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Article Artículo

Krugman on China, Trump, and Romney

I see Paul Krugman was taking cheap shots at my heroes while I was on vacation. Krugman argues that Trump is wrong to claim that China is acting to keep down the value of its currency against the dollar. He points to recent efforts to prop up the value of the yuan by selling foreign exchange as evidence that China is actually doing the opposite of what Trump claims. Krugman should know better.

This is a story of stocks and flows. It’s true that China’s central bank is now selling reserves rather than buying them, but it still holds more than $3 trillion in reserves. The conventional rule of thumb is that reserves should be equal to six months of imports, which would be around $1 trillion in China’s case. This means that China’s stock of reserves is more than $2 trillion above what would be expected if it were just managing its reserves for standard purposes.

We should expect the stock of reserves to put upward pressure on the value of the dollar in international currency markets. This is the same story as with the Fed’s holding of $3 trillion in assets. It is widely argued (including by Paul Krugman) that the Fed’s holding of a large stock of assets reduces interest rates, even if it is not currently adding to that stock. The point is that if the private investors were to hold these assets instead of the Fed, they would carry a lower price and interest rates would be higher.

To take the stock and flow China analogy to the Fed, when the Fed raised the federal funds rate in December, it was trying to put some upward pressure on interest rates. But if we snapped our fingers and imagined that the federal funds rate was still zero, but the Fed’s asset holding were at more normal levels, do we think interest rates would be higher or lower?

Dean Baker / March 08, 2016

Article Artículo

Workers

Labor Market Reentrance in a Not-Yet-Healthy Economy

Earlier this morning, the Bureau of Labor Statistics released its February jobs report. The February data are being well-received, with CEPR and other outlets highlighting the fact that workers finally seem to be moving back into the labor force.

One easy way to see this is by looking at the share of unemployed workers classified as “reentrants to the labor market.” Reentrants are people who have held a job at some point in the past and recently began searching for work after a period of non-employment.

CEPR and Nicolas Buffie / March 04, 2016

Article Artículo

Argentina

Latin America and the Caribbean

World

Rubio Sweeps to Victory – in Argentina

Rumor has it that Senator Marco Rubio’s presidential campaign is set to name hedge fund manager Paul Singer as its national finance chairman. The potential move may represent a belated attempt by the Republican establishment to rally behind Rubio in order to derail Donald Trump’s presidential bid, as Politico’s Mike Allen has suggested. It also draws the Florida senator ever closer to his second largest financial backer – who has incidentally just emerged victorious from a decade-long campaign to extract an exorbitant return from Argentina after its financial crisis of 2001.

Almost three years after Argentina defied a New York court ruling that would have forced the country to choose between default and certain bankruptcy, Argentine President Mauricio Macri reached a settlement on Monday with a small group of holdout creditors led by Singer’s Elliott Management. The deal still needs to be approved by the Argentine National Congress, which is set to vote on repealing two laws that currently prevent the country from paying these vulture funds.

CEPR and Ming Chun Tang / March 04, 2016

Article Artículo

United States

Workers

The Black-White Unemployment Gap Isn’t Really About Education

In 2015, the unemployment rate for black Americans aged 25 and older was 7.8 percent. For white Americans, it was just 3.8 percent. This large gap in unemployment rates persists even when controlling for educational attainment.

Figure 1 shows the average 2015 unemployment rates by race and educational attainment. The black unemployment rate is considerably higher than the white rate within each educational group.

CEPR and Nicolas Buffie / March 03, 2016

Article Artículo

Health and Social Programs

Should Poor Workers Receive Less Social Security Because Rich Workers Are Living Longer?

During the 2016 campaign, a number of presidential candidates have proposed raising the retirement age to 70. Others want to raise the retirement age a bit less, and some don’t favor raising it at all.

When candidates talk about “raising the retirement age,” what they are referring to is the Social Security Full Retirement Age (SSFRA). This is the age at which retirees can begin receiving full Social Security benefits. Starting at age 62, retirees can receive partial benefits.

From 1937 through 2002, the SSFRA was 65. Based on a law from 1983, the SSFRA was gradually raised to 66 by 2009 and will be raised to 67 by 2027. While the age for receiving partial benefits wasn’t lifted, the amount of benefits was reduced. Figure 1 below shows how the SSFRA has and will increase according to current law.

CEPR and Nicolas Buffie / March 03, 2016

Article Artículo

Effects of Rising Wage Inequality Swamp Higher Social Security Taxes

A little over a week ago, CEPR released a blog post looking at the Congressional Budget Office’s (CBO) projections for wage growth over the next decade. Based on the data presented in their 2016 Budget and Economic Outlook, CBO expects wage inequality to rise substantially over the next decade.

It is striking that this projection of a continuing rise in inequality has gotten so little attention. By contrast, the media constantly talk about the projected shortfalls in the Social Security Trust Fund, making the point that if the projections prove correct then in 2034 we will either have to cut benefits or raise taxes.

Dean Baker and Nicolas Buffie / March 01, 2016