EXCERPTS:
"The natural-gas industry touts its fuel as an attractive alternative to coal and oil, saying it's comparably clean, domestically abundant and cheap.
But that final selling point might not last if the industry succeeds in stirring demand even as it cuts back on drilling.
In the past few years, a glut of natural gas has driven down the price to half the 2008 average—a level where it costs a U.S. consumer $2.75 a day to meet a home's natural-gas needs, according to the American Gas Association. That's good news for consumers, but a recent study by consultancy Wood Mackenzie found that 40% of U.S. natural gas produced last year didn't meet break-even prices for producers.
Natural gas now costs roughly the same as its energy equivalent in coal and a quarter of its energy equivalent in oil. The gas industry is making some headway in capitalizing on its relative cheapness: President Barack Obama has endorsed incentives for trucks powered by natural gas, and power companies are considering replacing coal-fired plants with gas-burning ones.
Those steps would increase natural-gas consumption just as production growth is likely to slow. That's because companies now can make more money drilling for oil, whose price has soared last year and in recent months on unrest in Northern Africa and the Middle East.
Proven U.S. natural gas reserves hold about twice the amount of energy as could be generated by domestic oil reserves, according to a 2009 estimate by the U.S. Energy Information Administration. The nonprofit Potential Gas Committee last month increased its estimate of natural gas available for U.S. production to 2.1 trillion cubic feet. That amount represents a 42% increase in the past four years, and is enough gas to meet domestic needs for 100 years at current consumption rates.
Companies use the same type of rig to drill for oil or gas, and allocate equipment according to which fuel is more profitable to produce. The number of land rigs in the U.S. drilling for natural gas is down 8% from a year ago, while oilrigs are up 81%, according to oilfield-service company Baker Hughes, Inc. In April, companies reported more rigs drilling for oil than gas for the first time since 1995, underscoring how oil's profit margins have fattened.
"All of our drilling ideas compete with each other," Larry Nichols, chairman of Devon Energy Corp., said recently. This year, Devon, a major gas producer, is spending 90% of its nearly $5 billion budget on oil drilling. "You look at the ones where you can make money at current prices, and that's where the money gets allocated," he said.
Tuesday, May 24, 2011
Thursday, May 19, 2011
In China, some new cities are ghost towns
EXCERPTS:
"In China's Inner Mongolia, Kangbashi district offers residents "new modern" living, with tree-lined streets, shiny apartment buildings, vast parklands, restaurants and even a motor racing track.
But seven years after construction workers broke ground on the arid plateau, most of the apartments appear empty and the wide streets are almost deserted -- earning Kangbashi the tag of "ghost city".
The new section of Ordos city on the edge of the Gobi desert was designed to accommodate about 300,000 people but residents say fewer than one-tenth of that number live in Kangbashi. Estate agents insist the number is much higher.
New districts like Kangbashi are springing up across China as the world's second-largest economy undergoes an unprecedented urbanisation process with hundreds of millions of people heading to fast-growing metropolitan areas.
Ordos is part of a nationwide building boom that has been fuelled by a massive credit binge, raising fears of a real estate bubble and a potential explosion in bad debts, especially among local government investment vehicles.
/
Near the southwestern city of Kunming, authorities started developing a new district for nearly one million people in 2003 but the area is reportedly still largely empty.
"These sorts of towns raise the question -- does the government have some amazing vision for filling these cities... or are they just great white elephants that are wasting public funds?" Rupert Hoogewerf, founder and compiler of the Hurun rich list, told AFP.
Public servant Qiao Xiufeng, who moved to Kangbashi three years ago after the Ordos government relocated its departments to the new district, says she likes the open space and relaxed lifestyle of the sparsely populated town.
"Everything is really good," Qiao told AFP as she strolled along a street lined with near-empty restaurants and shops selling cakes and bridal outfits.
"Life is easy and comfortable."
Kangbashi -- located 30 kilometres (20 miles) from Ordos' main district of Dongsheng -- boasts a potato-shaped history museum, a tilted library, expansive parks decorated with modern sculptures, cinemas, schools and a university.
/
Scores of cranes and half-finished high-rise concrete buildings are visible across the district and, despite the vast number of apparently vacant flats, more land is being cleared for construction.
In nearby Yijinghuoluoqi, another district getting a facelift, taxi driver Liu Zhiqing said the Ordos government paid him 300,000 yuan ($46,170) in compensation when his 200-square-metre (2,153-square-feet) house was knocked down to make way for a forest of high-rise apartment buildings.
Liu said he and his family will also receive two apartments when the construction is finished.
Resource-rich Ordos, whose population of 1.5 million has the highest GDP per capita in China at more than $20,500, built Kangbashi to cope with the city's growing population.
/
"Ordos is extremely unique in that it boasts rich resources and has the highest GDP per capita in China," said Lu, noting the region's huge natural resources and thriving cashmere industry helped the local economy expand by 19.2 percent last year -- nearly twice the national growth rate.
"In China's Inner Mongolia, Kangbashi district offers residents "new modern" living, with tree-lined streets, shiny apartment buildings, vast parklands, restaurants and even a motor racing track.
But seven years after construction workers broke ground on the arid plateau, most of the apartments appear empty and the wide streets are almost deserted -- earning Kangbashi the tag of "ghost city".
The new section of Ordos city on the edge of the Gobi desert was designed to accommodate about 300,000 people but residents say fewer than one-tenth of that number live in Kangbashi. Estate agents insist the number is much higher.
New districts like Kangbashi are springing up across China as the world's second-largest economy undergoes an unprecedented urbanisation process with hundreds of millions of people heading to fast-growing metropolitan areas.
Ordos is part of a nationwide building boom that has been fuelled by a massive credit binge, raising fears of a real estate bubble and a potential explosion in bad debts, especially among local government investment vehicles.
/
Near the southwestern city of Kunming, authorities started developing a new district for nearly one million people in 2003 but the area is reportedly still largely empty.
"These sorts of towns raise the question -- does the government have some amazing vision for filling these cities... or are they just great white elephants that are wasting public funds?" Rupert Hoogewerf, founder and compiler of the Hurun rich list, told AFP.
Public servant Qiao Xiufeng, who moved to Kangbashi three years ago after the Ordos government relocated its departments to the new district, says she likes the open space and relaxed lifestyle of the sparsely populated town.
"Everything is really good," Qiao told AFP as she strolled along a street lined with near-empty restaurants and shops selling cakes and bridal outfits.
"Life is easy and comfortable."
Kangbashi -- located 30 kilometres (20 miles) from Ordos' main district of Dongsheng -- boasts a potato-shaped history museum, a tilted library, expansive parks decorated with modern sculptures, cinemas, schools and a university.
/
Scores of cranes and half-finished high-rise concrete buildings are visible across the district and, despite the vast number of apparently vacant flats, more land is being cleared for construction.
In nearby Yijinghuoluoqi, another district getting a facelift, taxi driver Liu Zhiqing said the Ordos government paid him 300,000 yuan ($46,170) in compensation when his 200-square-metre (2,153-square-feet) house was knocked down to make way for a forest of high-rise apartment buildings.
Liu said he and his family will also receive two apartments when the construction is finished.
Resource-rich Ordos, whose population of 1.5 million has the highest GDP per capita in China at more than $20,500, built Kangbashi to cope with the city's growing population.
/
"Ordos is extremely unique in that it boasts rich resources and has the highest GDP per capita in China," said Lu, noting the region's huge natural resources and thriving cashmere industry helped the local economy expand by 19.2 percent last year -- nearly twice the national growth rate.
Monday, May 16, 2011
McDonald’s to shake up food ordering system
EXCERPTS:
"McDonald’s is to change the way customers order its meals in Europe, partly replacing cashiers and the use of banknotes at its 7,000 fast-food restaurants in the region with touchscreen terminals and swipe cards.
“Ordering food has not changed for 30 or 40 years,” said Steve Easterbrook, president of McDonald’s Europe, in an interview with the Financial Times.
The move is part of the fast-food chain’s efforts to woo cash-strapped customers by making its restaurants more convenient and convivial. It is refurbishing stores, and introducing longer opening hours and new menus.
/
Mr Easterbrook said that the changes would make life easier for consumers as well as improve efficiency, with average transactions three to four seconds shorter for each customer. McDonald’s European stores serve 2m customers a day.
/
But Joe Surkitz, 21, was less convinced. “I’m looking for work and if there’s more machines doing jobs I’ll find it harder. Plus you won’t get service with a smile.”
Mr Easterbrook said that the new technology would allow McDonald’s to harness more information about customers’ ordering habits. Supermarkets and other retailers have huge databases of information on customers’ shopping habits, which they gather from loyalty cards.
"McDonald’s is to change the way customers order its meals in Europe, partly replacing cashiers and the use of banknotes at its 7,000 fast-food restaurants in the region with touchscreen terminals and swipe cards.
“Ordering food has not changed for 30 or 40 years,” said Steve Easterbrook, president of McDonald’s Europe, in an interview with the Financial Times.
The move is part of the fast-food chain’s efforts to woo cash-strapped customers by making its restaurants more convenient and convivial. It is refurbishing stores, and introducing longer opening hours and new menus.
/
Mr Easterbrook said that the changes would make life easier for consumers as well as improve efficiency, with average transactions three to four seconds shorter for each customer. McDonald’s European stores serve 2m customers a day.
/
But Joe Surkitz, 21, was less convinced. “I’m looking for work and if there’s more machines doing jobs I’ll find it harder. Plus you won’t get service with a smile.”
Mr Easterbrook said that the new technology would allow McDonald’s to harness more information about customers’ ordering habits. Supermarkets and other retailers have huge databases of information on customers’ shopping habits, which they gather from loyalty cards.
Saturday, May 14, 2011
China Raises Bank Reserves in Uphill Fight Against Inflation - WSJ.com
EXCERPTS:
"BEIJING—China moved again to head off inflation by requiring banks to hold more of their deposits in reserve, the eighth such move since November, despite little evidence that the measure is taming prices, and worries that it is depriving needy smaller companies of capital.
The 0.5-percentage-point increase in the reserve requirement ratio was announced Thursday, a day after China reported annual inflation hit 5.3% in April, with food prices galloping at 11.5%, the sixth straight month in which food prices have risen at double-digit rates.
The inflation figures were slightly lower than in March, but still represented a significant risk that the authorities haven't put a lid on inflationary pressures. And there were other worrying signs: A higher number of bank loans than expected in April, at $112 billion, and a wider-than-expected trade surplus of $11.4 billion, up from $139 million in March, meant more cash flooding into the economy, increasing the need to soak up liquidity.
Unlike most major economies, China uses reserve requirements as its first line of defense against inflation, figuring the tool will make it tougher for banks to lend and thus cool an overheating economy.
When the move takes effect on May 18, China's largest banks will face a 21% reserve requirement, among the highest in the world. By comparison, the U.S. reserve requirement is 10%.
"BEIJING—China moved again to head off inflation by requiring banks to hold more of their deposits in reserve, the eighth such move since November, despite little evidence that the measure is taming prices, and worries that it is depriving needy smaller companies of capital.
The 0.5-percentage-point increase in the reserve requirement ratio was announced Thursday, a day after China reported annual inflation hit 5.3% in April, with food prices galloping at 11.5%, the sixth straight month in which food prices have risen at double-digit rates.
The inflation figures were slightly lower than in March, but still represented a significant risk that the authorities haven't put a lid on inflationary pressures. And there were other worrying signs: A higher number of bank loans than expected in April, at $112 billion, and a wider-than-expected trade surplus of $11.4 billion, up from $139 million in March, meant more cash flooding into the economy, increasing the need to soak up liquidity.
Unlike most major economies, China uses reserve requirements as its first line of defense against inflation, figuring the tool will make it tougher for banks to lend and thus cool an overheating economy.
When the move takes effect on May 18, China's largest banks will face a 21% reserve requirement, among the highest in the world. By comparison, the U.S. reserve requirement is 10%.
Thursday, May 12, 2011
Zimbabwe's 100-Trillion-Dollar Bill Is a Hot Collectible - WSJ.com
EXCERPTS:
"A 100-trillion-dollar bill, it turns out, is worth about $5.
That's the going rate for Zimbabwe's highest denomination note, the biggest ever produced for legal tender—and a national symbol of monetary policy run amok. At one point in 2009, a hundred-trillion-dollar bill couldn't buy a bus ticket in the capital of Harare.
But since then the value of the Zimbabwe dollar has soared. Not in Zimbabwe, where the currency has been abandoned, but on eBay.
The notes are a hot commodity among currency collectors and novelty buyers, fetching 15 times what they were officially worth in circulation. In the past decade, President Robert Mugabe and his allies attempted to prop up the economy—and their government—by printing money. Instead, the country's central bankers sparked hyperinflation by issuing bills with more zeros.
The 100-trillion-dollar note, circulated for just a few months before the Zimbabwe dollar was officially abandoned as the country's legal currency in 2009, marked the daily limit people were allowed to withdraw from their bank accounts. Prices rose, wreaking havoc.
The runaway inflation forced Zimbabweans to wait in line to buy bread, toothpaste and other essentials. They often carried bigger bags for their money than the few items they could afford with a devalued currency.
Today, all transactions are in foreign currencies, mainly the U.S. dollar and the South African rand. But Zimbabwe's worthless bills are valuable—at least outside the country. That Zimbabwe's currency happened to be denoted in dollars has amplified appeal, say currency dealers and collectors, particularly after the global financial crisis and mounting public debts sparked inflationary fears in the U.S.
/
House Budget Committee Chairman Paul Ryan (R., Wis.) and Stanford economist John B. Taylor are among the new owners of Zimbabwean bills. Each keeps one in his wallet, brandishing it at opportune moments as evidence of inflation's most extreme possible ramifications. "No self-respecting monetary economist goes around without a 100-trillion-dollar note," Mr. Taylor says with a chuckle.
Only Zimbabwe's secretive central bank officials know the true figures, but dealers estimate that the regime printed roughly five million to seven million bills in the 100-trillion-dollar denomination. Based on the serial numbers and known supply of bills in the collector's market, they believe only a few million were actually released.
/
Mr. Kaparadza peddles his bicycle through Harare's poor and working-class neighborhoods, going door-to-door trying to buy people's defunct Zimbabwe dollars. Because the government never attempted to collect the bills or allowed people to exchange them, many still have huge stashes squirreled away at home.
During one such excursion earlier this month, an elderly woman accused Mr. Kaparadza of trying to con her out of valuable currency. "You are a thief. President Mugabe says we will get our money!" she said before slamming the door in his face.
Indeed, the 87-year old Mr. Mugabe has declared that the Zimbabwe dollar will soon return, but members of his awkward unity government are unconvinced. Prime Minister Morgan Tsvangirai told a farmer at a public rally last year that he should use the bricks of bank notes under his bed "to fertilize his fields."
"A 100-trillion-dollar bill, it turns out, is worth about $5.
That's the going rate for Zimbabwe's highest denomination note, the biggest ever produced for legal tender—and a national symbol of monetary policy run amok. At one point in 2009, a hundred-trillion-dollar bill couldn't buy a bus ticket in the capital of Harare.
But since then the value of the Zimbabwe dollar has soared. Not in Zimbabwe, where the currency has been abandoned, but on eBay.
The notes are a hot commodity among currency collectors and novelty buyers, fetching 15 times what they were officially worth in circulation. In the past decade, President Robert Mugabe and his allies attempted to prop up the economy—and their government—by printing money. Instead, the country's central bankers sparked hyperinflation by issuing bills with more zeros.
The 100-trillion-dollar note, circulated for just a few months before the Zimbabwe dollar was officially abandoned as the country's legal currency in 2009, marked the daily limit people were allowed to withdraw from their bank accounts. Prices rose, wreaking havoc.
The runaway inflation forced Zimbabweans to wait in line to buy bread, toothpaste and other essentials. They often carried bigger bags for their money than the few items they could afford with a devalued currency.
Today, all transactions are in foreign currencies, mainly the U.S. dollar and the South African rand. But Zimbabwe's worthless bills are valuable—at least outside the country. That Zimbabwe's currency happened to be denoted in dollars has amplified appeal, say currency dealers and collectors, particularly after the global financial crisis and mounting public debts sparked inflationary fears in the U.S.
/
House Budget Committee Chairman Paul Ryan (R., Wis.) and Stanford economist John B. Taylor are among the new owners of Zimbabwean bills. Each keeps one in his wallet, brandishing it at opportune moments as evidence of inflation's most extreme possible ramifications. "No self-respecting monetary economist goes around without a 100-trillion-dollar note," Mr. Taylor says with a chuckle.
Only Zimbabwe's secretive central bank officials know the true figures, but dealers estimate that the regime printed roughly five million to seven million bills in the 100-trillion-dollar denomination. Based on the serial numbers and known supply of bills in the collector's market, they believe only a few million were actually released.
/
Mr. Kaparadza peddles his bicycle through Harare's poor and working-class neighborhoods, going door-to-door trying to buy people's defunct Zimbabwe dollars. Because the government never attempted to collect the bills or allowed people to exchange them, many still have huge stashes squirreled away at home.
During one such excursion earlier this month, an elderly woman accused Mr. Kaparadza of trying to con her out of valuable currency. "You are a thief. President Mugabe says we will get our money!" she said before slamming the door in his face.
Indeed, the 87-year old Mr. Mugabe has declared that the Zimbabwe dollar will soon return, but members of his awkward unity government are unconvinced. Prime Minister Morgan Tsvangirai told a farmer at a public rally last year that he should use the bricks of bank notes under his bed "to fertilize his fields."
Tuesday, May 10, 2011
Some Bet End of QE2 Will Boost Treasurys - WSJ.com
EXCERPTS:
"Even before last week's selloff in risky assets, investors worried about slowing growth were buying up Treasury debt. To some, this is a preview of what is going to happen when the Federal Reserve ends its bond-buying program less than two months from now.
Over the past four weeks, the yield on the 10-year Treasury note has fallen from 3.58% to 3.16%, its lowest level since December. The bond market rallied even though the biggest buyer of Treasurys over the past several months is planning to leave the market at the end of June.
Gains in Treasurys have been driven largely by weak economic data. Even a better-than-expected jobs number Friday couldn't derail the market.
The recent rally is evidence for some investors that the end of the Fed's second big bond-buying program, known as quantitative easing, or QE2, might actually benefit or, at worst, be a nonevent for bonds.
It could be a boon for Treasurys if economic growth slows, knocking down commodity prices and reducing the risk of inflation.
"If QE2 contributed to stocks and to risk assets and to the commodity bubble, well, what happens after QE2?" said David Ader, head of government-bond strategy at CRT Capital. "When QE2 ends, maybe those assets go the other way, and people buy more Treasurys."
"Even before last week's selloff in risky assets, investors worried about slowing growth were buying up Treasury debt. To some, this is a preview of what is going to happen when the Federal Reserve ends its bond-buying program less than two months from now.
Over the past four weeks, the yield on the 10-year Treasury note has fallen from 3.58% to 3.16%, its lowest level since December. The bond market rallied even though the biggest buyer of Treasurys over the past several months is planning to leave the market at the end of June.
Gains in Treasurys have been driven largely by weak economic data. Even a better-than-expected jobs number Friday couldn't derail the market.
The recent rally is evidence for some investors that the end of the Fed's second big bond-buying program, known as quantitative easing, or QE2, might actually benefit or, at worst, be a nonevent for bonds.
It could be a boon for Treasurys if economic growth slows, knocking down commodity prices and reducing the risk of inflation.
"If QE2 contributed to stocks and to risk assets and to the commodity bubble, well, what happens after QE2?" said David Ader, head of government-bond strategy at CRT Capital. "When QE2 ends, maybe those assets go the other way, and people buy more Treasurys."
Prices of Used Cars Rising Sharply - WSJ.com
EXCERPTS:
"Prices for used cars hit a record high in April and are poised to go even higher as production cutbacks during the recession and the more recent Japanese earthquake has made used vehicles a hot commodity as dealers dive into the depleted pool for cars to fill their lots.
The one-two punch has added between $1,500 to $3,000 to the price of some used cars just in the last six months, meaning more money for trade-ins and a tougher time for shoppers looking for a deal.
"The price of used cars is just crazy right now," said Adam Lee, chairman of Maine dealer Lee Auto Malls. His dealership is paying hefty sums for cars it normally might not purchase to have a full inventory. "It can be a piece of junk—cars we used to pay $2,000 or $2,500 for, we are now paying $5,200 to $5,500," Mr. Lee said.
Dealers say the prices of used vehicles will continue to soar as inventories of lower-priced and economy cars shrink. Japanese auto makers Toyota Motor Corp. and Honda Motor Co. have warned their production could be limited through year-end. U.S. dealers say they expect to exhaust existing inventories and face severe shortages of new Japanese cars by July.
"Prices for used cars hit a record high in April and are poised to go even higher as production cutbacks during the recession and the more recent Japanese earthquake has made used vehicles a hot commodity as dealers dive into the depleted pool for cars to fill their lots.
The one-two punch has added between $1,500 to $3,000 to the price of some used cars just in the last six months, meaning more money for trade-ins and a tougher time for shoppers looking for a deal.
"The price of used cars is just crazy right now," said Adam Lee, chairman of Maine dealer Lee Auto Malls. His dealership is paying hefty sums for cars it normally might not purchase to have a full inventory. "It can be a piece of junk—cars we used to pay $2,000 or $2,500 for, we are now paying $5,200 to $5,500," Mr. Lee said.
Dealers say the prices of used vehicles will continue to soar as inventories of lower-priced and economy cars shrink. Japanese auto makers Toyota Motor Corp. and Honda Motor Co. have warned their production could be limited through year-end. U.S. dealers say they expect to exhaust existing inventories and face severe shortages of new Japanese cars by July.
PIMCO raises bet against U.S. government debt | Reuters
EXCERPTS:
"PIMCO's Bill Gross, the manager of the world's largest bond fund, raised his bet against U.S. government-related debt in April to 4 percent from 3 percent, according to the company's website on Monday.
/
Last Friday, Gross told Reuters that the only way he would purchase Treasuries again is if the United States heads into another recession.
Since the news that Gross had turned more bearish on government debt, reflecting his growing worries over the country's fiscal deficit and debt burden, Treasury prices have been soaring.
Gross told Reuters on Friday: "Treasury yields are currently yielding substantially less than historical averages when compared with inflation. Perhaps the only justification for a further rally would be weak economic growth or a future recession that substantially lowered inflation and inflationary expectations."
"PIMCO's Bill Gross, the manager of the world's largest bond fund, raised his bet against U.S. government-related debt in April to 4 percent from 3 percent, according to the company's website on Monday.
/
Last Friday, Gross told Reuters that the only way he would purchase Treasuries again is if the United States heads into another recession.
Since the news that Gross had turned more bearish on government debt, reflecting his growing worries over the country's fiscal deficit and debt burden, Treasury prices have been soaring.
Gross told Reuters on Friday: "Treasury yields are currently yielding substantially less than historical averages when compared with inflation. Perhaps the only justification for a further rally would be weak economic growth or a future recession that substantially lowered inflation and inflationary expectations."
Tuesday, May 3, 2011
Fed Up with the Fed? - Thomas Sowell
EXCERPTS:
"Henry Morgenthau, Secretary of the Treasury under President Franklin D. Roosevelt, said confidentially to fellow Democrats in 1939: "We have tried spending money. We are spending more than we have ever spent before and it does not work."
As for the Federal Reserve today, a headline in the Wall Street Journal of April 25th said, "Fed Searches for Next Step."
That is a big part of the problem. It is not politically possible for either the Federal Reserve or the Obama administration to leave the economy alone and let it recover on its own.
Both are under pressure to "do something." If one thing doesn't work, then they have to try something else. And if that doesn't work, they have to come up with yet another gimmick.
All this constant experimentation by the government makes it more risky for investors to invest or employers to employ, when neither of them knows when the government's rules of the game are going to change again. Whatever the merits or demerits of particular government policies, the uncertainty that such ever- changing policies generate can paralyze an economy today, just as it did back in the days of FDR.
The idea that the federal government has to step in whenever there is a downturn in the economy is an economic dogma that ignores much of the history of the United States.
During the first hundred years of the United States, there was no Federal Reserve. During the first one hundred and fifty years, the federal government did not engage in massive intervention when the economy turned down.
No economic downturn in all those years ever lasted as long as the Great Depression of the 1930s, when both the Federal Reserve and the administrations of Hoover and of FDR intervened.
The myth that has come down to us says that the government had to intervene when there was mass unemployment in the 1930s. But the hard data show that there was no mass unemployment until after the federal government intervened. Yet, once having intervened, it was politically impossible to stop and let the economy recover on its own. That was the fundamental problem then-- and now.
"Henry Morgenthau, Secretary of the Treasury under President Franklin D. Roosevelt, said confidentially to fellow Democrats in 1939: "We have tried spending money. We are spending more than we have ever spent before and it does not work."
As for the Federal Reserve today, a headline in the Wall Street Journal of April 25th said, "Fed Searches for Next Step."
That is a big part of the problem. It is not politically possible for either the Federal Reserve or the Obama administration to leave the economy alone and let it recover on its own.
Both are under pressure to "do something." If one thing doesn't work, then they have to try something else. And if that doesn't work, they have to come up with yet another gimmick.
All this constant experimentation by the government makes it more risky for investors to invest or employers to employ, when neither of them knows when the government's rules of the game are going to change again. Whatever the merits or demerits of particular government policies, the uncertainty that such ever- changing policies generate can paralyze an economy today, just as it did back in the days of FDR.
The idea that the federal government has to step in whenever there is a downturn in the economy is an economic dogma that ignores much of the history of the United States.
During the first hundred years of the United States, there was no Federal Reserve. During the first one hundred and fifty years, the federal government did not engage in massive intervention when the economy turned down.
No economic downturn in all those years ever lasted as long as the Great Depression of the 1930s, when both the Federal Reserve and the administrations of Hoover and of FDR intervened.
The myth that has come down to us says that the government had to intervene when there was mass unemployment in the 1930s. But the hard data show that there was no mass unemployment until after the federal government intervened. Yet, once having intervened, it was politically impossible to stop and let the economy recover on its own. That was the fundamental problem then-- and now.
Sunday, May 1, 2011
Subscribe to:
Posts (Atom)