August 20, 2010

Economic Events of the Week

Friday – Regional and State Unemployment

Featured Story
Save The Date: e21/SOMC Symposium: "Addressing Global Imbalances" (10/12 in NYC)

Washington Update
CBO Says Deficit Shrinks Slightly But Debt Threatens Fiscal Future (Congressional Quarterly)
Is Obama FDR or Hoover? Or Neither? (Ezra Klein in Washington Post)

Financial Markets News
Leading Economic Index Signals Slow Growth (Wells Fargo)
Initial Claims for Unemployment Insurance Increase to 500,000 (Economist's View)
Fresh US Recovery Fears Hit Asian Stocks (Financial Times)

Editorials and Commentaries
Needed: A New Economic Paradigm (Joseph Stiglitz in Financial Times)
Appeasing the Bond Gods (Paul Krugman in New York Times)
The Coming Democratic Split on Social Security (KeithHennessey.com)

Featured Story

Save The Date: e21/SOMC Symposium: "Addressing Global Imbalances" (10/12 in NYC)

Economics21 presents the Shadow Open Market Committee (SOMC) symposium, "Addressing Global Imbalances," with keynote speaker Axel Weber, President of the Deutsche Bundesbank and Member of the Governing Council of the ECB on October 12, 2010 in New York City. Position papers will be presented by SOMC members Michael Bordo, Charles Calomiris, Gregory Hess, Marvin Goodfriend, Mickey Levy and Bennett McCallum. Details on time and location will be forthcoming. Click the link to RSVP.

Washington Update

CBO Says Deficit Shrinks Slightly But Debt Threatens Fiscal Future (Congressional Quarterly)

While offering a slightly improved short-term outlook for the federal budget deficit, Congress’ top budget adviser on Thursday warned of a bleak fiscal future. The government is on track to spend about $1.342 trillion more than it takes in for fiscal 2010, which ends Sept. 30, the Congressional Budget Office said. That’s about $27 billion less than CBO‘s March deficit estimate, and it would be $71 billion less than the deficit for fiscal 2009.

Is Obama FDR or Hoover? Or Neither? (Ezra Klein in Washington Post)

Wasn't Barack Obama supposed to be FDR? A Democrat elected amid an economic collapse who presides over a roaring recovery and reshapes American politics in his image? One possible irony is that, as Jonah Goldberg has argued, 2008 may not have been 1932, it may have been 1929. In which case, Obama is Hoover. I think this is right on. But Goldberg should have gone one step further and actually checked the numbers. In 1932, the year FDR was elected, GDP fell by 13.1 percent. That's horrifying. In 1934, the year FDR bucked the historical trend and led his party to an eight-seat gain in his first midterm election, GDP expanded by 10.9 percent.

Financial Markets News

Leading Economic Index Signals Slow Growth (Wells Fargo)

The takeaway from the modest increase in the leading index is that growth will continue in the second half of 2010, but the pace of that growth will be painfully slow. The spread between the yield on the 10-year Treasury and the fed funds rate boosted the leading index in July as it has every single month for the last two and a half years. The Fed will keep rates low until a sustainable recovery takes hold. With no substantive sign of job growth, consumer sentiment remains at very low levels. Consumer expectations also weighed on the leading index as the consumer outlook got even darker.

Initial Claims for Unemployment Insurance Increase to 500,000 (Economist's View)

Initial claims for unemployment insurance took a turn for the worse and climbed back to 500,000, the highest level since late in 2009. The 4-week moving average was 482,500, an increase of 8,000 from the previous week's revised average of 474,500. Claims have been moving sideways for several months and are at the highest level since late in 2009. This is not very good news.

Fresh US Recovery Fears Hit Asian Stocks (Financial Times)

Asian stock markets tumble after overnight losses on Wall Street as weak US jobs market data cast a shadow on the global economic recovery while the higher yen continues to hurt Japanese exporters. The Dow Jones Industrial Average plunged 1.4 per cent on Thursday after jobless claims unexpectedly rose to their highest level since November 2009.  Government bond yields are falling further into uncharted territory. The US Federal Reserve also announced its first purchases of Treasuries, buying $3.6bn. The yield of 10-year US Treasuries hit a new 11-month low of 2.57 per cent. Yields on 30-year US bonds were down a whopping 10 basis points, to 3.64 per cent, and German 30-year bond yields were at a fresh all time low, just below 2.98 per cent.

Editorials and Commentaries

Needed: A New Economic Paradigm (Joseph Stiglitz in Financial Times)

The blame game continues over who is responsible for the worst recession since the Great Depression – the financiers who did such a bad job of managing risk or the regulators who failed to stop them. But the economics profession bears more than a little culpability. It is hard for non-economists to understand how peculiar the predominant macroeconomic models were. Many assumed demand had to equal supply – and that meant there could be no unemployment. Bad models lead to bad policy: central banks, for instance, focused on the small economic inefficiencies arising from inflation, to the exclusion of the far, far greater inefficiencies arising from dysfunctional financial markets and asset price bubbles.

Appeasing the Bond Gods (Paul Krugman in New York Times)

Late last year the conventional wisdom on economic policy took a hard right turn. Even though the world’s major economies had barely begun to recover, even though unemployment remained disastrously high across much of America and Europe, creating jobs was no longer on the agenda. Instead, we were told, governments had to turn all their attention to reducing budget deficits. Just you wait, said the austerians: the bond vigilantes may be invisible, but they must be feared all the same. But the argument has become even stranger recently, as it has become clear that investors aren’t worried about deficits; they’re worried about stagnation and deflation. And they’ve been signaling that concern by driving interest rates on the debt of major economies lower, not higher. So how do austerians deal with the reality of interest rates that are plunging, not soaring? 

The Coming Democratic Split on Social Security (KeithHennessey.com)

The president has two challenges: How does he convince enough congressional Democrats to support a deal they won’t like because it doesn’t raise taxes, and how does he mitigate the attacks from those on the left who deny a serious and immediate problem even exists? In modern American politics, presidential leadership sometimes means angering many in your own party to accomplish a national goal. If doing so is the only feasible legislative path to addressing this critical policy problem, will the president be willing to lead?

e21: Economic Policies for the 21st Century is a nonprofit, nonpartisan organization dedicated to economic research and innovative public policies for the 21st century. Drawing on the expertise of practitioners, policymakers, and academics, we aim to advance free enterprise, fiscal discipline, economic growth, and the rule of law.

2010, e21 - An initiative for 21st Century Economic Policies