Linking ≠ endorsement.
⇧ Wynne Godley · Maastricht and All That · LRB 8 October 1992
We were in full agreement with this at the time and maintain the same view now.
Vol. 14 No. 19 · 8 October 1992
pages 3-4 | 1954 words
Maastricht and All That
… What I find totally baffling is the position of those who are aiming for economic and monetary union without the creation of new political institutions (apart from a new central bank), and who raise their hands in horror at the words ‘federal’ or ‘federalism’. This is the position currently adopted by the Government and by most of those who take part in the public discussion.
⇧ The Productivity of Trust by Ricardo Hausmann – Project Syndicate
Ricardo Hausmann “…is Professor of the Practice of Economic Development at Harvard University, where he is also Director of the Center for International Development”:
Business organizations often hew to Ronald Reagan’s dictum: “Government is not the solution to our problems; government is the problem.”
It is a great sound bite: short, recursive, and somewhat poetic. Unfortunately, it is also dangerously misleading.
That it is.
⇧ Oil Price Winners and Losers Around the Globe – Real Time Economics – WSJ
For U.S. consumers, it’s an aggregate windfall worth $90 billion.
We think it’s too early to tell the economic impacts. There are many more variables involved than are indicated in the article’s chart.
⇧ mainly macro: The war with the banks has to be fought on two fronts
Simon Wren-Lewis, economics professor, Oxford University; fellow of Merton College:
On the 11th of December last year, as part of the last minute deal to prevent another US government shutdown, congress passed a provision that exempted derivatives from Dodd-Frank. The provision was based on drafting by the US bank Citigroup.
Why would Congress undo its own legislation in this way? The answer is not hard to find. US banks contribute huge amounts of money to fund the campaigns of those that run for congress, be they Democrat or Republican. It spends huge amounts on lobbying. Members of government often have or will work for these banks. Of course regulators can also be captured by those they are supposed to regulate. This could all be described as institutionalised corruption.
Oh, it’s definitely institutionalized corruption.
⇧ Roubini: We’re in an asset bubble and it won’t pop until 2016 – Yahoo Finance
“Throughout the world, we have low growth, low inflation and easy money. And where is liquidity going? Not in real credit or to the real economy, it’s leading to asset deflation,” he [Nouriel Roubini] says.
⇧ Should I Invest for Cash Flow or Growth? An Investor’s Analysis
Q. Should I invest for cash flow or growth — and why?
While this is as simple and straightforward as a question can get, it has quite a complex answer. I will try to keep my opinion clear and concise.
A. Cash flow! Always cash flow.
⇧ Greek euro exit would be ‘Lehman Brothers squared’: economist – MarketWatch
In general, the panel, consisting of four prominent American economists, was pessimistic about the outlook for the single-currency project.
Germany is sleep walking.
⇧ 8 people displaced after fire in Kirkland | The Today File | Seattle Times
About eight people have been displaced after a blaze burned through a second-story unit of a Kirkland [State of Washington] apartment building.
⇧ Little impact in SeaTac from $15 minimum wage | Nation & World | The Seattle Times
The law requires hoteliers with more than 100 rooms to pay workers $15 an hour. Scott Ostrander, former general manager of the Cedarbrook Lodge in SeaTac, said before the law was passed he would close several rooms in his hotel to avoid having to comply. However Cedarbrook Lodge is now moving forward with a 63-room expansion….
The world didn’t come to an end.
⇧ Sanders urges spending on roads, bridges
…the American Society of Civil Engineers estimates it would take $3.6 trillion by 2020 to get the country’s infrastructure to a passable condition.
He’s thinking too small.
Create $6 trillion in bond-free currency, and put the infrastructure in grade-A shape.
It would rev up the economy without increasing the national debt or fiscal deficit or inflation (provided the money were to continue circulating in the real economy producing real productivity gains).
Simple as pie.
⇧ Real estate firm at work renovating East Falls apartment towers
“This was a C-class building and is now an A-minus building,” Mermelstein said. Rents range from $1,000 for a one-bedroom apartment to $1,750 for a three-bedroom unit of about 1,100 square feet.
“We aim to buy big. A 20-unit building has the same things as a 500-unit building: one roof, one boiler. We’d rather own the one big building than 10 smaller ones,” Mermelstein said.
⇧ Central Hillside home demolished in effort to clear blighted properties | Duluth News Tribune
The house, vacant for years and tax forfeited to St. Louis County, had been near the top of the county’s list for destruction. So was another house on the same lot at 519 E. Sixth. That house was partially burned in an arson fire by people who were squatting in the basement, neighbors said, and had sat uninhabitable for years.
About 40 homes are on a list for demolition when money becomes available, but the list is constantly changing. In recent weeks, eight homes have come down; among the worst of the worst are the structures neighbors complain about most often.
… City officials have been using Community Development Block Grants, normally meant for building housing, to help get rid of blighted homes.
Previous state law required five years of nonpayment of homestead taxes before the county could start the forfeiture process in the sixth year. But that law was changed in 2013, cutting the nonpayment period to three years if owners make no effort to start a payment process for back taxes.
⇧ Lawmakers to debate rent stabilization of 1 million apartments in New York City – Newsday
What’s your position on New York’s rent control?
⇧ “On the Verge of a Disaster… or a Miracle,” by Worth Wray
While the US can probably decouple from global growth conditions long enough to justify a Fed rate hike in the coming months, our global financial system is far too levered, far too interconnected, and far too gravely mismanaged for the US to continue booming as commodity prices collapse and the emerging-market borrowing bonanza comes to an abrupt and violent end. The deflationary storm can blow back at us far more quickly than the FOMC believes.
…the only thing that can stop a major breakout in the US dollar and an ensuing global financial crisis may be a cold patch of economic data such as collapsing US inflation expectations and, most likely, another round of job losses in the very near term. I just don’t see either happening quickly enough to stop the dollar in its tracks. Everything — from the Fed’s policy stance to the ECB’s resolve — will change once the big unwind begins….
The US is not, repeat not, decoupled from the global economy. If all these other nations go down, including China, the US should not escape.
The derivatives market is astronomically overdone. The system is set up to bail out the over-leveraged banks yet again but this time by taking even FDIC insured accounts. The hawks are in charge of the US Congress (so no fiscal stimulus will be on offer when needed most). Radical groups may move from clamoring to very violent revolutions, which will worsen the already needlessly destabilized global powers. Global warming will only continue worsening, unless oil production is hugely curtailed by chaos in the oil-producing countries.
So what is going on? Do the powers that be in the US really not know what they are doing, or do they have some card up their sleeve so they are recklessly gambling on ramming through “structural reforms” that all other nations will have to undergo while the US then mops up and finally establishes the global empire it has long sought?
⇧ Shanghai’s green skyscraper – YouTube
Shanghai has had a cult of tall buildings for decades. But now, the city also has a cult of green buildings. Patti Waldmeir, the FT’s Shanghai correspondent, takes a tour of one of the tallest and supposedly greenest buildings in the world.
⇧ Charlie Brookers 2014 Wipe (Summary with Adam Curtis) – YouTube
A short film by Adam Curtis screened during Charlie Brooker’s review of 2014 on the BBC; shows the how deliberate undermining of peoples perception of the world, by manipulating the media and civil society, creates confusion and contradiction, undermining any opposition to existing power structures. This strategy has allowed quantitative easing to go almost unnoticed and unchallenged, even though it is the biggest transfer of wealth to the rich in recent documented history.
This destabilizing system is vastly older than Adam Curtis suggests. It certainly predates Vladislav Surkov in Russia and by centuries.
⇧ Social Protest Rising in Ukraine as Government Approves Harsh Austerity Budget | Common Dreams
This is a very politically charged issue. We believe austerity is imposed to destabilize and to weaken classes below the top of the upper economic class. We think it is extremely shortsighted of elitist bankers.
A wave of public protests against the regressive social policies of the Ukraine government is rising in Ukraine. The Christmas season has been punctuated by protest across the country. Simultaneously, a fragile ceasefire in the east of the country is coming undone. The government in Kyiv is regrouping and rearming its military and extreme-right militias after a devastating blow delivered to them in late August by the pro-autonomy, rebel movement in southeast Ukraine. Against austerity…
⇧ 9 Ways the Eurozone is More Fragile than the US | Roubini’s Edge
The fear in Germany is that risk-sharing will become risk-shifting — and that a fiscal union will become a transfer union.
In short, Germany, and other core Eurozone nations like The Netherlands, don’t want to get stuck in a transfer union where they might be forced to subsidize Portugal and Italy and Greece and Spain forever. Fiscal unions and banking unions only work when shocks occur randomly. (One day I have bad luck in Texas; the next day you have bad luck in New York. Sometimes I help you out; other times, you help me.) If the economies within a fiscal union are not balanced — it’s not a two-sided risk-sharing alliance but, rather, a risk-shifting scheme where one side passes money to the other forever.
That is why the Germans, among other core European nations, have been saying, in essence, unless the PIGS countries do reform in the form of fiscal austerity, structural reform, boost their growth, and make progress on avoiding future debt crises, we’re not going to sign on to a fiscal union or a banking union that may become an economic suicide pact.
Do they not understand the modern nature of money? We think they do but that they don’t want general prosperity.
The Eurozone needs to create a great deal more money and not plow it into banks but into the real economy and without bonds.
⇧ Office sector works its way back
Absorption is now exceeding construction at a fast clip.
… Executive Chairman Mort Zuckerman calls the current economy “puzzling,” which accounts for continued anxiety in the sector.
⇧ EUROPP — Europe’s ‘structural reform’ agenda is little more than a fairytale
…the point to be noted is that the empirical non-falsifiability of structural reform policies is the idea that underpins the consensus between the national and supranational levels. It enables all of the actors to sell a policy that no one understands or can even refute. It is a fairytale. Promoting structural reforms as a panacea for unemployment is the equivalent of a political party saying we need votes to win an election, or a trainer saying to an athlete, just run faster. Structural reforms are, ultimately, a short-hand to say more markets and less politics.
In an ideal world of perfect competition, within a single market with no transaction costs or rigidities for capital and labour, we probably would create full employment. But to propose this as a serious policy-strategy that will lead to full employment and strong economic growth is no different to those self-proclaimed revolutionaries who argue that nothing can change until everything changes: i.e. until we abolish capitalism.
Where does Europe’s magic improving economy dust formula lead us then? The German government will not change their preference for ‘structural reforms’ because they are convinced that the Hartz Reforms (I-V) are what underpins the competitive resilience of the German economy.
⇧ We are nowhere near the zero bound | Philosophy of money
What’s really odd is the assumption that we have hit a “zero bound” on interest rates. This has troubled me for some time. In economic theory and discussion we often just assume there is a single interest rate. The classic Solow growth models collapse all interest rates of all maturities and risk characteristics into a single r, the cost of capital and the return on savings.
Now economists often seem to slip into assuming that in the real world we have “zero interest rates” because the official overnight interest rate is close to zero.
We don’t know of any of the economists we follow thinking that way. We certainly have never thought that way. We have only thought of the ZLB as pertaining to the Fed rate.
In addition, there’s a huge stock pile called excess reserves that are earning interest from the Fed.
⇧ False Alarms Routine At Texas Senior Complex Where Fire Killed 5
Survivors of a fire at a senior-living complex near San Antonio that killed five people say false alarms were routine at the 11-story building.
The residents say they felt no urgency when they first heard the fire alarm….
⇧ South Australia bushfires: thousands flee their homes as winds fan flames | Australia news | The Guardian
Thousands of Australians fled their homes as bushfires raged across the nation’s south on Saturday, with firefighters struggling to contain the blazes fanned by strong winds.
⇧ Making Saginaw safer: Firefighters install 10,000 smoke detectors using FEMA grant | MLive.com
SAGINAW, MI — Firefighters from the Saginaw Fire Department and other volunteers have, during the last eight months, installed about 10,000 smoke detectors in homes throughout the city of Saginaw.
… “Data indicates that homes with working smoke detectors increase your opportunity to escape or even prevent the spread of fire by 60 percent.”
According to the National Fire Protection Association, two-thirds of fire deaths result from fires in properties without working smoke detectors, and the risk of dying in home fires is cut in half with working smoke detectors.
⇧ Brookings Fire Department to begin using drone
The Brookings Fire Department will use the remote-controlled F450 quadcopter to survey structure fires, wildfires, hazmat situations and gas leaks. Fire Chief Darrell Hartmann says the drone can even be used to search areas in missing person cases or to locate vehicles that have gone underwater.
⇧ Winter blast delays school, closes ski resort, moves east
Wind chills will plummet between minus 25 and minus 45 degrees from the northern Plains to the Ohio Valley. At that temperature, frostbite can occur in as little as 10 minutes on exposed skin.
⇧ Weak Spots of Neoliberalism, Part 3: The Rise of the Radical Left in Greece – YouTube
You hear about or read about SYRIZA in Greece, but we thought it would be a good idea for you to hear from them directly, what they’ve been through a bit and where they believe they are headed.
As you may already know, we are opposed to austerity. It is our understanding that SYRIZA wants to remain in the Eurozone but wants radical reforms to solve the current crisis and to prevent another.
The general consensus appears to be that Germany would rather Greece leave than to allow reforms to take place.
Germany falls back on pre-WWII hyperinflation in Germany as its main reason along with that Germany doesn’t want to be the main payer of the European welfare state.
We think that, that is Germany failing to understand the golden opportunity for Germany to strengthen the whole of Europe and without inflation or austerity. Simply put, the German leadership does not understand the fundamentals of modern money.
We don’t know the degree to which SYRIZA knows.
We wish the people of Greece well. We would like to see their democracy reinstated but reformed so that the people may be properly represented and the government may become truly good.
One hundred leaders of the left from North America and Europe gathered August 1-4, 2014, in upstate New York for “Mapping Socialist Strategies” (organized by RLS-NYC). Ioannis Bournous and Giorgos Karatsioubanis (both from SYRIZA) discuss the organizing work of the coalition of the Greek Left.
⇧ A handy tool — but not the only one in the box – FT.com
Balance sheet recession is a development of the concept of “debt deflation”, advanced by American economist Irving Fisher during the Great Depression. Fisher noticed that, if the price level falls, the real value of debt will rise. If many people are highly indebted, the economy then risks falling into a vicious downward spiral.
Koo relies too much on the idea of the “money multiplier”, which suggests that lending by commercial banks is tightly linked to the quantity of their monetary reserves. This is an implausible view of contemporary banking, in which reserves are not rationed but rather freely supplied by the central bank.
Irving Fisher was correct. We’ve also written before about the Money Multiplier and the Modern Money Theory view of it.
In the US, commercial banks are generally supposed to average a minimum of 10% reserves. There are some time allowances for bringing the reserves up to the required percentage. In Britain, they don’t have that reserve requirement.
Regardless, the banks in both nations can issue loans before they have the reserves. The Fed in the US will provide the money needed if the banks in question are not insolvent versus merely illiquid.
⇧ Do tax cuts partly pay for themselves? – CBS News
Mark Thoma, macroeconomist and time-series econometrician at the University of Oregon:
When previous tax cuts are examined econometrically [application of mathematics, statistical methods, and computer science, to economic data and is described as the branch of economics that aims to give empirical content to economic relations — Wikipedia], the impact on economic growth is hard to find. There does appear to be an effect according to some of the research (but not all), but the effect is relatively small — certainly not big enough to make a significant change in the budgetary impact.
Such a change could also benefit legislative proposals that Democrats favor. For example, to the extent that programs such as Head Start, Obamacare, food stamps, etc. lead to more productive, better, healthier, more educated workers, they will enhance economic growth and increase future tax revenues that partly offset the amount of money spent on these programs. Spending on infrastructure could also increase economic growth, perhaps substantially, and that would make a big dent in the budgetary impact of these programs.
That’s an interesting take that such “dynamic scoring” could also benefit progressive legislation.
⇧ Paul Krugman and the Obama Recovery by Jeffrey D. Sachs – Project Syndicate
“Jeffrey D. Sachs, Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University, is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals”:
For several years, and often several times a month, the Nobel laureate economist and New York Times columnist and blogger Paul Krugman has delivered one main message to his loyal readers: deficit-cutting “austerians” (as he calls advocates of fiscal austerity) are deluded. Fiscal retrenchment amid weak private demand would lead to chronically high unemployment. Indeed, deficit cuts would court a reprise of 1937, when Franklin D. Roosevelt prematurely reduced the New Deal stimulus and thereby threw the United States back into recession.
Well, Congress and the White House did indeed play the austerian card from mid-2011 onward. The federal budget deficit has declined from 8.4% of GDP in 2011 to a predicted 2.9% of GDP for all of 2014. And, according to the International Monetary Fund, the structural deficit (sometimes called the “full-employment deficit”), a measure of fiscal stimulus, has fallen from 7.8% of potential GDP to 4% of potential GDP from 2011 to 2014.
Well, we think Jeffrey Sachs has misunderstood Paul Krugman. Paul is speaking in relative terms: How would the economy be doing right now had the right quantity of fiscal stimulus been applied very early in the recession?
We think it would have been doing vastly better and as quickly as 2009.
As for the current growth, a great deal of GDP has been in healthcare. Also, with lower oil prices, it will be harder to separate out the causes and effects of whatever real growth might yet occur.
Contrary to public opinion, we are not out of the woods yet.
⇧ Will too many apartments pinch the rental market?
…last year saw the most apartment construction since 2001, with 161,518 new units delivered, according to Reis. Cities like Houston, Austin and Washington, D.C., are seeing an apartment boom, which could start to ease rising rents.
“We work in an industry that has a huge propensity to overbuild.” Severino [Ryan Severino, a senior economist at Reis] said. “I don’t think it’s going to be a massive overbuilding, but I do think even with demographics so favorable it’s going to be difficult if not impossible for demand to keep pace with supply.”
⇧ Economists Say Handing Out Cash Could Help Euro Zone Economy – SPIEGEL ONLINE
It sounds at first like a crazy thought experiment: One morning, every resident of the euro zone comes home to find a check in their mailbox worth over €500 euros ($597) and possibly as much as €3,000. A gift, just like that, sent by the European Central Bank (ECB) in Frankfurt.
The scenario is less absurd than it may sound. Indeed, many serious academics and financial experts are demanding exactly that. They want ECB chief Mario Draghi to fire up the printing presses and hand out money directly to the people.
The logic behind the idea is that recipients of the money will head to the shops, helping to turn around a paralyzed economy in the common currency area. In response, companies would have to increase production and hire more workers, leading to both economic growth and a needed increase in prices because of the surge in demand.
It is an experience Germany became familiar with in the 1920s. The trigger for hyperinflation at the time was, of course, the fact that the German Reich paid for its wartime expenses by printing money. But the situation got out of control when the state’s creditors along with its citizens lost faith in the mark. Investors refused to make more money available to the state and doctors began demanding barter in exchange for services rendered. Prices exploded, to the point that a loaf of bread ultimately cost 140 billion marks.
And even if people head to the shops with the money they have been given, it is still far from certain that companies would ramp up production. “It is possible that people would merely be competing for the same supply of goods. Prices would climb, but there would be no lasting stimulus for the economy,” warns economist Thomas Mayer, formerly the chief economist for Deutsche Bank. The phenomenon is known among economists as stagflation.
The odd thing is that the Japanese example provides evidence to both supporters and detractors of the helicopter money plan. Does it reveal the absurdity of central bankers seeking to combat structural problems with money? Or is it merely proof that mass liquidity only works if politicians lay the necessary groundwork?
Nobody knows for sure because the Abe administration failed to pass a majority of the promised reforms. Monetary policy alone, however, “is not getting you out of the secular stagnation,” as even helicopter fan Buiter admits. It is a sentence that could have come from his most adamant detractors.
We aren’t in favor of just giving out money in a one-time shot. It needs to be sustained. It also needs to be pegged to something such as the inflation rate so that it doesn’t continue too long.
⇧ ‘Shorthand’ for Steve Keen’s contribution to R4 econ program=’made up’? | longandvariable
Tony Yates, “…a reader in Economics at the University of Bristol, and member of the Centre for Macroeconomics”:
I had an interesting exchange with Steve Keen last night on Twitter, about things he said on Aditya Chakrabortty’s program on the state of economics and economics teaching.
On the program, Steve Keen said a number of things I contest are false.
All Steve Keen needs to do is add qualifiers to his statements, qualifiers such as “insufficiently”: Mainstream economics insufficiently focuses on banks and money.
⇧ Why America is becoming like Japan
Steve Keen, Head of the School of Economics, Politics and History at Kingston University London, explains why the U.S. will be no more successful than Japan in escaping the private debt trap.
⇧ Oil And Gas Debt: There Will Be Blood!! (Part III)
What is the senior debt on a shale play that needs $100 oil to be profitable worth? With oil at $51, it’s worth roughly zero. What is the equity worth? Even less. What is the junk debt worth? Somewhere in the middle. The first epiphany in the shale patch will soon be that it doesn’t matter where you are in the capital structure of an uneconomic shale play. If that play needs $100 oil to work, you’re screwed.
Let me give you some sense of scale on this risk. Before subprime blew up, there was roughly $1.3 trillion of subprime housing debt outstanding. Total write-downs by US banks after the GFC were just under $1 trillion. The debt at risk here is of the same order of magnitude as the great housing bubble, even before we consider all of the sovereign budgets that need higher oil in order to maintain fiscal stability.
⇧ Debt Dispute Between Hedge Funds and Argentina at Impasse – NYTimes.com
Mr. Kicillof has previously said that Argentina would not move beyond its earlier offers. Some analysts expected Argentina to budge so that it could regain access to global debt markets to increase foreign currency reserves it needs for servicing debt and energy imports. But it has recently managed to stabilize its reserves by other means, including a currency swap with China.
Ms. Morden said only “extraordinary economic stress,” like a balance-of-payments crisis, which for now seems unlikely, would force Argentina to concede ground to the holdouts.
⇧ David Lammy: More immigration and population growth? London can take it | Comment is free | The Guardian
In the midst of the second world war, even as bombs fell and the city burned, a plan was devised to respond to London’s growth. The Abercrombie plan, officially called the Greater London plan, laid out an ambitious vision for a new postwar London: decent housing replacing slums, efficient transport, full employment, new parks and open spaces. It was a radical and comprehensive document that provided the detail for rebuilding London after the devastation of the war. New towns including Stevenage and Crawley were built in the south-east; modern transport infrastructure, including the north and south circular roads, was planned to cope with the increasing number of cars. The requirements of a successful London were drawn up and implemented.
A growing population and new pressures on services mean we need a new, equally ambitious plan today.
⇧ Martin Wolf on global debt overhang – YouTube
These fellows definitely don’t agree with Steve Keen about US debt.
Martin Wolf discusses global debt sustainability with Gavyn Davies.
⇧ Niklas Garemo & Martin Hjerpe: Boosting infrastructure productivity to save $1 trillion a year – YouTube
As a landlord, your local, state, and federal infrastructure has a direct bearing on the value of your personal and business investments. That’s why, among other reasons, we’ve included this presentation video. We need our planners to do a better job. We need our governments to do a better job in carrying out those plans.
The world spends $9 trillion on infrastructure every year. Increasing infrastructure productivity can help save $1 trillion globally. Director Niklas Garemo and principal Martin Hjerpe present at the Global Infrastructure Initiative in Rio de Janeiro, Brazil.
⇧ German euro interests compound Greek suspense – YouTube
Is Angela Merkel seriously considering a Greek exit from the euro?
Der Spiegel newspaper explored that scenario on Sunday.
On Monday, the euro fell to a nearly nine-year low against the dollar, amid concern that a left-wing government might win elections in Greece and cancel a big part of its debt.
But the mood is not all doom and gloom.
Fidel Peter Helmer, Head trader of Hauck & Aufhaüser private bank, said: “Exporting countries are definitely happy about the low euro because their go…