In an article reporting on the debate over extending unemployment insurance benefits the Washington Post told readers: “on Wednesday, Federal Reserve Chairman Ben S. Bernanke warned that growing budget deficits imperiled the economy’s long-term stability.”
It is worth noting that in his capacity as a Federal Reserve Board governor from 2002 to 2005, chief economic adviser President Bush, and then Fed Chair since January of 2006, Bernanke never raised any concerns about the housing bubble and the threat it posed to the economy. Based on this history, readers may question Mr. Bernanke’s ability to assess threats to economic stability. The Post should have informed readers of Bernanke’s record on this issue.
In an article reporting on the debate over extending unemployment insurance benefits the Washington Post told readers: “on Wednesday, Federal Reserve Chairman Ben S. Bernanke warned that growing budget deficits imperiled the economy’s long-term stability.”
It is worth noting that in his capacity as a Federal Reserve Board governor from 2002 to 2005, chief economic adviser President Bush, and then Fed Chair since January of 2006, Bernanke never raised any concerns about the housing bubble and the threat it posed to the economy. Based on this history, readers may question Mr. Bernanke’s ability to assess threats to economic stability. The Post should have informed readers of Bernanke’s record on this issue.
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A new Pew poll of reporters and editors found a great deal of pessimism about the prospects for the newspaper industry. At one point, the article reports the poll’s finding that: “about three-quarters of the editors who took part said they would have serious objections to accepting direct support from either the government or interest groups, and a similar number said their organizations had not seriously thought about taking donations from nonprofit groups.”
Of course there are other ways in which new media can be supported. Currently the government supports newspapers by granting them copyright monopolies. Without this special protection anyone would be able to use content without paying for it, including for commercial purposes. So these editors are already taking government support, even if they don’t realize it.
In the Internet era this mechanism of financing newspapers is obviously no longer adequate. It is striking that Pew failed to consider any of the obvious alternative mechanisms in its poll. The article could have also discussed such alternatives.
A new Pew poll of reporters and editors found a great deal of pessimism about the prospects for the newspaper industry. At one point, the article reports the poll’s finding that: “about three-quarters of the editors who took part said they would have serious objections to accepting direct support from either the government or interest groups, and a similar number said their organizations had not seriously thought about taking donations from nonprofit groups.”
Of course there are other ways in which new media can be supported. Currently the government supports newspapers by granting them copyright monopolies. Without this special protection anyone would be able to use content without paying for it, including for commercial purposes. So these editors are already taking government support, even if they don’t realize it.
In the Internet era this mechanism of financing newspapers is obviously no longer adequate. It is striking that Pew failed to consider any of the obvious alternative mechanisms in its poll. The article could have also discussed such alternatives.
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The NYT notes that interest rates have recently risen and are generally predicted to continue to rise. It then told readers: “That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.”
Okay, what are they smoking there? We have just been through a period of extraordinarily low interest rates. Interest rates fell to their lowest levels in more than 50 years. This was a deliberate policy response to the worst downturn since the Great Depression. Once we are out of the worst of this downturn, everyone expected that interest rates would rise even if we had a balanced budget and moderate inflation, the latter of which is predicted by almost all economists.
In other words, the standard projections from the Fed, the Congressional Budget Office and most private economists is that interest rates will be rising to normal levels from very low levels. Almost no one is projecting soaring interest rates in response to “the nation’s ballooning debt and the renewed prospect of inflation.” This is the invention of the NYT.
The NYT notes that interest rates have recently risen and are generally predicted to continue to rise. It then told readers: “That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.”
Okay, what are they smoking there? We have just been through a period of extraordinarily low interest rates. Interest rates fell to their lowest levels in more than 50 years. This was a deliberate policy response to the worst downturn since the Great Depression. Once we are out of the worst of this downturn, everyone expected that interest rates would rise even if we had a balanced budget and moderate inflation, the latter of which is predicted by almost all economists.
In other words, the standard projections from the Fed, the Congressional Budget Office and most private economists is that interest rates will be rising to normal levels from very low levels. Almost no one is projecting soaring interest rates in response to “the nation’s ballooning debt and the renewed prospect of inflation.” This is the invention of the NYT.
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Those are the questions that readers of the WAPO’s Sunday Outlook section must be asking. The Post told readers that: “this year, China’s economy is expected to produce about $5 trillion in goods and services. That would put it ahead of Japan as the world’s second-biggest national economy, but it would still be barely one-third the size of the $14 trillion U.S. economy.”
This reflects China’s GDP measured on an exchange rate basis. However, economists typically use purchasing power parity measures of GDP for international comparisons. By this measure, China’s economy is expected to be about $9.5 trillion this year. At its current growth rate, it will pass the size of the U.S. economy in about five years.
By many measures it is already larger than the U.S.. For example, it has more Internet users, college graduates in science and engineering, a larger car market, and about twice as many cell phone users.
The article also tells readers that the exchange rate will not have much impact on the trade deficit with China. Virtually all economists believe that an increase in the price of imports from China by 20-30 percent would substantially reduce imports. it is not clear why the author of this article believes otherwise.
Those are the questions that readers of the WAPO’s Sunday Outlook section must be asking. The Post told readers that: “this year, China’s economy is expected to produce about $5 trillion in goods and services. That would put it ahead of Japan as the world’s second-biggest national economy, but it would still be barely one-third the size of the $14 trillion U.S. economy.”
This reflects China’s GDP measured on an exchange rate basis. However, economists typically use purchasing power parity measures of GDP for international comparisons. By this measure, China’s economy is expected to be about $9.5 trillion this year. At its current growth rate, it will pass the size of the U.S. economy in about five years.
By many measures it is already larger than the U.S.. For example, it has more Internet users, college graduates in science and engineering, a larger car market, and about twice as many cell phone users.
The article also tells readers that the exchange rate will not have much impact on the trade deficit with China. Virtually all economists believe that an increase in the price of imports from China by 20-30 percent would substantially reduce imports. it is not clear why the author of this article believes otherwise.
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This would have been a better headline for the Washington Post article on the testimony before the crisis commission of Fannie’s former chief executive as well its top regulator. The discussion before the commission was apparently whether Fannie and Freddie were motivated by profit when they moved into Alt-A mortgages in 2005 and 2006 or whether they were trying to fulfill their mission of increasing homeownership.
While there may be some debate over individual motivations, the obvious point that apparently went unmentioned in this article was that if the executives at Fannie and Freddie were not totally clueless about the housing market, they would have been cutting back on buying mortgages altogether in 2005 and 2006, when house prices were at levels badly inflated by the bubble. It was guaranteed that prices would drop and a high percentage of even traditional prime mortgages would go bad.
In this environment, the responsible route for Fannie and Freddie would have been to only issue mortgages that could be justified by appraisals of rental values. If a house price exceeded a multiple of 15 of its appraised annual rent, then F&F should not have purchased it. This action, along with its public justification by F&F executives and economists, likely would have had a substantial impact in dampening the bubble. This action would have best filled both the institutions’ responsibility to promote homeownership and also likely kept them out of conservatorship.
Fannie and Freddie’s executives should have been questioned on why they did not see the bubble. This was their biggest failing in the crisis. After all, these are both huge institutions and housing is all they do. The commission failed badly in its task and the inept reporting helped to conceal the commission’s failure.
This would have been a better headline for the Washington Post article on the testimony before the crisis commission of Fannie’s former chief executive as well its top regulator. The discussion before the commission was apparently whether Fannie and Freddie were motivated by profit when they moved into Alt-A mortgages in 2005 and 2006 or whether they were trying to fulfill their mission of increasing homeownership.
While there may be some debate over individual motivations, the obvious point that apparently went unmentioned in this article was that if the executives at Fannie and Freddie were not totally clueless about the housing market, they would have been cutting back on buying mortgages altogether in 2005 and 2006, when house prices were at levels badly inflated by the bubble. It was guaranteed that prices would drop and a high percentage of even traditional prime mortgages would go bad.
In this environment, the responsible route for Fannie and Freddie would have been to only issue mortgages that could be justified by appraisals of rental values. If a house price exceeded a multiple of 15 of its appraised annual rent, then F&F should not have purchased it. This action, along with its public justification by F&F executives and economists, likely would have had a substantial impact in dampening the bubble. This action would have best filled both the institutions’ responsibility to promote homeownership and also likely kept them out of conservatorship.
Fannie and Freddie’s executives should have been questioned on why they did not see the bubble. This was their biggest failing in the crisis. After all, these are both huge institutions and housing is all they do. The commission failed badly in its task and the inept reporting helped to conceal the commission’s failure.
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The Washington Post (a.k.a. Fox on 15th) feels so strongly that we should reduce the budget deficit that they ran yet another front page editorial on the topic. The piece told readers in the second paragraph:
“This mounting government debt poses a painful choice for developed countries such as Britain, Japan and the United States: either a deep reordering of public expectations about everything from the retirement age to tax rates, or slower growth as record levels of borrowing crimp economic activity.”
Well, that’s pretty clear. The Washington Post told us in no uncertain terms that things will have to be pretty bad, no two ways about it. Only those who bothered to read to page two would find out that there is actually considerable uncertainty about the point at which debt really poses a serious burden on the economy. On page two they would discover the United States actually had a debt to GDP ratio that was nearly twice as high as it is presently. This did not prevent it from having three decades of extraordinarily rapid growth.
The Post’s sharp paragraph two warning also ignores the great Citigroup profit trick that the Post applauded last week. The Citigroup profit trick involved the government buying Citigroup stock, guaranteeing the company’s survival when it otherwise would have been bankrupt, then selling the stock at a profit when the price rises because of the government guarantee.
The Post warmly applauded this move and saw it as giving the government money — a great win-win story. Of course, the government can follow the same route pretty much without limit. It can take large stakes in all sorts of companies, then guarantee the companies’ debts, thereby lowering borrowing costs and increasing profits. This will raise the stock price, thereby allowing the government to sell at a profit.
The real story of course is that the economy is well below its full employment level of output. This means that it can increase output by just printing money. However, superstitions held by the people who set economic policy and write about it at leading outlets like the Post are preventing the government from taking this simple and obvious step to increase demand. So, if the straightforward route is blocked by superstition, then we effectively accomplish the same thing by using Citigroup profit trick and win great applause the Post and other deficit hawks.
The Washington Post (a.k.a. Fox on 15th) feels so strongly that we should reduce the budget deficit that they ran yet another front page editorial on the topic. The piece told readers in the second paragraph:
“This mounting government debt poses a painful choice for developed countries such as Britain, Japan and the United States: either a deep reordering of public expectations about everything from the retirement age to tax rates, or slower growth as record levels of borrowing crimp economic activity.”
Well, that’s pretty clear. The Washington Post told us in no uncertain terms that things will have to be pretty bad, no two ways about it. Only those who bothered to read to page two would find out that there is actually considerable uncertainty about the point at which debt really poses a serious burden on the economy. On page two they would discover the United States actually had a debt to GDP ratio that was nearly twice as high as it is presently. This did not prevent it from having three decades of extraordinarily rapid growth.
The Post’s sharp paragraph two warning also ignores the great Citigroup profit trick that the Post applauded last week. The Citigroup profit trick involved the government buying Citigroup stock, guaranteeing the company’s survival when it otherwise would have been bankrupt, then selling the stock at a profit when the price rises because of the government guarantee.
The Post warmly applauded this move and saw it as giving the government money — a great win-win story. Of course, the government can follow the same route pretty much without limit. It can take large stakes in all sorts of companies, then guarantee the companies’ debts, thereby lowering borrowing costs and increasing profits. This will raise the stock price, thereby allowing the government to sell at a profit.
The real story of course is that the economy is well below its full employment level of output. This means that it can increase output by just printing money. However, superstitions held by the people who set economic policy and write about it at leading outlets like the Post are preventing the government from taking this simple and obvious step to increase demand. So, if the straightforward route is blocked by superstition, then we effectively accomplish the same thing by using Citigroup profit trick and win great applause the Post and other deficit hawks.
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We need reporters to do this? In the course of the report NPR assured readers that there was nothing that could be done about AIG’s explosive issuance of credit default swaps (CDS) because it was an insurance company that operates in hundreds of countries. And furthermore, the federal government doesn’t even regulate insurance, states do.
Did this mean that the Fed could do nothing if it chose? Where were the statutory powers that allowed the Fed to arrange the unraveling of the Long-Term Capital Hedge Fund? Neither NPR’s reporters nor anyone else would be able to find any statutory authorization for this action. The Fed used its authority and its ability to threaten non-cooperative actors to force most of the major banks to join this effort.
In the same vein, if it had decided that the issuance of trillions of dollars of CDS by AIG was a problem, there were certainly steps it could have taken. For example, it could have told the major banks that they should not be buying CDS from AIG. The Fed is also allowed to talk to other regulatory agencies, like the state insurance agency in NY, which would have had authority over much of AIG’s activity. The Fed opted to do nothing in this case because it did not want to do anything, not because it lacked the ability to restrain AIG.
The piece also absurdly claims that the bills before Congress will take care of the problem of “too big to fail” banks. Few analysts would agree with this assessment. The bills leave in place huge financial conglomerates that would be extremely difficult to unravel in the event of a financial crisis.
Listeners would be better served if NPR focused on making the issues surrounding the bill understandable rather than spending its brief news time telling its audience how complicated it is.
We need reporters to do this? In the course of the report NPR assured readers that there was nothing that could be done about AIG’s explosive issuance of credit default swaps (CDS) because it was an insurance company that operates in hundreds of countries. And furthermore, the federal government doesn’t even regulate insurance, states do.
Did this mean that the Fed could do nothing if it chose? Where were the statutory powers that allowed the Fed to arrange the unraveling of the Long-Term Capital Hedge Fund? Neither NPR’s reporters nor anyone else would be able to find any statutory authorization for this action. The Fed used its authority and its ability to threaten non-cooperative actors to force most of the major banks to join this effort.
In the same vein, if it had decided that the issuance of trillions of dollars of CDS by AIG was a problem, there were certainly steps it could have taken. For example, it could have told the major banks that they should not be buying CDS from AIG. The Fed is also allowed to talk to other regulatory agencies, like the state insurance agency in NY, which would have had authority over much of AIG’s activity. The Fed opted to do nothing in this case because it did not want to do anything, not because it lacked the ability to restrain AIG.
The piece also absurdly claims that the bills before Congress will take care of the problem of “too big to fail” banks. Few analysts would agree with this assessment. The bills leave in place huge financial conglomerates that would be extremely difficult to unravel in the event of a financial crisis.
Listeners would be better served if NPR focused on making the issues surrounding the bill understandable rather than spending its brief news time telling its audience how complicated it is.
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The NYT reports that China’s government signed a deal with the state of California and General Electric to provide engineering expertise and high tech parts for the construction of high-speed rail. This is a fascinating and totally predictable story which cause great pain to many purveyors of the economic conventional wisdom (CW).
China has been building high-speed trains, the United States hasn’t. This means that the country has substantially more expertise in this area than the United States. As a result the transfer of this green technology will go from China to the United States, the opposite direction assumed by purveyors of the CW.
More generally, this story shows the absurdity of the assumption of the purveyors of the CW that somehow the U.S. will transfer all its grunt work (i.e. manufacturing) to the developing world and leave the high tech stuff for our smart workers. The reality is that the developing world has hundreds of millions of smart workers who are able to do everything that our smart workers do, but are willing to accept much lower wages. If we subject our more highly educated workers to the same sort of international competition as we have subjected our low-wage workers, they will also lose. This will only change when currencies adjust and wages in the developing world move closer to U.S. levels.
The NYT reports that China’s government signed a deal with the state of California and General Electric to provide engineering expertise and high tech parts for the construction of high-speed rail. This is a fascinating and totally predictable story which cause great pain to many purveyors of the economic conventional wisdom (CW).
China has been building high-speed trains, the United States hasn’t. This means that the country has substantially more expertise in this area than the United States. As a result the transfer of this green technology will go from China to the United States, the opposite direction assumed by purveyors of the CW.
More generally, this story shows the absurdity of the assumption of the purveyors of the CW that somehow the U.S. will transfer all its grunt work (i.e. manufacturing) to the developing world and leave the high tech stuff for our smart workers. The reality is that the developing world has hundreds of millions of smart workers who are able to do everything that our smart workers do, but are willing to accept much lower wages. If we subject our more highly educated workers to the same sort of international competition as we have subjected our low-wage workers, they will also lose. This will only change when currencies adjust and wages in the developing world move closer to U.S. levels.
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That is the only thing that readers can conclude from a statement in an article on Federal Reserve Board Chairman Ben Bernanke’s urgings to reduce the deficit. The WSJ told readers that: “The government is running a budget deficit in excess of about $1.3 trillion, more than 10% of the nation’s total economic output.” Of course, the Commerce Department is telling us that GDP for the fourth quarter of 2009 was $14.5 trillion, which would mean that the deficit is less than 9.0 percent of GDP.
This trouble with numbers carries over to the substance of the piece which is supposed to be that the country faces an imminent crisis in being able to sell its debt. It warns readers that: “yields on 10-year Treasury notes have risen from around 3.25% in late November to just under 3.9% today, in part because of concerns in credit markets about the mountains of government debt investors are being asked to buy to fund U.S deficits.”
Hmmm, we are paying 3.9 interest because there are concerns in credit markets about “mountains of government debt.” Were investors also concerned about “mountains of government debt” when they demanded interest rates of more than 6.0 percent to hold federal debt back in 2000? Oh yeah, we had a $250 billion surplus back in 2000.
The reality is that the WSJ is just telling us that they don’t like the government’s debt. The markets did not tell them why interest rates rose from the extraordinarily low levels of last November. They are just making this stuff up and feeding it readers as truth.
We expect this sort of thing on the WSJ editorial page. We expect better in the news section.
That is the only thing that readers can conclude from a statement in an article on Federal Reserve Board Chairman Ben Bernanke’s urgings to reduce the deficit. The WSJ told readers that: “The government is running a budget deficit in excess of about $1.3 trillion, more than 10% of the nation’s total economic output.” Of course, the Commerce Department is telling us that GDP for the fourth quarter of 2009 was $14.5 trillion, which would mean that the deficit is less than 9.0 percent of GDP.
This trouble with numbers carries over to the substance of the piece which is supposed to be that the country faces an imminent crisis in being able to sell its debt. It warns readers that: “yields on 10-year Treasury notes have risen from around 3.25% in late November to just under 3.9% today, in part because of concerns in credit markets about the mountains of government debt investors are being asked to buy to fund U.S deficits.”
Hmmm, we are paying 3.9 interest because there are concerns in credit markets about “mountains of government debt.” Were investors also concerned about “mountains of government debt” when they demanded interest rates of more than 6.0 percent to hold federal debt back in 2000? Oh yeah, we had a $250 billion surplus back in 2000.
The reality is that the WSJ is just telling us that they don’t like the government’s debt. The markets did not tell them why interest rates rose from the extraordinarily low levels of last November. They are just making this stuff up and feeding it readers as truth.
We expect this sort of thing on the WSJ editorial page. We expect better in the news section.
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The Washington Post (a.k.a. Fox on 15th Street) told readers that: “Social Security is already draining resources from the broader federal budget, as spending on benefits has risen above this year’s Social Security tax collections.”
Yes, Social Security benefit payments exceed the money currently being collected in Social Security taxes. The gap is being made up by the interest it earns on the $2.5 trillion in government bonds held in the Social Security trust fund. It is peculiar to describe spending money from its interest earning (or for that matter the bonds themselves) as “draining resources from the broader federal budget.” However, if that is the standard the Post wants to use, then we should say that any individual or entity that draws interest from the federal government on bonds it holds is also “draining resources from the federal budget.”
This means that billionaire Wall Street investment banker and long-time foe of Social Security Peter Peterson is also draining resources from the federal budget by the Washington Post standard (assuming that he owns some government bonds. No doubt the WAPO will have a story on this fact sometime in the near future.
The Washington Post (a.k.a. Fox on 15th Street) told readers that: “Social Security is already draining resources from the broader federal budget, as spending on benefits has risen above this year’s Social Security tax collections.”
Yes, Social Security benefit payments exceed the money currently being collected in Social Security taxes. The gap is being made up by the interest it earns on the $2.5 trillion in government bonds held in the Social Security trust fund. It is peculiar to describe spending money from its interest earning (or for that matter the bonds themselves) as “draining resources from the broader federal budget.” However, if that is the standard the Post wants to use, then we should say that any individual or entity that draws interest from the federal government on bonds it holds is also “draining resources from the federal budget.”
This means that billionaire Wall Street investment banker and long-time foe of Social Security Peter Peterson is also draining resources from the federal budget by the Washington Post standard (assuming that he owns some government bonds. No doubt the WAPO will have a story on this fact sometime in the near future.
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