reality is only those delusions that we have in common...

Saturday, September 26, 2009

week ending Sept 26

‘We still have the same disease' - Black Swan author Taleb interview: "Central bankers have no clue. In the first place, the financial crisis was not a black swan. It was perfectly predictable. They ignored the phenomenal buildup in leverage since 1980. They acted like airline pilots who'd never heard of hurricanes. The problems are all still here. Today we still have the same amount of debt, but it belongs to governments."

IMF Global Financial Stability Report on Financial Sector Interventions - Chapters 2 and 3 are out: (unconventional measures by the Fed - graphic) -
Chapter 2 Restarting Securitization Markets: Policy Proposals and Pitfalls
Chapter 3 Market Interventions during the Financial Crisis: How Effective and How to Disengage?

Fed Rejects Geithner Request for Study of Governance, Structure (Bloomberg) -- The Federal Reserve Board has rejected a request by U.S. Treasury Secretary Timothy Geithner for a public review of the central bank’s structure and governance. The Obama administration proposed a financial- regulatory overhaul including a “comprehensive review” of the Fed’s “ability to accomplish its existing and proposed functions” and the role of its regional banks. The Fed was to lead the study and enlist the Treasury and “a wide range of external experts.”

Fed to Geithner: Pi$$ Off - The Fed needs to be VERY concerned with maintaining their independence. Regardless of your views about Ron Paul, its the rest of the crowd of that scares me. Imagine what the dolts who run congress would do if they had access to the Fed’s authority. The key to intelligent central banking is a clear charge (i.e., fighting inflation), a pragmatic approach, and the willingness to make the unpopular necessary steps, Imagine what the giveaways would be like if the idiots in Congress were in charge . . .

Decoding the Fed - The Federal Reserve policy statement yesterday was a masterful blend of contradictory words and ideas. Nonetheless, the markets reacted with great volatility to these words, as though there was some useful information within them. You can read the entire statement for yourself here at this link. To save you the trouble, what I've done is chopped the whole statement up into smaller sections and translated them (with tongue in cheek, but only slightly)...

Watch That Thesis! (FOMC Announcement) - another translation into english - "All investment and trading decisions beyond an hour need a thesis...."
Today's FOMC announcement ought to result in the realignment of yours

Fed accounts for 50% of treasury purchases - There once was a time when the Federal Reserve abhorred the idea of monetizing debt. That day is long over. In the second quarter, the most recent for which data is available, the Fed bought $164 billion out of the $339 billion in net new Treasurys sold.In the mortgage-backed debt markets, the Fed has been buying upward of 80% of the bonds issued by agencies such as Freddie Mac and Fannie Mae. ZeroHedge helps to put this number into perspective: This is a startling number, as the Fed's $164 billion in Q2 Treasury purchases dwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases. This dramatic imbalance puts a lot of question marks over how the upcoming hundreds of billions in incremental Treasury purchases will be soaked up, now that QE only has $15 billion of capacity for USTs

A New Bubble Of the Fed's Creation - It turns out that all those bold and necessary steps by the Federal Reserve to prevent the financial system from collapsing wound up creating so much liquidity that it has now spawned another financial bubble. Let's start with the $1.45 trillion that the Fed has committed to propping up the mortgage market -- money that, for the most part, was simply printed. Effectively, most of that has been used to buy up bonds issued by Fannie Mae and Freddie Mac from investors, who turned around and used the proceeds to buy "safer" U.S. Treasury bonds. At the same time, the Fed used an additional $300 billion to buy Treasurys directly. With all that money pouring into the market, you begin to understand why it is that Treasury prices have risen and interest rates fallen, even at a time when the government is borrowing record amounts of new money.

Foreign Investors FLEE from U.S. debt ...the U.S.'s Ponzi-scheme economy requires massive and rising borrowing (on into infinity) in order to avoid financial implosion on the more than $57 trillion in total public/private debt – which does not include the additional $70 trillion or so in unfunded liabilities that the U.S. government hides from its balance-sheet...The fact is that there will never be any more foreign demand for U.S. debt, unless/until U.S. interest rates rise high enough to compensate foreign investors for the high risk of default and the enormous inflationary pressures building up in the U.S. economy.

Visualizing The Upcoming Treasury Funding Crisis - In his interview yesterday Julian Robertson expressed substantial concerns about the ongoing US debt funding threat, using words such as "Armageddon" to describe what will happen when and if China and Japan stop buying US debt. Below we present data for what could be construed as a Treasury funding crisis borne out of lack of demand for longer maturities, once the QE portion of UST purchases expires. This crisis could hit as soon as October...

We Should'a Run Smaller Deficits - w/ charts - From today's chapters 3 and 4 of the IMF World Economic Outlook, released today. From Chapter 4:"...the results based on the small-scale regressions suggest that economies with larger current account deficits, rising inflation, and a deteriorating fiscal balance before a crisis experienced significantly larger output losses [from financial crises].

“A trillion here, a trillion there, pretty soon it adds up to real money.” - PWA - There is no expectation that Americans will make up the trillions printed by paying more taxes, that is impossible. The United States entire gross national product is only about $14 trillion so if taxpayers would be required to pay into government the trillions the Fed commissioned, our economy would collapse overnight. Not only would there be no soup lines as in the thirty’s, there would be no soup.

HSBC Bids Farewell To Dollar Supremacy - The sun is setting on the US dollar as the ultra-loose monetary policy of the US Federal Reserve forces China and the vibrant economies of the emerging world to forge a new global currency order, according to a new report by HSBC.
"The dollar looks awfully like sterling after the First World War," said David Bloom, the bank's currency chief.

Geithner Sees G-20 Consensus, Supports Dollar’s Reserve Role -(Bloomberg) -- Treasury Secretary Timothy Geithner said he sees a “strong consensus” among Group of 20 nations to reduce reliance on exports for growth and defended the dollar’s role as the world’s reserve currency. “A strong dollar is very important in the United States,” Geithner said in response to a question at a press conference yesterday in Pittsburgh, where G-20 leaders began two days of talks

Monetary Policy Shouldn’t Be Used to Pop Asset Bubbles - WSJ - The Federal Reserve has been widely criticized for standing by while housing prices soared. But Charles L. Evans, president of the Federal Reserve Bank of Chicago, argues that trying to use monetary policy, such as interest rates, to deflate asset-price bubbles would be an ineffective approach. In a speech Thursday morning at the Chicago Fed’s conference on the international-finance crisis, Mr. Evans said central bankers lack the precise information that would be needed to set accurate target ranges for asset prices.

Bubble-nomics -a half dozen recommendations on good bubble literature from Economix blog, NY Times...

Currency Swaps, the Dollar, and a Tilted Playing Field - Some pretty big news came out on Thursday (9/24/09) regarding a seemingly obscure program to end what were called "currency infusions." In fact, these are "currency swaps," and you might want to pay attention to them, because of their high degree of correlation with the rise and fall of the dollar. Currency swaps also offer the perfect vehicle for central banks to engage in currency intervention and manipulation, especially if one of the parties has a massive trade imbalance and lacks sufficient FOREX reserves to use in daily market intervention activities.

The Fed’s Job Is Only Half Over - Judgments made by policy makers in the current period are likely to be as consequential as any made in the depths of the panic. That means policy makers should continue to communicate as clearly as possible the guideposts, conditions and means by which extraordinary monetary accommodation will be unwound, including the removal of excess bank reserves.

Fed Watch: Rushing to the Exits? - Are the inflation hawks on the FOMC are gaining too much influence? The Fed may be more likely than I believed to stifle the pace of the recovery by, at a minimum, halting the growth of policy accommodation. The Fed gave and took at the September FOMC meeting. Policymakers reiterated support for their near zero rate policy, while offering a slightly hawkish nuance that was noted by the Wall Street Journal...

Fed Plans to Reduce Size of Two Liquidity Programs – (Bloomberg) -- The Federal Reserve said it will shrink its emergency programs that auction loans to commercial banks and Treasury securities to bond dealers, citing “continued improvements” in financial markets.
The Term Auction Facility will sell $50 billion in 70-day funds next month, down from $75 billion in 84-day funds in September. The Term Securities Lending Facility will shrink to $50 billion, and then $25 billion, from $75 billion. The moves are a further curtailment of the emergency- funding programs created by the central bank to buttress financial companies... – Fed turns to mutual funds to stave off inflation - The Federal Reserve is looking to team up with the money market mutual fund industry as part of its exit strategy to avoid a bout of post-crisis inflation. The central bank wants to use the deep-pocketed sector to refinance part of the giant portfolio of mortgage-backed securities and Treasuries acquired during the crisis, using a technique called "reverse repos". This would involve the US central bank borrowing from money funds using some of its assets as collateral, thus draining liquidity from the financial system...

Obama Tells the G20 to Fix the US By Changing the World - When you can't run a state, run for President. When you can't run your country, attempt to run the world. This directive to the G20 probably made the Organizer-in-Chief's recent pathetic sermonette on altruism and self-denial to Wall Street seem effective by comparison. What Obama did not say, and perhaps does not realize, is that the majority of the problems that exist in the US's imbalanced trade relationships is the position of the US dollar as the world's reserve currency.

On the G20 Agenda - the Baseline Scenario has a nice piece bemoaning the US pursuit of a rebalancing agenda at the upcoming G20 meeting. I largely agree. Something that sounds nice, but that to which no parties, particularly China and the US, can make a credible commitment. But I believe he underestimates just how close we came to a destabilizing collapse of the Dollar in 2008. That avoidance of that near collapse was well documented by Brad Setser in his legendary “quiet bailout” series...

How Will World Leaders Fix the Financial Mess? - Will the world leaders be able to coordinate the international standards and regulations they aspire to? The short answer is no. It is hopelessly complicated and difficult, but perhaps over five to 10 years they will be able to figure something out. The trouble is that U.S. and European banks live in totally different accounting and regulatory worlds where "capital" has a different meaning. The United States has a very expansive interpretation of what a bank's capital is, while in Europe, it's just much stricter.

Take This Monetary System, Please (Barron’s) The current exchange-rate regime can't go on, but what's the alternative? Americans see currencies only in terms of the dollar, which is also how the foreign-exchange markets mainly see currency moves. And, excepting an anomalous jump as a result of the global financial crisis last year, the dollar's course has been steadily downward, not only in recent months but since 2002.

Central bank rates one year from now...FF up 52 bps - barring some unforeseen and positive economic surprise, like renewed confidence driving consumer spending more quickly than anticipated, the variables that define the Fed's dual mandate are likely to remain outside the Fed's comfort zone into next year. Therefore, policy is likely to be quite expansionary in the foreseeable future (which in forecasting terms, that is 2010). But how far into the future; and what will be its exit strategy?

Mark Thoma: Why The Fed Should Oversee the Entire Financial System - The agency in charge of regulating the financial system needs to be independent. For the Fed, there’s a well-established tradition about what independence means, and that tradition has served us fairly well. If we start all over with a separate agency, can we be assured that such independence will be present, and if it is, that it will persevere?...also the Fed’s responsibility for conducting monetary policy causes it to collect lots of information about financial firms, and it has access to financial information in real time that other agencies do not.

How the Federal Reserve Contributes to Crises - The notion of the zombie is that it would be put in its grave by its creditors if it weren't for the black magic of government credit support guarantees and loans. These institutions have very distorted incentives, just as the zombies do in the horror movies. They're looking for things that even might have negative present value but have a possibility of producing good results. It's a long shot bet to plug a hole in their balance sheet. The trouble with the zombies is that they ruin the market for everyone else. They're not looking for solid investments but something that has a chance of a big payoff. They're willing to pay more for deposits or funding generally than other institutions, so they spread "zombieness." It is the dead feeding on the living.

Some U.S. bailout funds won’t be recovered: watchdog - U.S. taxpayers will probably never recover all of the hundreds of billions of dollars invested to bail out financial firms, automakers and homeowners, a key watchdog for the program said on Thursday. Neil Barofsky, the special inspector general for the U.S. Treasury's $700 billion Troubled Asset Relief Program (TARP), said in prepared U.S. Senate testimony that the bailout fund played a significant role in stabilizing the financial system, but it may never fulfill certain policy goals...

Derivatives Could Cause Another Meltdown: Mobius (Video on page) - Derivatives caused the market Armageddon of recent years and if left unchecked by global leaders, the same market could cause another catastrophe, Mark Mobius, executive chairman of Templeton Asset Management, told CNBC Monday. When asked by a CNBC viewer what kind of Armageddon could be expected if the derivatives problem is not addressed, Mobius replied: “The same kind of Armageddon that we just had, what we just saw in the last few years has been caused by derivatives.”

RGE: Interview with Bill Janeway - "NOTHING the Government does will work until they get rid of these nightmares. Letting credit default swaps ("CDS") redefine insolvency as failure to post collateral means systemically critical counterparties such as Lehman Brothers or Bear are certain to fail once they wobble and, even worse, that there will be NOTHING LEFT for traditional creditors (including commercial paper) when they do. This has seized up the money markets, which no longer function without government assistance. This means the Government picks winners and losers, encourages investors NOT to underwrite and incents those "chosen" to sit on the money they can raise and keep credit velocity at zero. As long as CDS exist in bilateral form there is structural uncertainty in what it means to have a balance sheet. For everybody. CDS should be DOA."

Creating Quant Models That Are Closer to Reality - NYTimes - the real failure, according to finance experts and economists, was in the quants’ mathematical models of risk that suggested the arcane stuff was safe. The risk models proved myopic, they say, because they were too simple-minded. What they didn’t sufficiently take into account was human behavior, specifically the potential for widespread panic.

CEO of International Swaps & Derivatives Association says trust us - Witnesses also challenged the Treasury’s plan to impose capital requirements on cleared swap transactions. This would require the end-user businesses to post collateral for the swaps, Budofsky said. Collateral requirements for corporate end-users “would create a significant ­disincentive to use swaps to manage risk,” he said. “End-users are not systemically significant and ­regulations intended to improve stability and decrease systemic risk should not ­apply to them.”

Volcker Launches Bombshell on Wall Street and Washington - Washington has been largely dancing around the edges of the banks’ balance sheets in proposing financial regulatory reform. Until now. Paul Volcker hits Wall Street hard in promoting the end of the banks’ hedge fund like activities. The Wall Street Journal details Volcker’s bombshell in writing, Volcker Calls for Restricting Banks’ Risk, Trading Activity

Volcker on Financial Reform - Former Fed Chairman Paul Volcker testified in front of the House Financial Services Committee at 9 AM ET on Thursday about financial reform. For those interested, here is the webcast. Here is his prepared statement. A few excerpts follow...

Volcker Says Obama Plan Leaves Opening for Bailouts - NYTimes - Paul A. Volcker, a top White House economic adviser, said Thursday that the Obama administration’s proposed overhaul of financial rules would preserve the policy of “too big to fail” and could lead to future banking bailouts

Global bank regulator says treat recent improvements at banks with caution – UK Telegraph
- Recent improvements in the global financial sector should be treated with caution, Jaime Caruana, the head of the world's biggest central bank body warned on Monday, ahead of this week's G20 summit. "It is not the right time for complacency," he told the Financial Times. The profile of the recovery is not clear; we have to be cautious about this improvement."

A Rough Consensus on Lessons of Crisis as G-20 Gathers - NYTimes -As Obama prepares to host the leaders of the Group of 20 nations at an economic summit meeting this week in Pittsburgh, American officials say they are optimistic about reaching agreement on strategies to rein in practices that led to the current financial crisis. The Treasury secretary, Timothy F. Geithner, has been circulating a lengthy framework of principles for requiring institutions to build up bigger reserves cushions to guard against investment losses and the risk of cash shortages caused when the credit markets seize up.

G20 Thinking: “In The Medium Run We Are All Retired” - It looks like the G20 on Friday will emphasize its new “framework” for curing macroeconomic imbalances, rather than any substantive measures to regulate banks, derivatives, or any other primary cause of the 2008-2009 financial crisis. This is appealing to the G20 leaders because their call to “rebalance” global growth will involve no immediate action and no changes in policy – other than in the “medium run”.

Why much of the G20 debate on banking reform is futile – UK Telegraph - First and foremost, we require safety for our money. That's what banks were originally for. But these days we expect more than a simple safe deposit box. We also want our money to be put to good use, so that it can generate a return. Banks attempt to do so by lending the money out. Understandably, this can never be an entirely risk free process, but the "maturity transformation" of money thereby achieved is a vital part of any free market economy. Over the past two years, the banking system has failed in both these core functions.

Senator Dodd Pushing New Bank Regulatory Plan he is planning to propose the merger of four bank agencies into one super-regulator, an idea that is significantly different from what President Obama envisions.... the bill Mr. Dodd is preparing to make public in the coming weeks would be more ambitious and politically risky than the plan offered by the White House, which considered but then decided against combining the four banking agencies into one superagency.

Senate bill could weaken the Fed - Consensus is building in the Senate for legislation that would significantly weaken the Federal Reserve by stripping its power to oversee banks and hand that job to a single federal bank regulator. The proposal by Senator Dodd to merge federal prudential oversight into a single regulator differs from a plan by Obama. But Democratic aides say the proposal is gaining traction among Dodd's colleagues who think the Fed didn't do enough to prevent the current market crisis.

Democrats Target Bank Overdraft Charges - A backlash is brewing on Capitol Hill against banks that charge large fees for overdrafts without asking or telling customers, the latest sign that the financial crisis is shifting the balance of power from banks toward borrowers.
Banks struggling to survive have become increasingly reliant on the fees, which could total $38.5 billion this year.

Obama caves to pressure on consumer financial protection - Credit Writedowns - At issue here is the news that the Obama Administration dropped plans to force financial institutions to offer “plain vanilla” financial products that are simple enough for consumers to understand. My headline is editorial enough on this issue. So, rather than editorialize this latest announcement, I’ll quote from the press. (quotes and links to 4 MSM stories included)

Editorial - Facts and the Financial Crisis - - The Financial Crisis Inquiry Commission, created by Congress to examine the causes of the crisis, held its first public meeting last week. And yet, last week’s meeting was oddly inauspicious, feeding doubts about the commission’s ability to realize that potential. For starters, the meeting was a long time coming, and thin on substance.

Back from the Brink - Christina D. Romer - Chair, Council of Economic Advisers - pdf

John Berry: Regulate and don’t worry about moral hazard - There are plenty of solid reasons to demand that Congress move ahead as quickly as possible with an overhaul of financial regulation. Yet that overhaul should not be focused as intensely as it has been on what to do about the institutions that are regarded as too big and too interconnected to be allowed to fail.Some seem to believe that the existence of those institutions more or less caused the current crisis by creating moral hazard. That’s the notion that if managers know government won’t let their institution fail, they can freely place bets to make a killing knowing they are backstopped with taxpayer money.

Did regulation cause the financial crisis? - The role regulators played in the current financial crisis is a critical question as the Treasury Department gets set to take on bank regulation in the next few months. But standing in the way of the administration’s reforms is a counter-intuitive argument that over-regulation, rather than under-regulation, caused the crisis. Specifically, this argument pinpoints blame on an 2001 banking regulation rule, which critics blame for loading the banks with toxic mortgage-backed securities.

2 Nobel Economists Confirm that Credit is NOT Created Out of Excess Reserves ~ Washington's Blog - We've all been taught that banks first build up deposits, and then extend credit and loan out their excess reserves. But critics of the current banking system claim that this is not true, and that the order is actually reversed.

Can Angelides Panel Bring Justice to Wall Street? - Newsweek - As he ushered in a new era in Washington, Franklin D. Roosevelt's theme song was "Happy Days Are Here Again," but people tend to forget that along with sunny optimism FDR delivered a strong dose of justice. The theme song to our current era might be, more appropriately, “(I Can’t Get No) Satisfaction.”

Regulating compensation in the banking sector - Suppose that in 2005, the individuals who were putting together securities derived from subprime and alt-A mortgage loans could have known, with perfect foresight, events that were going to unfold in 2008. Would they have still done the same things they did in 2005? My concern is that, for many individuals, the answer might be "yes", insofar as they were richly rewarded personally in 2005 for making exactly the decisions they did. It was other parties (namely you and me) who later down the road were forced to absorb the downside of their gambles...

Fed To Curb Banker Pay? - The Atlantic Business Channel - The real question, however, is whether or not the Fed would actually affect compensation practices, or just create a regulatory framework as a sort of purely cosmetic move -- without ever really enforcing any changes.

Econbrowser: Regulating compensation in the banking sector - The Fed's plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks' corporate boards and executives. Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees-- from chief executives, to traders, to loan officers-- to take too much risk. Bureaucrats wouldn't set the pay of individuals, but would review and, if necessary, amend each bank's salary and bonus policies to make sure they don't create harmful incentives...

Mean Street: Wall Street’s ‘Death Panel’? Yeah, Right. - WSJ - Uh-oh, Wall Street. Now, you’re really in trouble. Fed Chairman Ben Bernanke, your savior and guardian? He matters. And he must be pretty fed up with Wall Street, if the Fed will now be overseeing banker bonuses. The devil of course is in the details – and so far we have few. But if it turns out the Fed is assuming veto power over Wall Street pay practices, then there will be a lot of unhappy CEOs and boards of directors.

Firms Back Change in Executive Pay Practices - A coalition of blue-chip companies, a task force convened by the business organization the Conference Board, endorsed the idea of voluntarily overhauling executive compensation practices in an effort to restore public confidence in corporate America and to get out ahead of potentially more burdensome rules that could emerge from Washington.

Pay rules may prompt Goldman to shed bank charter - "Some investors believe Goldman Sachs Group Inc may try to shed its commercial banking charter to sidestep U.S. government efforts to rein in exorbitant Wall Street pay." The U.S. Federal Reserve is proposing new rules to limit pay packages in an effort to curb excessive risk-taking. Banks are expected to bridle under the new restrictions, with Goldman taking particular umbrage because of its history of outsized compensation deals for strong performers.

Pay czar Feinberg hits the speaking circuit - "Pay Czar" Kenneth Feinberg, tasked by President Barack Obama with reining in excessive bonuses at companies that received billions in taxpayer bailouts, has yet to address Congress. But he has signed up for at least eight speaking appearances across the United States during the next two months

Why much of the G20 debate on banking reform is futile – UK Telegraph - First and foremost, we require safety for our money. That's what banks were originally for. But these days we expect more than a simple safe deposit box. We also want our money to be put to good use, so that it can generate a return. Banks attempt to do so by lending the money out. Understandably, this can never be an entirely risk free process, but the "maturity transformation" of money thereby achieved is a vital part of any thriving, free market economy. Over the past two years, the banking system has failed in both these core functions

The G-20’s Empty Promises - They promise to reverse the explosive monetary and fiscal expansion of the past two years, to do it neither too soon nor too late, and to do it in a coordinated way. These are the right things to promise. But what will such promises mean?
Consider first the goal of reversing the monetary expansion, which is necessary to avoid a surge of inflation when aggregate demand begins to pick up. But it is also important not to do it too soon, which might stifle today’s nascent and very fragile recovery. But promises by heads of government mean little, given that central banks are explicitly independent of government control in every important country.

It’s all over: The banks have won - There is so much talk of a new regulatory framework for the financial sector, anyone would think it was an important issue. Unfortunately, it is almost irrelevant, for the simple reason that, however sophisticated the new regime, experience shows it will be bypassed and/or captured by banks of one kind or another, possibly by novel types of institution invented specially for the purpose. This is true even in the unlikely event that the whole world embraces the new regulations and enforces them with vigour.

Break up America's banks -- The populist anger about Obama's bank bailouts transcends politics. We need a banking system accountable to the public. The obvious place to start in this effort is the break-up of the "too big to fail" behemoths. It is now pretty much official policy that financial giants will not be allowed to fail. If their bad investment decisions again bring them to the edge of bankruptcy, the federal government will again rush to the rescue, handing out whatever cash and loans are needed.

Bank of America $4 Billion, Taxpayers $425 Million - I’m trying to figure out if I should be infuriated about the agreement allowing Bank of America to walk away from the asset guarantees it got as part of its January bailout in exchange for a payment of $425 million. I can piece together part of the story from The New York Times, Bloomberg, and NPR, but the complete story is a bit hazy...

Sooner or later it becomes your life - The Wall Street Journal has an eye-opening piece in today's paper, entitled Banks Load Up on Mortgages, in New Way . And apparently what I've been trying to explain to you about the perverting influence of Fannie Mae and Freddie Mac on the US housing market is already outdated. There's a new pervert in town. Or two. Or three. I bet you, they've been working on this plan for quite a while now.

U.S. mortgage security purchases extended to March - Federal Reserve officials said today they will keep buying mortgage securities and debt of mortgage giants Fannie Mae and Freddie Mac until the end of March 2010 to “gradually slow the pace of these purchases in order to promote a smooth transition in markets.” Some economists previously speculated rates would jump 35 to 50 basis points if the Fed stopped buying mortgage securities abruptly in December, according to its prior plan.

“I Am Changing My Name to Fannie Mae” - Tom Paxton song (video)

Gov't home loan agency faces money squeeze - WASHINGTON (AP) -- The Federal Housing Administration is tightening rules for lenders after reporting that its financial cushion will sink below mandatory levels for the first time in its 75-year history.Officials, however, insisted Friday that the agency won't need a rescue.

Finally, Some Real Action on Student Loans - The New Yorker - A couple of years ago, in a column about the perverse economics of the student-loan business, I wrote, “For decades, student-loan companies have had one of the cushiest businesses in America.” The loans companies like Sallie Mae make to students are subsidized and almost entirely guaranteed by the federal government, so that if a student defaults, it’s the government, not the private company, that eats the loss —a business model that many Wall Street firms are now reaping the benefits of...

Looking to Healthy Banks to Lend to the F.D.I.C. - NYTimes - Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.

Corruption: Reverse-Insurance?! (FDIC) - Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.
--Of course it would. Writing insurance on yourself is a highly-lucrative business, especially when you can charge interest to the supposed insurer who you are supporting!

The FDIC to get credit from banks even while banks restrict lending - In the latest inexplicable move to extricate the U.S. banking system from crisis, the FDIC is reportedly close to asking the very banks it regulates for a loan to top up its balances. The plan is “strongly supported by bankers and their lobbyists” according to the New York Times. This is the most preposterous thing I have heard yet. How is the FDIC suppose to adequately regulate banks when it owes them money? If your looking for a textbook route to regulatory capture, I present you Exhibit A...

FDIC's tough call: How to replenish bank insurance fund - (Fortune) -- It's time for Sheila Bair to stop worrying about bailout politics and hit Uncle Sam up for some dough. Bair is the chairman of the Federal Deposit Insurance Corp., the federal agency that administers the insurance fund that stands behind the savings of millions of Americans. The fund is paid for by the banks that benefit from it, but it has been depleted by a wave of bank failures that isn't expected to abate any time soon. There aren't a lot of good options.

Banks should pay for FDIC fund - he banking system is still suffocating under the weight of bad loans, and it’s well known that the FDIC doesn’t have enough cash to deal with the problem.
What to do? According to a plan floated in the New York Times, FDIC may borrow from the banks themselves in order to replenish its Deposit Insurance Fund. The optics may be good, but don’t be fooled. The plan would be another balance sheet gimmick to paper over losses.

FDIC insurance fund - FT - Anticipation often proves worse than the event itself. So the FDIC should stop prevaricating and borrow from the Treasury to top up its funds, as Sheila Bair, its chairman, suggested it might last week. Tapping its $500bn credit line would avoid further bank levies while the industry remains under stress. Rather than yet another bail-out, this would be a loan to be repaid by the FDIC through future sales and premiums from the banking industry.

Misunderstanding the FDIC - Time - Bloomberg's Jonathan Weil has an uncharacteristically boneheaded column about the FDIC's money troubles. I learned about the column from FT Alphaville, which notes that it inspired Chris Whalen of Institutional Risk Analytics to send an angry e-mail to Weil and others at Bloomberg declaring that: If you can't get your collective minds at Bloomberg News around the nuances of federal finance and the workings of the FDIC, THEN STOP WRITING ABOU[T] IT...

NY insurance official raises concerns over Moody’s - Insurance regulators from across the country are expected to discuss dropping Moody's Investors Service from a list of acceptable rating organizations at a meeting later this week. Hampton Finer, deputy superintendent of insurance for New York, told Reuters in an interview late Saturday that concerns about Moody's arose after the credit-rating firm turned down an invitation to attend a regulatory hearing where it was to be questioned about its ratings process, particularly in light of the financial crisis.

What to do with Moody’s, S & P and the rating agencies : The New Yorker - When Barack Obama went to Wall Street last week to make the case for meaningful financial regulation, he took well-deserved shots at some of the villains of the financial crisis: greedy bankers, reckless investors, and captive regulators. But to that list he could have added credit-rating agencies like Standard & Poor’s and Moody’s. By giving dubious mortgage-backed securities top ratings, and by dramatically underestimating the risk of default and foreclosure, the agencies played a key role in inflating the housing bubble.

In Defense of the Rating Agencies — IV - I guess I am a glutton for punishment, but I am going to take the opposite side of the argument from what most have been saying of late regarding the rating agencies. Those who want historical context can read my earlier three pieces:
In Defense of the Ratings Agencies
In Defense of the Rating Agencies — II
In Defense of the Rating Agencies — III

AIG Bailout Does The Limbo - Having already moved the bailout repayment bar down three times since it went up a year ago, the latest thorn in BofA's side, Edolphus Towns, wants to do his part to see new AIG CEO Bobby Benmosche succeed by further lowering the degree of difficulty involved in paying back the US taxpayer. Armed with a plan from former AIG captain Hank Greenberg, Towns is currently debating whether or not to approach the Beard and Timmy G with the plea to trim the government's stake in the Pink Ladies' favorite firm while also rethinking the interest rate and amount of time the firm has to pay back its safety net...

What's Fueling This Recovery, Anyway? - Seeking Alpha - This chart (from EconomPic) offers a reminder on just how much dependent this “recovery” is on continued government support. Banks don’t want to lend in this environment. They’re getting by on accounting rule changes and taxpayer “generosity”. The Fed’s liquidity is the only thing propping up this zombie economy. The Feds have already spent trillions, with mediocre results...

BIS regulator urges caution - The head of the body that oversees global banking regulation warned this weekend that the world cannot afford to slip into a “complacent” assumption that the financial sector has rebounded. Speaking ahead of this week’s G20 summit in Pittsburgh, he said the recent market rebound should not be misinterpreted... More analysis of Basel II rules here.

Faber: Gloom, Boom or Doom? - video - How about all three? Boom. His short-term outlook is bullish because he believes money-printing will underpin the market. Gloom. However, he says this will only make matters worse over the longer-term as the U.S. government has no stomach for reigning in budget deficits expected to reach $2 trillion. It is merely underwriting the bankers’ mistakes. Down the line a point of debt revulsion will come. Doom. In five to ten years, Faber sees major problems as a result.

Nobel Winner Krugman Says ‘End of World Postponed’ (Update3) - (Bloomberg) -- The global economic downturn has probably hit bottom though the recovery will be “slow and painful,” said Paul Krugman, the Nobel Prize winning economist. “The end of the world appears to have been postponed,” Krugman said at a seminar in Helsinki today. The world economy “does not appear to be falling into an abyss but is still” in trouble. The outlook is “very fuzzy’ and a W-shaped recovery may become U-shaped, he said.

Will output return to the pre-crisis level? - How strong the economic recovery will be depends on whether we believe that output will quickly return back to the trend that was following before the crisis. The IMF World Economic Outlook has just released its two analytical chapters from the September/October issue. Chapter 4 (which can be found here) deals with this issue: whether output will return to trend after the crisis. Their conclusion, after looking at many different historical cases, is that banking/financial crisis tend to leave a permanent (or at least a medium-term) scar on the economy.

Why the U.S. economy CAN'T “recover” - the most persuasive means of showing that the U.S. economy is not recovering is to show that it cannot recover. For this, I will offer thanks to Steve Keen (and his “Debtwatch”blog) for two, extremely effective metaphors (not to mention the analysis behind it). These effectively point out that the Obama regime has not only failed to acknowledge the real problem with the U.S. economy, but also chose the least-effective form of “stimulus” available.

Can You Spend Your Way Out of Recession? - You can’t spend your way out of recession” is a sound bite heard almost every day on financial TV. Recently a guest commentator combined that sound bite with this one: “You can’t borrow your way out of debt.” Perhaps the second one was intended to divert our attention from the first one. Clever. Perhaps too clever by half. Of course you can spend your way out of recession, almost by definition. A recession can be defined as a shrinkage of spending and income. More spending is needed to generate more income. Therefore, more spending will do the job.

No full recovery until 2015, says the IMF - Telegraph - The world’s leading economies will have to wait until 2015 or later for growth to return to normal rates, the International Monetary Fund (IMF) has warned. The warning, contained in a pre-released chapter of its World Economic Outlook, undermines hopes among economists that the UK is poised for full recovery.

Credit Markets: The Default Deluge - This year will see a record volume of default in corporate debt, in line with expectations, as the U.S. continues to be the epicenter of economic and credit-market weakness. In the first eight months of 2009 a total of 216 corporate issuers defaulted (both nonfinancials and financials), affecting rated debt worth $523 billion. If this pace continues, the global default tally will reach 324 in 2009, the highest annual total in 28 years—since the inception of our data series on defaults. The volume of debt affected by these defaults also soared to a record high. (From Standard & Poor's RatingsDirect)

Bank of America: 40% of Junk Bonds to Default by 2013 - During the tense months of the crisis, every so often there would be a story on the looming threat of mounting corporate debt defaults. With more than half the corporate bonds rated junk, thanks to highly-levered takeovers, it wasn’t hard to imagine that a protracted economic bad spell could lead to a lot of defaults...

The Financial Crisis and America’s Casino Culture - NYTimes - in recent times this eagerness to augment the present by borrowing against a seemingly lucrative future has reached dangerous levels. Millions bought homes they could not afford, convinced that something good would happen before the bill came due. Financial institutions bet trillions in borrowed funds while leaving little in reserve, soothed by the collective assumption that real estate prices could never fall.

FDIC: "Credit quality declined sharply" for Shared National Credits - (chart) A record $447 billion in assets were classified as substandard, doubtful, or a loss, almost triple the peak following the 2001 recession. As a percent of commitments, the current 15.5% of loans "classified" far exceeds the previous peak in 1991 of just under 10% of loans...

The Hidden Depression of the 2000s — The U.S. has been living on borrowed time, literally. In the past several years we have run up federal deficits at a record rate. We have expanded commercial credit far more in proportion to growth of the economy than previously. We have also used rising home equity as personal piggy banks. If we had not taken these reckless actions, we would have been in almost continuous recession since the third quarter of 2000. There would have been only one quarter that did not have negative GDP growth and that quarter (first quarter 2005) would have seen 0.1% GDP growth.

The long-lasting socio-political effects of the economic crisis - VoxEU - Economic events can have long-lasting non-economic effects. This study shows how economic circumstances affect individuals’ life-long beliefs. Individuals growing up during recessions tend to believe that success in life depends more on luck than on effort and support more government redistribution, but they are less confident in public institutions. The current severe recession may be forming a generation that is more risk-averse and believes more in redistribution.

Deflation? - How Bad Could It Get? --with other links to the inflation-deflation debate...
David Rosenberg says that deflationary periods can last years before inflation kicks in
Renowned economist Dr. Lacy Hunt says that we may have 15-20 years of deflation
PhD economist Steve Keen says that – unless we reduce our debt – we could have a “never-ending depression”

The U.S. Balance Sheet: Households See Net Worth Down by $12 Trillion Since Peak and Total Debt Floating in the Market of $33 Trillion - Current U.S. household net worth (25 year chart): $53 trillion - U.S. household real estate: $20 trillion...Keep in mind that $20 trillion in real estate is secured by $10.4 trillion in mortgages many that are now going bad. Interestingly enough, if you look at the mortgage data it peaks around $10.54 trillion and has fallen to $10.4 trillion. Do we really think that only a few hundred billion in mortgages have gone bad? This is simply a reflection of banks not writing down option ARMs and other questionable assets.

Fed: Homeowner Mortgage Obligations Still Historically High - The Federal Reserve released the Household Debt Service and Financial Obligations Ratios for Q2 today...from Fed: "The limitations of current sources of data make the calculation of the ratio especially difficult. Nonetheless, this rough approximation may be useful if, by using the same method and data series over time, it generates a time series that captures the important changes in household debt service payments."

Real estate slump isn’t over, exec says - Federal Reserve Chairman Ben Bernanke may think the recession is over, but the head of the nation's largest real estate services firm says the slump has two or three years to go in his industry. John C. Cushman told an audience at the Burnham-Moores Center for Real Estate yesterday that the commercial real estate industry faces $5 trillion in mortgage refinancing problems over the next decade. Improved leasing, sales and construction conditions are unlikely until 2011 or 2012, he said.

U.S. mortgage delinquencies set record - High U.S. unemployment keeps pushing up the rate of mortgage delinquencies, which could in turn drive personal bankruptcies and home foreclosures, monthly data from the Equifax Inc credit bureau showed on Monday. Among U.S. homeowners with mortgages, a record 7.58 percent were at least 30 days late on payments in August, up from 7.32 percent in July, according to the data obtained exclusively by Reuters

The Option ARM Armageddon - chart of the day - The Option Arm Armageddon was supposed to strike in the spring of 2009. But it never happened. Why not? Well, when interest rates dropped to historically low levels as the Fed fought the financial crisis, the wave of resets was held off. Unfortunately, low interest rates won't last forever -- they'll now likely strike next year and continue well into 2011. Many borrowers who now have the option of making payments so low that they don't even cover the interest are seeing their original loan balance grow, even as their home values continue to fall or remain flat.

Securitisation and subprime mortgages - a contrarian view -- Ronel Elul, a senior economist at the Philadelphia Fed, has penned a working paper that should be required reading for anyone interested in - or pontificating upon - the dynamics of securitisation and the mortgage market.
Elul’s paper examines the premise that securitisation contributed to the meltdown in the US mortgage market. From the abstract, exerpts FT Alphaville’s...

Report: Strategic Defaults a "Growing Problem" - From Kenneth Harney at the LA Times: Homeowners who 'strategically default' on loans a growing problem National credit bureau Experian teamed with consulting company Oliver Wyman to identify the characteristics and debt management behavior of the growing numbers of homeowners who bail out of their mortgages with none of the expected warning signs, such as nonpayments on other debts.

Strategic Default Data Suggests Foreclosure Prevention Tactics Useless - The only "asset" many subprime borrowers have is their home. Although that asset has negative value, the homeowner may have nowhere else to go In contrast, the concerns of the superprime homeowner are vastly different. Such a person could easily land a rental, likely has other assets than the home, may have no psychological attachment to the home, etc.The primary concerns of the superprime person is more likely to be the nuisance factor of moving and a credit score hit that for may be meaningless in a practical sense.

When Borrowers Choose Food Over Shelter - if there were a way to quantify the anecdotally increasing number of people who keep current on credit card payments because that's the only way to buy groceries, that would be an interesting way into this data that might actually contradict the claims of strategic default. For those people, keeping current on consumer debt is not a sign of ability to pay mortgage and a choice to default; it is a sign of the choice to abandon shelter in favor of food, which is evidence of extreme economic distress, and just about the last "choice" anyone gets to make before becoming destitute.

First Cars, Then Houses? … PWA - Now that the government is no longer throwing free money at buyers, Automotive News reports in “September Sales Rate Will Tie Lowest on Record, Edmunds Says,” the bottom has fallen out: Edmunds’ SAAR of 8.8 million would be lowest in nearly 28 years...Housing demand is also being propped up by government subsidies and low mortgage rates, and the level of supply is held back by low prices. Right now, the housing market is a complicated hodgepodge of policy, foreclosures, and very weary potential home-buyers.

First-Time Homebuyer Tax Credit Program: Morally Hazardous? - You can’t solve a problem by doing more of the same things that caused the problem in the first place. In response to the crisis, it didn’t take long for our government to establish this program which promoted further lending with no down-payment to young new workers who, sorry to say, are at high-risk for default. Since when are people who owe no taxes eligible for home loans and $8,000 credits? Add kerosene to the fire.

More on Existing Home Inventory (calculated risk, charts & analysis) First, on the "shadow inventory" from Bloomberg: Housing Crash to Resume on 7 Million Foreclosures, Amherst Says
The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said. The “huge shadow inventory,” reflecting mortgages already being foreclosed upon or now delinquent and likely to be, compares with 1.27 million in 2005, the analysts wrote. Assuming no other homes are on the market, it would take 1.35 years to sell the properties based on the current pace of existing-home sales...
On the timing, from the WSJ yesterday: "There's going to be a flood [of bank-owned homes] listed for sale at some point," We are going to see a spike from now to the end of the year in foreclosures as we take people out of the running" for a loan modification or other alternatives, says a Bank of America Corp. spokeswoman...

Commercial Real Estate Boom Not Before Early Next Decade -- Seeking AlphaAccording to a report published by Jones Lang LaSalle Incorporated ((JLL)), a leading real estate investment trust (REIT), the U.S. commercial real estate (CRE) market boom is likely to occur early in the next decade at the earliest.During the second quarter of 2009, CRE sales were $5.2 billion compared to $30.7 billion in the year-earlier quarter and drastically down from $114.7 billion in the second quarter of 2007

Death bonds are NOT the same as subprime CDOs, OK? - Life settlements - insurance policies that ill and elderly people sell for cash, the amount of which will depend on the life expectancy of the insured - have been hailed as the next big thing to hit securitisation markets. Like credit card receivables and mortgages before them, these settlements can theoretically be repackaged into securities which can then be resold to what is currently a very small number of morbid potential investors. But this time, regulators are determined not to be caught unawares - even if it is unclear what would happen if there is a collapse in the market for such bonds; FT Alphaville knows of no funeral home widely considered too big to fail.

Capital Spending and Consumer Spending - Former IMF chief economist Michael Mussa suggested that consumer spending wouldn't lead this recovery, but that business investment would be strong. This graph shows the general relationship between capital spending and consumer spending. This suggests that consumer spending needs to pickup to above 1.5% year-over-year growth rate for business investment in equipment and software to be positive...

Household debt, consumption and wealth - At a recent conference in China, panelists were wondering how growth in the global economy would resume given that the American consumer had disappeared under the burden of debt. On September 17, the Federal Reserve released their “Flow of Funds” report, where we can find data on household debt for 2009Q2. Indeed, this debt stands at $14.068 trillion or slightly less than 100% of GDP. Does this mean that the economy is doomed?

Saving the World, Without U.S. Consumers - NYTimes Forum - If Americans don’t start buying a lot of stuff again, can the world economy be saved? What’s the global Plan B? These are fundamental questions at the summit of the Group of 20 industrialized and developing nations in Pittsburgh. In previous global downturns, Americans have come to the rescue, getting out their credit cards and buying up what the rest of the world produces. Our spending is currently equal to the entire economies of China and India added together and then doubled

U.S. credit card defaults rise to record: Moody’s -(Reuters) - The U.S. credit card charge-off rate rose to a record high in August, as more Americans lost their jobs, Moody's Investors Service said on Wednesday, in another sign consumers remain under stress.
The Moody's credit card charge-off index -- which measures credit card loans that banks do not expect to be repaid -- rose to 11.49 percent in August from 10.52 percent in July.

Nonprofits Paying Price for Gamble on Finances - Homeowners and businesses were not alone in taking on piles of debt over the last decade. Nonprofits of all sizes did the same, and now they, too, are paying the price. Far from being conservative stewards of their assets, many nonprofits engaged in what some experts call risky financial behavior. They did auction-rate securities, interest-rate arbitrage, complex swaps — which backfired on them the same way it would backfire on any hedge fund or asset manager.

CNN Poll: U.S. still in a serious recession -- Americans are not nearly as optimistic about the economy as the chairman of the Federal Reserve seems to be, a national poll released Thursday shows. Eighty-six percent of those questioned in a CNN/Opinion Research Corporation survey said they think the United States is still in a recession, with 13% saying the nation's economic downturn has ended. According to the poll, 42% say the country is in a serious recession, 35% call it a moderate recession, and one in 10 characterize it as a mild recession.

EconomPic: Income for the Masses Not Keeping Up... For 40 Years - A few weeks ago I detailed the divergence in household incomes showing the top 5% of earrners gained mightily over the past 40 years relative to lower level incomes. But in comparing all those income brackets to the growth of the broader economy (on a per capita basis), even those top 5% earners' didn't keep up with the pace. So over the past 40 years, the only individuals that have seen their incomes increase at / or greater than the level of GDP were those earning more than those in the top 5% (think top 1%). Source: Census

Unemployment Insurance for the Great Recession - Brookings Institution - When unemployment is high and job finding is hard, many UI claimants exhaust their regular benefits. In the worst month following the 1981-82 recession, 41% of UI claimants exhausted their regular state UI benefits. In July of this year, nearly 51% of UI claimants exhausted their regular benefits. This is the highest rate of benefit exhaustion on record. It is a painful indicator of the difficulty of finding a job in the current economy. In view of the fact that the unemployment rate is still climbing and the number of payroll jobs is shrinking, the exhaustion rate is likely to continue rising in the coming months.

House approved bill for extending unemployment benefits - (CNNMoney) -- More than a million people could receive an additional 13 weeks of unemployment benefits under a bill approved by the House on Tuesday. The bill extends benefits for those living in states with jobless rates higher than 8.5%. Some 27 states fall into this category..

Are jobless claims pointing to structurally high unemployment? - continuing claims remain above 6 million and are a full 2.3 or 2.6 million above last year’s levels, depending on whether you use seasonal adjustments or not. Clearly, the initial claims figures are declining faster than the continuing claims figures. And, remember, a lot of people have exhausted benefits before finding a job...this picture suggests that unemployment will remain stubbornly high... there’s more to the data than this. The data suggest a recession that is ending, but with remaining structurally high unemployment...

The Real Problem With The Economy Is That It Doesn't Need You Anymore - as a smaller and smaller number of people are needed to make the basic things that people need for survival, from food to energy, to clothing and housing, the less likely it is that some people will be needed at all. When you read in the press the oft-quoted concept that “those jobs aren’t coming back” this “reduction of need” is what underlies all of it. Technology has reduced the need for labor. And the labor that *is* needed can’t be done in more developed nations because there are people elsewhere who will happily provide that labor less expensively.

Bankruptcy Filings Approach 2005 Highs - Mish - Shortly after the passage of the Debt Slave Act of 2005 (more widely known as the Bankruptcy Reform Act of 2005) the number of bankruptcies collapsed. Now, in conjunction with soaring unemployment, Bankruptcy filings return to pre-reform-law pace. In 2005, banks got their dream list of everything they wanted in "reform". Now that wish list has come back to haunt them because they made poor lending decisions to horrible credit risks on the assumptions that they would be paid back and consumers would not file.

The next casualty of the financial crisis: public universities - Moody's credit rating agency has a prediction: With policies of limiting enrollment places and tuition fees, market pressure to add capacity, and government funding unlikely to increase, Moody’s expects unprecedented pressure on the current financial model of public universities. While universities in the rich world (Harvard and Yale) have been early casualities of the crisis, public universities in emerging markets have been shielded by the longer cycle of public budgeting and the stimulus spending of some governments.

Solis: ‘I Think We Miss The Boat’ If We Can’t Make College More Affordable - Echoing the comments made by former President Bill Clinton, Secretary of Labor Hilda Solis took to the Clinton Global Initiative stage today to talk about America’s need — and apparent inability — to make enough investments in human capital. She pointed towards the Obama administration’s commitment to community colleges, which she called the “rapid, ready-response institutions” of America, but said that the real problem is tuition at four-year colleges...

What's college all about? - The Economist - There is no question that much of what counts as the educational part of college is digitisable and nearly endlessly duplicable. Texts and papers fall into this category, as do lectures and demonstrations. In the past, the economics of universities were based on provision of these things; books and experts were scarce, and so it made sense to gather students in one place, in proximity to those things, in order to learn from them. If this is all that underpins the modern institute of higher education, then it is only a matter of time until it vanishes.

Cracking the brain's numerical code - - By carefully observing and analyzing the pattern of activity in the brain, researchers have found that they can tell what number a person has just seen. They can similarly tell how many dots a person has been presented with, according to a report published online on September 24th in Current Biology. These findings confirm the notion that numbers are encoded in the brain via detailed and specific activity patterns and open the door to more sophisticated exploration of humans' high-level numerical abilities.

Charles Darwin, too hot for the US - - On the heels of a February 2009 Gallup poll showing that only 39% of Americans believe the theory of evolution, a new British film about Darwin has had difficulty finding US distributors, apparently because the topic was deemed too controversial for American audiences. But questioning evolution is like questioning gravity.

More Animals Seem to Have Some Ability to Count - Scientific American - Recent studies have uncovered new instances of a counting skill in different species, suggesting that mathematical abilities could be more fundamental in biology than previously thought. Under certain conditions, monkeys could sometimes outperform college students...

Technology Review: The Evolution of Overconfidence - The puzzle about overconfidence is its ubiquity. Many studies have shown that most people have an exaggerated sense of their own capabilities, an illusion that they have control over uncontrollable events and are invulnerable to risk. Most people, for example, believe they are above-average drivers, a statistical impossibility. We are all overconfident in one way or another. But how can such a condition have evolved when overconfidence can lead to destruction of communities and catastrophic loss of life?

Bashed your head? You needed a stiff drink – New Scientist The idea has arisen from a study of 38,000 people with head injuries, which found that those with alcohol in their blood were more likely to survive. For every 100 people who died when stone-cold sober, only 88 died with ethanol – the kind of alcohol in drinks – in their veins."The finding raises the intriguing possibility that administering ethanol to patients with brain injuries may improve outcome," conclude the investigators...

Scanning Dead Salmon in fMRI Machine Highlights Risk of Red Herrings - By complete, random chance, we found some voxels that were significant that just happened to be in the fish’s brain,” Bennett said. “And if I were a ridiculous researcher, I’d say, ‘A dead salmon perceiving humans can tell their emotional state.’”

The specter of online education: it looms - I’ve long had doubts about the idea that online education will spell the death of brick-and-mortar colleges and universities. But this article, coupled with the University of California’s decision to try to raise fees by A LOT over the next two years, gives me pause. My sense is that the children of relatively well-off parents will continue to go to traditional colleges and universities for the foreseeable future...

Children Under Three Can’t Learn Action Words From TV — Unless An Adult Helps - American infants and toddlers watch TV an average of two hours a day, and much of the programming is billed as educational. A new study finds that children under age 3 learn less from these videos that we might think—unless there’s an adult present to interact with them and support their learning."

Children who are spanked have lower IQs, new research finds - Children who are spanked have lower IQs worldwide, including in the United States, according to new groundbreaking research by University of New Hampshire professor Murray Straus

New Light on the Plight of Winter Babies - WSJ - Children born in the winter months already have a few strikes against them. Study after study has shown that they test poorly, don't get as far in school, earn less, are less healthy, and don't live as long as children born at other times of year. Researchers have spent years documenting the effect and trying to understand it. But economists at the University of Notre Dame may have uncovered an overlooked explanation for why season of birth matters...

Study Says New Economic Indicators Are Needed - NYTimes - Among the possible casualties of the Great Recession are the gauges that economists have traditionally relied upon to assess societal well-being. So many jobs have disappeared so quickly and so much life savings has been surrendered that some argue the economic indicators themselves have been exposed as inadequate. In a provocative new study, a pair of Nobel prize-winning economists, Joseph E. Stiglitz and Amartya Sen, urge the adoption of new assessment tools that incorporate a broader concern for human welfare than just economic growth...

Health Care and an Educated Citizenry - What kind of education would one need to make sense of the current health-care debate? As the U.S. rethinks its academic standards and international competitiveness, this is not a bad time to ask what American citizens, voters, and taxpayers need by way of knowledge and skills to form reasonable conclusions about the hottest domestic policy issue of the day. Today’s elites seem certain that John Q. Public is irremediably ignorant about, and perhaps oblivious to, the health-care debate, and thus susceptible to being misled, brainwashed, or cowed.

Papers Show Insurers Limited Coverage for Acne, Pregnancy –
"Health insurers have issued guidelines saying they could deny coverage to people suffering from such conditions as acne, hemorrhoids and bunions.One big insurer refused to issue individual policies to police officers and firefighters, along with people in other hazardous occupations.

How Much Money Do Insurance Companies Make? A Primer - Economix Blog - NYTimes.comIn this week’s post, I shall walk the reader through the most recent income statement of WellPoint Inc. Before proceeding, readers may wish to click on this link shown above and print out the income statement. That statement is fairly typical of a large insurer selling mainly group-insurance policies to relatively large employers.

Matt Kapp on Health-Care Profiteering - vanityfair - Think Wall Street’s titans are the highest paid C.E.O.’s in the land? Think again. With median annual compensation of more than $12 million, medical moguls take the pay prize, even as the quality of care we receive falls to embarrassing lows. As the debate over health-care reform intensifies, the author catalogues the industry’s unbridled profiteering

Canadian Health Care, Even With Queues, Bests U.S.(Bloomberg) -- Opponents of overhauling U.S. health care argue that Canada shows what happens when government gets involved in medicine, saying the country is plagued by inferior treatment, rationing and months-long queues. The allegations are wrong by almost every measure, according to research by the OECD

This Is Greg Mankiw On Drugs - Imagine that someone invented a pill even better than the one I take. Let’s call it the Dorian Gray pill, after the Oscar Wilde character. Every day that you take the Dorian Gray, you will not die, get sick, or even age. Absolutely guaranteed. The catch? A year’s supply costs $150,000. . . . So here is the hard question: How should we, as a society, decide who gets the benefits of this medical breakthrough?

CBO: A Strong Public Plan Saves Lots of Money - According to Congress Daily, the CBO says attaching the public plan to Medicare rates will save even more money than originally thought: In a bid to wrangle concessions from the Blue Dog Coalition on healthcare reform, House leaders Thursday released CBO estimates for liberals' preferred version of the public option that show $85 billion more in savings than for the version the Blue Dogs prefer.

Schumer & Rockefeller: Final Health Bill ‘Will Include A Strong, Robust Public Option’
“We are going to be all about it,” Schumer told reporters on the call. Both senators rejected the bill’s current network of cooperatives and Sen. Olympia Snowe’s (R-ME) trigger compromise and promised to introduce amendments that would establish a national public option. “We are going to have a full blown debate in the Finance Committee,” “Don’t count it out,” Schumer said. “We are going to keep it in the center of the debate as the bill moves through Congress”

Health Insurers To Baucus: Allow Us To Charge Older People 5X More Than Younger Americans - Chairman Max Baucus’s (D-MT) original mark of the Senate Finance Committee’s health care bill used a modified community rating formula that allowed private insurers to charge older people five times more for coverage than younger people, a ratio that far exceeded the Kennedy and House bills’ 2:1 rating. On Tuesday the Chairman modified his mark with an amendment that lowered the rating to 4:1 and sparked a harsh response from the health insurance lobby.

Sen. Roberts: We Need To Give Health Insurance Lobbyists ‘At Least 72 Hours’ To Read The Bill - During the Senate Finance Committee’s mark-up session of the health care reform bill today, Sen. Jim Bunning (R-KY) — who has had a hard time staying awake during these meetings — offered an amendment that would have delayed “a committee vote for two weeks.”
Before the vote took place, Sen. Pat Roberts (R-KS) offered a defense of Bunning’s amendment by arguing that the 72-hour provision was critical because it provides time for senators to consult with health insurance lobbyists...

Stabenow Replies To Kyl: You Don’t Need Maternity Benefits, ‘But Your Mother Did’ (w/ video)
This afternoon, while debating an amendment to prohibit the federal government from “defining the health care benefits offered through private insurance,” Sen. Jon Kyl (R-AZ) argued, “I don’t need maternity care, and so requiring that to be in my insurance policy is something that I don’t need and will make the policy more expensive.”

Hatch Amendment Raises Excise Tax Threshold “For Any State With A Name That Begins With The Letter ‘U’” - Members of the Senate Finance committee have submitted 534 amendments to Sen. Max Baucus’ (D-MT) health care mark. Sen. Orrin Hatch (R-UT), for instance, introduced an amendment (Hatch F7) to “add transition relief for the excise tax on high cost insurance plans for any State with a name the begins with the letter ‘U.’” The amendment would increase the threshold at which high-cost insurance plans could be taxed. (Article includes some of the other superfluous amendments introduced by Republicans)

GOP Favors Public Option for Property, Not People - Atop the front page of the New York Times today is a color photo of Georgia homes flooded up to their rafters, an image that illustrates how when it comes to insurance our Congress applies two standards, separate and unequal, one for property and a lesser one for people. Unlike people without health insurance, homeowners have access to public option flood insurance. Even those who fail to take personal responsibility to buy insurance to protect their property can get benefits, thanks in good part to politicians who are leading opponents of public option healthcare.

The Raw Story » GOP senators declare war on Net neutrality - Six Republican senators have introduced an amendment that would block the Federal Communications Commission from implementing its recently announced Net neutrality policy. Texas Republican Senator Kay Bailey Hutchison introduced the amendment to an appropriations bill. It would prevent the FCC from getting funding for any initiative to uphold Net neutrality.

Taking the Right Seriously - Conservatism is a tradition, not a pathology - This month the University of California at Berkeley opened a Center for the Comparative Study of Right-Wing Movements. The center is housed in the Institute for the Study of Social Change, which the university advertises online as an institution placing "issues of race, gender, and class at the center of the agenda," conducting "research with a conscience," and capitalizing on "Berkeley's history as the birthplace of transformative social movements."

Outside the bubble - PATHOLOGIES are unwholesome phenomena, abnormal and irregular conditions that disrupt the healthy order of things. In physiological systems, they cause disease. In psychological manifestations, they can give rise to personality disorders. And in the body politic, entire societies have fallen under the sway of pathologies such as totalitarianism.

Dick Armey Is Fighting To Keep His Government Health Care Coverage. Hypocrisy Much? (video) This week's Bill Moyers' Journal takes a look at former Texas congressman Dick Armey's FreedomWorks, its role in formenting the Tea Party movement, and Armey's role in opposing just about anything that threatens big business. (He led the opposition against the Clinton health care plan.) Isn't this interesting? Armey (who's had government health care all along) is suing to keep his Cadillac federal employees health care plan instead of Medicare

Findings - Looking Past Health System to Explain Longevity Gap in U.S. - NYTimes - If you’re not rich and you get sick, in which industrialized country are you likely to get the best treatment? The conventional answer to this question has been: anywhere but the United States. With its many uninsured citizens and its relatively low life expectancy, the United States has been relegated to the bottom of international health scorecards.

Employer Health Benefits 2009 Annual Survey - Source: Kaiser Family FoundationFrom press release: "Premiums for employer-sponsored health insurance rose to $13,375 annually for family coverage this year—with employees on average paying $3,515 and employers paying $9,860"

Malpractice System Breeds More Waste in Medicine - NYTimes - The fear of lawsuits among doctors does seem to lead to a noticeable amount of wasteful treatment...about 3 percent of overall medical spending, is a reasonable upper-end estimate. At the same time, though, the current system appears to treat actual malpractice too lightly. Trials may get a lot of attention, but they are the exception. Far more common are errors that never lead to any action. So we have a malpractice system that, while not as bad as some critics suggest, is expensive in all the wrong ways.

Swine flu could kill millions - The swine flu pandemic could kill millions and cause anarchy in the world's poorest nations unless £900m can be raised from rich countries to pay for vaccines and antiviral medicines, says a UN report leaked to the Observer. The disclosure will provoke concerns that health officials will not be able to stem the growth of the worldwide H1N1 pandemic in developing countries. If the virus takes hold in the poorest nations, millions could die and the economies of fragile countries could be destroyed.

World will need 70 percent more food in 2050: FAOWorld food production must increase by 70 percent by 2050, to nourish a human population then likely to be 9.1 billion, the UN Food and Agriculture Organisation forecast Wednesday. "FAO is cautiously optimistic about the world's potential to feed itself by 2050," said FAO Assistant Director-General Hafez Ghanem. However, he stressed that feeding everyone in the world by then "will not be automatic and several significant challenges have to be met."

Emerging Markets Have Room for Growth - WSJ - If any bankers and investors are hoping for a return to the booming U.S. financial markets of recent years, there’s a good chance they’ll be disappointed, according to consultancy McKinsey & Co. In their sixth annual survey of the world’s capital markets, experts at McKinsey say that the mature financial markets of North America, Europe and Japan may have reached an “inflection point,” beyond which their growth will be much slower than the breakneck expansion of the past two decades. In emerging markets, though, they still see plenty of room to grow.

Debt deflation laboratory of the Baltics – Telegraph - Property prices in Estonia’s Hanseatic capital of Tallinn have fallen by 59pc from their peak in the Baltic boom, a remarkable state of affairs Professor Ülo Ennuste from Tallinn University says the private net wealth of Estonia's people has fallen below zero. I know of no other country in the world where this has occurred, though Latvia may be deeper in hock. Estonia's foreign debt is 116pc of GDP, second highest in Eastern Europe.

India launches seven satellites: space agency - About a month after its first moon mission was aborted, the country's space agency announced that the seven satellites had been put into orbit about 720 kilometres (447 miles) above the Earth. India will use one of the satellites, Oceansat-2, for monitoring ocean patterns and identifying fishing zones, enhancing the capability of the first Oceansat, which was launched in 1999, the agency said

Population growth driving climate change, poverty: experts - Unchecked population growth is speeding climate change, damaging life-nurturing ecosystems and dooming many countries to poverty, experts concluded in a conference report released Monday. Unless birth rates are lowered sharply through voluntary family-planning programmes and easy access to contraceptives, the tally of humans on Earth could swell to an unsustainable 11 billion by 2050, they warned.

Diverting Aid for Climate Change Threatens Children, Oxfam Says - -- Diverting overseas aid from economic development to fight global warming may threaten the lives of at least 4.5 million children in the poorest nations, the anti-poverty group Oxfam said. Pledges made by the 27-nation European Union and various donors to help the developing world adapt to higher sea levels and droughts brought on by rising temperatures must not be funded from overseas aid budgets, according to a 32-page report published today by the non-profit organization.

Can Countries Cut Carbon Emissions Without Hurting Economic Growth? - Belfer Center at Harvard - Cutting greenhouse gases will be costly. But that leads to two big questions. First, how costly? And second, can nations afford it? Energy-efficiency measures are often pricey, and alternative energy sources are more expensive than the fossil fuels they replace. A steep price on carbon emissions will ripple through the economy. Does that mean a serious effort to tackle global warming is incompatible with economic growth? Or can we make significant cuts in greenhouse-gas emissions without causing serious damage to the economy?
We put the question to a pair of experts...

The essential pillars of a new climate pact - To be successful, any feasible successor agreement must contain three essential elements: meaningful involvement by a broad set of key industrialized and developing nations; an emphasis on an extended time path of emissions targets; and inclusion of policy approaches that work through the market, rather than against it.

Blame the Political Institutions, Not Political Will for Climate Action Problems - European leaders are certainly right to be disturbed by the apparently poor legislative prospects for cap and trade in the United States. And of course nobody in the world wants to move forward without American leadership. But to blame the problem on a lack of “political will” strikes me as quite misleading...

U.N. climate meeting was propaganda: Czech president (Reuters) - Czech President Vaclav Klaus sharply criticized a U.N. meeting on climate change on Tuesday at which U.S. President Barack Obama was among the top speakers, describing it as propagandistic and undignified. "It was sad and it was frustrating," said Klaus, one of the world's most vocal skeptics on the topic of global warming.

Senator Of Katrina-Ravaged Louisiana Tries To Block Climate Change Response Centers
Sen. David Vitter (R-LA) is trying to prevent the United States from being ready for the next Hurricane Katrina. Vitter, who denies the human influence on global warming, has submitted an amendment (S. Amdt. 2450) to the Interior appropriations bill (H.R. 2996) to block funding for centers that study and prepare for the impacts of climate change.

Republican Joe Barton Really Is the Stupidest Man Alive: "Wind Power Might Mess Up Global Wind Patterns and Make the Earth Warmer" - Speaking of Rep. Joe Barton (R-Texas) — who apparently is weighing a run for the Senate seat. From a March 10 House Energy and Commerce Committee hearing: "Wind is God’s way of balancing heat. Wind is the way you shift heat from areas where it’s hotter to areas where it’s cooler. That’s what wind is. Wouldn’t it be ironic if in the interest of global warming we mandated massive switches to energy, which is a finite resource, which slows the winds down, which causes the temperature to go up? Now, I’m not saying that’s going to happen, Mr. Chairman, but that is definitely something on the massive scale. I mean, it does make some sense. You stop something, you can’t transfer that heat, and the heat goes up. It’s just something to think about." This man was once the chairman of the committee...

Immelt: Government Has To Play A ‘Key Role’ In Clean Energy Investments - General Electric CEO Jeffrey Immelt — who has been critical of the business community for investing too much money in preserving America’s status quo — noted that successful infrastructure improvements, particularly in creating the capacity for clean energy, means coordinating government standards with private investment

Warming ocean melts Greenland glaciers - A team from the Woods Hole Oceanographic Institution in Massachusetts zigzagged between majestic icebergs in the Sermilik fjord last month in search of proof that waters from warmer latitudes, or subtropical waters, are flushing through this remote and frigid region. They found it - all the way up to the base of the outlet glaciers that spill into the ocean like tongues of ice from Greenland's massive ice sheet. Coupled with similar findings off western Greenland, the discovery could help to explain why the glaciers have started flowing quicker in the past decade, a phenomenon that raised alarm because it contributes to rising sea levels.

Antarctic coastal ice thinning surprises experts (Reuters) - Scientists are surprised at how extensively coastal ice in Antarctica and Greenland is thinning, according to a study Wednesday that could help predict rising sea levels linked to climate change. Analysis of millions of NASA satellite laser images showed the biggest loss of ice was caused by glaciers speeding up when they flowed into the sea, according to scientists at the British Antarctic Survey (BAS) and Bristol University. "We were surprised to see such a strong pattern of thinning glaciers across such large areas of coastline -- it's widespread and in some cases thinning extends hundreds of kilometers inland...

What global warming looks like — Some amazing time lapse sequences of glacier retreat and a spectacular ice-shelf collapse:

Stunning Views of Glaciers From Space - slide show with discriptive text...

Global Boiling: A Drop In A Bucket, Dust On The Scales - Eastern Australia is suffering an “unprecedented” dust storm, a catastrophic combination of “earth, wind and fire.” The epochal dust storm, “carrying an estimated 5 million tons of dust,” has “turned Sydney into Mars.” Up to “75,000 tons of dust an hour” are being blown across Sydney by winds of more than 60 miles per hour. Much of the dust is dessicated topsoil, as eastern Australia enters its twelfth year of severe drought. Since 1979, “all but four years have been warmer than average in Australia.” The catastrophic dust storm follows Australia’s unprecedented wildfires in March.

Red Dust: Sydney, Australia - A gallery curated by Tom Coates - 18 photos

Study predicts an uncertain future for forests - The composition of some of our nation's forests may be quite different 200 to 400 years from today according to a recent study at the University of Illinois. The study found that temperature and photosynthetic active radiation were the two most important variables in predicting what forest landscapes may look like in the future. The uncertainties became very high after the year 2200...

Environmentalists Seek to Wipe Out Plush Toilet Paper - It's a menace, environmental groups say -- and a dark-comedy example of American excess. The reason, they say, is that plush U.S. toilet paper is usually made by chopping down and grinding up trees that were decades or even a century old. They want Americans, like Europeans, to wipe with tissue made from recycled paper goods.

Collapse or survive: the stark choice facing our species - As man-made warming rises by up to 2.4C, all sorts of awful things happen – whole island-states in the South Pacific will drown, for example – but we can stop it. If we turn off the warming gases, the temperature will stabilise. But if we go beyond 2.4C, global warming will run away from us, and we will have lost the "Stop" button. The Amazon rainforest will dry out and burn down, releasing all the carbon stored in the trees; the vast amounts of warming gases stored in the Arctic will be belched into the atmosphere; and so 3C will turn ineluctably to 4C, which will turn to 5C, and the planet will rapidly become a place we do not recognise.

Scientists: Political ‘Reality’ Will Lead To Climate Catastrophe - “Climate researchers now predict the planet will warm by 6.3 degrees Fahrenheit by the end of the century even if the world’s leaders fulfill their most ambitious climate pledges, a much faster and broader scale of change than forecast just two years ago.” This analysis was conducted by the Climate Interactive project, led by climate scientist Dr. Robert Corell, the chair of the Heinz Center’s Climate Action Initiative.

Hacking the Sky - Geo-Engineering Could Save the Planet ... and Sacrifice the World in the Process - Even those most interested in geo-engineering say that the idea of deliberately deforming the planet in order to save it from ourselves is, as Stanford University’s Ken Caldeira told NPR this summer, “scary.” Yet if we shy away from manipulating the whole globe and continue on our present course, we could be left with a burnt Earth unlike anything ever seen. The scientists who are encouraging government-funded research into geo-engineering are driven by a powerful motive: fear. All too aware of the implications of unchecked CO2 emissions these scientists say we may have no other option than to tinker with the sky.

World Needs Carbon Limit of 35 Billion Tons By 2030, Stern Says - Bloomberg.comThe world needs to limit its greenhouse gas emissions to 35 billion tons by 2030 to avoid temperature increases of 2 degrees Celsius (3.6 Fahrenheit), said Nicholas Stern, former chief economist of the World Bank. Emissions will need to be cut to 20 billion tons in 2050 from about 50 billion tons today, Stern, who’s chairman of the Grantham Research Institute on Climate Change and the Environment at London School of Economics and Political Science, said.

Fossil fuel subsidies dwarf clean energy subsidies; - Existing energy sources, fossil fuels, have benefited from a century of subsidies and supporting infrastructure—and are still subsidized lavishly relative to their scrappy little competitors.This is a point enviros often make, but a new report puts some teeth in it. “Estimating U.S. Government Subsidies to Energy Sources: 2002-2008” makes a fairly simple point, captured in the graphic...

U.S. Tax Breaks Subsidize Foreign Oil Production - The largest U.S subsidies to fossil fuels are attributed to tax breaks that aid foreign oil production, according to research to be released on Friday by the Environmental Law Institute in partnership with the Woodrow Wilson International Center for Scholars. The study, which reviewed fossil fuel and energy subsidies for Fiscal Years 2002-2008, reveals that the lion’s share of energy subsidies supported energy sources that emit high levels of greenhouse gases.

Putin call to Western gas groups shows desperation - UK TelegraphThe Russian prime minister had invited them to highlight the promises of the gas fields of the Yamal Peninsula, and to throw open the doors to Western investment and technology. No doubt his guests salivated at the idea of getting a piece of the action. By 2020, Yamal is estimated to be capable of yielding up to 300bn cubic meters of gas annually. This compares with a total annual Russian production that currently stands at around 550bcm...

The Oil Industry Is on a Roll This Year With New Discoveries - NYTimes - New oil discoveries have totaled about 10 billion barrels in the first half of the year, according to IHS Cambridge Energy Research Associates. If discoveries continue at that pace through year-end, they are likely to reach the highest level since 2000. While recent years have featured speculation about a coming peak and subsequent decline in oil production, people in the industry say there is still plenty of oil in the ground, especially beneath the ocean floor, even if finding and extracting it is becoming harder. They say that prices and the pace of technological improvement remain the principal factors governing oil production capacity.

The Oil Drum - Peak Oil Not a Problem According to NY Times; Scientific American - Our Response on the Finacial Issues - Recently, we have had two new articles aiming to put to rest people's fears about peak oil. One is from the New York Times: Oil Industry Sets a Brisk Pace of New Discoveries. The other is from the October Scientific American, called Squeezing More Oil from the Ground. (This is the draft version available on line.) In this post, we will look a little more at these articles, and see why peak oil, and perhaps the financial issues associated with peak oil, are still an issue, regardless of what these articles may suggest.

Life after the Age of Oil - Middle East Online - The debate rages over whether we have already reached the point of peak world oil output or will not do so until at least the next decade. There can, however, be little doubt of one thing: we are moving from an era in which oil was the world's principal energy source to one in which petroleum alternatives -- especially renewable supplies derived from the sun, wind, and waves -- will provide an ever larger share of our total supply. But buckle your seatbelts, it's going to be a bumpy ride under Xtreme conditions...we will surely first pass through an era characterized by excessive reliance on oil's final, least attractive reserves along with coal, heavily polluting "unconventional" hydrocarbons like Canadian oil sands, and other unappealing fuel choices.

Would You Know How to Survive After the Oil Crash? - Do you know how to make shoes? Can you build a house? How about grow food? Do you have a doctor and a dentist in your circle of friends? These are the questions that Andre Angelantoni thinks you should be able to answer in order to plan for the next 10 to 15 years. Angelantoni believes there are radical changes ahead for our society -- and no, it's not the rapture he sees coming, but a post-peak-oil world. Angelantoni is among the crowd of geologists, oil-industry experts and numbers crunchers that believes we are at or near peak, and the way down will be a painful and bumpy ride.

China 'selling petrol to Iran' - A newspaper report says Chinese state companies are supplying petrol to Iran, a development that could undermine US-led efforts aimed at curbing Tehran's nuclear ambitions. The report is based on unnamed oil traders and bankers.London's Financial Times report on Wednesday said the companies are selling the petrol through intermediaries, and provide up to a third of Tehran's imports.

China’s Economy Is Back, While U.S. Still Ails - NYTimes - In China, even the hardest-hit factories — those depending on exports to the United States and Europe — are starting to rehire workers. No one here is talking about a jobless recovery. Even the real estate market is picking up. In this industrial town 90 miles northwest of Shanghai, prospective investors lined up one recent Saturday to buy apartments in the still-unfinished Rose Avenue complex. Many of them slept outside the sales office all night.

Can China be the world’s growth engine? - VovEU - Can the BRICs replace the much-touted US consumer as the world’s main growth engine? This column says the Chinese economy will continue to increase relative to all others, while the US share of global output will stagnate. But while China’s relative contribution to global growth will increase, it won’t be “driving” growth in the developed economies.

Why China must do more to rebalance its economy - FT Forum - China has had a good crisis. The giant has survived the shock. But its recovery is driven by a surge in credit and fixed investment. In the longer term, China needs to rebalance its economy, by increasing consumption. It is time for the Chinese to enjoy themselves more. How unpleasant can that be?

China Faces ‘Arduous Task’ for Stable Growth, Society – (Bloomberg) -- China, the world’s third-largest economy, faces an “arduous task” in maintaining steady growth and a stable society, President Hu Jintao said, as the ruling communist party prepared to mark 60 years in power. “Ensuring and improving the people’s livelihood as well as the mission of maintaining a stable society are arduous tasks as we face the impact of the global economic crisis,” Hu said

Chinese takeaway is paid for with American dollars - The Chinese understand the "peak everything" argument. They are not just worried about peak oil, they are concerned about the fact that the world has run up against the limits of its resources. Their officials were shaken by the spike in oil and food prices last year before the financial crisis hit. In comparison, they seem to be quite unfazed by the financial crisis. They are much more concerned with the prospect of the world -- and therefore China -- running out of the hard material which makes the economy tick.

China's military power takes 'quantum leap': defence minister - China's military capability has taken a "quantum leap" thanks to a modernisation drive and its weaponry rivals that of Western countries, the nation's defence minister said in an interview Monday. The comments by Liang Guanglie came in an interview published by Xinhua news agency 10 days before China is set to roll out a range of advanced weaponry in a National Day military parade. Liang rattled off a list of achievements in military technology...

Germany declares economic war - Telegraph Blogs - Herr Steinbrück is not a journalist, pundit, or back-bench maverick. He speaks officially for the German government and for the German nation on the international stage. What he said, in effect, is that Germany will marshal its forces to ensure that a chunk of the British economy is shut down - whatever the social consequences. This is the closest thing I have seen to a declaration of economic warfare in Western Europe in my lifetime.

The protectionism bogeyman - have to admit to hyping the debate now swirling about protectionism. I believe that tariffs are not a very good solution to a trade problem as they are likely to result in retaliation and/or escalation. Moreover, they end up protecting small groups at the expense of higher prices for everyone else. That is why I wrote the provocatively-titled “Murder-Suicide in Chimerica.” But taking a step back from the rhetoric for a second, I want to highlight two recent articles and make a few comments.

Update on global protectionist measures - VoxEU - Economists have been particularly wary of protectionism since the recession’s onset. This column presents new evidence that numerous governments, including G20 nations, have implemented protectionist measures. It calls for G20 members to halt further trade-distorting measures and review those identified by major monitoring initiatives.

Thanks to a devalued pound, Britain may soon be in surplus on trade – UK Telegraph
Few things are more resonant of the changed, post crisis world we are about to enter than the now strong possibility that before long Britain could bizarrely find itself alongside Germany, China and Japan with a strong current account surplus. Before choking on your cereal in laughter at this apparently ludicrous suggestion, read on.

Britain's fiscal emergency: Deflating the state - The Economist
Even in a landscape littered with economic wreckage, Britain’s public finances stand out for the battering they have taken. Until this year the biggest post-war deficit was in the early 1990s, when borrowing peaked at almost 8% of GDP. That will be dwarfed by borrowing in 2009-10, projected by the Treasury in April to reach 12.4% of GDP. Even that forecast may prove too low.

Bank of England warns of the consequences of thrift - Telegraph An attempt by British consumers to rein in spending after the harsh lessons of the recession could limit growth and therefore depress household income further, the Bank of England warns today. It says in its latest Quarterly Bulletin that household decisions to spend or save will have major consequences for the economic outlook, because consumer spending accounts for two-thirds of total spending in the UK.

European property groups face debt time-bomb - European commercial property owners face a wave of complex debt refinancings and restructurings that pose a threat to the sector, according to bankers and industry groups. They are particularly concerned about the amount of European debt packaged in complex bonds, known as commercial mortgage-backed securities (CMBS), where restructuring has proved especially difficult and highlighted this issue to the Bank for the first time.

The IMF Should Move To Europe - West Europeans are greatly overrepresented at the IMF for historical reasons. But further change in a sensible direction is being blocked by the UK and France – because they have figured out that this logic implies they would lose their individual seats on the IMF’s executive board. The way to break this impasse is (1) for the European Union to consolidate into a single seat or membership, and (2) for the Union to assert its right to be the headquarters of the IMF

What is the IMF's Mission? - The IMF's first role is to assist countries that, as a result of domestic policies, experience balance-of-payments crises. Their governments have no choice but to borrow from the Fund. To safeguard its resources the Fund must demand difficult policy adjustments on the part of these borrowers. A second role for the IMF is to act as a global reserve pool, Countries have accumulated large reserves in order to insure against shocks. This is costly for poor economies, which could better use the resources for investment and consumption....A third role for the IMF is macro-prudential supervisor. Recent events have made clear that someone needs to anticipate and warn of risks to global financial stability.