Oct 04 2010


mr money bagsMonday Business Edition

Economics isn’t much of a science.

Sure they try and dress it up with the maths and produce the pretty graph, but in the end the letters are all just acronyms designed to make words look like numbers and somehow impart the dignity of 2 + 2 = 4 to arguments considerably more specious (a hard currency pun).

Take for instance Keynesian.  Today it’s being thrown as a slur and adopted to include almost anything that’s not related to Monetary policy and a Friedmanite/Greenspan fantasy land where government employment doesn’t produce anything of value (otherwise Capitalists would be doing it, by definition) and the concept of ‘public good’ is unknown.

The 2 leading schools of economic thought in the United States are the Freshwater School centered on the University of Chicago where Friedman taught and the Saltwater School which would be every one else.  Krugman has an essential summary.

But they’re both Monetarist Schools and Monetary Policy prescriptions don’t work when you have zero interest rates and incredible liquidity but your problems are under capacity utilization, over supply, and lack of aggregate demand.  You can’t push a string.

Then you need Fiscal Policy and deficits don’t matter.  We’ve grown or devalued our way out of every deficit we’ve ever had, our Currency is Sovereign (when I pay off my T-Bills I give you nice shiny greenbacks and tell you they taste great in a vinagrette), and who gives a rat’s ass about devaluation anyway, the only people it hurts are bankers and billionaires and they both deserve a spanking (some prefer the haircut metaphor).

My point about labels is this-  my views about macro economics, political economy, are what is properly called Neo-Classical Synthesis believe it or not because they’re grounded in Samuelson’s seminal 1948 Economics.  Krugman, DeLong, Stiglitz, Reich, etc. get called Neo Keyesians but that’s not what they’re really about, they’re all Samuelson Neo-Classicists.  Part of the problem with academic debate is that there has to be some otherwise you might lose your phony baloney job or, even worse, go out and teach some smelly undergraduates instead of sitting in your office writing papers.

Neo Liberal is an entirely different philosophy, but because lazy and stupid media people think anything new is Neo even though they live in the matrix and Liberal is Goldwater and Nixon, that one gets thrown around a lot too.


The point is that we have perfectly good models  for thinking about the state we’re in – models in which we can describe what all the agents are doing and why, models that have done a very good job in terms of predicting how events have proceeded. Moving back and forth between simple new Keynesian models and their IS-LM translations, it was straightforward to show that a huge expansion in the monetary base could and would go along with continuing disinflation, that massive government borrowing would not cause an interest rate spike, and so on.

So what’s wrong with my “one model to rule them all”? Well, it doesn’t easily translate into anything that looks like monetarism – for a good reason: when short-term interest rates are near zero, the distinction between the monetary base, which the central bank controls, and the much broader class of safe short term assets, which it doesn’t, more or less vanishes. That’s not a bug, it’s a feature; it says that when you’re in a liquidity trap, thinking in terms of the supply and demand for money is just not a helpful way to approach the issues.

More Krugman

But maybe this is an opportunity to reiterate a point I try to make now and then: economics is not a morality play. It’s not a happy story in which virtue is rewarded and vice punished. The market economy is a system for organizing activity – a pretty good system most of the time, though not always – with no special moral significance. The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty; nonetheless, we accept a system with considerable inequality because systems without any inequality don’t work. And before the trolls jump in to say aha, Krugman concedes the truth of supply-side economics, that’s not an argument against progressive taxation and the welfare state; it’s just an argument that says that there are limits. Cuba doesn’t work; Sweden works pretty well.

And when we’re experiencing depression economics, by which I mean a situation in which it’s hard to create sufficient demand to achieve full employment – mainly because short-term interest rates are up against the zero lower bound – the essentially amoral nature of economics becomes even more acute. As I’ve said repeatedly, this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn’t particularly wise.

The trouble in practice is that conventional modes of thought tend to prevail even when they shouldn’t; in particular, public spending on the scale needed never seems to happen. That’s why Keynes facetiously proposed burying bottles full of cash in coal mines, so people could dig them up again: since any proposal to spend money on things we need got shot down on grounds of prudence and efficiency, he proposed completely pointless spending instead.

Still More Krugman

What I’d say about America now is that we have big problems, very much including too much talent going into financial fiddling, too few people who actually make stuff – actually, I worry as much or more about machinists as I do about scientists and engineers. But that observation has virtually no bearing on high unemployment right now. So I’d hope we can walk and chew gum at the same time, appreciating the structural problems but not letting that understanding get in the way of fighting the immediate jobs crisis.

Robert Reich

My argument is just to opposite. For three decades American consumers managed to maintain demand despite flat real wages. They did this by sending women into paid work, working longer hours, and then borrowing to the hilt. But all these coping mechanisms have come to an end. So it’s only now that we have to face the reality that most Americans have not shared in America’s prosperity.

Now with 26 Stories from Yahoo Business News.

From Yahoo News Business

1 Europe woos Asia to boost global role

by Claire Rosemberg, AFP

2 hrs 6 mins ago

BRUSSELS (AFP) – Europe sought a heightened global role with Asia’s emerging giants Monday at talks ranging from trade to climate change between nations representing more than half the world’s population.

The two-day Asia-Europe Meeting (ASEM) of 46 nations, followed by separate EU summits with China and South Korea on Wednesday, opens amid renewed tension between Beijing and Tokyo over disputed islands in the East China Sea.

Chinese Premier Wen Jiabao, indisputably star guest of the talks, could hold a face-to-face meeting with Japanese Prime Minister Naoto Kan to ease the dispute, diplomats said.

2 Iraq oil reserves overtake Iran’s

by Salam Faraj, AFP

Mon Oct 4, 6:54 am ET

BAGHDAD (AFP) – Iraq reported on Monday a sharp rise in proven oil reserves that saw it leapfrog Iran into third place worldwide, as the war-battered country seeks to rebuild its crude-dependent economy.

The new figure of 143.1 billion barrels of oil represents a 24-percent increase over the old level of 115 billion barrels, but still leaves Iraq ranking behind Saudi Arabia and Venezuela in terms of known reserves, according to OPEC data.

“Iraq’s oil reserves which are extractable are 143.1 billion barrels,” Oil Minister Hussein al-Shahristani said at a news conference in Baghdad, noting this excluded any reserves in the autonomous region of Kurdistan.

3 Chinese premier pledges support for euro, EU trade

by Helene Colliopoulou, AFP

Sun Oct 3, 2:15 pm ET

ATHENS (AFP) – Chinese Premier Wen Jiabao pledged on Sunday to support a stable euro and ease trade ties with Europe as he moved to smooth over past tensions ahead of a key summit in Brussels.

“I am convinced that a strong Europe is irreplaceable….China wants to promote and strengthen strategic links with the European Union,” Wen said in an address to the parliament in Athens ahead of the Asia-Europe and EU-China summits.

He said China would “support the stability of the euro” and Beijing would “not reduce the amount of European bonds that are part of the Chinese foreign exchange reserves.”

4 British PM seeks to calm fears over budget cuts

by Katherine Haddon, AFP

Sun Oct 3, 1:58 pm ET

BIRMINGHAM, United Kingdom (AFP) – British Prime Minister David Cameron on Sunday defended budget cuts as necessary to prevent a Greek-style meltdown as his Conservative Party kicked off its annual conference.

Two weeks before Cameron’s government unveils a spending review likely to force many departments to slash spending by 25 percent, the premier also tried to reassure Britons over their impact, while acknowledging hard times ahead.

The conference in Birmingham, central England, is the centre-right Conservatives’ first since they took power in a coalition government with the centrist Liberal Democrats in May after 13 years in opposition.

5 Europe-Asia summit looms under Japan-China shadow

by Laurent Thomet, AFP

Sun Oct 3, 2:18 pm ET

BRUSSELS (AFP) – European and Asian leaders huddle Monday for three days of summits in Brussels focused on economic ties but a spat between Japan and China threatens to steal the show.

Heads of state and government from the 48-member Asia-Europe Meeting (ASEM) will hold a two-day summit followed by separate European Union talks Wednesday with South Korea and China.

But all eyes will be on whether Chinese Premier Wen Jiabao and Japanese Prime Minister Naoto Kan will meet face-to-face to ease tensions over a maritime incident near a disputed island chain.

6 German business sees new ally in resurgent Greens

by Mathilde Richter, AFP

Sun Oct 3, 1:41 am ET

BERLIN (AFP) – Germany’s resurgent Green party is setting records in the opinion polls and being tentatively courted by unlikely new suitors: industry types who long saw the environmentalists as adversaries.

Particularly smaller, often family-owned, businesses — the backbone of the Europe’s biggest economy — are being drawn in by the opposition Greens’ programme of pragmatic sustainability.

“The Greens and small- and medium-sized businesses — it is a match practically made in heaven,” said Mario Ohoven, president of the BVMW industry group representing the interests of such firms.

7 British PM says budget cuts vital to avert meltdown

by Katherine Haddon, AFP

Sun Oct 3, 8:17 am ET

BIRMINGHAM, United Kingdom (AFP) – British Prime Minister David Cameron Sunday defended harsh budget cuts as necessary to prevent a Greek-style meltdown as his Conservative Party kicked off its annual conference.

Cameron said his Conservative-Liberal Democrat coalition government inherited a “complete mess” from his Labour predecessor Gordon Brown after May’s general election.

“Britain’s budget deficit is something you can’t put off dealing with,” Cameron told the BBC in an interview.

8 TV industry show hails smartphone, Facebook era

by Audrey Stuart, AFP

Sun Oct 3, 2:55 am ET

PARIS (AFP) – Internet-based TV viewing, the arrival of Apple’s iPad and the proliferation of smartphones are set to ring in a new era of connected entertainment, industry experts predict.

Thousands of TV execs are to flock to the French Riviera to brainstorm and snap up some of the hottest new programmes at this year’s influential MIPCOM 2010 audiovisual entertainment show that kicks off here Monday.

The four-day event will focus on re-defining the entertainment experience through fast-growing digital platforms such as social networks as well as smartphone-connected digital TV and apps and their effect on the industry.

9 Bidders circle Carrefour’s Southeast Asian assets

by Didier Lauras, AFP

Sun Oct 3, 2:37 am ET

BANGKOK (AFP) – A bidding war is heating up for Carrefour’s supermarkets in Thailand, Malaysia and Singapore as the French retail giant plans its exit after failing to take a dominant position in the region.

Carrefour, the world’s second-biggest retailer behind US colossus Wal-Mart, is looking to offload its 43 Thai, 23 Malaysian and two Singaporean hypermarkets in a sale some estimates suggest could net a billion dollars.

Analysts believe Carrefour’s eagerness to sell up reflects the fact that, despite its large foothold and the robust health of the markets, the firm has trailed competitors such as Britain’s Tesco in terms of market share.

10 Cemetery site scares off Hong Kong developers

by Peter Brieger, AFP

Sun Oct 3, 2:15 am ET

HONG KONG (AFP) – Hong Kong axed its first land auction in 16 years last week after property-mad developers were scared off by the site’s location — next to a cemetery, considered a bad omen by Chinese buyers.

Soaring property prices have sent the financial hub’s government into action over the past year, staging half a dozen land sales to boost supply and cool an overheating market amid fears of a housing-price bubble.

The land sales sparked huge interest from buyers, including Hong Kong’s richest man Li Ka-shing, given the scarcity of real estate in this densely populated city of seven million.

11 Foreclosures bungle could hit US banks

by Ron Bousso, AFP

Sun Oct 3, 1:50 am ET

NEW YORK (AFP) – Already fragile US financial firms are facing a raft of law suits and potential fines after three major mortgage lenders admitted to mishandling thousands of home foreclosures.

Major mortgage lenders Bank of American, JPMorgan Chase and GMAC have in recent days announced they were suspending tens of thousands of foreclosure processes across the country due to apparent improper handling of documents.

Attorney generals in six states are already investigating claims by borrowers that lenders have committed errors in the foreclosure documentations.

12 Australia set for ‘rare earths’ boom

by Talek Harris, AFP

Sun Oct 3, 12:58 am ET

SYDNEY (AFP) – Rare earths, the little-known elements behind everything from iPods to hybrid cars and eco-friendly light bulbs, are set to boom in Australia thanks to an export clampdown by China, experts say.

Industry sources and analysts say Australia’s vast reserves of the obscure metals with highly prized properties could make it one of the world’s leading producers in just a few years.

“By about 2014 we should be one of the dominant suppliers of rare earths to the world. And we will compete with China for that,” a long-term investor told AFP.

13 Sanofi launches hostile $18.5 billion bid for Genzyme

By Nina Sovich and Leila Abboud, Reuters

2 hrs 27 mins ago

PARIS (Reuters) – French drugmaker Sanofi-Aventis (SASY.PA) launched a hostile bid for Genzyme (GENZ.O) at $69 per share on Monday, taking its $18.5 billion offer direct to shareholders after Genzyme management refused to negotiate.

The move comes a month after Genzyme rebuffed an approach from Sanofi-Aventis (SASY.PA) at the same price. Sanofi has since been talking to Genzyme investors, who it said were frustrated by Genzyme management’s intransigence.

Sanofi’s unsolicited offer, all in cash, will expire on December 10 at 11:59 pm EST.

14 UBS, C.Suisse must meet tough top-up on Basel III

By Sven Egenter, Reuters

2 hrs 14 mins ago

BERNE (Reuters) – Switzerland has tightened the reins on UBS and Credit Suisse, telling them to hold far more capital than their international rivals to prevent a crisis that could cripple the country.

The new rules were seen as a move to restore confidence to Switzerland’s crucial private banking industry, but could crimp the ability of the country’s two biggest banks to compete in investment banking in Europe and on Wall Street.

The two banks should hold an equity tier 1 capital ratio of at least 10 percent under the proposals laid out by the a government commission on Monday.

15 Kuwait commits $1 billion to AIA IPO: source

By Denny Thomas and Michael Flaherty, Reuters

Mon Oct 4, 6:01 am ET

HONG KONG, Oct (Reuters) – American International Group Inc (AIG.N) received a $1 billion commitment from Kuwait Investment Authority for the IPO of its Asian life insurance unit, according to a source, the first major investment inked before the roughly $15 billion share sale launches.

AIA Group Ltd is aiming for an overall value of around $30.5 billion after listing, according to another source, on a par with what UK insurer Prudential Plc (PRU.L) had last offered for AIA in its failed takeover bid earlier this year.

KIA, the country’s sovereign wealth fund, is among the major global institutions that have signed up as cornerstone investors ahead of AIA’s IPO. The sources had direct knowledge of the matter but were not authorized to speak publicly as the deal has yet to launch.

16 UK finance minister dismisses fresh bank bailout scenario

By Sudip Kar-Gupta, Reuters

39 mins ago

LONDON (Reuters) – Finance minister George Osborne on Monday dismissed a thinktank report that British banks may need another state bailout next year and their borrowing requirements could hit 25 billion pounds ($39.5 billion) a month.

The independent New Economics Foundation (NEF) thinktank said it had examined Bank of England data and concluded that many UK banks appeared to face a funding cliff, as it published a report on Britain’s banks entitled “Where Did Our Money Go?”

Royal Bank of Scotland and Lloyds had to be part-nationalized as they ran up huge losses during the credit crisis, and others, such as Barclays and HSBC, have benefited from cheap credit provided by the central bank.

17 IMF renews call for bank levy, global oversight

By Kevin Drawbaugh, Reuters

Sun Oct 3, 5:42 pm ET

WASHINGTON (Reuters) – The International Monetary Fund has called for a new world system to dismantle troubled financial institutions and a levy on banks to pay for it.

The IMF’s statement, released on Sunday, comes ahead of meetings here this week among fund officials, the World Bank and leading nations’ finance officials. It urges better international regulatory cooperation and stronger supervision.

Two years after the peak of the worst global financial crisis in generations, the IMF is seeking to keep momentum going for substantive cross-border financial reforms.

18 China’s Wen supports stable euro ahead of EU summit

By Ingrid Melander and Harry Papachristou, Reuters

Sun Oct 3, 9:35 am ET

ATHENS (Reuters) – China pledged on Sunday to support a stable euro and not reduce its holdings of European government bonds in an effort to deflect criticism of its foreign exchange policy ahead of an EU-China summit this week.

China, at loggerheads with the United States over the yuan and likely to face similar complaints during his tour of European countries this week, emphasized its willingness to cooperate with the 27-nation EU..

“I have made clear that China supports a stable euro,” Chinese Premier Wen Jiabao said during a visit to Greece at the start of a one-week European tour. “We will not reduce the holdings of European bonds in our foreign exchange portfolio,” he added.

19 Japan warns about terror in Europe; tourists chill

By JAMEY KEATEN, Associated Press Writer

2 hrs 12 mins ago

PARIS – Japan issued a travel alert for Europe on Monday, joining the United States and Britain in warning of a possible terrorist attack by al-Qaida or other groups, but tourists appeared to be taking the mounting warnings in stride.

The Foreign Ministry in Tokyo urged Japanese citizens to be cautious when using public transport or visiting popular tourist sites – issuing another blow to Europe’s tourism industry, which is just starting to recover from the global financial crisis.

European authorities – especially in Britain, France and Germany – tightened efforts to keep the public safe in the wake of warnings by officials that the terrorism threat is high and extra vigilance is warranted.

20 Nations wary of dependence on China’s rare earths

TOMOKO A. HOSAKA, Associated Press Writer

Mon Oct 4, 4:43 am ET

TOKYO – China’s recent halt of exotic metal shipments to Japan amid a diplomatic spat has reverberated throughout the world’s high-tech manufacturing hubs – now on heightened alert to the risks of relying on one country for materials that do everything from helping hybrid engines run to creating the color red in televisions.

Governments as far afield as Washington and Seoul are asking: What happens if China cuts off our supply too?

Like the rest of the world, Japan depends almost entirely on shipments from China, which produces 97 percent of the global supply of the metals known as rare earths.

21 EU-Asia summit to address economy

By RAF CASERT, Associated Press Writer

26 mins ago

BRUSSELS – European and Asian leaders opened a formal summit amid high security and palace opulence, hoping to agree on commitments to keep the global financial system on an even keel and find a better balance on the Europe-dominated International Monetary Fund.

The leaders found their way through a cordon of gun-toting security and barbed wire sealing off the center of the capital.

There, they were welcomed in the marble, gilted royal palace under crystal chandeliers – but the meeting was expected to be stronger on symbolism than achievements.

22 Strong Swiss franc crushes E. Europe homebuyers

By PABLO GORONDI, Associated Press Writer

17 mins ago

BUDAPEST, Hungary – Ildiko Papp can calmly discuss the collapse of her family company and break-ins at her home and business. Mention the Swiss franc, however, and she struggles to keep from crying.

The 55-year-old florist and her husband borrowed 61,000 Swiss francs – the equivalent of 10 million forints ($47,000, euro35,700) in 2006 – to cover two-thirds of the cost of a small apartment in an outer Budapest district.

After four years, a sharp rise in the franc against the forint doubled her payments, from 50,000 ($240, euro180) to 100,000 forints ($480, euro360) a month.

23 SPIN METER: Business group turns on past allies

By KEVIN FREKING, Associated Press Writer

15 mins ago

WASHINGTON – During the worst of the economic crisis, the nation’s most powerful business lobby pleaded with Congress to prop up financial institutions and stimulate the economy with hundreds of billions of dollars in borrowed money.

“Make no mistake: When the aftermath of congressional inaction becomes clear, Americans will not tolerate those who stood by and let the calamity happen,” wrote Bruce Josten, the U.S. Chamber of Commerce’s vice president in September 2008, who at the time pressed lawmakers before their vote on a $700 billion bailout for Wall Street.

A few months later, Congress faced a similar reckoning – whether to pass an $814 billion economic stimulus package consisting of about one-third tax breaks and two-thirds additional government spending. Again, Josten wrote to lawmakers: “The global economy is in uncharted and dangerous waters and inaction from Washington is not an option.”

24 New Supreme Court term opens with Kagan aboard

Associated Press

17 mins ago

WASHINGTON – The Supreme Court opened its new term with Justice Elena Kagan on the bench.

The high court turned down hundreds of appeals, including one by the founders of former telecommunications giant Adelphia Communications. It also refused to hear an appeal from John and Timothy Rigas, who wanted their fraud convictions overturned.

The Rigases were sent to prison after Adelphia collapsed in 2002, with prosecutors saying they used it like a personal piggy bank.

25 Japan warns about terror in Europe

By JAMEY KEATEN, Associated Press Writer

1 hr 14 mins ago

PARIS – Japan issued a travel alert for Europe on Monday, joining the United States and Britain in warning of a possible terrorist attack by al-Qaida or other groups, but tourists appeared to be taking the mounting warnings in stride.

The Foreign Ministry in Tokyo urged Japanese citizens to be cautious when using public transport or visiting popular tourist sites – issuing another blow to Europe’s tourism industry, which is just starting to recover from the global financial crisis.

European authorities – especially in Britain, France and Germany – tightened efforts to keep the public safe in the wake of warnings by officials that the terrorism threat is high and extra vigilance is warranted.

26 UK cuts child benefit payments in austerity drive

By DAVID STRINGER, Associated Press Writer

8 mins ago

LONDON – Britain will cap payments to jobless families and scrap child benefits for high earners in a sweeping overhaul of the country’s welfare system, Treasury chief George Osborne said Monday.

Osborne, who is seeking to save about 86 billion pounds ($135 billion) in government spending over the next five years, said the cost of welfare payments was out of control – and rewarding some people for staying out of work.

At an annual rally of his Conservative Party, Osborne said Britain’s coalition government would introduce a new welfare cap to make sure families in which both parents are unemployed do not receive more in benefits than an average family earn in wages.

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