links for 2009-01-05

• The myth of the riskometer - voxeu.org
• CRE Crash Spreading - Calculated Risk
• Cheat, Pray, Love - James Surowiecki
• Fed Officials Worry Inflation Rates Could Ease Too Much - RTE
• Who should get the federal stimulus funds - Ed Glaeser - Boston Globe
• Obama Eyes $310 Billion Tax Cut - WSJ.com
• Fed has abandoned monetary policy, critic says - Reuters
• Financial globalisation and productivity growth - voxeu.org
• U.S. Monetary Policy Objectives in the Short and Long Run - Janet Yellen
• Can the US economy afford a Keynesian stimulus? - Willem Buiter
• What the Yield Curve says about the US Economy - Dave Levy
• Jared Diamond: Why Societies Collapse - The Big Picture

Comments

[calmo]

From James Surowiecki in the New Yorker above, coming to grips with confidence --slappin it home to us non-movie goers (ok, just this one here):In David Mamet’s movie “House of Games,” the grifter played by Joe Mantegna explains to a former mark, “It’s called a confidence game. Why? Because you give me your confidence? No. Because I give you mine.” [So you fellow marks following this, now that you think you are safely a former mark?...and needing a reprise?...or just bein difficult and want to duke it out with the director and writer this very instant?...why calmo is escorted quietly out of most movie theaters before most have even opened their popcorn boxes] So the bankers gave us their confidence, in the form of mortgages and other forms of credit, and we gave them ours.[James means the current bankers, in this current flush of confidence...not caring to examine what might have caused this periodicity, what might distinguish it from previous flushes: distressed wages seeking other supplemental income streams...now leveraged unprecedently by the ATM house ] This culture of credulity did plenty of damage to the economy, but now it has given way to something even more corrosive; namely, endemic mistrust.[Except for this New Yorker sanctuary...ok, only the James Surowiecki sand castle within that compound. ] Because if there’s one thing worse than too much confidence it’s not enough.[Desperately needing a Pythonesque stage ] Fraud impoverishes a few; fear impoverishes the many.[Nuggetized wizzdom...seeking nugget-sized brains...so, moderate-sized brainful reader, would you say that James (who I would not waste my time on if he were not a capable writer...in my somewhat capable non-nugget-sized opinion, you hear me?) imparts too much or too little of that "one thing(ie)" confidence with this "takeaway"?] As long as mistrust prevails, people will keeping pulling money out of the system—sometimes even at gunpoint.[Not to mention the ones that take it personally and shoot their face off...but I digress, wickedly...: "people" like readers of the New Yorker, who have fat bank balances, still --who have the leisure to look for Surowiecki nuggets apparently (lookit me fer instance...intent on dissin them as dear droppings with movie centers...not chocolate nuggets as hoped, no.),
"people" who have "suffered" the 40% equity loss so far and may be able to take another 40% and still subscribe to the New Yorker]
I feel that James's readership has comprised his abilities here. He needs to get outatown and write for real people...before The New Yorker cuts staff.

[anne]

http://www.nytimes.com/2009/01/06/world/middleeast/06mideast.html

Janaury 6, 2009

Israel Rebuffs Peace Efforts, Driving Deeper Into Gaza
By TAGHREED EL-KHODARY and ISABEL KERSHNER 44 minutes ago

Even as President Nicolas Sarkozy of France began a new quest for a cease-fire, Israeli forces took control of rocket-launching areas and surrounded Gaza City.

[anne]

http://www.nytimes.com/2009/01/05/world/middleeast/05gaza.html

January 5, 2009

Gaza Hospital Fills Up, Mainly With Civilians
By TAGHREED EL-KHODARY

Doctors have been battling to keep Shifa Hospital in Gaza City running under the most adverse circumstances, but scant resources are being stretched to a breaking point.

[anne]

http://www.nytimes.com/2009/01/05/washington/05diplo.html?hp=&pagewanted=print

January 5, 2009

Israel Strikes Before an Ally Departs
By SCOTT SHANE

Many Middle East experts believe that Israel timed its move against Hamas with the expectation of receiving backing in Washington.

[anne]

http://www.nytimes.com/aponline/2009/01/04/world/AP-UN-UN-Israel-Palestinians.html

January 4, 2009

U.S. Said to Block U.N. Gaza Statement
By ASSOCIATED PRESS

UNITED NATIONS -- The U.N. chief urged the divided Security Council to try to bring a speedy end to the escalating crisis in Gaza and planned to meet Monday with Arab ministers flying to New York to press for a resolution demanding an immediate end to the violence.

Late Saturday, the United States blocked approval of a Security Council statement calling for an immediate cease-fire and expressing serious concern at the escalation of violence after Israeli tanks and artillery began their ground assault on Hamas-ruled Gaza, council diplomats said....

says...

Willem Buiter..."Even before the crisis erupted, around the middle of 2007, the US economy was in fundamental disequilibrium. The external primary deficit (the external current account deficit plus US net foreign investment income) was running at around five or six percent of GDP."

Allowing total public/private debt to reach almost unrepayable levels. Lenders are starting to notice.

"If the authorities go ahead with the short-run Keynesian stimulus without having convinced the global capital markets and domestic producers and consumers that there will be a timely reversal, the policies will not work."

Foreign savings will be repatriated at the first sign of trouble. They are not relatively stable like domestic savings tend to be. If confidence is lost, foreign loans cease immediately. They do not taper off gradually to allow time to adjust (like domestic savings did). The US private sector recently found this out. The public sector has so far been spared, but foreign savings will flee if foreign entities decide that their savings will be inflated away. They will flee suddenly and catastrophically.

"If the government is believed to be fiscally continent (future taxes will be raised and/or future public spending will be cut by enough to safeguard the solvency of the state) but turns out not be so after all, the Keynesian fiscal policy will be effective in the short run (as long as the public believes in the fiscal virtue of the government) but will become highly contractionary once the truth dawns."

This is the great danger today. A relatively rapid short term recovery, followed in a few years by catastrophe. Policy has not given convincing evidence that it has a viable long range strategy. Imbalances have built up to extreme levels, and the day of reckoning cannot be put off much longer. The US is courting a heavy duty future reduction in the standard of living of its ordinary citizens with its lack of an organized long run strategy.

[calmo]

Buiter has a lengthy (this B so critical to insert at this juncture lest you, dear reader, take fli....wait, WAIT! AND entertaining) article at the FT. His conclusion is that...well it's [the US economy] pretty rotten and there is only so much you can do with rot.
But the path leading up to the conclusion is so much more delightful...if the opening paragraph doesn't positively bathe you in sunshine, nothing will.
Willem is alright at times...times when I'm not entirely sure whether he is formal or implicit...occasions that force me back over the same passage and then to that photo...so dismantling to the formal side...
Yes.

[anne]

http://krugman.blogs.nytimes.com/2009/01/05/faith-based-macroeconomics/

January 5, 2009

Faith-Based Macroeconomics
By Paul Krugman

Willem Buiter: *

"My recommendation is to go easy on the fiscal stimulus. The US government is ill-placed financially and fiscally, to engage in short-term fiscal heroics. All they can really do is pray for a stronger-than-expected revival of global demand, without any major stimulus from the US."

OK, I'm not being fair; Willem is a smart guy, and he's raising concerns about the US long-term position that I also have, although not to the same extent. I don't have time right now for a full numbers post, but here's the preview: Willem is saying that America's "exorbitant privilege," its ability to borrow more cheaply than it lends, won't last — which is probably true; but he's also saying that this would be a devastating blow to the US economy, which I don't think the numbers support.

But on the stimulus point: even if you're deeply concerned about America's future solvency, will going for, say, a $300 billion stimulus rather than an $800 billion stimulus do anything significant to help?

OK, some numbers. Based on BEA data, ** in 2007 the United States had $14.4 trillion in assets abroad, and $16.6 trillion in liabilities. You might think that this would imply that America paid more investment income to foreigners than it received, but in fact the balance on investment income was positive, $89 billion. This was because, according to the data, US assets abroad earned a 5.7% rate of return, while US liabilities paid only 4.4%.

Suppose that the United States lost this return differential, with the rate of return on liabilities rising to match that on assets. This would, by my count, raise US payments to foreigners by $215 billion a year, around 1 1/2 percent of GDP. That's not a trivial number, but it's not catastrophic either; it's roughly the cost of a $50 a barrel rise in the price of oil.

Now, maybe something much more catastrophic will occur, and the United States will start having to pay third-world-type premiums on its debt. But the mere loss of the privileged US position, by itself, would only be a medium-sized shock.

* http://blogs.ft.com/maverecon/2009/01/can-the-us-economy-afford-a-keynesian-stimulus/

** http://www.bea.gov/international/index.htm

[anne]

"OK, I'm not being fair; Willem is a smart guy...."

The question has nothing to do with the smartness of Willem, * but with Willem being a wild Tory who has a disdain for any ideas beyond those of wild American conservatives and who is worried that wild American conservatism is being discredited. Willem, by the way, is far more disdainful of non-Americans.

* Would he mind if I called him Will?

[Bruce Wilder]

Willem Buiter: "The main uses of economics as a scholarly discipline are therefore negative or destructive . . . "

Which Buiter rarely misses an opportunity to demonstrate.

To some extent, this is the same kind of hackish sensationalism that went into predictions of five years ago that focused on a dollar run as the catastrophe to be anticipated in the event of a hard landing from the fund flow imbalances in world trade and finance.

It isn't just that Buiter doesn't do the numbers, doesn't check to see if his hysterical rhetoric is at all proportionate, though Krugman's criticism on that point is on target.

On a deeper level, like Arnold Kling, he'd prefer to destroy economic knowledge, prefers to send up a poisonous fog, than honestly advocate for his reprehensible political and economic desiderata.

Buiter is a smart guy, but he's also a vicious Tory, just as Kling is a very smart guy, but also a fanatic in service to some vicious thugs.

[anne]

http://krugman.blogs.nytimes.com/2009/01/05/a-bullet-dodged/

January 5, 2009

A Bullet Dodged
By Paul Krugman

What would have happened if George W. Bush had actually succeeded in his plan to privatize Social Security? Ask the Italians. *

"Italy did for retirement financing what President George W. Bush couldn’t do in the U.S.: It privatized part of its social security system. The timing couldn’t have been worse.

"The global market meltdown has created losses for those who agreed to shift their contributions from a government severance payment plan to private funds meant to yield higher returns....

"Gaetano Turchetta, a Rome office manager, made the irreversible move to a private plan after a union representative boasted of the potential for 20 percent annual returns. The 43- year-old father of three now says he would sign with 'two hands and two feet' if he could switch back."

* http://www.bloomberg.com/apps/news?pid=20601109&sid=aty4gEh9wups&refer=home

[anne]

http://krugman.blogs.nytimes.com/2009/01/05/more-bubble-memories/

January 5, 2009

More Bubble Memories
By Paul Krugman

Bruce Bartlett * mentions this 2004 NY Fed paper ** as one of the things that convinced him not to worry about a housing bubble. I remember that paper; I also remember why I discounted it.

There were really two things. First, although the paper mentioned regional differences, and even pointed out that supply is less elastic in some places than others, it didn’t home in on what seemed to me to be a key point: the seemingly moderate national real price rise was an average of flat real prices in the middle of the country, and enormous rises on the coasts, which were very hard to explain in terms of fundamentals. (I got a lot of this insight from reading Calculated Risk. *** )

Second, I was suspicious of the argument that low interest rates can justify huge price appreciation, because it seemed to me that people were forgetting something: if and when interest rates rose again, the same logic would imply big price declines, and buyers should have been (but weren’t) taking that possibility into account.

Anyway, rereading that paper is quite an experience now.

* http://www.forbes.com/opinions/2008/12/31/housing-bubble-crash-oped-cx_bb_0102bartlett.html

** http://www.newyorkfed.org/research/epr/04v10n3/0412mcca.pdf

*** http://www.calculatedriskblog.com/

[anne]

http://krugman.blogs.nytimes.com/2009/01/05/a-bullet-dodged/

January 5, 2009

A Bullet Dodged
By Paul Krugman

What would have happened if George W. Bush had actually succeeded in his plan to privatize Social Security? Ask the Italians. *

"Italy did for retirement financing what President George W. Bush couldn't do in the U.S.: It privatized part of its social security system. The timing couldn't have been worse.

"The global market meltdown has created losses for those who agreed to shift their contributions from a government severance payment plan to private funds meant to yield higher returns....

"Gaetano Turchetta, a Rome office manager, made the irreversible move to a private plan after a union representative boasted of the potential for 20 percent annual returns. The 43- year-old father of three now says he would sign with 'two hands and two feet' if he could switch back."

* http://www.bloomberg.com/apps/news?pid=20601109&sid=aty4gEh9wups&refer=home

[anne]

http://www.juancole.com/2009/01/its-hell-in-here-they-are-bombing-15.html

January 5, 2009

"It's Hell in Here": "They are Bombing 1.5 million People in a Cage"

CBS News broadcasts an interview with a Norwegian physician on the scene in Gaza. *

He says he has seen one military casualty come into the hospital. Of 2500 wounded, 50% are women and children. Doing surgery around the clock. There are injuries you do not want to see-- children coming in with open abdomens, with injured legs, we had to amputate both of them. This is a war on the civilian population of Gaza. It is a very young population. They cannot flee. They are fenced in. They are bombing one and a half million people in a cage.

* http://www.youtube.com/watch?v=Ev6ojm62qwA

-- Juan Cole

[calmo]

From anne's cutanpaste of PK: OK, some numbers. Based on BEA data, ** in 2007 the United States had $14.4 trillion in assets abroad, and $16.6 trillion in liabilities. You might think that this would imply that America paid more investment income to foreigners than it received, but in fact the balance on investment income was positive, $89 billion. This was because, according to the data, US assets abroad earned a 5.7% rate of return, while US liabilities paid only 4.4%. Reminded me of that darling, Dark Matter, to account for this conundrum rather than creative transnational accounting...the current favorite. Hard to believe that this 2007 imbalance, and those rates of return still apply to the 2008 investment picture.

[anne]

The matter is not the least dark, but simply that American foreign investment has long been relatively more profitable or higher earning than the earning of foreign investment in America has been. America directly invests more abroad than is invested here, but the difference is relative small in terms of domestic product and the difference would be easily limited were there fewer restrictions on direct foreign investment in America.

Finding reasons to turn away from the data generally amounts to finding a way of supporting a prejudice.

[anne]

http://economistsview.typepad.com/economistsview/2007/05/the_china_syndr.html

May 1, 2007

The China Syndrome
By Paul Krugman

Well, that's weird. I've gotten a lot of comment alleging that the reason for low investment in the US is that all the money is going overseas, especially to China - and quite a lot of the comment was vituperative: I'm an idiot, I don't know anything about the real world, etc. etc. I've gotten accustomed to that sort of thing from the right - in fact, I feel like a failure if I don't get accused of being a liar and a traitor after each column - but what's going on here? Anyway, a note on the numbers. As I already pointed out at the Times, almost as much direct foreign investment is coming into the US as is going out. But what really amazes me is the China obsession. China is a huge export machine, and I take the impact of Chinese exports on US workers quite seriously. But it is not, repeat not, a major destination of US corporate investment.

Look at the BEA numbers: http://www.bea.gov/international/datatables/usdctry/usdctry.htm.

China is only about 1 percent of the total stock of US direct investment abroad, less than $24 billion. Oh, and one fallacy I've seen confidently asserted is that foreign direct investment doesn't count retained earnings. Sorry, but it does. There are some real questions about mismeasurement of the overall investment position - dark matter and all that - but there's no way you can make the case that corporations are taking all their profits and putting it into China.

[anne]

http://krugman.page.nytimes.com/b/a/258224.htm

April 30, 2007

Their Profits and Ours Don't Add Up
By Paul Krugman

Steve A., New York: What do you see as the impact of global capital flows on U.S. investment? While U.S. companies are booking record profits, how much of their investment is being made in the U.S. vs. overseas? If our fiscal policies benefit U.S. corporations and wealthy U.S. investors who increasingly choose to invest their profits in other countries rather than at home, what will that mean for U.S. economic growth?

Paul Krugman: A number of people have asked me this question. The short answer is that diversion of investment abroad doesn't seem to be the big story. Overall, money actually flowed into the United States last year, on a massive scale, although a lot of that was the Chinese government buying bonds. In terms of "direct foreign investment", basically investment by corporations, $245 billion went out, * but $184 billion came in, ** so the overall effect was only about $61 billion. I know, $61 billion here, $61 billion there, and soon you're talking about real money, but it wasn't the main factor in low investment.

* http://www.bea.gov/international/datatables/usdctry/usdctry.htm

** http://www.bea.gov/international/fdi-ctry.htm

[calmo]

I don't know how devastating "Tory" is...as devastating as "Old Fart"?
Possibly...esp possible in close quarters...ok, very probable in an elevator with only yerself and this very nubile young thing smellin juss wunnerfullll....
I do admit to pre-arming (aka 'the gas mask') myself against certain elevators: WSJ, The Economist, some writers in the NYTs, most writers in the major media outlets...and rarely even getting dressed for you people...such is my trust...and respect...for your noses and all.
Buiter seems to recognize that this is a major transition: that 70% consumptive GDP is going/gone...and Krugman is not up to puttin it to us so plainly: we stink.