Tuesday, February 28, 2012

How long can rates stay low?

The last time the U.S. was in ZIRP—Zero Interest Rate Policy—was in the Great Depression, and short rates stayed low for a surprisingly long time, from 1934 to 1947, with the much-maligned blip in 1937 being blamed for the recession of 1937-38 by some, while others point to fiscal tightening—together it’s a knock-out punch.  Until 1942 three-month T-bill rates were like today’s, ten or twenty basis points, until 1942 when they were pegged at 38bps for the duration of the war.

FRED Graph

That’s eight years with rates mostly below 20bps, and 14 years if you call 38bps low.  Here’s what was going on with inflation:

FRED Graph

Price controls were used during World War II (and later the Korean War, and later during the early ‘Seventies) to try to control inflation that accelerated after the war until monetary tightening brought on the recession of 1949.

We entered ZIRP at the end of 2008.  It’s only been a little over three years.  It could be a long ride.

Housing bottom? You’ve got to be kidding

With all the divination of the graphical tea leaves going on—are we at a bottom, or bouncing along the bottom, or will we go lower?  gasp!—it is worth remembering that houses are bought “on time,” and that most people buy all the house they can (even if they have to put down 20 percent)—and that interest rates are currently at historical lows, so that a further decline is just about baked in, especially given current price weakness.

If mortgage rates rise from 4 percent to 6 percent, the payment on a 30-year mortgage goes up 25 percent.  People aren’t going to be able to afford the same price house.  Here are empirical results for the Case-Shiller 10 City and US indices showing the inverse relationship between house prices and interest rates very clearly:



Add to this problem—and interest rates will go up again sometime, and if they go up in a galloping inflation we will see a complete collapse of the housing market, as banks and their regulators will not permit another bubble to form quickly—although one will form even with 20 percent down given enough time—and because interest rates will rise more quickly than house prices, and because people are becoming just as afraid of the housing market as they are of the stock market.

You say we’re near a housing bottom?  You’ve got to be kidding!

Friday, February 24, 2012

Global happiness

Via:  The Economist  The happiest people appear to be in emerging poor or middle income economies with moderate inequality.  The worst case appears to occur when you live in a former great power with stagnant incomes and increasing inequality (Russia, Japan, Europe, the future U.S.).

DESPITE global economic gloom, the world is a happier place than it was before the financial crisis began. That is the counterintuitive conclusion of a poll of 19,000 adults in 24 countries by Ipsos, a research company. Some 77% of respondents now describe themselves as happy, up three points on 2007, the last year before the crisis. Fully 22% (up from 20%) describe themselves as very happy—a more important measure, says Ipsos’s John Wright, since whenever three-quarters of people agree on anything, “you need to pay attention to intensity in the results.” […]

But the Ipsos study shows the highest levels of self-reported happiness not in rich countries, as one would expect, but in poor and middle-income ones, notably Indonesia, India and Mexico. In rich countries, happiness scores range from above-average—28% of Australians and Americans say they are very happy—to far below the mean. The figures for Italy and Spain were 13% and 11% (Greece was not in the sample). Most Europeans are gloomier than the world average. So levels of income are, if anything, inversely related to felicity. Perceived happiness depends on a lot more than material welfare.

Via: Wikipedia the CIA World Report 2009 (the larger the Gigi coefficient, the greater the inequality)

Thursday, February 23, 2012

Corporations: virus or cancer?

Along with many others (see Finance Addict’s recent post Apple, Foxconn and the rise of the supranationals), I have  come to the conclusion (witness Europe, the banks, the pathetic sovereigns) that it is the corporation that is the dominant social institution on the face of the Earth today.

For a while, I thought corporations were like a virus, because their inanimate, inhuman virus-like structure made the metaphor appealing.

But upon reflection, I think that the modern supranational corporation is more like a cancer.  A cancer is a form of hypertrophied growth that spreads across and throughout the host organism, promoting its own essentially inanimate ends, while killing the host.

Isn’t that what the modern supranationals are doing?  Not that their looting managements are suffering, but many in the host countries are being left behind.

Of course, I am exaggerating.  Real living standards have been raised by supranationals in their host countries.  The problem today is that the looting by the management teams has become rabid, hollowing out the host societies’ democratic institutions, leaving a husk of historically extreme inequality that is possibly the most corrosive, ultimately destructive legacy possible, as it is a breeding ground for the most base forms of human society:  fascism, and revolutionary totalitarianism.

The message of the deeper thinkers and researchers in behavioral matters (not economists) is that social justice in the form of more equal distributions promotes many other very material goods.  See Wilkinson’s absolutely mind-blowing ted.org talk for the amazing empirical results.  “Economic growth” does not answer all human needs.

Can you legislate social justice?  Probably not.  It has to come from a widely held value system.  And, in America as elsewhere, the false god of Econ has inculcated some very bad values into this primate species, especially in the out-of-control ruling castes of the supranationals, who more and more bow to only the false god of Econ, aka Greed.

Tuesday, February 21, 2012

Bruce Bartlett on taxes

Read.  Bartlett is what might be called an apostate Republican.  I’ve been enjoying his articles immensely.  If only I could believe we’ll get honest tax reform out of this Congress…. A perpetuation and deepening of our neo-feudal future seems more likely.

February 21, 2012, 6:00 AM

Tax Code Not Aligned With Basic Principles

With its relatively heavy taxes on labor, light taxes on unearned income and broad ranges of rates within the same income levels, the American tax code violates fundamental principles of income taxation.

February 14, 2012, 6:00 AM

Why Tax Policy Assumes People Are Richer Than They Think

Because of the different ways in which income is defined, tax policy often assumes people to be better off than they themselves think they are, an economist writes.February 7, 2012, 6:00 AM

Tilting the Budget Process to the G.O.P.

Congressional Republicans are trying to tamper with institutions that won’t do their bidding, an economist writes.January 31, 2012, 6:00 AM

How to Avoid Reinventing the Wheel on Tax Reform, Part 2

It’s hard to overhaul the tax code without an outline upfront of what is intended, which can be used to weigh the impacts of proposed changes against one another, an economist writes.January 24, 2012, 6:00 AM

How to Avoid Reinventing the Wheel on Tax Reform

An overhaul of the tax code might be possible, because both political parties have reasons to support it — but the debate would be improved if each side understood its own arguments, an economist writes.January 17, 2012, 6:00 AM

The Pros and Cons of Obama’s Reorganization Plan

Some elements of President Obama’s plan to consolidate government departments make little sense, but abolishing the Small Business Administration is an excellent place to start, an economist writes.

January 10, 2012, 6:00 AM

The ‘Tax Gap’

About 16 percent of federal income taxes due have not been paid, and the enforcement mechanisms continue to be weakened, an economist writes.January 3, 2012, 6:00 AM

The True Federal Debt

The overall debts of the federal government are five times as large as the much discussed “national debt,” and can be addressed only through a very long-term approach, an economist writes.December 27, 2011, 6:00 AM

How Politics Came to Dominate Payroll Tax Debate

Lower payroll taxes were originally a Republican idea, and just why they turned against it is something of a mystery, an economist writes.December 20, 2011, 6:00 AM

Cutting the Corporate Tax Rate Is No Economic Panacea

Corporate taxes in the United States are not particularly high compared with other nations when they are accurately compared, an economist writes.

Older Entries

Friday, February 10, 2012

‘Animal spirits’ update



Blue is forecast.  2012 looks much like 1973 in the configuration of both the Michigan series and the “animal spirits” metric.  The sharp deceleration in the economy is expected to be due fiscal austerity, galloping wartime inflation, or a combination of the two.

Re: light posting

Google has hosed up my site. It no longer appears on my dashboard, and my preferred method of publishing, Live Writer, fails to log in.

I'll be back as soon as possible.