Linking ≠ endorsement.
⇧ For the First Time in 30 Years, Unemployment Fell in Every State in 2014 – Real Time Economics – WSJ
Unemployment fell in every state and the nation’s capital last year—something that hadn’t happened since 1984.
Let’s hope the Fed doesn’t choke the recovery by anticipating inflation too soon.
Let’s remember that the jobs are not paying well enough, many are less than 40 hours a week, and that there is still plenty of slack in the economy.
Not to throw cold water on it, but we were so far down that this phenomenon was to be expected in any real recovery from a “Great Recession.”
⇧ Why the GOP’s plan to party like it’s 1995 is bad for American workers: Paul Krugman | PennLive.com
…job growth has taken the official unemployment rate down to a level at which, according to conventional wisdom, the economy should be overheating and inflation should be rising. But now, as then, there is no sign of the predicted inflation in the actual data.
… The NAIRU is supposed to be the unemployment rate at which the economy overheats and an inflationary spiral starts to kick in. But there is no sign of inflationary pressure. In particular, if the job market really were tight, wages would be rising quickly, whereas they are in fact going nowhere.
The thing is, we’ve been here before. In the early-to-mid 1990s, the Fed generally estimated the NAIRU as being between 5.5 percent and 6 percent, and by 1995, unemployment had fallen to that level.
But inflation wasn’t actually rising. So Fed officials made what turned out to be a very good choice: They held their fire, waiting for clear signs of inflationary pressure.
And it turned out that the U.S. economy was capable of generating millions more jobs, without inflation, than it would have if the Fed had reined in the boom too soon.
What’s worrisome is that it’s not clear whether Fed officials see it that way. They need to heed the lessons of history – and the relevant history here is the 1990s, not the 1970s. Let’s party like it’s 1995; let the good, or at least better, times keep rolling, and hold off on those rate hikes.
That backs up what we’ve been saying all along.
⇧ Jefferies Sees Opportunity For Fear And Greed In Oil Patch
The analysts warn that the mid-1980s oil slump had a major impact on Texas, substantially affecting real estate prices and valuations. Citing a 1994 Dallas Fed report, Jefferies says vacancy rates, regardless of property type, “shot up astronomically…far outpacing trends in the broader market.” That was partly due to significant overbuilding during the boom years, less of a concern today with the real estate market still facing the lingering impact of the 2008 crash, but still telling and a potential danger sign for real estate companies with oil and gas tenants that could face financial failure if oil prices stay low for longer.
… the firm is concerned about the prospects for apartment building owners, the storage space and hotels “as reduced demand in the face of rising supply could quickly lead to occupancy declines and pressure rents downward.”
⇧ Treasury Urged to Scrutinize Foreign Real Estate Buyers for Money-Laundering Risk – NYTimes.com
“The U.S. should not be providing a red carpet for dirty money.”
Responding to the letter, Steve Hudak, a spokesman for the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, said in an emailed statement that the agency agreed with the concerns expressed in the letter, calling potential criminal abuse of the real estate sector a “fundamental priority.”
Even as the United States has urged other countries to help it crack down on Americans hiding money abroad, recent Justice Department cases and congressional reports have said that foreign money tied to corruption has been found in United States real estate, moved into the country using shell companies.
⇧ Real Estate Deals of the Year Awards: A look at 2014’s best housing projects – San Francisco Business Times
Today, we’re spotlighting our residential project finalists, which span market-rate and affordable housing.
⇧ New Orleans posts 1,800 properties to online auction block
In other cities, land sales come with provisions intended to make sure that the property is sold to people who plan to improve it. Newark, N.J., held a Valentine’s Day sale last month, selling lots for $1,000 each to the first 100 couples to line up. The sale had a catch: Buyers had to build on the vacant land within 18 months and then live on it for five years or face fines and repossession. In New Orleans, there are no such provisions.
⇧ The falling euro: Sure, it’s great for Europe. But what about the U.S.?
Nice overview by Jordan Weissmann:
…theoretically, the strong greenback gives the Fed two very, very good reasons to remain at bay, by keeping inflation in check and threatening to curtail exports. If that’s enough to keep our central bankers from pushing the button on higher rates, it could also allow for additional time for the unemployment rate to drop and for wages to rise—which is probably something most Americans would appreciate far more than a cheap Euro trip.
⇧ Why Lumber Liquidators Holdings Inc. Stock Jumped Today (LL)
…recent negative 60 Minutes report. That report alleged Lumber Liquidators’ products violate California Air Resources Board regulations due to high levels of formaldehyde, a known carcinogen — though Lumber Liquidators has consistently disputed the claim and insists its products are safe.
We’ll try to stay posted on this issue.
⇧ UW Study: Teens, Adults Not Clear On Washington Pot Law – CBS Seattle
As a landlord or manager, do you know the law in your state?
Kevin Haggerty, a UW professor of social work, says the findings show the need for better educational outreach. Haggerty says the states legalizing marijuana need to run public information campaigns to insure people have the information they need.
⇧ Appeals for flexibility on Greek reforms but war of words with Europe continues – YouTube
There is some hope in Athens that progress can be made in Greece’s standoff with European creditors, on news that detailed negotiations are to start on Wednesday with the aim of unlocking further funding.
⇧ Feb. 15: Non-interference limits China’s role in the fight against Islamic State — www.sipri.org
Geopolitics is a risk-management issue that comes back to impact the domestic economy including for landlords, managers, and tenants.
When the US occupied Iraq, it allowed China to buy oil interests in Iraq, which had people scratching their heads. The US administration of George W. Bush wanted China to have a vested interest so China would more likely fight on the same side as the US. It’s an extended part of “the opening up of” China that began under the Richard Nixon administration. So, how’s it been working out?
When considering the answer to that question, keep in mind that China is cozier with Russia and the other BRICS nations (Brazil, Russia, India, China, and South Africa) and with the Non-Aligned Movement and getting especially closer to Russia in recent months because China sees the treatment of Russia as foreshadowing how China will be treated in the not-too-distant future if China refuses to knuckle under to US dominated Atlanticism, as Russia has been refusing, feeling threatened by NATO expansion that the Ronald Reagan administration told Mikhail Sergeyevich Gorbachev wouldn’t happen if the Soviet Union loosened up concerning the military buffer-zone of Eastern Europe (the Warsaw Pact) and other aspects of the USSR.
China’s policy on the crises in Iraq and Syria is officially linked to its longstanding non-interference policy. While China has officially welcomed airstrikes by the US-led coalition against ISIS in Iraq, it has warned against similar actions in neighbouring Syria, instead arguing that the international community should work with the regime of Syrian President Bashir al-Assad. While Chinese positions can be explained by using traditional non-interference rhetoric, they also align conveniently with Chinese interests in the region: while China has considerable economic interests in Iraq, those in Syria are negligible.
… The impact of the current conflict in Iraq on Chinese energy interests has so far been limite d and non-interference remains a main characteristic of Chinese foreign policy. In September 2014 Gong Xiaosheng, China’s special envoy to the Middle East, warned that international attacks on ISIS in Iraq and Syria ‘must take into consideration the respect of the sovereignty and integrity of any state’.
⇧ The below-zero lower bound | Jérémie Cohen-Setton at Bruegel.org
This is excellent curation by Jérémie Cohen-Setton on the issue of negative-interest rates (which, by the way, we were advocating long before it became a “hot topic” and for which we were called stupid by various academic and professional economists who will remain nameless here, as everyone should be given the opportunity to live things down). Brad Delong, being the economic historian he is, brings Silvio Gesell to our attention. Thank you, Brad!
Please note that Gesell (https://en.wikipedia.org/wiki/Silvio_Ge sell) didn’t hold a degree in economics even while he has been lauded by Ph.D.’s in the field. There’s hope!
Also, let us state here that we are not Georgists.
Brad Delong writes that the idea of making money earn a negative return is not entirely new. In the late 19th century, the German economist Silvio Gesell argued for a tax on holding money. He was concerned that during times of financial stress, people hoard money rather than lend it.
David Kehoane writes that for those not familiar with the 19th century idea of a Gesell tax, it’s basically a stamp tax on money that acts as a negative interest rate. The idea being that in order to be legal tender notes would have to bear an annual/ monthly stamp provided by the government — and for which the government would charge a fee
Brad Delong writes that this is not an obscure idea. Silvio Gesell is the topic of part VI of chapter 23 of Keynes’s flagship work, The General Theory of Employment, Interest and Money. And it’s not just Keynes in his flagship work. There are 55,000 google hits for “Silvio Gesell.” Patinkin (1993) reports that Irving Fisher advocated Gesell-based “velocity control” in his 1932 Booms and Depressions. Nobel prize-winning Maurice Allais was an advocate as well. Gerardo della Paolera and Alan Taylor are Gesell’s biggest bo osters today in their book Straining at the Anchor: The Argentine Currency Board and the Search for Macroeconomic Stability, 1880-1935, a University of Chicago Press book that is part of the NBER’s series on “long term factors in economic development.” Willem H. Buiter and Nikolaos Panigirtzoglou writing in the Economic Journal in 2003: “Overcoming the Zero Bound on Nominal Interest Rates with Negative Interest on Currency: Gesell’s Solution.”
⇧ Housing’s new worry: Repeat foreclosures return
After the worst national housing crash in history, the picture of distress continues to improve, but now with one worrisome aberration. For the first time in more than two years, the number of repeat foreclosures took a U-turn and was higher in January compared to a year ago.
Repeat foreclosures are when a home has been in the foreclosure process once, was somehow saved by either a loan modification or payment program, but then goes back into foreclosure.
⇧ Builders assure customers after Lumber Liquidators scare
If Lumber Liquidators is telling the truth and is right (https://www.cnbc.com/id/102497386), it might be able to sue some deep pockets and prevail. CBS isn’t needing to be traced.
We didn’t see the “60 Minutes” segment.
Lumber Liquidators has defended the safety of its products and dismissed the CBS report as untrue. It challenged CBS’ methodology and claimed it was the victim of short sellers.
⇧ Can the federal reserve identify and prevent financial bubbles? – OC Housing News
This is an issue of lending standards and the Fed’s new-found interest in stress testing of the banks and the Fed’s emphasis on labor slack and other means for dealing with the money supply: interest on excess reserves, etc.
Larry Roberts is completely right to be worried about bubbles and whether the Fed can see them forming.
We think the Fed has learned a great deal since Alan Greenspan, but has it learned enough?
⇧ A Prediction Market for Inflation, or Deflation – NYTimes.com
Justin Wolfers, a senior fellow at the Peterson Institute for International Economics, professor of economics and public policy, University of Michigan:
For several years now, these markets — as well as related inflation-indexed bonds and inflation swaps — have been a source of comfort for policy makers, as they reported that inflation expectations were roughly consistent with the Fed’s inflation target. But over the last half-year, the markets have sounded a largely unheralded alert siren, reporting that expected inflation has fallen sharply. Inflation is now expected to run half a point or more below target for many years.
To some extent, this decline in inflation expectations reflects a vote of confidence in the Fed, as earlier fears of high inflation have come to be seen as an increasingly distant possibility. But it also reflects fears of Fed timidity, as the risk of prolonged deflation remains high.
Those markets caught up with our thinking all along, not that we’ve been spot on at every turn. We seem to have a bias for thinking that catching on won’t take as long as it always appears to.
Is self-deprecation a good thing? We think so, obviously.
⇧ macroblog – Federal Reserve Bank of Atlanta
The following is good news. Ellyn Terry and John Robertson:
…labor force participation (LFP) rate. After falling over 3 percentage points since 2008, LFP has been close to 62.9 percent of the population for the past seven months. Although demographics and behavioral trends explain much of the overall decline (our web page on LFP dynamics gives a full account), there is a cyclical component at work as well. In particular, the labor force attachment of “prime-age” (25 to 54 year olds) individuals to the labor force is something we’re watching closely.
…the decline in the “shadow labor force”—the share of the prime-age population who say they want a job but are not technically counted as unemployed—demonstrates the cyclical nature of the labor market. For the last year and half, the share of these individuals in the labor force has been generally declining….
However, wage rates, benefits, and hours worked per week matter greatly and should always be factored in to any calculation concerning the general economy and unemployment vis-a-vis the Fed rate.
⇧ A Wall Street Journal Op-Ed Gets It Very, Very Wrong On Seasonal Adjustment | FiveThirtyEight
As a rule, the monthly jobs report brings out two kinds of people: Econ nerds (that’s me!) and econ trolls (you know who you are). I spend a fair bit of every jobs day trying to answer good-faith questions from readers on Twitter and in the comments to my monthly write-up. But as a general rule, there isn’t much point in feeding the trolls. Life is too short.
Every now and then, though, one of the trolls finds his way off Twitter and into the pages of a major American newspaper. Like Friday, for example, when the following op-ed ran in The Wall Street Journal: “Seasonally Adjusted Jobs Numbers Offer Cold Comfort.”
It is, without exaggeration, one of the dumbest things I’ve ever read. And I read Zero Hedge.
⇧ mainly macro: Austerity: Nick Rowe’s not so silly question
Nick Rowe has a silly question for those who oppose austerity. Actually he really means it is a question involving silly numbers: would you still advocate fiscal stimulus in a liquidity trap (with interest rates stuck at some lower bound – the ZLB) if government debt was ten times annual GDP?
The logic is that every time and whatever the numbers you first eliminate the output gap and get off the ZLB. Only when that is done do you start taking action to reduce deficits.
The short answer is yes.
⇧ U.S. oil production still surging | Econbrowser
How much longer will production keep going up? Much of the new production can’t be profitable at current prices, and the number of drilling rigs operating in the tight oil areas has fallen 12% since September.
That presumably means less than a 12% reduction in production from new wells, for two reasons. First, it is the least promising new prospects that will be cut first. Second, there has been a learning curve improving productivity of new wells.
Working against these is the fact that production from existing wells continues to decline.
⇧ A trade deal must work for America’s middle class – FT.com
The article byline is Lawrence Summers; but at the bottom of the article, it’s Charles W. Eliot:
Some matters that are pushed by elements of the business community have little or nothing to do with the interests of the vast majority of American workers. These include pressuring other countries to change health and safety regulation….
We completely disagree with that and will add environmental issues to that mix.
Lower standards or no standards in those areas is how so much manufacturing was allowed to rush out of the US, destroying many high-paying jobs!
On the environmental front, pollution crosses borders and can come home to haunt the US even from China. Included in that is carbon burning adding to Anthropogenic Global Warming.
⇧ Global growth report card: world activity steady as US slows | Gavyn Davies
…the benefits to global economic activity from the oil shock have been almost exactly offset by a weakening in the emerging economies, and the US.
The country-by-country activity indicators this month show that US activity growth has slowed further to 2.7 per cent, despite another strong jobs report in February. US productivity growth is therefore running at a rate very close to zero, which sends a worrying message about the underlying performance of the supply side in America.
… US productivity growth is running at close to or even below zero, suggesting that the supply side of the economy continues to perform very poorly. This could become a big headache because it could imply that the Federal Reserve will have to tighten monetary policy despite sluggish GDP growth. Markets are not focused on this risk at present.
The US growth data in February were significantly weaker than expected by economic forecasters, but part of this disappointment may have been due to adverse weather conditions and the west coast dock strike. The markets, like the Fed, have been inclined to “look through” this latest patch of weak data, preferring to take note of buoyant consumer confidence and the strong labour market. This optimism will be tested if there is a further fall in the activity growth rate in the next few months.
“…the Federal Reserve will have to tighten monetary policy despite sluggish GDP growth.” What? No, that’s wrong. That’s backwards.
⇧ Thomas Piketty Interview About the European Financial Crisis – SPIEGEL ONLINE
SPIEGEL: So others should now pay for the decades of mismanagement by governments in Athens?
Piketty: It’s time for us to think about the young generation of Europeans. For many of them, it is extremely difficult to find work at all. Should we tell them: “Sorry, but your parents and grandparents are the reason you can’t find a job?” Do we really want a European model of cross-generational collective punishment? It is this egotism motivated by nationalism that disconcerts me more than anything else today.
Piketty: Greece would be subject to greater fiscal discipline. The amount of debt would be fixed by a European parliament in which Greek members would only play a subordinate role. In the long run, we need a fiscal union in Europe that is democratically legitimized.
SPIEGEL: At this point, voters don’t seem overly keen to shift more power to Brussels. On the contrary, EU-skeptic parties are becoming popular everywhere.
Piketty: No matter what you think of Syriza’s election victory, it could serve as a shock therapy of sorts for those in power. Suddenly they’ll realize that what they’ve been doing isn’t working, and that they have to take a different approach. But a leftist party like Syriza or Spain’s Podemos isn’t nearly as dangerous as the extreme right. The National Front here in France is more popular than ever at the moment. That’s why it’s so dangerous for the established parties to continue fueling these nationalists. Constantly berating the lazy Greeks or Portuguese is irresponsible.
We very much like Thomas Piketty’s attitude about the youth not having to pay for the mistakes of their parents. We also fully support his push for greater democracy and integration.
⇧ Roosevelt’s money policy, 1933-1934 — Crooked Timber
Despite some often-quoted barbs at Roosevelt’s method of getting there (complaining that the president’s talking up of the dollar by unpredictable amounts looked “more like a gold standard on the booze than the ideal managed currency of my dreams” or a “game of blind man’s bluff with exchange speculators”) John Maynard Keynes approved of the destination, writing in January 1934 that the president’s policy “means real progress.” Roosevelt had “adopted a middle course between old-fashioned orthodoxy and the extreme inflationists.” He had done nothing “which need be disturbing to business confidence,” and the monetary policy was “likely to succeed in putting the United States on the road to recovery.” Roosevelt’s adoption of a value for the dollar to be kept generally stable, if altered at need, also opened the possibility for an international conference on money, to “aim for the future not at rigid gold parities, but at provisional parities from which the parties to the conference would agree not to depart except for substantial reasons arising out of their balance of trade or the exigencies of domestic price policy.”
⇧ Robert Reich (The 3 Biggest Myths Blinding Us to the Economic…)
The video on this blog post by Robert Reich (who has a good heart for the people) is mistaken that the only place the money could come from is higher taxes on the corporations and rich. The money could come directly from the US Treasury (bond-free: no increase in the National Debt, no interest payments on the new money). These would be United States Notes and not Federal Reserve Notes.
Provided the money would result in a proportional increase in sustainable growth (via proper targeting of governmental spending), there would be no increase in inflation either.