Let’s see, if the bond rating agencies lower the credit rating for the U.S. then, if we look at the NYT chart, the interest rate on U.S. Treasury bonds may fall from today’s 3.0 percent to 1.1 percent paid by AA- paid by Japan. There is little evidence that the markets pay a great deal of attention to the credit rating agencies. Note that many countries with lower ratings pay considerably less in interest than those with higher ratings.
The piece also includes a bizarre paragraph stating:
“But in the broader economy, if money that might have gone to new purchases or increased investment were instead diverted to higher interest payments, the result could be slower economic growth and a higher jobless rate for the remainder of the year, analysts warn.
Macroeconomic Advisers said the country’s gross domestic product could slow in the second half of this year to 2.6 percent from a forecasted 3.2 percent, and that the jobless rate could end the year at 9.6 percent, above the 9.2 percent expected.”
This sounds bad, but then we hear:
“Joel Prakken, chairman of Macroeconomic Advisers, said any change in interest rates would probably be small and not felt for several years.”
Okay, so the impact on interest rates and will be small and not felt for several years, but yet we have the same outfit projecting sharply lower growth in the second half of 2011. These are not consistent.
The piece continues with the quote from Prakken:
“‘The real story is whether the uncertainty will cause consumers and companies to stop spending,’ he said.
On that front, some analysts noted that corporations stopped spending long before the debt-limit debate hit the news.
‘Companies clearly have had record cash on the books for a year and a half now,’ said Alec Young, an equity strategist at Standard & Poor’s Equity Research. ‘Yes, they’re not spending the money, they’re not hiring, but is it because of this issue?’”
No, this ain’t what the data show. New orders for non-defense capital goods rose 5.8 percent in May from April. For the year to date they are running 14.0 percent above last year’s levels.
The deference in this article to the judgement of the credit rating agencies shows a remarkable ignorance of recent events. At this point, these outfits are one step ahead of the law. They should hardly be dictating fundamental political decisions to the nations.
Let’s see, if the bond rating agencies lower the credit rating for the U.S. then, if we look at the NYT chart, the interest rate on U.S. Treasury bonds may fall from today’s 3.0 percent to 1.1 percent paid by AA- paid by Japan. There is little evidence that the markets pay a great deal of attention to the credit rating agencies. Note that many countries with lower ratings pay considerably less in interest than those with higher ratings.
The piece also includes a bizarre paragraph stating:
“But in the broader economy, if money that might have gone to new purchases or increased investment were instead diverted to higher interest payments, the result could be slower economic growth and a higher jobless rate for the remainder of the year, analysts warn.
Macroeconomic Advisers said the country’s gross domestic product could slow in the second half of this year to 2.6 percent from a forecasted 3.2 percent, and that the jobless rate could end the year at 9.6 percent, above the 9.2 percent expected.”
This sounds bad, but then we hear:
“Joel Prakken, chairman of Macroeconomic Advisers, said any change in interest rates would probably be small and not felt for several years.”
Okay, so the impact on interest rates and will be small and not felt for several years, but yet we have the same outfit projecting sharply lower growth in the second half of 2011. These are not consistent.
The piece continues with the quote from Prakken:
“‘The real story is whether the uncertainty will cause consumers and companies to stop spending,’ he said.
On that front, some analysts noted that corporations stopped spending long before the debt-limit debate hit the news.
‘Companies clearly have had record cash on the books for a year and a half now,’ said Alec Young, an equity strategist at Standard & Poor’s Equity Research. ‘Yes, they’re not spending the money, they’re not hiring, but is it because of this issue?’”
No, this ain’t what the data show. New orders for non-defense capital goods rose 5.8 percent in May from April. For the year to date they are running 14.0 percent above last year’s levels.
The deference in this article to the judgement of the credit rating agencies shows a remarkable ignorance of recent events. At this point, these outfits are one step ahead of the law. They should hardly be dictating fundamental political decisions to the nations.
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I’m glad to see that Casey Mulligan responded to my earlier post responding to his argument that the rise in employment among seniors indicates that the overall drop in overall employment is explained by supply factors, not demand factors. I countered by pointing out that if this were true, then we would expect that there was decline in earnings for seniors relative to earnings for other workers. The data show the opposite, median weekly earnings for seniors actually rose somewhat more rapidly than for prime age workers (ages 25-44).
Mulligan counters by arguing that if it was a demand shift then it is difficult to explain the fact that the unemployment rate for seniors rose during the recession, albeit not as rapidly as for the population as a whole.
There are two problems with Mulligan’s analysis. First, there need be only a relative demand shift, not an absolute increase in demand to explain the events we are seeing. The idea is that employers are quicker to lay off newer employees, who tend to be younger, and to hold on to older employees. This may be both because they are more experienced and also simply due to institutional factors that lead employers to encourage loyalty.
An analogous situation can be seen with employment patterns among college grads. As can be seen, there has been some increase in employment among college grads since the recession began.
Source: Bureau of Labor Statistics.
However, note also that there unemployment rate has risen, as is the case with older workers.
Source: Bureau of Labor Statistics.
This can easily be explained by a shift in relative demand, where less educated workers are laid off before college educated workers.
The other part of this story for both college educated workers and older workers is that there is a supply issue. There has been a long-term trend of rising employment rates among workers over age 55. Part of this is attributable to the fact that these workers are increasingly educated and are likely to have jobs where they are able and willing to work later in life. And part of the increase is undoubtedly attributable to fact that these workers are less likely to have pensions and retiree health care benefits than in past decades and therefore need to work to pay the bills.
The issue here is what do employment patterns look like relative to the trend. Here it is clear that there has been a falloff in the rate of employment growth. If employment of people over age 55 had stayed on its 2002-2007 trend, it would be about 400,000 higher today. This dropoff is approximately 2.7 percent of current employment among this group.
Source: Bureau of Labor Statistics.
This is consistent with the story that a senior workforce that is more highly educated and more committed to the labor market than was the case in prior years is having trouble finding jobs just like the rest of population. It sure looks like demand to me.
I’m glad to see that Casey Mulligan responded to my earlier post responding to his argument that the rise in employment among seniors indicates that the overall drop in overall employment is explained by supply factors, not demand factors. I countered by pointing out that if this were true, then we would expect that there was decline in earnings for seniors relative to earnings for other workers. The data show the opposite, median weekly earnings for seniors actually rose somewhat more rapidly than for prime age workers (ages 25-44).
Mulligan counters by arguing that if it was a demand shift then it is difficult to explain the fact that the unemployment rate for seniors rose during the recession, albeit not as rapidly as for the population as a whole.
There are two problems with Mulligan’s analysis. First, there need be only a relative demand shift, not an absolute increase in demand to explain the events we are seeing. The idea is that employers are quicker to lay off newer employees, who tend to be younger, and to hold on to older employees. This may be both because they are more experienced and also simply due to institutional factors that lead employers to encourage loyalty.
An analogous situation can be seen with employment patterns among college grads. As can be seen, there has been some increase in employment among college grads since the recession began.
Source: Bureau of Labor Statistics.
However, note also that there unemployment rate has risen, as is the case with older workers.
Source: Bureau of Labor Statistics.
This can easily be explained by a shift in relative demand, where less educated workers are laid off before college educated workers.
The other part of this story for both college educated workers and older workers is that there is a supply issue. There has been a long-term trend of rising employment rates among workers over age 55. Part of this is attributable to the fact that these workers are increasingly educated and are likely to have jobs where they are able and willing to work later in life. And part of the increase is undoubtedly attributable to fact that these workers are less likely to have pensions and retiree health care benefits than in past decades and therefore need to work to pay the bills.
The issue here is what do employment patterns look like relative to the trend. Here it is clear that there has been a falloff in the rate of employment growth. If employment of people over age 55 had stayed on its 2002-2007 trend, it would be about 400,000 higher today. This dropoff is approximately 2.7 percent of current employment among this group.
Source: Bureau of Labor Statistics.
This is consistent with the story that a senior workforce that is more highly educated and more committed to the labor market than was the case in prior years is having trouble finding jobs just like the rest of population. It sure looks like demand to me.
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This fact should have been highlighted in the news reporting on President Obama’s speech last night. President Obama asserted:
“For the last decade, we have spent more money than we take in. In the year 2000, the government had a budget surplus. But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug
program were simply added to our nation’s credit card.
As a result, the deficit was on track to top $1 trillion the year I took office.”
This is seriously mistaken.
The Congressional Budget Office’s projections from January of 2008, the last ones made before it recognized the housing bubble and the implications of its collapse, showed a deficit of just $198 billion for 2009, the year President Obama took office. In other words, the deficit was absolutely not “on track to top $1 trillion.”
This is what is known as a “gaffe” of enormous proportions. It indicates that President Obama does not have the most basic understanding of the nature of the budget problems the country faces. He apparently believes that there was a huge deficit on an ongoing basis as a result of the policies in place prior to the downturn. In fact, the deficits were relatively modest. The huge deficits came about entirely as a result of the economic downturn brought about by the collapse of the housing bubble. This misunderstanding of the origins of the budget deficit could explain President Obama’s willingness to make large cuts to core social welfare programs, like Social Security, Medicare, and Medicaid.
It is incredible that no major news outlet noted this enormous gaffe on the fundamentals of the most important issue facing the country today.
This fact should have been highlighted in the news reporting on President Obama’s speech last night. President Obama asserted:
“For the last decade, we have spent more money than we take in. In the year 2000, the government had a budget surplus. But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug
program were simply added to our nation’s credit card.
As a result, the deficit was on track to top $1 trillion the year I took office.”
This is seriously mistaken.
The Congressional Budget Office’s projections from January of 2008, the last ones made before it recognized the housing bubble and the implications of its collapse, showed a deficit of just $198 billion for 2009, the year President Obama took office. In other words, the deficit was absolutely not “on track to top $1 trillion.”
This is what is known as a “gaffe” of enormous proportions. It indicates that President Obama does not have the most basic understanding of the nature of the budget problems the country faces. He apparently believes that there was a huge deficit on an ongoing basis as a result of the policies in place prior to the downturn. In fact, the deficits were relatively modest. The huge deficits came about entirely as a result of the economic downturn brought about by the collapse of the housing bubble. This misunderstanding of the origins of the budget deficit could explain President Obama’s willingness to make large cuts to core social welfare programs, like Social Security, Medicare, and Medicaid.
It is incredible that no major news outlet noted this enormous gaffe on the fundamentals of the most important issue facing the country today.
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That’s right, you can read about the “unique opportunity” that was lost right here. The New York Times complains that the likely deficit deals to be produced in the days ahead will not feature:
“significant future savings from , and — the entitlement programs whose growth as the population ages is driving long-term projections of unsustainable debt.”
As every budget analyst knows, Social Security is not a major driver of the deficit. Under the law, it cannot contribute to the deficit. It can only spend money that was raised from its designated tax or from interest earned on the Treasury bonds bought with this revenue. If the trust fund lacks the money to pay benefits then full benefits will not be paid. Furthermore, the projected increase in Social Security benefits over the decades ahead is relatively modest.
The projected increase in the cost of the Medicare and Medicaid is much larger but this is attributable to the projected explosion in private sector health care costs. If the United States faced the same per person health care costs as any other wealth country we would be facing long-term budget surpluses, not deficits.
This fact is important, since it suggests that the more obvious way to reduce the costs of these programs is to fix the U.S. health care system. This would imply lower payments to drug companies, hospitals, doctors and other providers. Alternatively, Medicare beneficiaries could be given the option to buy into the more efficient health care systems in other countries. If these options were presented to the public it is likely that most would find it preferable to denying care to patients as the NYT advocates in this piece.
It is also worth noting how this “unique opportunity” came about. The deficits exploded due to the incredible incompetence of the Federal Reserve Board which allowed the $8 trillion housing bubble to grow unchecked. The collapse of this bubble gave the economy its worst downturn since the Great Depression. High levels of unemployment are projected to persist for a decade.
This economic collapse led to the large deficits that the government is currently running. While tens of millions of people are suffering from the effects of high unemployment and the wealth lost with the collapse of the housing bubble, the NYT views this crisis brought on by Wall Street greed and economic mismanagement as a unique opportunity to cut Social Security and Medicare. Of course, the vast majority of people from all demographic groups (including Tea Party Republicans) strongly oppose cuts to these programs.
That’s right, you can read about the “unique opportunity” that was lost right here. The New York Times complains that the likely deficit deals to be produced in the days ahead will not feature:
“significant future savings from , and — the entitlement programs whose growth as the population ages is driving long-term projections of unsustainable debt.”
As every budget analyst knows, Social Security is not a major driver of the deficit. Under the law, it cannot contribute to the deficit. It can only spend money that was raised from its designated tax or from interest earned on the Treasury bonds bought with this revenue. If the trust fund lacks the money to pay benefits then full benefits will not be paid. Furthermore, the projected increase in Social Security benefits over the decades ahead is relatively modest.
The projected increase in the cost of the Medicare and Medicaid is much larger but this is attributable to the projected explosion in private sector health care costs. If the United States faced the same per person health care costs as any other wealth country we would be facing long-term budget surpluses, not deficits.
This fact is important, since it suggests that the more obvious way to reduce the costs of these programs is to fix the U.S. health care system. This would imply lower payments to drug companies, hospitals, doctors and other providers. Alternatively, Medicare beneficiaries could be given the option to buy into the more efficient health care systems in other countries. If these options were presented to the public it is likely that most would find it preferable to denying care to patients as the NYT advocates in this piece.
It is also worth noting how this “unique opportunity” came about. The deficits exploded due to the incredible incompetence of the Federal Reserve Board which allowed the $8 trillion housing bubble to grow unchecked. The collapse of this bubble gave the economy its worst downturn since the Great Depression. High levels of unemployment are projected to persist for a decade.
This economic collapse led to the large deficits that the government is currently running. While tens of millions of people are suffering from the effects of high unemployment and the wealth lost with the collapse of the housing bubble, the NYT views this crisis brought on by Wall Street greed and economic mismanagement as a unique opportunity to cut Social Security and Medicare. Of course, the vast majority of people from all demographic groups (including Tea Party Republicans) strongly oppose cuts to these programs.
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The NYT wrote a piece based on a new study from Pew that finds that Hispanic families were the ones hardest hit by the economic downturn. The basis for this assertion is that they experienced the largest percentage decline in median wealth.
This is somewhat misleading. According to the study, the median wealth for Hispanics was just $18,400 prior to the downturn. The collapse of house prices led this to fall to just $6,200 in 2009, a 66 percent decline. However, it is possible to have such a large percentage decline because the median family had so little wealth to begin with. A family with $18,400 in wealth is not in a very different situation than a family with $6,200 in wealth. In both cases, such families are probably looking to a retirement where they are almost entirely dependent on Social Security or other pension programs.
By comparison, the wealth of the median white family fell by almost $32,000 from $135,000 to $113,100. The median Asian family saw their wealth decline by more than $90,000, from $168,100 to $78,100. These declines are likely to have much larger impacts on living standards. The median wealth for African Americans fell from $12,100 to $5,700. This also is a large percentage decline, but one that is likely to have a limited impact on living standards since the initial wealth was already so low.
The NYT wrote a piece based on a new study from Pew that finds that Hispanic families were the ones hardest hit by the economic downturn. The basis for this assertion is that they experienced the largest percentage decline in median wealth.
This is somewhat misleading. According to the study, the median wealth for Hispanics was just $18,400 prior to the downturn. The collapse of house prices led this to fall to just $6,200 in 2009, a 66 percent decline. However, it is possible to have such a large percentage decline because the median family had so little wealth to begin with. A family with $18,400 in wealth is not in a very different situation than a family with $6,200 in wealth. In both cases, such families are probably looking to a retirement where they are almost entirely dependent on Social Security or other pension programs.
By comparison, the wealth of the median white family fell by almost $32,000 from $135,000 to $113,100. The median Asian family saw their wealth decline by more than $90,000, from $168,100 to $78,100. These declines are likely to have much larger impacts on living standards. The median wealth for African Americans fell from $12,100 to $5,700. This also is a large percentage decline, but one that is likely to have a limited impact on living standards since the initial wealth was already so low.
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Yeah, we’re approaching the debt ceiling deadline, so folks are getting silly. And Chris Matthews is taking the lead. I guess he never heard about the bubbles or the massive trade deficit caused by the over-valued dollar. I suppose you don’t have know much economics to be a news show host at MSNBC.
I suppose the know-nothing crowd might admire Bill Clinton’s economic record, but I will always remember him as the guy who lectured the country on how enforcement of trade deals will create manufacturing jobs, apparently without bothering to check that we lost manufacturing jobs in each of the last three years of his administration. But hey, in Washington you just get to make it up.
Yeah, we’re approaching the debt ceiling deadline, so folks are getting silly. And Chris Matthews is taking the lead. I guess he never heard about the bubbles or the massive trade deficit caused by the over-valued dollar. I suppose you don’t have know much economics to be a news show host at MSNBC.
I suppose the know-nothing crowd might admire Bill Clinton’s economic record, but I will always remember him as the guy who lectured the country on how enforcement of trade deals will create manufacturing jobs, apparently without bothering to check that we lost manufacturing jobs in each of the last three years of his administration. But hey, in Washington you just get to make it up.
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Paul Krugman picks up on a blogpost by Mark Thoma, where the latter argues that academic economists should occasionally listen to those outside the temple. Thoma uses the example of the housing bubble as one case where those outside the temple got it right.
Krugman correctly notes that Robert Shiller, who as a Yale economics professor certainly qualifies as an academic economist, was one of the first (after me) to get the bubble right. He also reminds readers that he also had warned of the bubble. (As I recall, the first time was in 2002, after some other economist raised the issue.) However, he adds that it was necessary to look at local data focusing on areas where the bubble was concentrated.
Actually, it was easy to see the bubble in the national data. Local data could be helpful (obviously prices were more out of line in some areas than others), but there are cases of real house appreciation in locations that become more popular for whatever reason. In principle, an examination of the fundamentals of these markets should be able to reveal a bubble, but the national market provides a very useful anchor. When real house prices nationwide had risen by 30 percent in real terms, after a century of just tracking inflation (I could only trace this pattern for 43 years back in 2002), there was a very good reason to believe that there was a bubble.
Paul Krugman picks up on a blogpost by Mark Thoma, where the latter argues that academic economists should occasionally listen to those outside the temple. Thoma uses the example of the housing bubble as one case where those outside the temple got it right.
Krugman correctly notes that Robert Shiller, who as a Yale economics professor certainly qualifies as an academic economist, was one of the first (after me) to get the bubble right. He also reminds readers that he also had warned of the bubble. (As I recall, the first time was in 2002, after some other economist raised the issue.) However, he adds that it was necessary to look at local data focusing on areas where the bubble was concentrated.
Actually, it was easy to see the bubble in the national data. Local data could be helpful (obviously prices were more out of line in some areas than others), but there are cases of real house appreciation in locations that become more popular for whatever reason. In principle, an examination of the fundamentals of these markets should be able to reveal a bubble, but the national market provides a very useful anchor. When real house prices nationwide had risen by 30 percent in real terms, after a century of just tracking inflation (I could only trace this pattern for 43 years back in 2002), there was a very good reason to believe that there was a bubble.
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Suppose an insurer in New York sold insurance against a nuclear bomb being dropped on the city. Is this insurance against nuclear war?
As a practical matter, only a fool would think that this covered his financial bases. If there were actually a nuclear bomb dropped on New York, this New York based insurer would almost certainly be destroyed along with whatever it had insured.
This is the same deal as with credit default swaps on U.S. debt. If it turns out that the United States defaults on its debt (meaning a true default, where bonds are not paid, not a technical default where there is a brief delay in payment), then it is very questionable whether any financial institution issuing the CDS will be around to pay it off. That is the case not only with U.S.-based financial institutions. Even banks in Europe and Asia would be badly shaken by a default on U.S. debt.
Therefore the NYT is misleading its readers in a chart accompanying this article that presents the price of CDS on U.S. debt as a measure of the price of buying insurance against default. Since this is not real insurance, this can more accurately be viewed as the price of a bet on some sort of default event that could allow someone to get into court with a claim. If a holder of CDS can get through the door on arguing for a claim, the issuer may pay them to just go away.
Suppose an insurer in New York sold insurance against a nuclear bomb being dropped on the city. Is this insurance against nuclear war?
As a practical matter, only a fool would think that this covered his financial bases. If there were actually a nuclear bomb dropped on New York, this New York based insurer would almost certainly be destroyed along with whatever it had insured.
This is the same deal as with credit default swaps on U.S. debt. If it turns out that the United States defaults on its debt (meaning a true default, where bonds are not paid, not a technical default where there is a brief delay in payment), then it is very questionable whether any financial institution issuing the CDS will be around to pay it off. That is the case not only with U.S.-based financial institutions. Even banks in Europe and Asia would be badly shaken by a default on U.S. debt.
Therefore the NYT is misleading its readers in a chart accompanying this article that presents the price of CDS on U.S. debt as a measure of the price of buying insurance against default. Since this is not real insurance, this can more accurately be viewed as the price of a bet on some sort of default event that could allow someone to get into court with a claim. If a holder of CDS can get through the door on arguing for a claim, the issuer may pay them to just go away.
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Could it be hidden anti-Americanism from those snotty French? The reason for asking is that Europe’s markets were largely flat as NPR was telling listeners that Asia’s markets were down sharply on concerns over default. If there is genuine concern among international investors over the likelihood of default, then we should be expecting to see similar reactions among investors in Europe and Asia. If Asian markets fell while European markets remain nearly flat, it would imply that something other than concerns about U.S. default was depressing Asian markets.
Addendum: The Post had the same story, although this was likely written before the opening of European markets.
Could it be hidden anti-Americanism from those snotty French? The reason for asking is that Europe’s markets were largely flat as NPR was telling listeners that Asia’s markets were down sharply on concerns over default. If there is genuine concern among international investors over the likelihood of default, then we should be expecting to see similar reactions among investors in Europe and Asia. If Asian markets fell while European markets remain nearly flat, it would imply that something other than concerns about U.S. default was depressing Asian markets.
Addendum: The Post had the same story, although this was likely written before the opening of European markets.
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If so, they really should share them with readers. The Post told readers that Obama’s decision to propose raising the age of Medicare eligibility to 67 and to cut Social Security is a way to appeal to centrist voters. This is difficult to understand since every poll done on this issue shows that people across the political spectrum, including Tea Party Republicans, overwhelmingly oppose cuts to Social Security and Medicare. The Post either has some polls that no one else knows about or it’s just making things up. (BTP reports, you decide.)
It is certainly true that many Wall Street types (e.g. Peter Peterson and Erskine Bowles) would like to see cuts to Social Security and Medicare. However, these people are important because of the money that they can give to President Obama’s re-election campaign, not the voters they represent.
This piece also identifies Third Way as a “left-leaning group.” Third way has been prominent in pushing for large cuts to the budget, including cuts to Social Security and Medicare. This is not a position that would ordinarily be identified as left-leaning.
If so, they really should share them with readers. The Post told readers that Obama’s decision to propose raising the age of Medicare eligibility to 67 and to cut Social Security is a way to appeal to centrist voters. This is difficult to understand since every poll done on this issue shows that people across the political spectrum, including Tea Party Republicans, overwhelmingly oppose cuts to Social Security and Medicare. The Post either has some polls that no one else knows about or it’s just making things up. (BTP reports, you decide.)
It is certainly true that many Wall Street types (e.g. Peter Peterson and Erskine Bowles) would like to see cuts to Social Security and Medicare. However, these people are important because of the money that they can give to President Obama’s re-election campaign, not the voters they represent.
This piece also identifies Third Way as a “left-leaning group.” Third way has been prominent in pushing for large cuts to the budget, including cuts to Social Security and Medicare. This is not a position that would ordinarily be identified as left-leaning.
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