Sunday, October 31, 2010

Both political parties need to reevaluate their positions

First the Republican's: It will be interesting to see some meaningful proposals for addressing our dismal GDP growth and high unemployment.  If they think they have a winning strategy by simply continuing to attack the president, I think they are in for a rude awakening in 2 years.  I'd like to hear some serious proposals addressing increasing the demand in this country for goods and services, stopping the continued decline of our global competitiveness, and the improvement of our public education system (which is dreadful).  I increasingly see the Republicans as the party that could care less about the growing gap in wealth and ownership in this country.

Now the Democrats:  If the Democrats do not organize themselves and improve their message, they will continue to lose seats.  Why don't they explain that the public AND the government cannot de-leverage at the same time? (Which the republicans don't want to acknowledge!) Why don't they explain that public and private debt are not equivalent?  Why don't they show the factual charts from the 30's and 40's that show the relationship between Debt and Debt per GDP? (which would be VERY helpful in explaining our current predicament).  Why don't they explain the importance of Debt per GDP?  All these can be explained in terms simple enough for the "average Joe" to understand.

Our current government and the state of our politics is really pathetic.

I won't even address the Tea Bag party - to the extent that it's a single entity.  They claim to be constitutionalists but they need leadership that has, at least, read the document (and maybe the Jefferson/Adams letters!).

Obama really, really, needs to distance himself from the big banks

For what it's worth, my unscientific and non-statistically-valid poll of independents in my area (mostly at work) indicates that they are very disappointed with Obama's handling of the banks. My read on this is that he's much too concerned about hurting the banks than he is about the continuing suffering of homeowners.  Yes, there are homeowners that overreached what they could afford.  But, there are many, many others that are simply caught up in the crisis. They need to be the focus of assistance, not the banks.  If Obama doesn't stop listening to wall street's cries of the risks of "lower productivity of the financial system" (and, God forbid, bonuses that are not 7 figures), he is ensuring that he'll be a one term president.

Hell, maybe that's what he wants.  I wouldn't want his job.

Sunday, September 19, 2010

It's all connected

I'm concerned when I hear smart people like Powell talk about the need for jobs and the need to cut the deficit (in the same sentence).
I'll explain why.  Let's consider the main Economic challenges facing the country.  They can be categorized as follows: securitization (banking), the housing market, unemployment, lack of meaningful growth (GDP), fear of deficits.  Yes, there are others that I could list, but these are the crux of our current problems.
They are all interconnected!  Securitization of mortgages will not be fixed until the housing market is fixed.  The housing market will not be fixed until people can afford to pay their mortgages, meaning not until unemployment is fixed.  Unemployment will not be fixed until industries see demand for goods and services. Demand for goods and services must be provided (or stimulated by) the public sector, since the private sector and the consumer are broke.  THE DEFICIT WILL INCREASE AS A PERCENT OF GDP IF GDP DOES NOT START TO GROW - WE CAN'T CUT ENOUGH GOVERNMENT SPENDING TO LOWER THE DEFICT OTHERWISE!  AND, GDP WILL NOT GROW WITHOUT MORE STIMULUS OR SOME EFFECTIVE QUANTATIVE EASING. AFTER GDP AND EMPLOYMENT ARE ON THE RISE IS THE TIME TO CUT GOVERNMENT SPENDING - NOT BEFORE!!!!  And, I'll be the first in line to support those cuts.
We simply need a jump start for demand.  Stimulus and QE will NOT instate a permanent dependence on government.  Stimulus will allow companies to create jobs, those employed people will spend. Their spending represents DEMAND that will create more jobs and enable more people to buy... IT MULTIPLIES!  I don't understand why I'm not hearing this message from the administration!  Wouldn't that help people's EXPECTATIONS of growth?
We need to challenge the thinking of people who call for lower unemployment AND lower deficits in the near term. In the absence of something or someone magically creating demand for goods and services, the government is going to need to do the job.  (And, we can learn from Japan's mistakes over the past 17 years - maybe that's another post).

Back to Blogging

Well I'm back to blogging.  I stopped a year ago to focus on a new baby and an increasing work load.  However, I'd like to share some thoughts on our Economic situation and politics

Sunday, September 20, 2009


I'm getting very tired of listening to the media "parrot" conservative economists' concerns about the size of the deficit.

Without "parroting" economists much smarter than myself, let me say that there is no avoiding considerable deficit spending in the short term without throwing this economy into a depression.
In the longer term, when UNEMPLOYMENT eases, we will need to dial back our government spending considerably or risk forcing draconian actions in monetary policy.
As for the money the government is currently spending, we need to make sure we're spending on programs that improve EMPLOYMENT. Progressive politicians should not be using the crisis as an excuse to fund "pet rocks"! (I don't consider Health Care a pet rock as it's wrapped up in the problem of unemployment... another post on that later).
Pet Rocks are bad because, if we don't pay attention, our debt will reach levels that will be very painful to service in the future. Yes, Yes, we can grow out of debt, but think about the demographics of our nation that differ from the patterns of the last 50 years.
We have a large "boomer" population that is thinking about downsizing and reducing spending as they move into retirement (or semi-retirement). How fast do you think the US economy can grow in the coming 25 years?
We need to solve the unemployment problem as our #1 priority. This is important folks!

Too Big To Fail

Finally, this topic is getting a little more attention in the press. The facts are clear. We basically have 4 major banks: Wells Fargo, Citi, BOA, and Chase. In another financial crisis, could any of these be allowed to fail without throwing the economy into the dark ages?

Is it me? Or, is this just nuts?
Shouldn't we work for a situation where we have many, many "athletic" banks that can service the market's needs? They could team up on specific large deals. We could regulate the number that could get involved an any one deal, and/or the number that could/should get involved in specific segments of the business and financial markets.
Whatever the outcome, a break up of these banks is required. Hell, we broke up "Ma Bell" for reasons less critical to the world economy .

Friday, June 12, 2009

Inflation Expectations = Reality for Interest Rates

I've been very busy and haven't posted for a while, but mortgage rates have me concerned.Yes, they are low based on historic averages, but they are not low enough NOW. 
As most people know, the price for debt in the T-bond market is determined by inflation expectations. If investors expect the value of the dollar to decrease they demand that Treasury bonds to yield more. Mortgage securities compete with 10 year T-bonds (since the maturity is about the same on average) hence the historic correlation between their rates.  Mortgage backed securities investors typically get a higher yield from MBS because you and I are more likely to default than the US Government (hopefully).  So, mortgage rates are almost always a little higher (more or less) than 10 bonds.
As far as I can tell, unfounded inflation expectations are what is driving up T-bond, and hence mortgage, rates.  However, as Paul Krugman explains, interest rates should not be rising because there is an excess in global savings looking for a place to go - money should be cheap. This should keep interest rates down.  What's going on?
The answer must be risk.  The risk of inflation (percieved or not) in the bond market, and the investment risk in the corporate market is keeping rates higher.  While expectations of growth are good on the one hand, higher mortgage rates could choke the economy.  The current 30-year fixed rate of about 5.6% is still pretty low, but it can't go much higher to quickly.