Daily Archives: April 20, 2009 @ 1:36 pm (Monday)

Ireland’s increased taxes and lowered spending

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Right, seems the eurozone is toast until the rest of the world recovers and starts importing from them of their deficits get high enough via recession- the ugly way- without the national governments and banks defaulting.

Trying to keep deficits from rising with tax hikes only means the economy goes down more as it seeks the necessary higher level of deficit spending for recovery.

A tall order but not impossible.

Erin Go Broke

by Paul Krugman

Apr 19 (New York Times) — “What,” asked my interlocutor, “is the worst-case outlook for the world economy?” It wasn’t until the next day that I came up with the right answer: America could turn Irish.

What’s so bad about that? Well, the Irish government now predicts that this year G.D.P. will fall more than 10 percent from its peak, crossing the line that is sometimes used to distinguish between a recession and a depression.

But there’s more to it than that: to satisfy nervous lenders, Ireland is being forced to raise taxes and slash government spending in the face of an economic slump — policies that will further deepen the slump.


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Re: UK House Asking Prices Increased in April

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Right, Brown’s deficit spending to the rescue, as previously suggested, thanks!

>   
>   On Mon, Apr 20, 2009 at 4:34 AM, Marshall wrote:
>   
>   Further to my other recent comments on the UK. You should start posting this stuff on
>   your site, as the UK is a good test case for the validity of “Mosler economics”1
>   

UK House Asking Prices Increased in April, Rightmove Says

by Jennifer Ryan

Apr 20 (Bloomberg) — U.K. house prices rose for a third month in April after mortgage availability improved, Rightmove Plc said today.

The average asking price rose 1.8 percent from March to 222,077 pounds ($328,000), the operator of the biggest U.K. residential property Web site said today. It fell 3.2 percent in London, the only region of 10 surveyed to show a decline. Home prices are down 7.3 percent from a year earlier.

Mortgage approvals rose 19 percent in February as the Bank of England cut the key interest rate to a record low of 0.5 percent and started buying assets to ease credit strains in the economy. Policy maker Kate Barker said yesterday house prices may rebound as banks ease lending terms.

“It looks like we are now bumping along the bottom of the trough,” Miles Shipside, Rightmove’s commercial director, said in the statement. “For there to be any real sense of optimism that we’re on a sustainable road to recovery, the availability of mortgage finance needs to improve significantly.”

The increase in property prices demanded by sellers was led by East Anglia, where values increased 5.1 percent, and Wales, which showed a 4.8 percent gain.

The decline in London, where the average asking price was 403,505 pounds, was led by a 7.8 percent drop in Ealing. Average values in the capital’s most expensive neighborhood, Kensington & Chelsea, fell 3.3 percent on the month to 1.9 million pounds.

Central bank data show mortgage approvals climbed to 38,000 in February, the most since May. The reading is still down from 71,000 at the start of 2009.

“I expect house prices to move up again,” Barker told the Spectator magazine on April 16. Referring to restrictions on the proportion of a home’s value that banks are willing to finance, she said, “the big slide down to 75-80 percent may be overdone. So I would expect the mortgage market to move.”


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China to boost commodity stockpiling

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Looking like they are diversifying a bit away from financial reserves:

China to Boost Commodity Stockpiling Storage Capacity

by John Duce

Apr 19 (Bloomberg) — China will give priority to boosting its storage capacity for resources such as oil and grains to ensure supply and smooth price volatility, a senior government official said.

China is also likely to further ease state controls on oil prices to reflect the market value of the fuel and encourage energy saving, said Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission.

“We need to improve and strengthen our permanent commodity storage,” said Zhang at the Boao meeting of business and political leaders in southern China. “We should also deepen our reform of the oil price system,” he said.

China, the world’s largest consumer of commodities, said March 31 that it will carry out an audit of its grain and soybean stockpiles. The results of the survey will not be made public, according to a joint statement issued by 10 ministries and state agencies. Emergency reserves of oil will be built to store up to 100 days of demand, the head of the National Energy Administration said this month.

Speculation in commodity markets drove up prices in recent months, said Zhang. Boosting reserves would help ensure supply at reasonable prices, he said, without giving details of the likely scale of increases in stockpiling capacity.

“We also need to develop the commercial-sector storage capacity, so we can have a joint effort here,” he said.

Oil prices are controlled by the government to limit their contribution to inflation. The government introduced a pricing mechanism last December which ensures a profit margin for refiners and reflects the market price for crude oil.


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Levy Conference review

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Levy Conference review

by George M. Richvalsky

Apr 19 — Warren presented “Alternative Proposals for a U.S. Nonconvertible Currency Regime” [see “Levy Presentation” on another part of this site] on Friday, April 17, 2009 at a conference organized by the Levy Economics Institute [www.levy.org] of Bard College entitled The State of the U.S. and World Economies: Meeting the Challenges of the Financial Crisis. Ford Foundation provided support. The Levy Institute is a nonprofit, non partisan public policy research organization whose work is premised on the accounting identity Government Surplus/Deficit = Private Deficit/Surplus.

The conference was well attended with many luminous presenters including a Nobel Laureate, Federal Reserve Bank Presidents, famous authors, academics, economists and forecasters [see Levy Program also on this site].

Warren’s presentation came within a block of “in paradigm” speakers, Jamie Galbraith, Robert Parenteau and Randy Wray, all effective and to their point. Warren’s major thrust is that the US is not on a gold standard but rather a nonconvertible currency regime with a broader range of policy options that he proceeded to put forward. His conclusions [see presentation final page]: recession is over, the ugly way – caused by automatic stabilizers, additional proactive fiscal adjustments are only now kicking in with the subsequent recovery restoring the financial sector and housing markets, but high and lingering unemployment will contain real wages and direct real wealth towards rentiers and upper income individuals. I encourage you to review this year’s proceeding when they appear on the Levy website. I noticed that 2008s proceedings are still available.

Mike Norman, a blogger on Warren’s site and an effervescent radio and TV personality, attended Warren’s presentation and reports that he will shortly provide details about his new TV show. Congrats Mike!

Not only did I enjoy the conference’s content and socializing opportunities but I was also impressed by those organizations and personalities that share those views expressed by Warren on this site. Expanding economic policy options to achieve increased world prosperity is necessary NOW but only happens once the politicians and their advisors acknowledge the validity of these views. The question is, How do we get to that tipping point?


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