Tag Archives: Debt

Beware the Foreign Exodus From Treasuries

By Lisa Abramowicz – The biggest foreign buyers of U.S. government bonds are quickly retreating after years of absorbing record amounts of the securities.

This is an important dynamic to understand when looking at the potential fate of the $13.6 trillion Treasury market in 2017.

For years, many countries were huge buyers of Treasuries as they built up their foreign-currency reserves. Many now need the money and are cashing out.

China, for example, is using tons of cash to support its depreciating yuan and bolster its financial system, which is showing signs of stress as the government seeks to curb riskier lending practices. Brazil’s economy is in shambles, meaning that nation needs all the free cash it can get to plug its budget gaps. more> https://goo.gl/eov5dm

The Difficult Nature Of Housing

By Mariell Juhlin – It is truly a tall order to fully understand the contribution of housing to growth, welfare and prosperity among individuals and societies.

Rarely does housing research capture, or attempt to capture, the full socio-economic and dynamic effects of housing on individuals and society. Still, housing is affected by, and in turn affects, most other societal areas from architecture to private sector development. An obvious explanation is that housing markets are too complex to be described by unitary market equilibrium models and would require an empirical basis for submarket modeling.

This, however, has not been embraced in applied research to any greater extent and, when it’s been done, it has been subject to inconsistency. The likely implication of this is that the effects of a functional, or indeed a dysfunctional, housing market may be both under-estimated and under-valued in literature and policy-research. Why so? more> https://goo.gl/wBDBfy

The Skills Delusion

By Adair Turner – Everybody agrees that better education and improved skills, for as many people as possible, is crucial to increasing productivity and living standards and to tackling rising inequality.

But what if everybody is wrong?

But one striking feature of the modern economy is how few skilled people are needed to drive crucial areas of economic activity. Facebook has a market value of $374 billion but only 14,500 employees. Microsoft, with a market value of $400 billion, employs just 114,000. GlaxoSmithKline, valued at over $100 billion, has a headcount of just 96,000.

But wouldn’t better skills enable people currently in rapidly growing but low-pay job categories to get higher paid jobs? In many cases, the answer may be no.

So “better education and more skills for all” may be less important to productivity growth and a less powerful tool to offset inequality than conventional wisdom supposes. But that would not undermine in the least the personal and social value of education. more> https://goo.gl/KBFyjE

How Sociopathic Capitalism Came to Rule the World

By John Paul Rollert – The stories we tell ourselves, far more than the evidence of scientific analysis, determine how we interpret the world around us.

Born in 1912, Milton Friedman was part of a postwar generation of business observers who departed sharply from the likes of John Maynard Keynes and Owen D. Young in their vision of capitalism. Harrowed by the existential struggles with communism and fascism, these individuals combined a reflexive distrust of collective intentions with economic insights that suggested such instincts were actually commercially counterproductive. Whether it was Joseph Schumpeter’s lionization of the individual entrepreneur as the agent of creative destruction and, therein, economic development; Eugene Fama’s assessment of government intervention as inimical to market efficiency; or Michael Jensen and William Meckling’s reinterpretation of the firm as nothing more than a “nexus of a set of contracting relationships among individuals,” all of these contentions served to revitalize individual self-interest as the key instrument of industrial advancement.

On their face these proposals were no more hostile to a sense of public-spiritedness than Adam Smith’s original argument on behalf of self-interest, but the rhetoric that accompanied them often seemed to indict altruistic intentions. more> https://goo.gl/ml4hVX

The Global Economy Remains Unbalanced


By Otaviano Canuto – Discussions around large current account imbalances among systemically relevant economies as a threat to the stability of the global economy faded out in the aftermath of the global financial crisis.

More recently, some signs of a possible resurgence of rising imbalances have brought back attention to the issue. We argue here that, while not a threat to global financial stability, the resurgence of these imbalances reveals a sub-par performance of the global economy in terms of foregone product and employment.

The “era of global imbalances” up to the GFC (global financial crisis) had two distinctive-yet-combined processes at its core:

On the one hand, credit-driven, asset bubble-led growth in the U.S., along with wealth effects, intensified the existing trend of domestic absorption (particularly consumption) growing faster than GDP. This resulted in falling personal saving rates and increasing current account deficits (Canuto, 2009; 2010).

On the other hand, the accelerated structural transformation and rapid growth in China, led to high and rising savings and investments and producing ever larger current account surpluses (Canuto, 2013a). more> https://goo.gl/QcdbMq

Five Reasons You Should Blame The Economics Discipline For Today’s Problems

By John T. Harvey – This ended up being a pretty long piece so, for the “tl;dr” people, here is a quick summary:

We are experiencing deep economic problems and it is the fault of the economics discipline.

The consequences of our current economic woes go well beyond our checkbooks and our borders. Many of our domestic political and social struggles are linked in some way to a lack of economic opportunity, as are a number of the conflicts and controversies around the globe. People who are not hungry, bewildered, and scared find it much easier to compromise and cooperate.

It is my contention (and that of many of my colleagues) that the fault lies not with the rich, not with corporations, not with China, not with the Illuminati, not with Al Qaeda, but with the economics discipline.

Bad ideas have done at least as much damage to our world as anyone’s bad intentions. Decades of misguided policy from both political parties and in other nations has critically weakened the core of our economy and left us in a situation where, despite our tremendous level of technological achievement, we seem to be regressing.

Just as in the Great Depression, we have the ability to solve these problems practically over night. What we lack is sound theory to guide our actions.

Here’s something that may frighten you: the people responsible for national economic policy are economics professors.

Donald Trump may develop a different plan than Hillary Clinton, but they both pick and choose from the same set whose contents is determined by that joker who stood in front of your introductory macro class–well, assuming you did so at Harvard, MIT, Chicago or the like. But make no mistake, it’s professors nevertheless.

Just do a quick Google search to see who the current and past members of the Council of Economic Advisers or the Federal Reserve Board are. This means that whatever those college professors think is a good idea eventually affects whether or not you can find a decent job.

We have a strong case of institutional lock in. Creativity is discouraged and our insularity has allowed macro theories based on the idea that economies fix themselves, the financial sector is unimportant, and there is no such thing as involuntary unemployment–ludicrous to anyone outside my profession–to survive. more> https://goo.gl/NqQDe0

AT&T opens itself up to activist attack

By Rob Cox – AT&T’s $85 billion takeover of Time Warner looks like a deal from another era. Back around the turn of the millennium, corporate chieftains roamed the global capital markets freely, buying rivals at random and running roughshod over shareholders, unencumbered by vigilant boards or uppity investors.

In this profligate epoch, the Hollywood studio was a popular plaything.

In most sensible acquisitions, a buyer promises to reduce expenses in the combination, diluting the financial impact to its owners. AT&T does say it will target $1 billion in savings, but given the absence of overlap, it’s a dubious pledge.

“Most of these,” posits Cowen analyst Colby Synesael of the synergies, “will come from what will likely be meaningful headcount cuts within AT&T that were likely to occur regardless of whether AT&T was acquiring Time Warner.”

What can embittered AT&T shareholders do? They don’t get to vote on the Time Warner deal, thanks to the crafty workings of Stephenson and the board. Beyond a rival bid that rescues them or regulators squashing the plan, investors determined to put a stop to the madness could enlist the services of a modern-day white knight of sorts: an activist. more> https://goo.gl/qH2Vfl

The cult of the expert – and how it collapsed

BOOK REVIEW

The Man Who Knew: The Life and Times of Alan Greenspan, Author: Sebastian Mallaby.

By Sebastian Mallaby – Bernanke repeated his plan to commit $85bn of public money to the takeover of an insurance company.

“Do you have 85bn?” one sceptical lawmaker demanded.

“I have 800bn,” Bernanke replied evenly – a central bank could conjure as much money as it deemed necessary.

But did the Federal Reserve have the legal right to take this sort of action unilaterally, another lawmaker inquired?

Yes, Bernanke answered: as Fed chairman, he wielded the largest chequebook in the world – and the only counter-signatures required would come from other Fed experts, who were no more elected or accountable than he was.

Somehow America’s famous apparatus of democratic checks and balances did not apply to the monetary priesthood. Their authority derived from technocratic virtuosity.

The key to the power of the central bankers – and the envy of all the other experts – lay precisely in their ability to escape political interference.

Democratically elected leaders had given them a mission – to vanquish inflation – and then let them get on with it. To public-health experts, climate scientists and other members of the knowledge elite, this was the model of how things should be done. Experts had built Microsoft. Experts were sequencing the genome. Experts were laying fibre-optic cable beneath the great oceans. No senator would have his child’s surgery performed by an amateur.

So why would he not entrust experts with the economy?

How did Greenspan achieve this legendary status, creating the template for expert empowerment on which a generation of technocrats sought to build a new philosophy of anti-politics?

The question is not merely of historical interest. With experts now in retreat, in the United States, Britain and elsewhere, the story of their rise may hold lessons for the future. more> https://goo.gl/7rAAmg

Imagine Jailing the Central Bankers Who Saved the World

By Mark Gilbert – The U.K. may be on the verge of an unprecedented experiment in public accountability. The courts may soon be invited to consider the following question: Should government officials face prosecution if the actions they took to support the financial system during the credit crisis stink in hindsight?

At issue is whether officials nudged, steered or ordered — take your pick — financial firms to act in unison, ensuring that no single bank looked more desperate for assistance than its peers. In other words, were these transactions rigged?

Rather than faking an open auction for cash, the central bank could simply have allocated identical amounts to each institution, regardless of their size but ensuring that the amount of support was sufficient to bolster even the weakest institution, with the other recipients enjoying a harmless excess of funding. No secret deals, no under-the-table instructions, and no stigma. more> https://goo.gl/7GCCHL

The Five Lies Of Rentier Capitalism

BOOK REVIEW

The Corruption of Capitalism: Why Rentiers thrive and Work does not pay. Author: Guy Standing.
The Precariat: The New Dangerous Class, Author: Guy Standing.
A Precariat Charter: From Denizens to Citizens, Author: Guy Standing.

By Guy Standing – ‘Rentiers’ derive income from possession of assets that are scarce or artificially made scarce. Most familiar is rental income from land, property, minerals or financial investments, but other sources have grown too.

They include the income lenders gain from debt interest; income from ownership of ‘intellectual property’; capital gains on investments; ‘above normal’ company profits (when a firm has a dominant position); income from subsidies; and income of financial intermediaries derived from third-party transactions.

The game became finding ways to attract and retain foreign investment, boost exports and limit imports. This led to the justification for cutting direct taxes, particularly on capital, and providing subsidies to investors. But corporations and financiers have used their power to induce governments and supranational finance to construct a global framework of institutions and regulations that enable elites to maximise rental income.

The claim that global capitalism is based on free markets is the first lie of rentier capitalism. more> https://goo.gl/wGkECv