Summers on stimulus


[Skip to the end]

World Coordinated Stimulus Needed: White House

Mar 9 (Reuters)

NOT!!!

We are much better of doing it all unilaterally.

This is the cost of having leadership that does not understand our monetary system.

Summer’s comments, ahead of next month’s G20 summit in London, suggest the U.S. administration wants all industrialised nations to pull together to engineer a demand-led recovery.

That will be music to the ears of British Prime Minister Gordon Brown who has trumpeted internationally-coordinated stimulus measures as the best way to tackle the downturn.

Him too.

“The right macro-economic focus for the G20 is on global demand and the world needs more global demand,” said Summers.

Yes, but we are better off if the demand is here and they export to us.

Summers, who served as Treasury secretary under the Clinton administration in the 1980s, said the view that the market was inherently self-stabilising had been dealt a “fatal blow.”

“This notion that the economy is self-stabilising is usually right but it is wrong a few times a century. And this is one of those times,” he said.

No, it is self correcting, but the ugly way as the automatic stabilizers increase the deficit via falling revenue and rising transfer payments until the deficit gets large enough to turn it all around.


[top]

Comments on Krugman


[Skip to the end]

Yes, but unspoken is the automatic stabilizers are quietly adding to the deficit with each move down, and the curves will cross and the economy start to improve when the deficit gets large enough, whether it’s the ugly way via falling revenues and rising transfer payments, or proactively via a proactive fiscal adjustment.

With income and spending turning mildly positive in January and other indicators such as the commodities also beginning to move sideways as the deficit passes through 5% before the latest fiscal adjustment kicks in, we may be seeing GDP headed towards 0 by q3 or sooner as most forecasters now predict. Unemployment, however, will continue to rise until real growth exceeds productivity growth.

Bottom line, there will be a recovery with or without a proactive fiscal adjustment. the difference is how bad it gets before it turns north.

Behind the Curve

by Paul Krugman

Mar 8 (NYT) — President Obama’s plan to stimulate the economy was a massive, giant, enormous. So the American people were told, especially by TV news, during the run-up to the stimulus vote. Watching the news, you might have thought that the only question was whether the plan was too big, too ambitious.

Yet many economists, myself included, actually argued that the plan was too small and too cautious. The latest data confirm those worries  and suggest that the Obama administration’s economic policies are already falling behind the curve.


[top]

SOV CDS Indicative Level


[Skip to the end]

Starting this week off higher as equity markets sag.

Systemic risk in the eurozone remains elevated.

Wide spreads in the US, UK, Sweden, etc. show markets misunderstand the risks of governments with their own non-convertible currency and floating FX policy.

SOV CDS Indicative Levels

Country 5yr CDS/10yr CDS Change Curve Euro/USD
Austria 260/278 +5 -20/-5 8/16
Belgium 142/156 +5 -10/-2 4/11
Finland 85/95 +3 -3/0 4/9
France 91/98 +3 -4/0 4/9
Germany 88/94 +3 -4/0 5/9
Greece 260/272 unch -25/-8 8/15
Ireland 348/368 unch -30/-10 8/18
Italy 195/205 unch -12/-2 7/10
Netherland 127/134 unch -8/0 5/12
Norway 55/65 +5 -2/2 n/a
Portugal 133/143 unch -12/0 7/12
Spain 150/155 unch -8/-1 7/12
Sweden 140/155 unch -8/-1 n/a
UK 152/162 unch -8/-2 6/12
US 88/98 unch -4/0 3/6


[top]

Fed beige book


[Skip to the end]

A tad more evidence consumption started moving sideways after year end?

Given the savings rate/budget deficit got through 5% this is not impossible.

(0% GDP growth still means rising unemployment as productivity continues to increase)

Consumer Spending and Tourism

Consumer spending remained very weak on balance, albeit with slight firming noted by many Districts, particularly compared with holiday-season sales that were very disappointing. About half of the Districts reported that consumer demand was softer than during recent reporting periods or fell significantly below levels twelve months earlier. However, compared with the preceding reporting period that included the holiday season, retail spending was described as “mixed” in the Boston and Richmond Districts, “nearly steady” in Philadelphia, and slightly improved in Cleveland and Dallas, while New York reported a reduced rate of decline compared with the “steep” pace in December. But San Francisco characterized retail sales as “anemic” and pointed to double-digit sales declines relative to twelve months earlier for many retail outlets. As reported by Richmond, Chicago, and San Francisco, discount chains fared much better than traditional department stores and specialized retailers, recording sales gains in many cases as consumers continued to switch away from discretionary spending and luxury items and toward basic necessities.


[top]

BOE’s King says rate easing over


[Skip to the end]

>   
>   On Thu, Mar 5, 2009 at 2:05 PM, EDWARD wrote:
>   
>   Though at 0.50% there’s not much more room to fall in any event and he is trying to
>   establish support for the new quantitative easing policy announced today.
>   

*KING SAYS WE’VE SEEN SUDDEN, SEVERE DOWNTURN ACROSS THE WORLD
*KING SAYS `WE’RE VERY CLOSE TO ZERO’
*KING SAYS BOE IS INJECTING MONEY DIRECTLY INTO THE ECONOMY

>   
>   This perhaps is ‘injecting money’ but only by narrow definitions of ‘money’ that do not
>   include the securities purchased by the BOE.
>   
>   They are simply buying financial assets, which is the exchange of one financial asset
>   (balances at the BOE) for another- securities held by the private sector.
>   
>   Net financial assets held by the private sector remain unchanged.
>   
>   While these purchases can put downward pressure on interest rates for the asset class and
>   maturity purchased, any ‘profits’ the BOE makes from interest earned on the securities it
>   buys vs its cost of funding represent interest income removed from the private sector.
>   
>   Note his interest in helping ‘savers’ which means higher rates:
>   

*KING SAYS KEY RATE IS AS LOW AS IT’S SENSIBLE TO GO
*KING SAYS HE’S KEEN TO GET BACK TO POSITION TO HELP SAVERS
*KING SAYS VERY UNLIKELY U.K. INTEREST RATES WILL GO ANY LOWER
*KING SAYS VERY UNLIKELY INTEREST RATES WILL GO ANY LOWER
*KING SAYS SAVERS SEEM TO BE SUFFERING THROUGH LOW RATES
*KING SAYS HE HAS ENORMOUS SYMPATHY FOR SAVERS


[top]

Sub prime delinquencies


[Skip to the end]

Sub prime delinquencies still headed north.

Some of it attributable to government assistance that requires borrowers to be delinquent?

Also, while 20% is certainly a high delinquency rate, and includes several years with 2006 higher and others lower,
it is still substantially lower than markets seem to be discounting, as evidenced by the discounts on very senior AAA pieces.


[top]

Canada News- Lawmakers Approve Budget, Stimulus Package


[Skip to the end]

Lots of fiscal adjustments being implemented all over the world will help stop the slide in world aggregate demand.

Look for more evidence emerging that things are going from down to sideways.

Except unemployment which both lags and will probably keep going up until positive gdp growth exceeds productivity gains.

Canadian Lawmakers Approve Flaherty’s Budget, Stimulus Package

by Alexandre Deslongchamps and Greg Quinn

Mar 4 (Bloomberg) — Canadian lower house lawmakers voted to approve Finance Minister Jim Flaherty’s budget, which projects C$84.9 billion ($66.6 billion) in deficits over the next five years.

The plan passed by a vote of 204 to 78, after legislators from the Liberal Party, the biggest opposition bloc, supported it. The other opposition parties voted against the budget. The bill now goes to the Senate, where it will likely be approved as the unelected upper chamber rarely blocks legislation.

It was the third and final vote on the budget in the lower house. A defeat on a budget bill would trigger an election under the country’s parliamentary tradition.

Prime Minister Stephen Harper’s Conservatives hold 143 of the legislature’s 308 seats and need opposition support to pass laws and stay in power. The Liberals haven’t tried to bring down the government, saying Canadians want legislators to deal with the economic crisis.

The budget projects a C$1.1 billion deficit for the current fiscal year. The deficit will widen to C$33.7 billion in fiscal 2009-10 and C$29.8 billion in 2010-11 as the government provides funding for infrastructure, low-income families and tax credits for home renovation.


[top]

The blunder of allowing private prisons


[Skip to the end]

Thanks,

Heard about this a few weeks ago and thought it would get more press- sad state of affairs when it doesn’t.

Privatizing prisons is a mistake.

Prison labor was banned for the same reason- you don’t want to give ‘the system’ a monetary incentive to incarcerate.

This is a major blunder that needs immediate Congressional action.

The Proceeds of Crime

by George Monbiot

Mar 3 (The Guardian) — It’s a staggering case; more staggering still that it has scarcely been mentioned on this side of the ocean. Last week two judges in Pennsylvania were convicted of jailing some 2000 children in exchange for bribes from private prison companies.

Mark Ciavarella and Michael Conahan sent children to jail for offences so trivial that some of them weren’t even crimes. A 15 year-old called Hillary Transue got three months for creating a spoof web page ridiculing her school’s assistant principal. Mr Ciavarella sent Shane Bly, then 13, to boot camp for trespassing in a vacant building. He gave a 14 year-old, Jamie Quinn, 11 months in prison for slapping a friend during an argument, after the friend slapped her. The judges were paid $2.6 million by companies belonging to the Mid Atlantic Youth Services Corp for helping to fill its jails(1,2,3). This is what happens when public services are run for profit.

It’s an extreme example, but it hints at the wider consequences of the trade in human lives created by private prisons. In the US and the UK they have a powerful incentive to ensure that the number of prisoners keeps rising.

The United States is more corrupt than the UK, but it is also more transparent. There the lobbyists demanding and receiving changes to judicial policy might be exposed, and corrupt officials identified and prosecuted. The UK, with a strong tradition of official secrecy and a weak tradition of scrutiny and investigative journalism, has no such safeguards.

The corrupt judges were paid by the private prisons not only to increase the number of child convicts but also to shut down a competing prison run by the public sector. Taking bribes to bang up kids might be novel; shutting public facilities to help private companies happens – on both sides of the water – all the time.

The Wall Street Journal has shown how, as a result of lobbying by the operators, private jails in Mississippi and California are being paid for non-existent prisoners(4,5). The prison corporations have been guaranteed a certain number of inmates. If the courts fail to produce enough convicts, they get their money anyway. This outrages taxpayers in both states, which have cut essential public services to raise these funds. But there is a simple means of resolving this problem: you replace ghost inmates with real ones. As the Journal, seldom associated with raging anti-capitalism, observes, “prison expansion [has] spawned a new set of vested interests with stakes in keeping prisons full and in building more. … The result has been a financial and political bazaar, with convicts in stripes as the prize.”(6)

Even as crime declines, law-makers are pressed by their sponsors to increase the rate of imprisonment. The US has, by a very long way, the world’s highest proportion of people behind bars: 756 prisoners per 100,000 people(7), or just over 1% of the adult population(8). Similarly wealthy countries have around one-tenth of this rate of imprisonment.

Like most of its really bad ideas, the last Conservative government imported private jails from the US. As Stephen Nathan, author of a forthcoming book about prison privatisation in the UK, has shown, the notion was promoted by the Select Committee on Home Affairs, which in 1986 visited prisons run by the Corrections Corporation of America. When the corporation told them that private provision in the US improved prison standards and delivered good value for money, the committee members failed to check its claims. They recommended that the government should put the construction and management of prisons out to tender “as an experiment”(9).

Encouraged by the committee’s report, the Corrections Corporation of America set up a consortium in Britain with two Conservative party donors, Sir Robert McAlpine Ltd and John Mowlem & Co, to promote privately financed prisons over here. The first privately-run prison in the UK, Wolds, was opened by the Danish security company Group 4 in 1992. In 1993, before it had had a chance to evaluate this experiment, the government announced that all new prisons would be built and run by private companies.

The Labour party, then in opposition, was outraged. John Prescott promised that “Labour will take back private prisons into public ownership – it is the only safe way forward.”(10) Jack Straw stated that “it is not appropriate for people to profit out of incarceration. This is surely one area where a free market certainly does not exist”. He too promised to “bring these prisons into proper public control and run them directly as public services.”(11)

But during his first seven weeks in office, Jack Straw renewed one private prison contract and launched two new ones. A year later he announced that all new prisons in England and Wales would be built and run by private companies, under the private finance initiative (PFI). Today the UK has a higher proportion of prisoners in private institutions than the US(12). This is the only country in Europe whose jails are run on this model.

So has prison privatisation here influenced judicial policy? As we discovered during the recent lobbying scandal in the House of Lords, there’s no way of knowing. Unlike civilised nations, the UK has no register of lobbyists; we are not even entitled to know which lobbyists ministers have met(13). But there are some clues. The former home secretary, John Reid, previously in charge of prison provision, has become a consultant to the private prison operator G4S(14). The government is intending to commission a series of massive Titan jails under PFI. Most experts on prisons expect them to be disastrous, taking inmates further away from their families (which reduces the chances of rehabilitation) and creating vast warrens in which all the social diseases of imprisonment will fester. Only two groups want them built: ministers and the prison companies: they offer excellent opportunities to rack up profits. And the very nature of PFI, which commits the government to paying for services for 25 or 30 years whether or not they are still required creates a major incentive to ensure that prison numbers don’t fall. The beast must be fed.

And there’s another line of possible evidence. In the two countries whose economies most resemble the UK’s – Germany and France – the prison population has risen quite slowly. France has 96 inmates per 100,000 people, an increase of 14% since 1992. Germany has 89 prisoners per 100,000: 25% more than in 1992 but 9% less than in 2001. But the UK now locks up 151 out of every 100,000 inhabitants: 73% more than in 1992 and 20% more than in 2001(15). Yes our politicians have barely come down from the trees, yes we are still governed out of the offices of the Daily Mail, but it would be foolish to dismiss the likely influence of the private prison industry.

This revolting trade in human lives creates a permanent incentive to lock people up; not because prison works; not because it makes us safer, but because it makes money. Privatisation appears to have locked this country into mass imprisonment.


[top]