August 11, 2009|Posted By Adam Sharp
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Stocks: The latest Fed bubble – (CNN) “The Federal Reserve has spent the past year cleaning up after a housing bubble it helped create. But along the way it may have pumped up another bubble, this time in stocks.”
The debt crisis cannot be solved with more debt – (Mises.org) When will this sink in with politicians and mainstream? David Saied offers a good overview of the fundamentally flawed approach our leaders are trying.
American graduates finding jobs in China – (NYT) “They are lured by China’s surging economy, the lower cost of living and a chance to bypass some of the dues-paying that is common to first jobs in the United States”.
Wholesaler Inventory Very Lean – (Reuters) “U.S. stocks added to losses after the data and U.S. Treasury prices posted session highs as investors worried businesses were cutting inventories sharply because they remained skeptical about a return in demand.
Ghost of Enron delivers a warning – (Marketwatch) “Yet only seven years after Enron went down in a flaming pile of management hubris and false accounting — taking corporate America’s reputation with it — small investors and savers found themselves again at the mercy of a Wall Street-induced scandal, this time one that would take down the world economy.”
Today’s chart is from EconomPic. It shows the average number of hours worked by employed people. The rest of the post is worth a read. He explores the effect that women entering the workforce en masse in the 1960s and 70s has had on employment statistics:
August 10, 2009|Posted By Adam Sharp
The Federal Reserve’s main weapon for curbing inflation is simple; Banks will be paid risk-free interest not to lend, and instead keep their money at the Fed. So our current shovels of cash to banks are supposedly to encourage lending. When it’s time to hit the brakes, they will get paid not to lend. Mr. Bernanke outlined the plan in his recent WSJ editorial:
Congress granted us authority last fall to pay interest on balances held by banks at the Fed. Currently, we pay banks an interest rate of 0.25%. When the time comes to tighten policy, we can raise the rate paid on reserve balances as we increase our target for the federal funds rate.
Banks generally will not lend funds in the money market at an interest rate lower than the rate they can earn risk-free at the Federal Reserve.
Yes, that should dampen inflationary pressures. But it’s a true perversion of justice that banks will once again profit from the mess they created. If asked why banks should reap even more gains from their mess and rescue, Big Ben would probably voice his distaste for this “necessary evil”, adding that he is “as unhappy about it as anyone, but we have no choice.”
Currently, lawmakers and The Fed are trying desperately to increase lending, providing banks with cheap cash and threatening them with legislation if they don’t. So when the time comes to tighten, the plan is essentially to bribe lenders with risk-free interest as a reward for tightening their belts. Starting to see a pattern emerge? No matter the economic environment, banks get rewarded.
Alternative Inflation Curbs?
Couldn’t the Fed get the same result by increasing banks’ reserve requirements? Why not force banks to hold bigger cash “cushions” in the form of more vault cash and higher TCE ratios? The result should be be the same as paying banks not to lend – tighter money, less lending, and lower inflation. The difference is that it wouldn’t be profitable for banks. The same ones who essentially own the Fed. After all, if we’ve learned one thing from this little collapse, it’s that bank profits are the most important step towards recovery. That seems to be the attitude of Larry Summers and Tim Geithner, anyway.
Related: MarketSkeptics.com has a nice report on reserve requirements here. The chart below shows just how tiny (or non-existant) bank cushions have become:
August 7, 2009|Posted By Adam Sharp
Why Unemployment Fell – Don’t celebrate just yet:
Unemployment is the number of people out of work as a percentage of the total labor force. The labor force in everyone who’s employed or who wants a job. In July, that total labor force fell by 422,000.
Sudeep Reddy at the Wall Street Journal’s Real Time Economics blog says that the jobless number is down because the overall labor force is shrinking — people are giving up on looking for jobs, and so BLS doesn’t count them as unemployed.
Ben Stein Finally Expelled from NYT – Felix Salmon voices his approval
Crunch Time for Gold – Brad Zigler looks at Gold’s behavior in relation to equity and currency markets.
The Fed buys last week’s Treasury notes – Chris Martenson on failed Fed auctions.
Why Current Policy Prescriptions Cannot Possibly Work – Thorsten Polleit of Mises.org asks good questions, and answers them:
Will depression be prevented if governments across the world run up huge deficits in an attempt to strengthen demand, production, and employment?
August 5, 2009|Posted By Adam Sharp
NY Magazine has an interesting piece on some rather unique economic indicators:
In New York, we have our own economic indicators, often based on the degree to which people are being thwarted by the lack of opportunity. An old standby is the Overeducated Cabbie Index. The Squeegee Man Apparition Index is another good one. There’s also the Speed at Which Contractors Return Calls Index: within 24 hours, you’re in a recession; if they call you without prompting, that’s a depression.
NY Mag
