Turkish Fiscal Rule: Dead the Day It Was Born

I was watching a Richard Gere movie last week, where one of the villains had a tattoo on his forehead in Cyrillic that read “I was dead the day I was born.

The expression seemed to ring some bells. First, I thought it was from a Beckett play, but I had given up on existentialism long ago. It all made sense a couple of days later when Economics tsar Ali Babacan unveiled the much-awaited fiscal rule, establishing that I had experienced some kind of premonition.

Comparing World Indices

Nice looking chart from Doug Short regarding how the major bourses have been trading:  “Here is a new overlay of five world markets since March 9, 2009. The start date is arbitrary: The S&P 500 hit a low on March 9th, the Nikkei 225 on March 10th, the DAX on March 6th, the FTSE on […]

So Damn Little Money

The financial reform legislation currently heading into a June Senate-House conference will, at best, do little to affect the incentives and beliefs at the heart of the largest banks on Wall Street.  Serious attempts to strengthen the bill through amendment – such as Brown-Kaufman and Merkley-Levin – were either shot down on the floor of the Senate or, when their prospects seemed stronger, not allowed to come to a vote.

Senator Blanche Lincoln is holding the Alamo with regard to reining in the big broker-dealers in derivatives.  But these same people are bringing to bear one of the most intensely focused lobbying campaigns of recent years, bent on killing her provisions (or weakening them beyond recognition).  All the early indications are that the lobbyists, once again, will prevail.

Positive Sign: Worker Mobility

One of the data points that has been getting some attention is the total withholding tax receipts, as reported by the IRS.  

According to the table below, it is down year over year. Some are interpreting this to contradict BLS, and likely means that the improving jobs data are bogus. Bill King specifically noted that “as of May 20, IRS data shows Withheld Income & Employment Taxes declined 3.36% y/y. This means income is still declining and by extension, meaningful jobs are still decreasing (the BLS considers someone that has done one hour of work on the day that it samples as ‘employed’. So theoretically a person can work one hour a month and be counted as employed.)” >

Regulation vs. Structural Change

Robert Reich discusses a theme that I think I’ve discussed before (and first heard expressed by Ezra Klein):

“The most important thing to know about the 1,500 page financial reform bill passed by the Senate last week — now on he way to being reconciled with the House bill — is that it’s regulatory. It does nothing to change the structure of Wall Street.”

“The only way to have a lasting effect on industries as large and intransigent as banking and health care is to alter their structure. That was the approach taken to finance by Franklin D. Roosevelt in the 1930s, and by Lyndon Johnson to health care (Medicare) in the 1960s.

“So why has Obama consistently chosen regulation over restructuring? Because restructuring Wall Street or health care would surely elicit firestorms from these industries. Both are politically powerful, and Obama did not want to take them on directly.”

Obama’s Regulatory Brain

The most important thing to know about the 1,500 page financial reform bill passed by the Senate last week — now on he way to being reconciled with the House bill — is that it’s regulatory. It does nothing to change the structure of Wall Street. 

The Three Pillars of Failure and Success

The emerging markets are an oasis of prosperity, while most of the developed world wallows in crisis. This is unfamiliar territory for most economists and investors. For decades, the emerging markets were embroiled in political, social and economic instability. Moreover, problems in the developed world usually triggered massive unrest in the developing world. However, the situation changed dramatically during the last few years. Not only did the emerging markets decouple from the developed world, one could argue that it is now the driver of global growth and stability. In other words, events in the emerging markets could serve to either stabilize or destabilize the rest of the planet. Of course, this should not be any surprise. The emerging markets represent 88% of the world’s consumers. Europe, the U.S. and Japan represent less than 12% of the globe’s population. However, variances in education, prosperity and capital accumulation allowed it to have a much larger slice of the global economic pie. Per-capita incomes in the west were huge multiples of those found throughout Latin America, Africa and Asia. However, the tide began to change more than a decade ago. The developed world slowly began relaxing its commitment to fiscal and monetary austerity. Meanwhile, the emerging markets developed a new affinity for flexibility and thrift.

Deposit Insurance: The Forgotten Moral Hazard

Some members of Congress want to make permanent the “emergency” expansion of deposit insurance (in fact, the government guaranty of bank deposits) to $250,000 per person per bank.  Moreover, important provisions of the Senate and House regulatory expansion bills which deal with large non-bank financial companies are modeled on the FDIC.

Where do the members of Congress get the idea that the FDIC is a success?

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