Briefly, Krugman and Ferguson agree that the future of the U.S. economy depends upon how large the U.S. national debt becomes and how the world views the value of this debt. If, instead, the U.S. has to print money to meet its obligations, then inflation will ensue...and things get a little dicey. Paul Krugman (the optimist here) does not believe this is likely to happen...but Niall Ferguson is not as sure and suggests a long-term conservative approach...one that, in my opinion, would lead to cutting important social programs (education, healthcare, etc.)..which will lead to other economic problems. Maybe, Bush shouldn't have pushed for cutting taxes in the early 2000s at a time when were entering into a war in Iraq and started running deficits again. What do you think?
Saturday, May 23, 2009
Krugman vs. Ferguson
Check out this exchange between Paul Krugman and Niall Ferguson (among others).
Friday, May 22, 2009
Is California Too Big to Fail?
Joe Matthews of the NY Times asks the question: "Is California Too Big to Fail?".
"IS California too big to fail?That’s the question President Obama and Congress will soon face. While many states have severe fiscal problems, the depth and unusual persistence of California’s budget problems — the state has run deficits for most of the decade — has emptied Sacramento’s till. On its current path, California will run short of the cash it needs to pay its bills in late July.
It’s highly unlikely that the state’s political leaders will be able to fix the problem themselves. Typically, states build up a cushion of tax revenues in the spring to pay expenses through the fall, when little cash comes in. But enormous drops in tax revenue have left California without the savings to meet even one month’s worth of expenses.
The other methods of cash management — transfers to the general budget from other state accounts and short-term borrowing in the credit markets — are no longer enough to address the problem. California’s leaders have drawn so deeply in recent years on the state’s hundreds of special funds that there is little cash left to repurpose.
And selling short-term notes in the credit markets is difficult because of California’s credit rating, the lowest of any state. Even if the state could pay high interest costs, California may require more cash — more than $20 billion by some estimates — than it can plausibly acquire in the markets."
Let's hope not!
The Stock Market is Still Way Over-Valued!
Check out this analysis by Mish and John Mauldin
On April 10, 2009, the total earnings estimate for all of the S&P 500 companies was a combined $28.51.
"The S&P closed Thursday at 888. That's a richly priced PE [price/earnings ratio] of 31 [888/28.51= ~31]. Let's assume that earnings recover to $48. That's still a richly priced PE of 18.5. A bear market bottom might sport a PE of 10-12 but let's be generous and use 15.
15*$28.51 would put the S&P 500 at 382!
Let's be more generous and use an earnings estimate of $48.
15*$48 would put the S&P 500 at 720!-----------------------------------------------------------------------------No matter how you slice and dice things, fundamentally the stock market is very pricey."Changes to text in bold.
Thursday, May 21, 2009
GDP: U.S. vs. China
Sometimes, we lose perspective on what an economic powerhouse the U.S. really is!
A comparison courtesy of a Wolfram Alpha search:
While China's GDP growth averages more than 3Xs that of the U.S.,
pay attention to the current absolute values: $13.8 Trillion (U.S.) vs. $3.4 Trillion (China)
And...the per capita GDP of the U.S. is approx. 28 times that of China. Staggering!
It's a Long Way to the Top....
It's a long way to the top.... unemployment numbers still have a ways to go....
See chart here.
(Hat tip to CalculatedRisk)
From the U.S. Department of Labor:
U.S. Department of Labor Office of Public Affairs Washington, D.C. |
| EMPLOYMENT AND TRAINING ADMINISTRATION | USDL 09-539-NAT |
| Program Contact: | TRANSMISSION OF MATERIAL IN THIS |
| Scott Gibbons (202) 693-3008 | RELEASE IS EMBARGOED UNTIL |
| Tony Sznoluch (202) 693-3176 | 8:30 A.M. (EDT), THURSDAY |
| Media Contact : | May 21, 2009 |
| (202) 693-4676 | |
UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT
SEASONALLY ADJUSTED DATA
In the week ending May 16, the advance figure for seasonally adjusted initial claims was 631,000, a decrease of 12,000 from the previous week's revised figure of 643,000. The 4-week moving average was 628,500, a decrease of 3,500 from the previous week's revised average of 632,000.
The advance seasonally adjusted insured unemployment rate was 5.0 percent for the week ending May 9, an increase of 0.1 percentage point from the prior week's unrevised rate of 4.9 percent.
The advance number for seasonally adjusted insured unemployment during the week ending May 9 was 6,662,000, an increase of 75,000 from the preceding week's revised level of 6,587,000. The 4-week moving average was 6,480,500, an increase of 131,000 from the preceding week's revised average of 6,349,500.
The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.071 million.
The advance number of actual initial claims under state programs, unadjusted, totaled 536,588 in the week ending May 16, a decrease of 33,824 from the previous week. There were 319,694 initial claims in the comparable week in 2008.UNADJUSTED DATA
The advance unadjusted insured unemployment rate was 4.6 percent during the week ending May 9, unchanged from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 6,189,434, a decrease of 2,110 from the preceding week. A year earlier, the rate was 2.1 percent and the volume was 2,847,329.
Extended benefits were available in Alaska, Arizona, Arkansas, California, Connecticut, the District of Columbia, Idaho, Illinois, Indiana, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Vermont, Washington, and Wisconsin during the week ending May 2.
Initial claims for UI benefits by former Federal civilian employees totaled 1,174 in the week ending May 9, a decrease of 44 from the prior week. There were 1,751 initial claims by newly discharged veterans, an increase of 67 from the preceding week.
There were 15,868 former Federal civilian employees claiming UI benefits for the week ending May 2, a decrease of 553 from the previous week. Newly discharged veterans claiming benefits totaled 28,542, an increase of 21 from the prior week.
States reported 2,268,367 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending May 2, an increase of 111,851 from the prior week. EUC weekly claims include both first and second tier activity.
The highest insured unemployment rates in the week ending May 2 were in Oregon (7.4 percent), Michigan (6.9), Puerto Rico (6.6), Nevada (6.4), Pennsylvania (6.3), Wisconsin (6.2), Idaho (6.0), California (5.6), Alaska (5.5), New Jersey (5.4), and North Carolina (5.4).
The largest increases in initial claims for the week ending May 9 were in Michigan (+16,817), North Carolina (+3,783), Virginia (+2,871), Kentucky (+2,768), and Pennsylvania (+2,444), while the largest decreases were in California (-10,052), Wisconsin (-1,691), Kansas (-1,415), Oklahoma (-1,084), and Washington (-843).
Saturday, May 16, 2009
"Ten Reasons Why the Stress Tests Are “Schmess” Tests "
Nouriel Roubini has an interesting article in the Wall Street Journal (WSJ) concerning how the recently concluded Bank Stress Tests vastly underestimate the losses that the banks will take over the next 6-9 months. This means that in order for these banks to remain solvent, they will have to raise even more capital than originally thought.
Wolfram Alpha is Coming!
A new specialized internet search engine will be operational beginning this upcoming Monday! It is named Wolfram Alpha.
Wolfram|Alpha's long-term goal is to make all systematic knowledge immediately computable and accessible to everyone. We aim to collect and curate all objective data; implement every known model, method, and algorithm; and make it possible to compute whatever can be computed about anything. Our goal is to build on the achievements of science and other systematizations of knowledge to provide a single source that can be relied on by everyone for definitive answers to factual queries.
Wolfram|Alpha aims to bring expert-level knowledge and capabilities to the broadest possible range of people—spanning all professions and education levels. Our goal is to accept completely free-form input, and to serve as a knowledge engine that generates powerful results and presents them with maximum clarity.
Wolfram|Alpha is an ambitious, long-term intellectual endeavor that we intend will deliver increasing capabilities over the years and decades to come. With a world-class team and participation from top outside experts in countless fields, our goal is to create something that will stand as a major milestone of 21st century intellectual achievement.
This search engine will be great for engineers, economists, scientists, and anyone else who wants to analyze publicly available information and try to make sense of it.
For example, if you wanted to know how the median income in America has changed as a function of time...and if you wanted to know how this has changed relative to the top 1% of earners in America...you could do that....and Wolfram Alpha would make it easy.
Thursday, May 14, 2009
Nursing Shortage (continued)
If there is an increase in the demand for nurses, then the wages for nurses should increase in the short-term. Higher wages attract more professionals to enter the profession. As supply catches up with the demand, then wages stabilize. That's Economics 101.
So why, at least domestically, isn't the supply of nurses sufficiently increasing? The consensus is that there are not enough nursing instructors, and promising students (over 50,000 people according to some reports) are turned away and not able to reach their full potential. Why an inadequate number of nursing instructors? The job does not pay well, so they pursue other jobs. How can this be? Shouldn't the nursing shortage drive up wages for instructors? At the very least, wouldn't "we the people" have a vested interest in adequately subsidizing, at least in part, the training of nurses? And what about the healthcare industry...they couldn't win sufficient subsidies from Congress?
So...does it make sense for hospitals in America to spend a significant amount of time and money (attorney) to navigate the sometimes complicated H1B visa system (and other temporary foreign workers programs) to import labor from other countries? No...which is the reason for push by the healthcare industry for The Nursing Relief Act of 2009, to make it easier to import well-qualified trained nurses. According to some estimates, temporary foreign workers currently represent 3% of nurses in the Northeast and up to 15% of nurses in the Southwest and on the West Coast. This is not exactly a flood of temporary foreign workers.
...But proposed Nursing Relief Act of 2009 would only be a short-term fix, and if the federal and state governments do not adequately address future projected nursing shortages in this country by supporting domestic nursing programs now, then by 2020, not even the most liberal foreign workers policy will be able to fill the employment gap.
(I wonder how Italy is handling the situation....they have a huge aging population.)
Watch this video on the nursing shortage problem:
More on Nursing Labor Market
The Health Resources and Services Administration (part of the U.S. Dept. of Health and Human Services) has this to say in regards to nursing supply/demand:
Excerpt:
"An adequate supply of nurses is essential to achieving the Nation’s goals of ensuring access to affordable, high-quality healthcare. The adequacy of nurse supply varies geographically throughout the Nation, with a general consensus that at the national level currently a moderate shortage of registered nurses (RN) exists. The findings of our analysis suggest that the current RN shortage will continue to grow in severity during the next 20 years if current trends prevail and that some States face a more severe shortage than do others. The growth and aging of the population, along with the Nation’s continued demand for the highest quality of care, will create a surging demand for the services of RNs over the coming 2 decades. At the same time, because many RNs are approaching retirement age and the nursing profession faces difficulties attracting new entrants and retaining the existing workforce, the RN supply remains flat."The current consensus is that the East Coast has a nursing surplus, while the Southwest and West Coast regions of the U.S. have a nursing deficit. Why such a huge variation from Coast to Coast?
Nursing Shortages
Some information on the proposed (but not yet adopted) Nursing Relief Act of 2009 is here.
But is there currently a significant nursing shortage? It is not clear the shortage is ubiquitous, and it likely depends on what state you live in.
Megan Woolhouse of the Boston Globe writes that, counterintuitively, hospitals in Boston, MA have been laying off nurses.
What are the reasons for the layoffs? Woolhouse proposes a couple of explanations centered around the effects of the current economic downturn :
Excerpt from Woolhouses's April 18, 2009 article:
"Beth Israel Deaconess Medical Center recently said it will lay off more than 100 employees, including nurses, and officials at two Boston nursing schools said opportunities for new nurses are nearly nonexistent at Children's Hospital.
There are two major reasons for the lack of new jobs. First, most hospitals are treating fewer patients as people put off costly elective surgery. At the same time, many experienced part-time nurses are looking for more hours, while others are coming out of retirement because a spouse was laid off.
"This steep recession has placed an unusual economic burden on a lot of households and it's driving many nurses back to the labor market," said Peter Buerhaus, a professor at Vanderbilt University who has written extensively about the nation's nursing shortage."
So, at least in Boston, an increase in the supply in labor coupled with a decrease in the demand for that labor is to blame for the nursing layoffs? I am skeptical. Could hospitals be unsustainably cutting corners and/or asking retained nurses to do more for less?
Wednesday, May 13, 2009
What About Commerical Real Estate (CRE)?
Briefly, CRE loan defaults are adversely affecting smaller regional banks that up until now had successfully weathered the recent economic storms.
From Calculated Risk (more here):
'This is a story we've discussed for a few years, but it is probably worth repeating: Small and regional banks couldn't compete in the residential mortgage market during the housing bubble (with some exceptions), so they focused on Construction & Development (C&D) and other Commercial Real Estate (CRE) loans. The C&D loans are defaulting in large numbers now and this is impacting a number of regional banks (like BankUnited and Corus).'
Thursday, May 7, 2009
How Wall Street is FED!
More from Eliot Spitzer in Slate here. The NY FED definitely has some conflict-of-interest problems.
Excerpt:
The kerfuffle about current New York Federal Reserve Bank Chairman Stephen Friedman's purchase of some Goldman stock while the Fed was involved in reviewing major decisions about Goldman's future—well-covered by the Wall Street Journal here and here—raises a fundamental question about Wall Street's corruption. Just as the millions in AIG bonuses obscured the much more significant issue of the $70 billion-plus in conduit payments authorized by the N.Y. Fed to AIG's counterparties, the small issue of Friedman's stock purchase raises very serious issues about the competence and composition of the Federal Reserve of New York, which is the most powerful financial institution most Americans know nothing about.
Eliot Spitzer on Investment Bank Regulation
Eliot Spitzer effectively articulates populist opposition to the Wall Street bank bailouts. (If you can overlook his past hypocrisy, difficult though it may be, he makes a convincing argument.)
Wednesday, May 6, 2009
More Irrational Exuberance?
Ruth Simon and James Hagerty with an interesting article in the Wall Street Journal. Full article here.
Briefly, an additional 4 million homeowners were "underwater" after the first quarter of 2009 than at the end of 2008. In the meantime, what has happened to the value of toxic mortgage-backed securities over the past 4 months? Toxic collateralized debt obligations?
How have things gotten better then? Why is the stock market rallying?
"The downturn in home prices has left about 20% of U.S. homeowners owing more on a mortgage than their homes are worth, according to one new study, signaling additional challenges to the Obama administration's efforts to stabilize the housing market.
The increase in the number of such "underwater" borrowers comes amid signs that falling prices are making homes more affordable for first-time buyers and others who have been shut out of the housing market. But falling prices also make it more difficult for homeowners who get into financial trouble to refinance or sell their homes, and for others to take advantage of lower interest rates...."
"Real-estate Web site Zillow.com said that overall, the number of borrowers who are underwater climbed to 20.4 million at the end of the first quarter from 16.3 million at the end of the fourth quarter. The latest figure represents 21.9% of all homeowners, according to Zillow, up from 17.6% in the fourth quarter and 14.3% in the third quarter."
A New Economy with Nearly-Universal Healthcare?
Whenever the U.S. economy fully recovers (including on the job front), our nation will likely witness some significant changes in how health care is managed in this country. Both Democrats and Republicans realize that healthcare in this country needs to be reformed...but in terms of what reforms will need to be made, the two parties will have to duke it out. Democrats are clearly going after a nearly-universal healthcare system by proposing a government-run healthcare program to compete with hundreds of privately-run programs. The Republican party is warming up to the idea of universal health care, but only if it is completely administered through the private sector. But to do so, Republicans will have to work to get a seat at the negotation table. How? By re-framing the debate.
The Republican Framing of the Healthcare Debate via Ben Smith:
THE QUESTION YOU MUST ASK EVERY HEALTH CARE TOWN HALL FORUMWould you rather…-- OR--
“Pay the costs you pay today for the quality of care you currently receive,”“Pay less for your care, but potentially have to wait weeks for tests and months for treatments you need.”Their Answer:
OVERWHELMINGLY KEEP THE CURRENT ARRANGEMENTThe Democrats already have an answer for this: They're bending over backward to make sure the majority who are comfortable with their care won't be affected. So the burden is on the GOP to prove otherwise.
Tuesday, May 5, 2009
Green Shoots
The buzz the past couple of weeks is that the economy is bottoming and that we are beginning to witness "green shoots." The stock market is experiencing a sustained bear market rally, which historically has been a nine month (give or take a month) leading indicator of broad economic recovery. But what is the basis for the equities market's "leading economic indicator" status?
Since the Great Depression, most economic recessions have lasted equal to or less than 12 months. Here we are now, though, in our 17th month of this Great Recession. Given the inability of the market to value toxic assets, the lack of transparency of the investment banks, and the still frozen credit markets...does "leading economic indicator status" during these strange times even apply here? Without knowing the economic mechanism behind the historical correlation, it is pretty much useless in giving us any real reason for confidence.
But don't worry about the great 1-2 year lagging economic indicator: job recovery. We can count on that!
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