Archive for April 2011
No Inflation
Bernanke and a majority of Fed officials predict that the surge in oil prices will lead only to a modest and short-lived increase in consumer prices as firms will have a very tough time passing cost increases on to consumers as slack in the labor market keeps wage increases to a minimum. Thus, inflation is…
Read MoreBeauty Beats Bucks
While money may not buy happiness beauty buys both money and happiness. Economic research shows that the beautiful are happier than the plain. Moreover, the majority of beauty’s effect on happiness works through its impact on economic outcomes! For example, better looking people earn more and marry those that are better looking who inturn earn…
Read MoreBudget Brawl Begins
The budget battle over FY ’12 is here! The R plan makes big cuts to Medicare & Medicaid, ignores Social Security (SS) and keeps the Bush tax cuts. The D plan, will also ignore SS (2 risky) and will propose; cuts to many programs, reduction of popular tax deductions, increased taxes for the rich and…
Read MoreBig Banks are Challenged
The lobbying power of big banks is being seriously challenged by an alliance of big retailers. The issue; the Durban amendment lowering interchange fess that banks collect when anyone buys anything with a debit card. Retailers pay the fee but pass it on to consumers. The fee averages $.44 and is as high as $.98.…
Read MoreChinese Trade Deficit!
Yesterday China reported that imports ($400bn) had exceeded exports ($399bn) in Q1 ‘11. This tiny deficit, China’s first in 7 years is an encouraging development for the world economy. It comes after 2 successive years of import growth outpacing exports. Hopefully this trend will continue. If so China will stop printing Yuan (to keep the…
Read MoreRepublicans Budgeting Badly
The Ryan G.O.P. Budget Proposal to abolish Medicare and replace it with vouchers to be used to buy private health insurance may be a great idea but privatizing Medicare does nothing to limit health-care costs. In fact, it almost surely raises them by adding a layer of private sector bureaucracy.Yet his plan assumes that we…
Read MoreECB Wrongly Raises Rates
The ECB hiked its main interest rate to 1.25% from 1%, yet inflationary pressures and growth prospects are no different in Europe than in the US and UK and they are not raising. This decision marks the moment when differences in analysis and not divergent economic circumstances, affect policy decisions. This decision will hurt the…
Read MoreNo Government, No Problem!
If the federal gov’t closes does it matter to the economy? NO! Social Security checks will continue arriving and air traffic controllers will still land planes. The fragile recovery will not be harmed. The most serious and negative consequence; a strong signal that the upcoming debt ceiling increase and FY 2012 budget battles will be…
Read MoreDibilitating Debt Service
Interest on the federal debt is 1.4% of GDP; $200 billion. But, it is projected to ramp up fast for 2 reasons. 1st we add $1.4 tillion to it every year and 2nd interest rates are at historic lows. If the annual deficit remains unchanged for 3 years and if interest rates double interest on…
Read MoreTreasury Yields, Stay!
There seems to be widespread view that Treasury yields will rise sharply once QE2 is over since the captive market for bonds, the Federal Reserve, will be gone. Wrong, wrong, wrong! The only way Treasury yields will increase is if we have an accelerating economy (not), rising credit demands met by increases in bank lending…
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