Krugman inkles the D-word

Paul Krugman’s op-ed piece today took my fears about the global free fall in manufacturing from the monetary sector straight to the real sector.   He’s making the case that the U.S. economy is at the start of depression.

The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.

As a liberal economist with impeccable credentials,  Dr. Krugman has always been called the consummate Keynesian.  This is despite his major contributions come from Trade Theory where he argues continually in his academic work for open, unfettered trade. Economists generally tend to be a pragmatic and practical sort because we focus on outcomes.

The main question posed by Krugman today concerns the Obama stimulus plan.

If we don’t act swiftly and boldly,” declared President-elect Barack Obama in his latest weekly address, “we could see a much deeper economic downturn that could lead to double-digit unemployment.” If you ask me, he was understating the case …

So will we “act swiftly and boldly” enough to stop that from happening? We’ll soon find out. “

2. The first Obama appointee to resign after a scandal in 2009 will be:

BILL RICHARDSON

We already have the answer for one of the question’s posed by the Dakini’s office pool.  It’s hard to know what to say other than welcome to Scamalot folks where pay-to-play is the  everyday way!  It certainly says a lot that this is the first answer so early and so BEFORE the swear in. 

This just in from the New York Times.

 Gov. Bill Richardson of New Mexico confirmed in a statement released Sunday afternoon that he has withdrawn his name as the commerce secretary nominee, citing a pending “investigation of a company that has done business with New Mexico state government …

On Dec. 19, The Times published an article stating that a federal grand jury in New Mexico was looking into accusations that Governor Richardson’s administration gave lucrative contracts to a California financier because he contributed heavily to the governor’s political action committees.

The article, citing a person familiar with the grand jury proceedings, stated that since August, federal investigators have been examining how CDR Financial Products Inc., of Beverly Hills, Calif., got two consulting contracts in 2004 worth about $1.4 million to advise the state on a large bond issue for building infrastructure, one of Mr. Richardson’s initiatives.

The investigation was first reported in The Albuquerque Journal.”

The Times article also references the Richardson press release as well as Obama’s deep regrets.  Of course, this is not the Bill Richardson Obama knew.

The AP (as paraphrased in the NY Tiimes article) has also announced some of the details of the latest pay-to-play Obama buddy caught in an indictment.

According to The Associated Press, a federal grand jury is investigating how a California company that contributed to Mr. Richardson’s political activities won a lucrative New Mexico state contract:

A person familiar with the proceedings has told The Associated Press that the grand jury is looking into possible “pay-to-play” dealings between CDR Financial Products and someone in a position to push the contract through with the state of New Mexico.

The A.P. also reports that Obama’s transition office said Sunday that the president-elect had accepted Mr. Richardson’s withdrawal.

Bye Bye Judas!!!   This is coincidently the second of Mr. Obama’s primary supporters/turncoats/opponents to have been caught up in scandal.  Did Mr. Axelrove perhaps find out things that both Judas and John Boy didn’t want out in the open during the primary season.  Inquiring minds want to know.

The Perils Of Prostitution

I’m going to give you a glimpse at my current research area without torturing you with models and data.  You’ve probably noticed I’ve been less than consistent with my blogging since the end of semester in mid December.  This will continue awhile as I torture trade theory, exchange rates, and the world financial system in pursuit of a few pubs.  However, I still am, at heart a teacher and I like to answer questions. 

I’ve gotten a lot of questions recently about the current economic stimulus package in terms of increasing the U.S. debt.  Many of my students ask me what would happen if China simply decides one day to stop buying our Treasuries or dump all the ones they own, at once, on the market. The answer is worldwide chaos but unlikely to happen.  However, there are things afoot that could make it likely that the Chinese might not buy further debt and could slowly shed its current portfolio holdings of both dollars and debt.  This could have enormous ramifications for our ability to stimulate the economy via debt financing as well as maintain the dollar as the world currency.

It is also possible that the other sovereign fund countries ( that would be the oil producing countries) may also stop buying further debt.  It’s easy to explain that.  Less oil revenues means less free money to invest.  But what about China? 

This is really a side show to what I am currently studying which is monetary policies, trade, and exchange rate policies.  But, it is an interesting sideshow. So here’s some questions, some discussion, and enough information to be mildly dangerous.  What about China?

You’ve just taken then Oath of Office and …

You take off across country on a ‘barnstorm tour’ to support your economic stimulus plan.

What?  Wasn’t that what the election was all about?

According to Fox news this morning,  Obama will meet with congressional leaders this week to get them started on an economic stimulus plan.

The first order of business for Obama and his Democratic allies in Congress is to enact the still-emerging economic recovery plan as soon as possible.

The plan, which some Obama aides think could swell to about $850 billion after negotiations with lawmakers, would be the largest investment in public infrastructure since the federal highway system was established in the 1950s. It also would provide tens of billions of dollars in aid to financially strapped states

Biden, Reid and Pelosi will be forming and enacting economic policy after a few kumbhaya, come to jesus moments with Republicans.  Then President Obama will begin a ‘barnstorming’ tour of the country to drum up support for the plan while every one else back in Washington does all the work.

Meanwhile, at the CNN Political ticker: Clinton Likely in for Bumpy Ride.  Evidently the news media thinks that the Secretary of State is in charge of foreign policy.

Has anybody read the constitution recently or are we about to see the birth of the European-style presidency here in the U.S.?  Will Obama become a constitutional monarch like Queen Elizabeth waving his pretty hands to his subjects while His Majesty’s minister’s do all the hard work.  This was something that I’d never really given thought to during the election, but as of late I’m speculating about it continually.

Instead of one Cheney, will we get two?

I have to admit that I’m going to be pretty happy if Secretary of State Clinton and Vice President of the Middle Class Biden can effectively use their joint knowledge and experience to improve the country and the world situation.  Both of them are without a doubt two of the most qualified people on the planet.  Maybe I’m wishful thinking on one level because the degree of inexperience and lack of depth and breadth of knowledge by president teleprompter jesus just continually flabbergasts me.  He’s hopeless off script.  HOWEVER, and this is a HUGE HOWEVER, is this in keeping with the spirit of democratically elected officials as well as our form of government?

Are we moving from an imperial presidency to a historical symbol presidency ?  And by whose authority have we morphed the role of the president?

Pinch me if I’m wrong here.  Tell me on one level to relax and be glad the grown ups are in charge.  Still, there’s that little bit of Colonial Dame/DAR member (my mom registered me, really) that worries about the role of the presidency in terms of our Constitution.  (Silly me.)  If we’re going to amend the constitution, shouldn’t we at least get to vote first?

and Time’s #8 Buzzword of the year 2008 is …

Top 10 Buzzwords

8. PUMA

By John Cloud

Louise Ma
An acronym for “party unity my ass,” this term was the rallying cry of Clinton supporters who backed her candidacy even after many party leaders called for consensus around Obama in order to ensure a unified Democratic front going into the general election. As Barrett of doubletongued.org points out, PUMAs hoped to bring the Clinton-Obama fight “to a head-to-head smackdown vote at the [Democratic] convention.” Instead, Clinton threw her support to Obama well before the convention. This word, which disproportionately described female voters, recalls TIME’s 2007 buzzword of the year: cougar, i.e., an older woman seeking younger men.

Really Bad Numbers = ?

I’ve tried to lay off my econ-based threads so all those that celebrate national crass consumerism day could stay off the window ledges instead, enjoying the yuletide fireplace.  This year, I’m earning my title as dismal scientist and this post is not full of seasonal cheer.

Employment: The level of continuing first time unemployment claims stands at a 26-year high of 4.51 million.  The 1982 recession was the worst post WW2 recession to date.

2008 Yearly Market Performance: (11 year lows)

U.S. indexes
Dow Jones Industrial Average	-35%
S&P 500	-39%
Nasdaq	-42%
Dow Jones Financials	-55%
Amex Oil Index	-38%

Housing: House prices have fallen to their 2004 level. Sales of both existing houses and new construction are miserably low.  Resales were down 10.6%f this year.  Basically, we’re seeing the fastest decrease  in sales on record.

Consumer Confidence:

The Reuters/University of Michigan survey of consumers rose to 60.1, better than a preliminary reading of 59.1 released earlier this month and topping the 58.5 reading forecast by economists’ surveyed by MarketWatch.

It also marked a sharp improvement from November’s 55.3 reading, a 28-year low…

The index has tumbled 20% from last year and 38% from a peak reached in Jan. 2007

The Dakini’s Office Pool

 

It’s almost the New Year.  Having once dated a New Yorker for an extended period of time, I got used to William Safire (whose column I miss a lot) and his end of the year Office Pool.  He always had a list of predictions that challenged you to beat the pundit.  Some of my favorite questions had to do with the results of elections as well as topical things like the number of troops left in Iraq by the end of the year.

You can be as snarky, hopeful, truthful, or scary right on as you wish. 

 

Here’s a few of them to get you started:

 

The NY Times Joins the Pigou Club

A few weeks ago I opened a thread about a Pigouvian tax on gas.  I argued that it would accomplish several things.  The first is to discourage consumption of gas and oil.  The second to discourage consumption of gas and oil from foreign countries. The third was to discourage consumption of gas and oil that contributes to global warming and pollution.  The fourth was to switch consumption and product development to energy efficient and non petroleum-based energy sources.  It struck a nerve among a lot of people because it basically is going to cost all of us money at all levels of society.  I heard a  lot of folks saying that the impact on the poor would be ‘unfair’ because so many would be unable to transfer out of gas-guzzlers and long commutes in the short run.  I also suggested that this could be offset with some kind of manipulation of the tax code to give them more take home pay until they can change the behavior.  I know suggesting tax increases on every one but the extremely rich is a highly unpopular thing, but unfortunately, it’s not only the rich that adopt behaviors that pass on social costs to the entire society.  Every has a stake in energy indepency, energy efficiency, and cleaner energy technologies.  If folks don’t change voluntarily (and history has taught us in this case they don’t), some times we have to make it costly.

Since I wrote that thread, the NY Times editorial board came out for a petroleum tax.  Gas prices are still falling and are now at about 5 year record lows.  Just like the 1970s and the 1980s, the american public is returning to its old habits.  This was just published at CNNMONEY.COM.

NEW YORK (CNNMoney.com) — After nearly a year of flagging sales, low gas prices and fat incentives are reigniting America’s taste for big vehicles.

Trucks and SUVs will outsell cars in December, according to researchers at the automotive Website Edmunds.com, something that hasn’t happened since February.

Meanwhile the forecast finds that sales of hybrid vehicles are expected to be way down.

“Despite all the public discussion of fuel efficiency, SUVs and trucks are the industry’s biggest sellers right now as a remarkable number of buyers seem to be compelled by three factors: great deals, low gas prices and winter weather,” commented Michelle Krebs, Senior Editor of Edmunds’ AutoObserver.com.

This month, trucks and SUVs will make up 51% all vehicles sold in the U.S., according to Edmunds.com. Before the spike in gas prices earlier this year, market share for trucks and SUVs had been even higher than that, said Edmunds.com sales analyst Jesse Toprak.

It just seems that we some people never learn.  That is when a Pigou tax in necessary.

Thomas Friedman in today’s NY Times  advocated the tax on petroleum for the same reasons.  Quoting Friedman is not something I usually do.  He’s has,however, spent some time studying the problem.  Here’s his take:

The two most important rules about energy innovation are: 1) Price matters — when prices go up people change their habits. 2) You need a systemic approach. It makes no sense for Congress to pump $13.4 billion into bailing out Detroit — and demand that the auto companies use this cash to make more fuel-efficient cars — and then do nothing to shape consumer behavior with a gas tax so more Americans will want to buy those cars. As long as gas is cheap, people will go out and buy used S.U.V.’s and Hummers.

There has to be a system that permanently changes consumer demand, which would permanently change what Detroit makes, which would attract more investment in battery technology to make electric cars, which would hugely help the expansion of the wind and solar industries — where the biggest drawback is the lack of batteries to store electrons when the wind isn’t blowing or the sun isn’t shining. A higher gas tax would drive all these systemic benefits.

The same is true in geopolitics. A gas tax reduces gasoline demand and keeps dollars in America, dries up funding for terrorists and reduces the clout of Iran and Russia at a time when Obama will be looking for greater leverage against petro-dictatorships. It reduces our current account deficit, which strengthens the dollar. It reduces U.S. carbon emissions driving climate change, which means more global respect for America. And it increases the incentives for U.S. innovation on clean cars and clean-tech.

The Times Editorial mentioned some of the same numbers.

The recent infatuation with the Toyota Prius and other fuel-efficient cars could well come to a similar end. It took a gallon of gas at $4.10 to push the share of light trucks down to 45 percent in July. But as gasoline plummeted back to $1.60 a gallon, their share inched back up to 49 percent of auto sales in November.

There are several ways to tax gas. One would be to devise a variable consumption tax in such a way that a gallon of unleaded gasoline at the pump would never go below a floor of $4 or $5 (in 2008 dollars), fluctuating to accommodate changing oil prices and other costs. Robert Lawrence, an economist at Harvard, proposes a variable tariff on imported oil to achieve the same effect and also to stimulate the development of domestic energy sources.

In both cases, the fuel taxes could be offset with tax credits to protect vulnerable segments of the population.

So, here are the arguments again with the evidence that people will not do what’s best without the stick.  Please think about it and discuss.

Yet another Russian Revolution

While many analysts in  foreign offices of various countries have been increasing;y worried that the global slow down would bring China’s economy closer to social unrest, the focus has now shifted to Russia.  The quick slide of petroleum prices plus the financial market crisis has left the former Soviet Union with restless workers demanding more.  

This information is from the U.K’s Financial Times.   Newspapers in Europe are interested in more than just the upcoming Obama annointment and actually have foreign offices rather than armies of reporters chasing the PE on beaches in Hawaii.   Perhaps Russian adventurism in the neighborhood will stop given this unnerving analysis.  We can only hope.

 It’s interesting to note that Russian cars makers also need a bail out from Mama Bear.  It appears no one likes their domestic drives any more.

One of the most interesting things I find with both of these transition economies has been the dance between enjoying increasing levels of consumer goods in return for accepting politically repressive regimes.    Folks in both China and Russia have been willing to trade freedom for stuff.  Now that the stuff is less available, what will happen?   Take that thought one step further and are all that different?  Exactly how much freedom do we sell for our daily bread and Wii?  While our expression of frustration were vented in the recent vote, how long and deep can this recession go before we too start demanding results from all this change?  Better yet, what happens when the candidate that promised to change things so drastically can’t really deliver.

Russia braced for unrest

By Isabel Gorst in Moscow and Anuj Gangahar in New York

Published: December 26 2008 19:53 | Last updated: December 26 2008 19:53

 

Russia is bracing for further unrest as the rouble on Friday slid to a new low against the euro after a succession of moves to devalue its currency.

A cut on Friday extended six weeks of devaluations by Russia’s central bank designed to offset the impact of the global economic crisis and falling oil prices as the country’s main export commodity approached its lowest level since 2004.

Mikhail Gorbachev, the former Soviet leader, warned Russia faced “unprecedentedly difficult and dangerous circumstances” and could be “heading into a black hole”. “It is not clear what the fate of our rouble will be or if society has sufficient financial and moral resources,” he said.

After the depreciation, which was the eighth so far this month, the rouble declined as much as 1.2 per cent to Rbs29.06 versus the dollar on Friday, a four year low. The rouble has now lost nearly 20 per cent of its value against the US currency since August.

Analysts at Barclays Capital said the best case scenario would see Russian policymakers, facing the mounting evidence of a recession, allowing a one-off depreciation of 10 per cent or more.

The rouble’s slide comes as the government faces scrutiny over its policies. A demonstration earlier this month in the far eastern city of Vladivostok marked the first major challenge to the Kremlin since the onset of the global financial crisis.

Mikhail Sukhodolsky, a deputy interior minister, warned on Christmas Eve that there could be further protests. “The situation may be exacerbated by a growth in frustration of workers over the non-payment of wages or those threatened with dismissal,” he said.

His remarks coincided with criticism of the Kremlin’s rough handling of the protests in Vladivostok. Moscow-based Omon riot police detained about 61 people in the protests against car import duties designed to prop up domestic car producers, but making foreign vehicles prohibitively expensive for ordinary Russians.

Fear and Loathing in Algier’s Point

Algier’s Point has a history of racism.  It’s a small neighborhood and mostly white enclave located on the west bank of the Mississippi River in New Orleans.  It  started as the place in New Orleans where human beings were bought and sold.  The Slave Market was placed far across the river from the main part of the city that was filled with folks of mixed race, free people of color, and the many assorted European transplants that made it home.  Now it’s a quaint little neighborhood that has shown an ugly white face to the world.

You may remember hearing about the West Bank when the Sheriff of Gretna (another mostly white  working class enclave) stopped many folks from crossing the Crescent City Connection in attempt to wall off the west bank from those fleeing the flooded city.  There was a lawsuit that was recently dismissed and the event attracted attention from national media and civil rights leaders.  The West Bank and its after-Katrina aftermath is once more at the epicenter of controversy.  ‘The Nation’ broke a story last week that included this video-taped admissions from White vigilantes in Algiers Point.  You can  listen to them admit  to shooting Black men on sight for just being in the neighborhood during Katrina.

One transplant from Chicago brags in only the way the truly stupid can:

“It was great! Like pheasant season in South Dakota. If it moved, we shot it.” 

 (You can catch this jerk around the 5:40 mark).

Charges of racism have been bandied about this election so readily that I’ve frequently worried we’ll become immune to the real things when it happens.  This weekend, I actually heard on commentator say that it was racist to even think about running any one against New York Governor Patterson in an upcoming election.  Just about anyone who supported Hillary Clinton during the primary had the racist meme thrown at them.  I was tired of the entire subject, frankly.

 

Watch this video.  It’s the real deal and you’ll recognize it.  It’s incredibly appalling and I hope the MSM airs the most offensive parts because there is an incredible level of hatefulness here that signifies racism at its worse.  I know it when I see it.

Charges of racism have been bandied about this election at the drop of a hat to the point that I’ve worried the nation will become immune to the real thing when it happens.  This weekend, I actually heard one commentator say that it was racist to even think about running any one against New York Governor Patterson in upcoming elections.  Just about every one who supported Hillary Clinton in the primary had the racist meme thrown into their faces. Again, I worried about folks becoming numb to the real deal.

 

Watch this video.  My guess is even if you did support Hillary in the primary and you think it’s possible some one might want to run against Patterson because he could appoint Caroline instead of other pols that you’ll till recognize the real deal.  It’s completely appalling and I hope the MSM airs the most offensive parts because there’s an incredible level of racism there.  I know it when I see it.

NOTE:  you can read more about this and make comments at the website of  the New Orleans Times Picayune