Category Archives: The Economy, Stupid

Krugman on Inflation and China

Podcast listeners know we’ve been harping on inflation lately, arguing that given America’s current budget deficit and liquidity trap, significant inflation is the most inevitable path out of this recession. Paul Krugman, in a column on China’s currency manipulation, agrees:

It’s true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. On the other hand, it would be a bad thing for China, which would suffer large losses on its dollar holdings. In short, right now America has China over a barrel, not the other way around.

Couple this with the news that the International Monetary Fund is talking about increasing inflation targets from 2% to 4%, and you can see an elite consensus emerging around the idea of higher inflation.

None of this is to argue that inflation is a “good” thing. Runaway inflation can certainly be bad for an economy. Just ask Zimbabwe or 1930s Germany. On the other hand, moderate inflation is good for debtors, such as, say, the US Government or the 1 in 4 homeowners who are underwater on their mortgages.

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Desperation

You don’t see many people begging to have the world’s Most Dangerous People given a new home in their backyards, but that’s how desperate Michigan has become.

In a nutshell, former governor John Engler is suggesting that Michigan offer the Upper Peninsula as a new home for a prison for the suspected terrorists who have been kept in the facility at Guantanamo that President Barack Obama intends to shut down.

Yup.  You gotta love an economy that leads people to beg the Feds for prisons.

We Need Another George Bush

If for no other reason than to focus our sense of outrage on one simple target rather than keep on with this societal splintering:

During the campaign, Obama was never shy about his promise to undo the Bush tax policies. But it was easy to ignore his occasional lapses into populist rhetoric and focus on his intense intelligence and Ivy League education. Now, in the wake of the crisis, Wall Street’s politics are shifting rightward. “All the rich people I know took George Bush for granted,” says an analyst at a midtown hedge fund. “I’m a Democrat, but I agree with Rush Limbaugh on a lot of this stuff,” rails the wife of a former AIG executive.

The anger masks a deeper suspicion that Obama fundamentally doesn’t respect their place at the table. “I think he doesn’t have an appreciation for how hard it is to build these companies, the blood, sweat, and tears that goes into them,” says a senior executive from a failed Wall Street firm. “It’s just that he has no passion for it. He speaks dispassionately about the whole situation, except when he’s beating up on the Wall Street fat cats.”

. . .

There’s a vast woundedness now on Wall Street, which is hard to contemplate after the period of triumphalism so recently ended. In this conversation about money, there’s a lot to work through. Just months ago, the masses kept what anger they had to themselves, and the bankers were close-lipped about what they thought they were owed by society. There wasn’t much of a dialogue about the haves and have-nots and who was entitled to what. For the privileged, it was a lot more comfortable when things remained unspoken. Almost more than the loss of money, they are concerned with the loss of status and pride.

Soon There Will Be No One Left To Blame, And Well How Good Will That Feel?

Oh well. At least we’ll always have Madoff:

The only real motivation that anyone at A.I.G.-F.P. now has is fear. Mr. Cuomo has threatened to “name and shame,” and his counterpart in Connecticut, Richard Blumenthal, has made similar threats — even though attorneys general are supposed to stand for due process, to conduct trials in courts and not the press.

So what am I to do? There’s no easy answer. I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust. Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.

That is why I have decided to donate 100 percent of the effective after-tax proceeds of my retention payment directly to organizations that are helping people who are suffering from the global downturn. This is not a tax-deduction gimmick; I simply believe that I at least deserve to dictate how my earnings are spent, and do not want to see them disappear back into the obscurity of A.I.G.’s or the federal government’s budget. Our earnings have caused such a distraction for so many from the more pressing issues our country faces, and I would like to see my share of it benefit those truly in need.

On March 16 I received a payment from A.I.G. amounting to $742,006.40, after taxes. In light of the uncertainty over the ultimate taxation and legal status of this payment, the actual amount I donate may be less — in fact, it may end up being far less if the recent House bill raising the tax on the retention payments to 90 percent stands. Once all the money is donated, you will immediately receive a list of all recipients.

I liked Japan a lot better when it was a quaint little town in that Bill Murray movie

Ever wonder what it’s like to live in Japan?  Wait no more:

Going further than analysts anticipated, the [Fed] cut its target for the overnight federal funds rate to a range of 0 to 0.25 percent, a record low, virtually bringing the United States to the zero-rate policies that Japan used for six years in its own fight against deflation.

Elvis has officially left the building vis a vis the U.S. economy.  This is basically the last thing the Fed can do to try and improve the declining fortunes of U.S. business.

It also means that we’re officially in a “liquidity trap” — too many dollars chasing too few profitable investments.  The only way out of this — which is the same way Japan managed to keep its people going during their own crisis — is through fiscal policy.  Any members of Congress who disagree with Obama’s plans for a massive expansion in infrastructure spending should be reviled; their idealogical positions leading them to short-sightedness as criminal as Smoot and Hawley’s.

Going to be a long, strange trip.

A Worthwhile Idea

Somewhat ironically, the best thing to do in a recession (from a macroeconomic perspective, at least) is spend spend spend.

So it’s with that in mind that a friend of mine has started a new Facebook group — Second Christmas (you’ll probably need a Facebook account to access).

2nd Christmas is January 20th, 2009, which is also Inauguration Day for President-elect Barack Obama.

2nd Christmas was created in the spirit of renewed hope and optimism for a country, and a world, devastated by the last eight years of negligent and inept leadership.

It is our sincere hope that a positive outlook and real, progressive change will spread starting with the inauguration of President-elect Barack Obama on January 20th, 2009.

To encourage the start of this renewed growth and return to a equitable and prosperous future, we suggest our own stimulus plan in the form of…2nd Christmas!

It’s a worthwhile idea.  Check it out if you have a chance.

And Gary Condit Should Face Justice, Now That I Think About It!

Before the existential threat of Islamic fanaticism took up most of my ire, I was most pissed about ATM fees. Guess what’s back:

Citigroup is not the only bank grappling with tremendous losses. Many financial institutions are hiking customer fees at record levels.

It may be quick and easy, but that ATM convenience is going to cost you. Citibank, Chase, Bank of America and Wells Fargo are all starting to charge non-customers as much as $3 per transaction to use their machines.

“I think it’s kind of ridiculous because everybody is going through economic hardships,” New Yorker said Margo Waltz said.

. . .

Several banks are also boosting minimum account balance requirements and experts warn this is just the beginning as banks merge or go belly-up.

“The fewer banks you have the fewer choices consumers have the more a sort of gotcha the banks have,” Ludwig said.

One alternative experts are suggesting is checking out your local credit union.

“They’re not going to gouge their members because their members are the people who run the credit union,” Ludwig said.

States currently control interest rates, which are practically unlimited. Consumer advocates are calling on the Federal Reserve to step in as they did after the 1989 savings and loan bailout. They want interest rates and fees capped.

It’s estimated banks collected $17 billion in overdraft fees last year alone.