Archive for August 2011
Europeans in Denial
Euro leaders continue to deny the debt crisis they face. Rather than boosting the size of the Euro Stability Fund, which would give investors in Italian and Spanish bonds confidence, they ban short selling for a few weeks, get the ECB to buy 96 billion of Euro-zone debt, and talk about each country passing a…
Read MoreDebate’s Effect on Sentiment
The University of Michigan consumer sentiment index fell to 54.9 (the lowest level since the recession of ‘81)! This reading is, I think, a result of the corrosive debt ceiling debate; not due to chronic problems like high unemployment and the poor economy. If I am right, the index will largely bounce back next month…
Read MoreUndervalued Yuan
Chinese exchange rate and monetary policy is little more than a huge a transfer of income from poor households to wealthy corporations. An undervalued Yuan makes imports expensive but helps exporters. Similarly, very low interest rates on savings accounts and loans, helps state-owned corporations and banks but hurts savers. As a result wages and domestic…
Read MoreLabels and Quality
The Friday File: Designers of fancy clothes believe their clothes lend an air of status and prestige to the wearer. And they do! Research shows that it is not the design itself that counts but the label! Why? Same reason why the peacock with the best tail gets the girls! Labels are a signal of…
Read MoreCurrency Wars?
Declaring the Yen’s rise to be a threat to the economy the Bank of Japan massively intervened in the foreign exchange market to drive down its value. The Swiss did the same thing and now so are the Turks! I bet these interventions will become more common because expansionary fiscal policy is in deep hibernation…
Read MoreDeficit Reductions? It looks bad…
9 of the 12 members of the Joint Select Committee on Deficit Reduction, tasked with finding $1.2 trillion in deficit reductions over the decade, have been announced; it looks bad. Because there are 6 Ds and 6 Rs, 1 member must switch sides to reach 7 votes for passage. The best chance of that would…
Read MoreMethxico
Mexico is now the #1 supplier of methaphetamines in the US. Two reasons: a crackdown on marijuana eradication in Mexico has pushed producers there into synthetic drugs like meth which can be made more discreetly, can be produced in just hours and have higher margins. And, in ’05 Congress placed restrictions on the sale of…
Read MoreNew Jobs? Uh…
The July jobs report showed 117K new jobs, but the report also showed no rise in temporary help, no jump in hours worked, no bump in overtime. And, annualized wage growth of 2.8% in July was less that the 3.4% inflation rate. While the unemployment fell to 9.1% it’s because 193K left the labor force!…
Read MoreWealth Matters
The stock market has fallen by about 10% in the last two weeks, destroying about $2 trillion of wealth. If the market does not rebound quickly this will cut GDP by about $70 billion; half a percent. Here’s why. Suppose you just lost $10,000 due to the market decline, will you cut your annual spending…
Read MoreBlackmailer’s Paradox
Faced with a no new taxes or a debt default ultimatum from the Tea Party, Obama should have either called their bluff and appeared genuinely willing to let the US default or should have pursued the 14th amendment option with its language about “the validity of the public debt.” Either strategy would have attenuated Tea…
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