Stung by myriad criticisms of the Fed, Athreya attempted to defend the priesthood of economics. “Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy,” he wrote.
Last year, in the town of Quanzhou, right across the straight from Taiwan, a company you’ve probably never heard of opened up the world’s largest production base for bamboo fabrics (Chinese). People who follow the green blogs have probably heard of bamboo fabrics super-green qualities, or the fact that those super-green qualities are all lies, but the take away I got from that little piece of news is somewhat different. Whether or not bamboo is green, its most important quality to the Chinese is that it’s not made with oil (as most synthetic fabrics are). As oil quickly increases in price, China is doing everything it can to find other resources that can be used as alternatives; cotton and even bamboo are beneficiaries.
We’ve warned for some time that the eurozone’s sure-to-fail muddle-through approach to its structural challenges was rattling investor confidence. Worse, its insistence on wearing an austerity hairshirt was not only committing Europe to deflation, but had high odds of sucking the global economy down along with it. Given how fragile the recovery is in advanced economies, and the magnitude of the debt overhang in many nations, a downturn could easily morph into a deflationary downspiral, potentially a full blown depression.
The current economic question is what to do about budget deficits. The Greek crisis has made sovereign debt a genuine concern even among advanced countries. (I should say “especially among advanced countries,” because developing countries have stronger fiscal positions, in a historic reversal of roles.) At this weekend’s G-20 Summit, Germany and the UK are defending strong fiscal austerity, with language that doesn’t even allow for the idea that short-term spending might be expansionary under severe recessionary conditions such as 2008-09. In the US, Peter Orszag is reported this week to have resigned as OMB Director, not just to get married, but supposedly in part out of frustration about the fiscal outlook and President Obama’s refusal, as part of any comprehensive deficit correction program, to reverse his campaign pledge against raising taxes on those earning less than $250,000.
Wait, wasn’t the regulatory reform conference over? In a surprise move, conference members reconvened yesterday “in an emergency session to salvage votes” for the bill they passed out just last week. Now that they have dropped the $19 billion bank levy and raised FDIC premiums, can they move on? In my opinion, no. The emergency conference is just the latest evidence that the bill passed out last week is nowhere near complete.
I have said many times now, while I don’t necessarily agree with the three core elements of the bill – resolution authority, systemic risk regulation, and consumer financial protection – I can at least say that they have been sufficiently debated to the extent that Congress is reasonably unified around the concepts. The rest can go.
Andy Harless presents the case for a double dip (second recession) – I would re-order #1 and #2 on that list – and that for a sustained recovery. #6 of Andy’s case for a sustained recovery (he calls it Case Against a Second Dip) caught my attention, pointing me to an earlier Paul Krugman article about positively-sloped yield curves in a zero-bound policy environment.
In a related article, Krugman argues that a current policy of near-zero short-term rates precludes the lowering further of future short-term rates. Therefore, the steep yield curve reiterates that rates have nowhere to go but up rather than that the economy is expected to improve.
The next financial boom seems likely to be centered on lending to emerging markets. Sam Finkelstein, head of emerging markets debt at Goldman Sachs Asset Management, summed up the prevailing market view – and no doubt talked up his own positions – with a prominent quote in Monday’s Financial Times (p.13, front of the Companies and Markets section):
“Debt-to-GDP ratios in the developed world are about double those in emerging markets and they’re growing. This makes emerging markets interesting because you’re pick up incremental spread [higher interest rates compared with developed world rates], and in return you’re actually taking less macroeconomic risk.”
This is a dangerous view for three reasons.
Today the conference board announced a downward revision in its almost brand new leading indicator for China, suggesting that Chinese growth trajectory will be slower than expected. Markets characteristically did not react well, with the Shanghai stock exchange falling over 4% today, extending its losses to 26% from the peak. But liquidity rather than just the news about the revision seems more likely to be the cause.
The most recent (April 2010) reading of the conference board leading indicator, which launched earlier this quarter shows an increase of only 0.3% rather than the 1.7% previously indicated. The downward revision, wholly due to a miscalculation in one of the four main indicators used (the construction sector), brings the CB survey more in line with the longer standing OECD leading indicator for China, which has been signaling a deceleration of growth of late. In fact, the strength of the indicator was puzzling when the first version was released in mid June, since it seemed at odds with a range of other recent data.
Let me start by noting that the essay is not even digitized in a convenient form — it is a pdf — and to me that says a lot about the writers knowledge of how the digital world works. Why not make it available in a convenient form (unless the goal is to overcome the fact that federal reserve work cannot be copyrighted by making it difficult to reproduce)? (This is an irritation more generally, and the Kansas City Fed is the worst. Even the president’s speeches are offered only as pdfs — and they are locked to prevent copying — rather than in a more convenient digital form. Are they trying to discourage this information from more general circulation? If so, why?) [Update: I added a few follow up comments on pdfs at the end of the post.]
The RMB has moved, sort of. At the time of writing the exchange rate was 6.79 RMB/$, from 6.82 about a week ago. Or to put it another way, the wages of the average laborer at the Foxconn plant in Shenzhen rose from 293$ a month to 294.5$ a month.
Of course perhaps there is more to come, but will that make any difference? Some things to consider: