Tag Archives: Debt

The European Crisis

By Ross Douthat – Those problems bear a certain resemblance to those of our own politics. In Europe as in the United States, recent trends in culture and economics have elevated an educated upper class while separating it, geographically and ideologically and in every other way, from a declining and fragmenting working class. In Europe as in the United States, a growing immigrant population serves this upper class while seeming to compete with downscale natives for jobs, housing and social benefits.

In Europe as in the United States, the center-left coalition has become a kind of patronage arrangement between the multicultural meritocracy and minority groups both new and old, while the white working class drifts rightward and votes for Brexit, Trump and now Le Pen.

So far, so similar. But as counterintuitive as it may seem — after all, we elected Trump and they have not — in many ways these problems are worse in Europe, part of a systemic crisis that’s more serious than our own.

They’re worse because Europe is stuck with a horribly flawed experiment in political economy, a common currency without a common fiscal policy or a central political authority capable of claiming real legitimacy. The damage that this combination has done to the economies of Southern Europe, in particular, is striking and severe — years of elevated unemployment and stagnation, all of it imposed without democratic accountability by a mostly Northern European caste of bankers and politicians. more> https://goo.gl/VTMNjq

America is Regressing into a Developing Nation for Most People

BOOK REVIEW

The Vanishing Middle Class: Prejudice and Power in a Dual Economy, Author: Peter Temin.

By Lynn Parramore – America is not one country anymore. It is becoming two, each with vastly different resources, expectations, and fates.

In one of these countries live members of what Temin calls the “FTE sector” (named for finance, technology, and electronics, the industries which largely support its growth). These are the 20 percent of Americans who enjoy college educations, have good jobs, and sleep soundly knowing that they have not only enough money to meet life’s challenges, but also social networks to bolster their success. They grow up with parents who read books to them, tutors to help with homework, and plenty of stimulating things to do and places to go. They travel in planes and drive new cars. The citizens of this country see economic growth all around them and exciting possibilities for the future.

They make plans, influence policies, and count themselves as lucky to be Americans.

The FTE citizens rarely visit the country where the other 80 percent of Americans live: the low-wage sector. Here, the world of possibility is shrinking, often dramatically. People are burdened with debt and anxious about their insecure jobs if they have a job at all. Many of them are getting sicker and dying younger than they used to. They get around by crumbling public transport and cars they have trouble paying for. Family life is uncertain here; people often don’t partner for the long-term even when they have children. If they go to college, they finance it by going heavily into debt.

They are not thinking about the future; they are focused on surviving the present. The world in which they reside is very different from the one they were taught to believe in. more> https://goo.gl/LKhYy6

How Norway Proves Laissez-faire Economics Is Not Just Wrong, It’s Toxic.

By David S. Wilson, Dag O. Hessen – For most of human existence, until a scant 10 or 15 thousand years ago, the human ladder was truncated. All groups were small groups whose members knew each other as individuals. These groups were loosely organized into tribes of a few thousand people, but cities, provinces, and nations were unknown.

Today, over half the earth’s population resides in cities and the most populous nations teem with billions of people, but groups the size of villages still deserve a special status. They are the social units that we are genetically adapted to live within and they can provide a blueprint for larger social units, including the largest of them all – the global village of nations.

Modern nations differ greatly in how well they function at the national scale. Some manage their affairs efficiently for the benefit of all their citizens. They qualify at least as crude superorganisms.

Other nations are as dysfunctional as a cancer-ridden patient or an ecosystem ravaged by a single species. Whatever teamwork exists is at a smaller scale, such as a group of elites exploiting the nation for its own benefit.

The nations that work have safeguards that prevent exploitation from within, like scaled-up villages.

The nations that don’t work will probably never work unless similar safeguards are implemented. more> https://goo.gl/r9OigY

Almost everything Republicans get wrong about the economy started with a cocktail napkin in 1974

BOOK REVIEW

Return to Prosperity, Author: Art Laffer.

By Gwynn Guilford – The sealing of America’s fiscal fate began in 1974, over cocktails.

As afternoon faded to evening on December 4, Dick Cheney and a young economist named Art Laffer shuffled into a booth at the Two Continents restaurant in the iconic Hotel Washington—two blocks from the US Treasury department.

Cheney was US president Gerald Ford’s deputy chief of staff. He and his boss, Donald Rumsfeld, were looking for alternatives to Ford’s plan to raise taxes 5%. Raising taxes was a bad idea, said Laffer.

Growth, argued Laffer, depends on how much people work and how much businesses invest. He believed both those things hinge on tax rates: the more income the government takes away in taxes, the less motivated people are to work and save (leaving businesses less money to invest).

The government that thinks that raising taxes is necessary to pay for social programs and other public services is short-changing itself, argued Laffer. more> https://goo.gl/3Tfhgj

The $7 Trillion Hazard That Lies Beneath the M&A Boom

By Chris Bryant Tara Lachapelle – The global M&A boom has left a giant footprint on corporate balance sheets, and we’re not just talking about all that debt. Goodwill — the difference between what assets are worth on paper and how much an acquirer paid for them — is also soaring, and that could spell trouble for corporate earnings.

At S&P 500 companies, goodwill has risen by two-thirds over the past decade and accounts for more than one-third of net assets.

In the past two years, takeover targets have sold for a median of 11 times Ebitda — essentially 11 years of profit — whereas the multiple was only about 7-9 times in the years leading up to the recent merger frenzy.

As for who’s sitting on the most absolute goodwill, beer takes the cake. Anheuser-Busch InBev SA’s goodwill doubled to a cool $136.5 billion after its $100 billion takeover of SAB Miller Plc.

Impairments deplete shareholder equity, which makes lenders and bondholders nervous. Companies that financed takeovers with lots debt are particularly exposed. more> https://goo.gl/Ube7e8

The dangers of ultra-long-term bonds

By Judd Gregg – The dollar is the key to world commerce. It is used by most nations as their reserve currency. It is essentially other countries’ insurance against their governments pursuing profligate fiscal policy.

This fact would possibly make the sale of 50- or 100-year U.S. bonds acceptable in the world market. But it should also give us significant pause.

If we want our currency to be the reserve currency of choice around the world, then we need that currency to be respected.

If we start issuing general obligation bonds that have 50- or 100-year terms, we will inevitably call into question the long-term integrity of our nation’s fiscal house. Financing current expenses for 5, 10 or even 30 years may be an accepted practice, but to go out 50 or 100 years is not. more> https://goo.gl/t5bjEg

Adequate Housing: Global Financial Institutions Hold the World to Ransom

By Aisha Maniar – Global real estate is valued at around USD 217 trillion, representing 60% of all global assets.

At a recent press conference, the UN Special Rapporteur on the Right to Adequate Housing, Leilani Farha, stated that “Residential real estate is valued at $USD 163 trillion or more than twice the world’s total GDP.” She added, “Imagine if that capacity was harnessed for the realization of the right to housing instead of speculation and profit.’

In presenting a new hard-hitting report on 1 March, which “focuses on the “financialization of housing” and its impact on human rights”, Farha stated that “Housing has lost its currency as a human right” and “has been financialized: valued as a commodity rather than a human dwelling.”

The housing crisis, which “has not often been considered from the standpoint of human rights,” is global.

Many Western governments have adopted a “let them eat cake” response to the crisis. Rather than address the question of affordable and adequate housing, governments have acquiesced to market forces, with the governments of the UK and Ireland, for example, seeing a solution in building more private homes, to the benefit of developers, even though many properties lie empty in both states.

The Australian government continues to grant tax concessions to developers. more> https://goo.gl/5vYwcy

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