say it isn't enough. Perhaps it's actually too much: the wealthy may help humanity more as businessmen and women than as philanthropists.
What are the chances, after all, that the two forces behind the Giving Pledge will contribute anywhere near as much to the betterment of society through their charity as they have through their business pursuits? In building Microsoft, Bill Gates changed the way the world creates and shares knowledge. Warren Buffett's investments have birthed and grown innumerable profitable enterprises, making capital markets work more efficiently and enriching many in the process.
Other signers of the pledge, like Oracle's Larry Ellison and eBay's Pierre Omidyar, have similarly transformed the way people all over the world exchange information and products. They have democratized the transmission of ideas and goods, creating opportunities for people who never would have had them otherwise.
Successful entrepreneurs-turned-philanthropists typically say they feel a responsibility to "give back" to society. But "giving back" implies they have taken something. What, exactly, have they taken? Yes, they have amassed great sums of wealth. But that wealth is the reward they have earned for investing their time and talent in creating products and services that others value. They haven't taken from society, but rather enriched us in ways that were previously unimaginable.
Even if Mr. Gates makes progress in achieving his ambitious philanthropic objectives—eradicating disease, reducing global poverty, and improving educational quality—these accomplishments are unlikely to match what he achieved by giving us the amazing capability we literally have at our fingertips to access and spread information. The very doctors and scientists who may develop cures for diseases like malaria will rely on the tools Microsoft supplies to conduct their research. Had Mr. Gates decided to step down from his company and turn to philanthropy sooner than he did, they might have fewer such tools.
While businesses may do more for the public good than they're given credit for, philanthropies may do less. Think about it for a moment: Can you point to a single charitable accomplishment that has been as transformative as, say, the cell phone or the birth-control pill? To the contrary, the literature on philanthropy is riddled with examples of failure, including examples where philanthropic efforts have actually left intended beneficiaries worse off. The Gates Foundation has itself acknowledged that one of its premier initiatives—a 10-year, $2 billion project to reorganize high schools around the country into schools with fewer than 400 students—was a complete bust. Good for them for admitting it. In that, they are unusual. In the failure, they are not.
I do not mean to belittle philanthropy. I represent a foundation and believe it can accomplish a great deal of good if it achieves its donor's objective, which is to free individuals to pursue their ambitions without the burden of intrusive government. My point is simply that there is nothing inherently better or nobler about using one's resources for charitable purposes than for any number of other ones. If anything, the marketplace does a better job of channeling resources toward where they are most valued, and of punishing failure. Companies shut down all the time. How many philanthropies close because of poor performance?
***
Individuals who plow their parent's money back into the economy—whether by investing it or starting a company—may well feel more rewarded and create more public benefit. Even buying a yacht creates jobs for yacht-builders. Charity may ameliorate problems, but as Carlos Slim, the world's richest man (and a nonsigner of the Giving Pledge), has said: "Poverty is not fought with donations."
Let's hope the philanthropy of those who do sign the Giving Pledge achieves great things. But let's not fool ourselves into thinking that businessmen are likely to achieve more by giving their money away than they have by making it in the first place.
"Bill Gates and Warren Buffett announced this month that 40 of America's richest people have agreed to sign a "Giving Pledge" to donate at least half of their wealth to charity. With a collective net worth said to total $230 billion, that promise translates to at least $115 billion.
It's an impressive number. Yet some—including Messrs. Gates and Buffett—say it isn't enough. Perhaps it's actually too much: the wealthy may help humanity more as businessmen and women than as philanthropists.
What are the chances, after all, that the two forces behind the Giving Pledge will contribute anywhere near as much to the betterment of society through their charity as they have through their business pursuits? In building Microsoft, Bill Gates changed the way the world creates and shares knowledge. Warren Buffett's investments have birthed and grown innumerable profitable enterprises, making capital markets work more efficiently and enriching many in the process.
Other signers of the pledge, like Oracle's Larry Ellison and eBay's Pierre Omidyar, have similarly transformed the way people all over the world exchange information and products. They have democratized the transmission of ideas and goods, creating opportunities for people who never would have had them otherwise.
Successful entrepreneurs-turned-philanthropists typically say they feel a responsibility to "give back" to society. But "giving back" implies they have taken something. What, exactly, have they taken? Yes, they have amassed great sums of wealth. But that wealth is the reward they have earned for investing their time and talent in creating products and services that others value. They haven't taken from society, but rather enriched us in ways that were previously unimaginable.
Even if Mr. Gates makes progress in achieving his ambitious philanthropic objectives—eradicating disease, reducing global poverty, and improving educational quality—these accomplishments are unlikely to match what he achieved by giving us the amazing capability we literally have at our fingertips to access and spread information. The very doctors and scientists who may develop cures for diseases like malaria will rely on the tools Microsoft supplies to conduct their research. Had Mr. Gates decided to step down from his company and turn to philanthropy sooner than he did, they might have fewer such tools.
While businesses may do more for the public good than they're given credit for, philanthropies may do less. Think about it for a moment: Can you point to a single charitable accomplishment that has been as transformative as, say, the cell phone or the birth-control pill? To the contrary, the literature on philanthropy is riddled with examples of failure, including examples where philanthropic efforts have actually left intended beneficiaries worse off. The Gates Foundation has itself acknowledged that one of its premier initiatives—a 10-year, $2 billion project to reorganize high schools around the country into schools with fewer than 400 students—was a complete bust. Good for them for admitting it. In that, they are unusual. In the failure, they are not.
I do not mean to belittle philanthropy. I represent a foundation and believe it can accomplish a great deal of good if it achieves its donor's objective, which is to free individuals to pursue their ambitions without the burden of intrusive government. My point is simply that there is nothing inherently better or nobler about using one's resources for charitable purposes than for any number of other ones. If anything, the marketplace does a better job of channeling resources toward where they are most valued, and of punishing failure. Companies shut down all the time. How many philanthropies close because of poor performance?
***
Individuals who plow their parent's money back into the economy—whether by investing it or starting a company—may well feel more rewarded and create more public benefit. Even buying a yacht creates jobs for yacht-builders. Charity may ameliorate problems, but as Carlos Slim, the world's richest man (and a nonsigner of the Giving Pledge), has said: "Poverty is not fought with donations."
Let's hope the philanthropy of those who do sign the Giving Pledge achieves great things. But let's not fool ourselves into thinking that businessmen are likely to achieve more by giving their money away than they have by making it in the first place.
Summer of Greece's Discontent - WSJ.com
EXCERPTS:
"ATHENS—Greece's deepening recession is driving joblessness steadily higher, feeding discontent with the government's austerity program and dragging on the broader economy.
Greece's gross domestic product contracted by 3.5% in the second quarter from a year earlier, hitting retailers hard and sending unemployment rates to above 12% of the work force, according to data released last week.
***
"We expect real unemployment to top one million workers by the year's end, which is a rate of 20%....
"ATHENS—Greece's deepening recession is driving joblessness steadily higher, feeding discontent with the government's austerity program and dragging on the broader economy.
Greece's gross domestic product contracted by 3.5% in the second quarter from a year earlier, hitting retailers hard and sending unemployment rates to above 12% of the work force, according to data released last week.
***
"We expect real unemployment to top one million workers by the year's end, which is a rate of 20%....
Monday, August 16, 2010
Crowds Chase Scarce Housing Vouchers - WSJ.com
EXCERPTS:
"EAST POINT, Ga.—The weak economy has expanded the ranks of people chasing the limited number of federal housing vouchers, leading to a surge in applications nationwide and chaotic scenes here this week.
Sixty people were taken to hospitals Wednesday in this Atlanta suburb after a lengthy wait and an angry mob scene in a sweltering shopping-center parking lot. Those treated for heat exposure and injuries from scuffles were among 30,000 people who had lined up for a waiting list for just 455 vouchers to cover part of their rent.
Some camped out for nearly three days in temperatures that neared 100 degrees, including pregnant women, elderly in wheelchairs and people who drove down from New York City and Philadelphia, hoping to get on the waiting list in East Point for Housing Choice, or Section 8, vouchers.
***
Those who make it onto the lists often have to wait for eight to 10 years to receive a voucher, which is a guarantee that a local housing authority will pay a portion of the tenant's rent directly to the landlord. High unemployment and rising rents have made these vouchers even more of a precious commodity.
The vouchers are meant to give poor families more choices over where to live.....
"EAST POINT, Ga.—The weak economy has expanded the ranks of people chasing the limited number of federal housing vouchers, leading to a surge in applications nationwide and chaotic scenes here this week.
Sixty people were taken to hospitals Wednesday in this Atlanta suburb after a lengthy wait and an angry mob scene in a sweltering shopping-center parking lot. Those treated for heat exposure and injuries from scuffles were among 30,000 people who had lined up for a waiting list for just 455 vouchers to cover part of their rent.
Some camped out for nearly three days in temperatures that neared 100 degrees, including pregnant women, elderly in wheelchairs and people who drove down from New York City and Philadelphia, hoping to get on the waiting list in East Point for Housing Choice, or Section 8, vouchers.
***
Those who make it onto the lists often have to wait for eight to 10 years to receive a voucher, which is a guarantee that a local housing authority will pay a portion of the tenant's rent directly to the landlord. High unemployment and rising rents have made these vouchers even more of a precious commodity.
The vouchers are meant to give poor families more choices over where to live.....
Wednesday, August 11, 2010
Boom Makers Say BP Left Them Adrift - WSJ.com
EXCERPTS:
"Containment-boom makers and their vendors that ramped up supply for BP PLC after the Gulf of Mexico oil spill say the company suddenly stopped accepting deliveries weeks ago, leaving them with millions of dollars in unused product.
Several makers of the vinyl protective sheaths known as boom and their suppliers say they are deeply in debt and have been forced to lay off workers and delay payment to vendors.
During the height of the oil spill this summer, more than four million feet of containment boom was laid on the water's surface to shield the Gulf Coast. But BP began putting boom orders on hold or rejecting them about the second week in July, as efforts to stop the flow of oil gained ground. On Tuesday, BP said concerns about storms in the Gulf would delay by several days work on a relief well expected to help permanently seal the well.
To be sure, some of the suppliers and manufacturers were speculating on demand, ordering boom and increasing production before they had contracts in place. But The Wall Street Journal interviewed 11 manufacturers and suppliers who said they had contracts with BP or were delivering to those who did. Ten of those manufacturers said they now were out money.
***
About a dozen manufacturers make all the boom used by oil companies, emergency-response companies and marinas in the U.S. The supply on hand dissipated quickly after the Deepwater Horizon oil rig, leased by BP, exploded in April, sending millions of barrels of crude oil into the Gulf. BP suddenly needed boom and lots of it.
But recently the Industrial Fabric Association International, which represents companies including boom makers and their suppliers, says it has received dozens of calls from members who say they are suddenly saddled with containers of inventory, canceled orders and no way to pay their mounting bills.
"Containment-boom makers and their vendors that ramped up supply for BP PLC after the Gulf of Mexico oil spill say the company suddenly stopped accepting deliveries weeks ago, leaving them with millions of dollars in unused product.
Several makers of the vinyl protective sheaths known as boom and their suppliers say they are deeply in debt and have been forced to lay off workers and delay payment to vendors.
During the height of the oil spill this summer, more than four million feet of containment boom was laid on the water's surface to shield the Gulf Coast. But BP began putting boom orders on hold or rejecting them about the second week in July, as efforts to stop the flow of oil gained ground. On Tuesday, BP said concerns about storms in the Gulf would delay by several days work on a relief well expected to help permanently seal the well.
To be sure, some of the suppliers and manufacturers were speculating on demand, ordering boom and increasing production before they had contracts in place. But The Wall Street Journal interviewed 11 manufacturers and suppliers who said they had contracts with BP or were delivering to those who did. Ten of those manufacturers said they now were out money.
***
About a dozen manufacturers make all the boom used by oil companies, emergency-response companies and marinas in the U.S. The supply on hand dissipated quickly after the Deepwater Horizon oil rig, leased by BP, exploded in April, sending millions of barrels of crude oil into the Gulf. BP suddenly needed boom and lots of it.
But recently the Industrial Fabric Association International, which represents companies including boom makers and their suppliers, says it has received dozens of calls from members who say they are suddenly saddled with containers of inventory, canceled orders and no way to pay their mounting bills.
Yields Dive as Fed Sets More Buying - WSJ.com
EXCERPTS:
"The Treasury market welcomed the Federal Reserve's plan to shower it with more cash, instantly driving 10-year yields to new 16-month lows. But the response was muted as investors realized that, with rates already so low, the Fed's plan to buy U.S. government debt may have relatively little impact. The key determinant of interest rates for now is likely to be the health, or lack thereof, of the U.S. economy.
The 10-year Treasury note's price jumped nearly a full point in the moments after the Federal Reserve announced its plan to reinvest money that rolls out of its mortgage portfolio into longer-dated Treasury debt. The yield, which moves in the opposite direction of price, fell to 2.779%, the lowest since April 2009, from 2.818% just before the Fed's announcement.
That is good news for many in the economy—the 10-year Treasury yield is a benchmark that affects other rates, including mortgage rates, which also are at historic lows—but investors are beginning to wonder just how much more juice the Fed has to drive rates any lower.
The 10-year yield already has tumbled from about 4% in April as investors flocked to U.S. government debt amid worries about Europe and the durability of the U.S. economic recovery.
"The Treasury market welcomed the Federal Reserve's plan to shower it with more cash, instantly driving 10-year yields to new 16-month lows. But the response was muted as investors realized that, with rates already so low, the Fed's plan to buy U.S. government debt may have relatively little impact. The key determinant of interest rates for now is likely to be the health, or lack thereof, of the U.S. economy.
The 10-year Treasury note's price jumped nearly a full point in the moments after the Federal Reserve announced its plan to reinvest money that rolls out of its mortgage portfolio into longer-dated Treasury debt. The yield, which moves in the opposite direction of price, fell to 2.779%, the lowest since April 2009, from 2.818% just before the Fed's announcement.
That is good news for many in the economy—the 10-year Treasury yield is a benchmark that affects other rates, including mortgage rates, which also are at historic lows—but investors are beginning to wonder just how much more juice the Fed has to drive rates any lower.
The 10-year yield already has tumbled from about 4% in April as investors flocked to U.S. government debt amid worries about Europe and the durability of the U.S. economic recovery.
Fed Sees Recovery Slowing - WSJ.com
EXCERPTS:
"The Federal Reserve, facing an economic recovery that it termed "more modest" than anticipated, said Tuesday it will stop shrinking its huge portfolio of securities by reinvesting the proceeds of maturing mortgages in U.S. Treasury debt.
The Fed move is largely symbolic and is unlikely to stimulate the economy significantly. But the shift in the management of its portfolio—and an accompanying statement—underscored Fed officials' concern about the vigor of the economic recovery. It also opens the door for bigger purchases of Treasurys or other securities should the economy falter or the risk of deflation grow, though the hurdle for such action remains high.
Downgrading its assessment of the economy, the policy-making Federal Open Market Committee said the recovery "has slowed in recent months," and that the "pace of economic recovery is likely to be more modest in the near term than had been anticipated." The committee repeated its commitment to keep its target for the federal funds rate, at which banks lend to each other overnight, at "exceptionally low levels" for an "extended period."
The Fed noted that high unemployment, modest income growth, lower housing wealth and tight credit were holding back household spending. Meanwhile, lending by banks "has continued to contract," the Fed said, while construction remains weak and employers remain reluctant to increase payrolls.
After cutting short-term interest rates nearly to zero in December 2008, the Fed essentially printed money to expand its portfolio of securities and loans to above $2 trillion, from $800 billion before the global financial crisis. Its purchases of mortgage-backed securities and U.S. Treasury debt, aimed at keeping long-term interest rates down, were discontinued in March. The Fed began talking about an "exit strategy" from the unprecedented steps it took to prevent an even deeper recession.
But on Tuesday, the Fed shifted its stance. It said it would act to keep its securities holdings constant at around $2.054 trillion, the level on Aug. 4. Had the Fed not acted, its mortgage portfolio was set to shrink by $10 billion to $20 billion a month, as mortgages matured or were paid off early. Now, the Fed will reinvest those proceeds in U.S. Treasury securities of between two- and 10-year maturities.
***
The Fed statement noted that "measures of underlying inflation," already low, "have trended lower" lately and are "likely to be subdued for some time." Some Fed officials, as well as private economists, have been warning that the risk of deflation—broadly falling prices and wages across the economy—is rising. A Wall Street Journal survey of economists, mostly from Wall Street, found this week that, by a two-to-one margin, they see deflation as a greater risk over the next three years than inflation.
With interest rates as low as they can go, the Fed has few attractive options to resist deflation. The main one is to print money—electronically—to resume large-scale purchases of securities.
"The Federal Reserve, facing an economic recovery that it termed "more modest" than anticipated, said Tuesday it will stop shrinking its huge portfolio of securities by reinvesting the proceeds of maturing mortgages in U.S. Treasury debt.
The Fed move is largely symbolic and is unlikely to stimulate the economy significantly. But the shift in the management of its portfolio—and an accompanying statement—underscored Fed officials' concern about the vigor of the economic recovery. It also opens the door for bigger purchases of Treasurys or other securities should the economy falter or the risk of deflation grow, though the hurdle for such action remains high.
Downgrading its assessment of the economy, the policy-making Federal Open Market Committee said the recovery "has slowed in recent months," and that the "pace of economic recovery is likely to be more modest in the near term than had been anticipated." The committee repeated its commitment to keep its target for the federal funds rate, at which banks lend to each other overnight, at "exceptionally low levels" for an "extended period."
The Fed noted that high unemployment, modest income growth, lower housing wealth and tight credit were holding back household spending. Meanwhile, lending by banks "has continued to contract," the Fed said, while construction remains weak and employers remain reluctant to increase payrolls.
After cutting short-term interest rates nearly to zero in December 2008, the Fed essentially printed money to expand its portfolio of securities and loans to above $2 trillion, from $800 billion before the global financial crisis. Its purchases of mortgage-backed securities and U.S. Treasury debt, aimed at keeping long-term interest rates down, were discontinued in March. The Fed began talking about an "exit strategy" from the unprecedented steps it took to prevent an even deeper recession.
But on Tuesday, the Fed shifted its stance. It said it would act to keep its securities holdings constant at around $2.054 trillion, the level on Aug. 4. Had the Fed not acted, its mortgage portfolio was set to shrink by $10 billion to $20 billion a month, as mortgages matured or were paid off early. Now, the Fed will reinvest those proceeds in U.S. Treasury securities of between two- and 10-year maturities.
***
The Fed statement noted that "measures of underlying inflation," already low, "have trended lower" lately and are "likely to be subdued for some time." Some Fed officials, as well as private economists, have been warning that the risk of deflation—broadly falling prices and wages across the economy—is rising. A Wall Street Journal survey of economists, mostly from Wall Street, found this week that, by a two-to-one margin, they see deflation as a greater risk over the next three years than inflation.
With interest rates as low as they can go, the Fed has few attractive options to resist deflation. The main one is to print money—electronically—to resume large-scale purchases of securities.
U.S. Is Bankrupt and We Don't Even Know: Laurence Kotlikoff - Bloomberg
EXCERPTS:
"Uncle Sam’s Ponzi scheme will stop. But it will stop too late. And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.
Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.
"Uncle Sam’s Ponzi scheme will stop. But it will stop too late. And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.
Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.
Tuesday, August 3, 2010
Rent Control and Its Damage Isn't Limited To New York City - WSJ.com
EXCERPTS:
"A 2001 San Francisco study showed that 49% of that city's rent-controlled apartments had only a single occupant. Three quarters of the controlled housing was more than half a century old, and 44% was greater than 70 years old. The resulting severe housing shortage forced thousands of people to make long commutes to their jobs in San Francisco. More than one-fourth of rent-controlled households had incomes greater than $100,000 per year. This 1979-2001 assessment gauged the actual (rather than the intended) economic impact on occupancy, housing supply and the beneficiaries of the politically popular rent-control program.
"A 2001 San Francisco study showed that 49% of that city's rent-controlled apartments had only a single occupant. Three quarters of the controlled housing was more than half a century old, and 44% was greater than 70 years old. The resulting severe housing shortage forced thousands of people to make long commutes to their jobs in San Francisco. More than one-fourth of rent-controlled households had incomes greater than $100,000 per year. This 1979-2001 assessment gauged the actual (rather than the intended) economic impact on occupancy, housing supply and the beneficiaries of the politically popular rent-control program.
A Keynesian assesses today's economy, and what government should do - WSJ
From today's (8/3/10) WSJ. Robert Reich was the Secretary of Labor under Bill Clinton, and a good Keynesian. Note his assessment of the economy's current problem, and of what the government should do about it.
EXCERPTS:
"Consider the stimulus package.... Real GDP is now increasing at an annual rate of 2.4%, and although the recovery is still fragile it's unlikely we'll fall back into a full-fledged recession. Yet the official rate of unemployment remains above 9%, not including millions either too discouraged to look for work or working part-time when they'd rather have full-time jobs. Almost half of the jobless have been without work for more than six months, a level not seen since the Great Depression.
The central problem continues to be inadequate aggregate demand. The administration's original sin was not spending enough and focusing the stimulus more directly on job creation.
In fairness, no one knew how sick the economy was in February 2009 when Congress approved the initial stimulus. Yet by late spring 2009 the White House knew the extent of the damage and should have pushed much harder for significantly more spending....
EXCERPTS:
"Consider the stimulus package.... Real GDP is now increasing at an annual rate of 2.4%, and although the recovery is still fragile it's unlikely we'll fall back into a full-fledged recession. Yet the official rate of unemployment remains above 9%, not including millions either too discouraged to look for work or working part-time when they'd rather have full-time jobs. Almost half of the jobless have been without work for more than six months, a level not seen since the Great Depression.
The central problem continues to be inadequate aggregate demand. The administration's original sin was not spending enough and focusing the stimulus more directly on job creation.
In fairness, no one knew how sick the economy was in February 2009 when Congress approved the initial stimulus. Yet by late spring 2009 the White House knew the extent of the damage and should have pushed much harder for significantly more spending....
The Living Yield Curve - Investing - Bonds - SmartMoney.com
This link shows how interest rates, as represented by the shape of the yield curve, have changed month by month between March 1977 and the present.
Fed Mulls Symbolic Shift - WSJ.com
EXCERPTS:
Federal Reserve officials will consider a modest but symbolically important change in the management of their massive securities portfolio when they meet next week to ponder an economy that seems to be losing momentum.
The issue: Whether to use cash the Fed receives when its mortgage-bond holdings mature to buy new mortgage or Treasury bonds, instead of allowing its portfolio to shrink gradually, as it is expected to do in the months ahead. Any change—only four months after the Fed ended its massive bond-buying program—would signal deepening concern about the economic outlook. If the Fed's forecast deteriorates significantly, it could also be a precursor to bigger efforts to pump money into the economy.
Moving to stop the Fed's portfolio from shrinking would prevent monetary policy from slightly tightening in the face of a weakening recovery.
The central bank's $2.3 trillion portfolio has nearly tripled in size since 2007.
What is the official definition of recession?
According to the Business Cycle Dating Committee of the NBER (National Bureau of Economic Research), here's the official definition of recession:
"A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.
"A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.
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