mersenneforum.org - Mystery Economic Theater 2012

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[QUOTE=garo;318079]Sooo... Reviving an old theme on this thread. Niall Ferguson had a partisan screed in the Newsweek [url]http://www.thedailybeast.com/newsweek/2012/08/19/niall-ferguson-on-why-barack-obama-needs-to-go.print.html[/url]

Obligatory skewering:
[url]http://krugman.blogs.nytimes.com/2012/08/19/unethical-commentary-newsweek-edition/[/url]
[url]http://delong.typepad.com/sdj/2012/08/more-lies-from-niall-ferguson.html[/url]
and the best:
[url]http://www.theatlantic.com/business/archive/2012/08/a-full-fact-check-of-niall-fergusons-very-bad-argument-against-obama/261306/[/url]

Notice the switcheroo?[/QUOTE]
Yeah, that kind of shifting-baselines faux-comparison - in Ferguson`s case, ascribing the massive wave of job losses in 2008 and 2009 to Obama, despite the fact that that was clearly inherited - is stock-in-trade of poltical demagogues on both sides. On the left, the common ruse is to set the baseline to the depths of the 2009 employment malaise and then ascribe all the subsequent jobs-created to "Obama stimulus", and conveniently ignore both the dismal average quality of the jobs-created and the expected number of jobs-created simply due to population growth in the same time period. Let`s face it: By any reasonable historic standard of "jobs creation during economic recoveries", the quality and quantity of jobs created during the current so-called recovery have been abysmal.

No, what I find most telling is Ferguson`s disclosure of having been an economic adviser to John McCain - that puts him right there with Kevin "Dow 36,000" Hassett as far as objectivity and credibility are concerned.

Interestingly, though, Ferguson`s note about the rising cost of healthcare strikes me as downright optimistic:
[i]
"Obama`s much-vaunted health-care reform will not prevent spending on health programs growing from more than 5 percent of GDP today to almost 10 percent in 2037."
[/i]
I look at [url=http://market-ticker.org/akcs-www?get_gallerynr=3695]this chart here[/url] - which makes less-rosy assumptions about healthcare spending, in that it simply extrapolates the last 30 years` spending trends - and reach rather more-dire conclusions, namely that without truly radical, unprecedented downward-bending of the cost curve, we are going to cost-double in under a decade. Of course once you get to fractions of 10% and more of GDP the sheer untenability of the trend will show, but *that* resulting cost-attenuation will be of the involuntary, and hence immensely painful variety.

Among the ripostes, [i]The Atlantic's[/i] O'Brien makes this pathetic attempt at a "counter" regarding real incomes:
[quote][quoting Ferguson] [b]"Meanwhile real median annual household income has dropped more than 5 percent since June 2009."[/b]

I can't replicate this result. It's difficult, because Ferguson does not cite his source. The Census Bureau only has data on real median household incomes through 2010 -- and it shows them falling 2.28 percent from 2009. The Bureau of Labor Statistics has numbers on real median weekly earnings that go through 2012, but those only show a 3.7 percent decrease from June 2009.[/quote]
Ah, so if you accept the government's typically-understated estimates of price inflation (which long-term comparisons show to be around 1% annually here in the US), incomes have "only" dropped somewhere around 3 percent since mid-2009 - awesome, that paints an entirely different trend than Mr. "hega-downer" Ferguson and his overly pesssimistic -5%, don't it?

[url]http://2.bp.blogspot.com/-NHXFCrOgfS0/UBvGWEvgDAI/AAAAAAAAOrU/UOLrtOQieR8/s1600/EmployRecJuly2012.jpg[/url]

suggests that the recovery rate is just about the same as after the 2001 recession - that is, it's possible that the economy is in a large-scale state such that this is as good as it gets. I'd be ready to believe that there was a difference in kind between the Cold War and the globalised planetary economy.

Another one of O'Brien's retorts from [I]The Atlantic[/I] article:

[quote][B]"By the end of this year, according to the Congressional Budget Office (CBO), [debt-to-GDP ratio] will reach 70 percent of GDP. These figures significantly understate the debt problem, however. The ratio that matters is debt to revenue. That number has leapt upward from 165 percent in 2008 to 262 percent this year, according to figures from the International Monetary Fund."[/B]

This is incorrect. Ferguson had it right the first time -- the number that matters is debt-to-GDP, not debt-to-revenue. The former reflects our capacity to pay; the latter our willingness to pay right now. Moving on.[/quote]Not so fast - even if we accept debt-to-GDP as the main measure, we must similarly include debt of *all* kinds, not the phony-baloney "two sets of ledgers" accounting represented by the division of government borrowings into "public debt" and "intragovernmental borrowings", a.k.a. "raiding the social security and mediare trust funds". Add those together and the total debt to GDP passed 100% this year, and we are piling on 7-8% a year. And were we to not count each year's borrowed monies as contributing to that year`s GDP, i.e. were we to use "nonborrowed GDP" for the denominator, things would look proportionally worse.

[quote][B]"Not only did the initial fiscal stimulus fade after the sugar rush of 2009, but the president has done absolutely nothing to close the long-term gap between spending and revenue."[/B]

Ferguson wasn't always a critic of the stimulus. Back in August 2009, he wrote that "the stimulus clearly made a significant contribution to stabilizing the U.S. economy." Perhaps he thinks the stimulus should have been bigger so the "sugar rush" would last lasted longer? It's not clear. What is clear is that Obama has tried to close long-term deficits -- several times! And the sequester scheduled for next January is his deal with Republicans to rein in spending. More on that in a bit.[/quote]On the "has tried" front, let's simply look at the actual current-account-balance numbers for added total debt in the past 4 years (Using the current 10-month run rate to extrapolate a full-year estimate for 2012):

2009: $-1.647 trillion
2010: $-1.852 trillion
2011: $-1.225 trillion
2012: $-1.246 trillion

I see no serious attempt "to close long-term deficits" there: Rather, I see a one-time stimulus spending program spread over 2009-2010 superimposed on "new normal" structural deficits of around 8% of GDP. Also, I have to laugh at O'Brien's overly optimistic "the sequester scheduled for next January is his deal with Republicans to rein in spending" - I predict any "compromise reached" will be of the DC big-spender variety where both sides throw out any of their proposals which would have closed the deficit, and "compromise" to kick the can down the road yet again.

Heck, the choice of the [URL="http://globaleconomicanalysis.blogspot.com/2012/11/misdiagnosing-fiscal-cliff-shrill.html"]fiscal cliff[/URL] wording - which IIRC was due to the counterfeiter-in-chief, Herr Bernanke - shows the mind-set. In terms of "closing long-term deficits" the very best thing would be to do nothing, i.e. allow both the Bush tax cuts for the rich and the Obama "temporary" cuts to SS payroll deductions to expire. Instead that dual expiry gets tagged with a mame implying horrific results, and the media dutifully propagate the meme.

The rest of it is mostly O'Brien and Krugman echo-chambering each other: Spinning "...but today we can borrow at near 0% interest rates" as a sign of how much faith the rest of the world has in the U.S.' ability to make good on all those IOUs rather than "every other non-banana-republic debt issuer looks even more debt-screwed than Uncle Sam, so I`ll take +0.something over -0.something, even if I have no confidence in the stability of the underlying currencies being such as to make nominal interest rates meaningful to begin with." Recall that Greece was able to borrow at "historically low interest rates" not very long ago, too. To be fair, on the flip, side, Japan still is. All we can safely conclude is that low-interest borrowing is a privilege, not a right, and thus that one should be careful not to abuse it. For Japan is it now in fact an absolute necessity, since should interest rates rise even 1%, Japan's budget blows up instantly.

[QUOTE=ewmayer;318197]
Add those together and the total debt to GDP passed 100% this year, and we are piling on 7-8% a year.[/QUOTE]

1-(1/1.08) = 1/13.5 so it looks as though $1/($13.5 debt) has to be paid before interest to just stay even. which means about 7.5% GDP if debt=GDP, I think I read somewhere it may be 102% GDP = debt in which case to stay even it goes closer to 7.6% GDP to break even once interest is added.

In the U.S., retailers as usual are pushing the "official" kickoff of the holiday shopping season ever closer toward what appears to be their ultimate target of merging it with the July 4th Independence Day festivities:

[url=www.mercurynews.com/business/ci_21981015/target-has-earlier-start-holiday-shopping-kickoff]Target has earlier start for holiday shopping kickoff[/url]
[quote]NEW YORK (AP) -- Target will open its doors at 9 p.m. on Thanksgiving, three hours earlier than a year ago, to kick off the holiday shopping season.

The discounter joins several other major retailers, including Wal-Mart Stores, that are opening earlier in the evening on the holiday and staggering deals over the two-day period. Over the years, stores have been expanding their hours on Black Friday to get ahead of the competition, but the kickoff is increasingly happening right after shoppers finish their turkey feast.

"We thought long and hard about when the right opening time would be," said Kathee Tesija, Target's executive vice president of merchandising. She said that 9 p.m. struck "a perfect balance" for its customers.

Target, based in Minneapolis, plans to offer deals that include an Apex 32-inch LCD TV for $147 and a Nikon digital camera for $99.99 for the earlier opening. From 4 a.m. to noon, the next day, customers who spend $50 or more on clothing, accessories or home products will earn a $10 Target gift card to use toward a future purchase. Target is also preparing additional early morning specials, including Leapfrog Explorer software for $15.

Wal-Mart said last week it will begin its holiday sale at 8 p.m. on Thanksgiving, two hours earlier than last year. It then will have two more rounds of sales events including a 10 p.m. sale on electronics and another sale at 5 a.m. the next day. [/quote]

It pays to track prices for big-ticket items one is interested in throughout the year, as many of those alleged Black Friday "bargains" turn out to be of the "not so much" variety. Back in mid-October, the WSJ [url=http://www.zerohedge.com/news/2012-10-10/popping-black-friday-myth]exploded many Black Friday myths[/url]:
[quote]After crunching two to six years' worth of pricing data for a number of typical holiday gifts, The Wall Street Journal has turned up the best times to go deal hunting — and they almost never involve standing in the freezing cold all night.

It turns out that gifts from Barbie dolls to watches to blenders are often priced below Black Friday levels at various times throughout the year, even during the holiday season, and their prices follow different trajectories as the remaining shopping days tick down.

Watches and jewelry, typical last-minute quarry for well-heeled shoppers, get more expensive as the season progresses, according to Decide Inc., the consumer-price research firm that gathered and analyzed the data for this article. Blenders, which might sit around for months if they aren't bought in the holiday window, get much cheaper at the end.[/quote]

[QUOTE=ewmayer;318197]
On the "has tried" front, let's simply look at the actual current-account-balance numbers for added total debt in the past 4 years (Using the current 10-month run rate to extrapolate a full-year estimate for 2012):

2009: $-1.647 trillion
2010: $-1.852 trillion
2011: $-1.225 trillion
2012: $-1.246 trillion

The rest of it is mostly O'Brien and Krugman echo-chambering each other: Spinning "...but today we can borrow at near 0% interest rates" as a sign of how much faith the rest of the world has in the U.S.' ability to make good on all those IOUs rather than "every other non-banana-republic debt issuer looks even more debt-screwed than Uncle Sam, so I`ll take +0.something over -0.something, even if I have no confidence in the stability of the underlying currencies being such as to make nominal interest rates meaningful to begin with." Recall that Greece was able to borrow at "historically low interest rates" not very long ago, too. To be fair, on the flip, side, Japan still is. All we can safely conclude is that low-interest borrowing is a privilege, not a right, and thus that one should be careful not to abuse it. For Japan is it now in fact an absolute necessity, since should interest rates rise even 1%, Japan's budget blows up instantly.[/QUOTE]

Oh come on Ernst. I find it telling that you reserve most of your comments for O'Brien rather than Ferguson. Are you guilty of confirmation bias?

BTW, people need to understand that this time is different. Or rather last time was different. The 2001 recession was different in that job growth was slower than it had been in any recession since WWII. Perhaps the period from 1946 to 2000 was the outlier and we need to get used to 1-2% growth rates foreva!

[QUOTE=garo;318420]Oh come on Ernst. I find it telling that you reserve most of your comments for O'Brien rather than Ferguson. Are you guilty of confirmation bias?

BTW, people need to understand that this time is different. Or rather last time was different. The 2001 recession was different in that job growth was slower than it had been in any recession since WWII. Perhaps the period from 1946 to 2000 was the outlier and we need to get used to 1-2% growth rates foreva![/QUOTE]

I see a way to get job growth up based on perceptions of big business and government. Make a tax break for expansion using true Americans and base it on unemployment as unemployment grew it would become more taxing, if it fell then so would the percentage taxes they had to pay the extra people pay the government taxes boosting government income if it's set up correctly, the business gets a tax break boosting it's revenue if even a few of the new employees make them revenue, and unemployment falls the problems with this are things like less competition, etc.

[QUOTE]I see a way to get job growth up based on perceptions of big business and government. Make a tax break for expansion using true Americans and base it on unemployment as unemployment grew it would become more taxing, if it fell then so would the percentage taxes they had to pay the extra people pay the government taxes boosting government income if it's set up correctly, the business gets a tax break boosting it's revenue if even a few of the new employees make them revenue, and unemployment falls the problems with this are things like less competition, etc.[/QUOTE]

Another pie in the sky prognosticator?

Realistically, does anyone here actually expect the politicians to DO something about the debt? This will be another magicians trick. A loud boom, a blinding flash, and then voila, we will still be in debt over our ears.

I found the most refreshing Veterans Day verbiage this past Sunday to be this 2007 quote by a recent longshot presidential candidate:
[i]
"Cliches about supporting the troops are designed to distract from failed policies, policies promoted by powerful special interests that benefit from war, anything to steer the discussion away from the real reasons the war in Iraq will not end anytime soon."[/i] -- Ron Paul

Mish has a link today to [url=http://globaleconomicanalysis.blogspot.com/2012/11/ron-paul-american-hero-his-farewell.html]Paul's farewell speech[/url] to the U.S. House of Representatives, from which he is retiring after 30 years of service. Good stuf in there.

Continuing in the vein of economic and personal liberty, Paul also had some interesting and non-pandering things to say about allegations about post-Hurricane-Sandy gasoline price gouging in the Northeast:

[url=http://www.ronpaul.com/2012-11-12/ron-paul-abolish-all-price-controls-let-the-free-market-function/]Ron Paul says post-Sandy “price gouging” would’ve helped solve the gas shortage[/url]
[quote]In the wake of Hurricane Sandy, the supply of gasoline was greatly disrupted. Many gas stations were unable to pump gas due to a lack of electricity, thus greatly reducing the supply. At the same time demand for gasoline spiked due to the widespread use of generators. Because gas stations were forbidden from raising their prices to meet the increased demand, miles-long lines developed and stations were forced to start limiting the amount of gasoline that individuals could purchase. New Jersey gas stations began to look like Soviet grocery stores.

Had gas stations been allowed to raise their prices to reflect the increased demand for gasoline, only those most in need of gasoline would have purchased gas, while everyone would have economized on their existing supply. But because prices remained lower than they should have been, no one sought to conserve gas. Low prices signaled that gas was in abundant supply, while reality was exactly the opposite, and only those fortunate enough to be at the front of gas lines were able to purchase gas before it sold out. Not surprisingly, a thriving black market developed, with gas offered for up to $20 per gallon.

With price controls in effect, supply shortages were exacerbated. If prices had been allowed to increase to market levels, the profit opportunity would have brought in new supplies from outside the region. As supplies increased, prices gradually would have decreased as supply and demand returned to equilibrium. But with price controls in effect, what company would want to deal with the hassle of shipping gas to a disaster-stricken area with downed power lines and flooded highways when the same profit could be made elsewhere? So instead of gas shipments flooding into the disaster zones, what little gas supply is left is rapidly sold and consumed.

Governments fail to understand that prices are not just random numbers. Prices perform an important role in providing information, coordinating supply and demand, and enabling economic calculation. When government interferes with the price mechanism, economic calamity ensues. Price controls on gasoline led to the infamous gas lines of the 1970s, yet politicians today repeat those same failed mistakes. Instituting price caps at a below-market price will always lead to shortages. No act of any legislature can reverse the laws of supply and demand.[/quote]

[b]Friday Humor:[/b]

ZeroHedge has a handy-dandy surefire recipe for [url=http://www.zerohedge.com/news/2012-11-16/guest-post-start-your-own-financial-media-channel-template]starting your own financial-media empire[/url], which reduces creation of sizzling MSFM "economic analysis" pieces to simple quasi-randomized lookups in small precomputed "tag lists", such as
[quote]TAG_010
(a) Quantitative easing, (b) Unindicted counterfeiting, (c) Debt-based prosperity, (d) Self-medication

TAG_011
(a) New unemployment claims, (b) The CPI, (c) Manufacturing inventories, (d) Imported plastic gew-gaws

TAG_012
(a) M2, (b) Rate of growth in M2, (c) False-flag operations, (d) Rate of growth in false-flag operations, (e) "Hello Kitty" futures contracts [/quote]

Fun with mixed metaphors, NYT blowhard Middle-East op-ed style:

[url=http://www.rollingstone.com/politics/blogs/taibblog/rewrite-thomas-friedmans-syria-column-win-a-free-hand-grenade-20121114]Rewrite Thomas Friedman's Syria Column, Win a Free Hand Grenade | Matt Taibbi | Rolling Stone[/url]

My belated entry:
[i]
To paraphrase a famed tennis player whose temper was volatile as that of a fractured ethnic-factional hand grenade whose pin has been ripped out by the iron fist of a bad call by a linesperson, "you cannot be Syrious!"
[/i]
The winners of the above impromptu contest are enlaureled by Taibbi in his followup blog piece [url=http://www.rollingstone.com/politics/blogs/taibblog/the-grenade-of-understanding-winners-of-the-write-like-friedman-challenge-20121115]here[/url].

[url=www.mercurynews.com/weird-news/ci_21988207/woman-who-drove-sidewalk-avoid-school-bus-forced]Woman who drove on sidewalk to avoid school bus forced to hold 'idiot' sign[/url]
[quote]CLEVELAND -- A woman caught on camera driving on a sidewalk to pass a Cleveland school bus that was unloading children stood in the cold Tuesday at an intersection holding a sign warning people about idiots.

The sign read: "Only an idiot would drive on the sidewalk to avoid a school bus."

A Cleveland Municipal Court judge ordered 32-year-old Shena Hardin to serve the highly public sentence for one hour Tuesday and Wednesday for the Sept. 11 citation.

She arrived bundled up against the 34-degree cold, puffing a cigarette, wearing head phones and avoiding comment as passing vehicles honked.

Satellite TV trucks were on hand to stream the event live near downtown Cleveland. [/quote]

[QUOTE=ewmayer;318605]

Continuing in the vein of economic and personal liberty, Paul also had some interesting and non-pandering things to say about allegations about post-Hurricane-Sandy gasoline price gouging in the Northeast:

[url=http://www.ronpaul.com/2012-11-12/ron-paul-abolish-all-price-controls-let-the-free-market-function/]Ron Paul says post-Sandy “price gouging” would’ve helped solve the gas shortage[/url]
[/QUOTE]

This stupidity is precisely the reason why I never supported Paul. America is a democracy. Do you think it fair to deprive people of the necessities of life due to a hurricane simply because they cannot afford extortionate prices? Barry ad an excellent post about this.

[url]http://www.ritholtz.com/blog/2012/11/why-does-odd-evengas-rationing-work/[/url]

[QUOTE]There is a contra argument that Markets were not allowed to work — that prices were not allowed to rise in response to supply shortages.

This is a fair argument, but it ignores a key concept that many free market absolutists seemingly miss. The contra argument is that we have decided, as a Democracy, that we do not want to see people priced out of the most basic necessities of life due to emergencies. Certainly, we can allow free markets to raise the price of food and fuel to rise in response to severe shortages; perhaps prices rise so much that only the well off can afford them. But the results of this would very likely be civil unrest, riots and even violence. This is not a very desirable outcome in an ostensibly civilized society.[/QUOTE]