By Dave Anderson:
Just a few quick hits on institutional and governmental capture and failure. I would write more, but I have to change diapers and get to a play-date in a few minutes (I have my priorities.)
Brad Delong on institutional failure and a Depression:
In my estimation the chances of another big downward shock to the U.S. economy--a shock that would carry us from the 1/3-of-a-Great-Depression we have now to 2/3 or more--are about 5%. And it now looks very much as if if such a shock hits the U.S. government will be unable to do a d----- thing about it.
We could cushion the impact of another big downward shock by a lot more deficit spending--unemployment, after all, goes down whenever anybody spends more (even though sometimes falling unemployment comes at too-high a price in rising inflation), and the government's money is as good as anybody else's. But the centrist Democratic legislative caucus has now dug in its heels behind the position that we cannot undertake more deficit spending right now because we have a dire structural health-care financing proble afrer 2030. The Republican legislative causes has now dug in its heels behind the position that the fact that unemployment is 10% shows not that policy earlier this year was too cautious but rather that it was ineffective. And the Obama administration has not been able or has not tried to move either of those groups out of their current entrenchments.
We could cushion the impact of another big downward shock by recapitalizing the banks again. But the failure of the Fed and the Treasury in the aftermath of Lehman to grab a share of the upside from its capital injection and purchase operations for the public in the form of warrants means that there is no coalition anywhere for a repeat or anything like a repeat of propping-up the banking system: the right thinks it is an unwarranted intervention in the free market, the left thinks that it is a giveaway to the undeserving and feckless superrich, and the center is bewildered because it is an enormous and poorly-structured intervention in the market, it is a giveaway to the undeserving and feckless superrich, and the optics are terrible.
Shocking, public and visible looting diminshes trust and legitimacy the next time that the government needs to function as the insurer, lender and borrower of last resort.
Paul Krugman on where interest rates "should" be:
I like to use Glenn Rudebusch�s estimate of the Taylor Rule � a rule relating interest rates to unemployment and inflation � that appears to track past Fed behavior. The chart below shows the rate predicted by the rule versus the actual rate on 3-month T-bills (I�m using that rather than the target Fed funds rate for trivial computational convenience)....
right now the Taylor rule says that the Fed funds rate should be minus 6.7%.
Inflation is not a concern right now. Using the monetarist dictum that inflation is a monetary problem at all times due to a mismatch between non-market set interest rates and the market clearing interest rates, deflation is the problem on the horizon.
Jerome Armstrong being stupid at MyDD as he does not realize that the deficit is an amphorous blob of unidentified economic fears, and not the cause of economic problems right now:
The dollar hit a new low today against other currencies. If you google Obama's deficit plan, you'll pull up a Page Not Found*.
The Pittsburgh Comet continues to bang the drum on Wall Street looting municipal governments in interest rate swaps:
Last year the authority's debt surpassed that of the city government, which has a budget three times the size of the water system's. That was driven by the authority's decision to enter into a complex $414 million debt package that included instruments called swaps, in which the authority and finance firms make payments to each other. The amounts of the payments shift as variable rate debt interest rates change. (ibid)
That made a bad situation almost comedic. And it was not impossible to know at the time that that maneuver was a risky maneuver to make on the behalf of the public, and we should remember that. But here we are.
Matthew Yglesias notes the Afghanistan escalation has already happened
One point here is that we now seem to be looking at the consequences of a penny-wise, pound-foolish approach to Afghanistan. Maybe if we�d just been spending $30-$40 billion a year from the get-go the situation never would have deteriorated to the point where we�re looking at appropriations of $170 billion and rising. Another point is that it�s a little bit odd that the big escalation debate is happening now, since any further increases in expenditures will probably be smaller than the increase that already happened back when nobody was paying attention.
Cannonfire has an interesting catch from the New York Times on the flow of Mexican remittances:
Also in Chiapas, a poor state that sends many migrants to the United States, Mar�del Carmen Montufar has pooled money with her husband and other family members to wire financial assistance to her daughter Candelaria in North Carolina....
At one small bank in Chiapas that used to see money flowing in from the United States, more money is going out than coming in.
Blue Gal at They Gave us a Republic talks about her experience in the risk v. reward of early detection screening for breast cancer:
We are testing 1900 women unnecessarily in order to save one, the argument goes, and it just isn't worth it.
Okay. Tell it to the other 1899, but as for me? I don't care to hear it.
Wanna guess which one of the 1900 I am?
I am the poster child for early detection. My brush with the disease was a non-event that cost less than ten grand to treat because of early detection and screening.
Blondsense shows how �freedom� has been brought to Afghanistan�s women:
fghan women, in order to escape a life of domestic torture and abuse are burning themselves. Can you imagine being so distraught that you literally set yourself on fire? Some women were forced to get married as early as 7 years old. Domestic violence is still prevalent in Afghanistan despite the Taliban supposedly being overthrown. Women have no rights and it's very hard to get a divorce.
Okay, time to change diapers...
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