Owen F. Humpage and Beth Mowry
Between mid 2005 and mid 2009, when the People’s Bank of China previously loosened its grip on the renminbi-dollar exchange rate, the renminbi appreciated approximately 20 percent on both a nominal and a real basis against the dollar. (The real basis is what matters for assessing competitive patterns, because it accounts for price pressures in both the United States and China.) If this appreciation had any effect on the U.S. merchandise trade deficit, it is imperceptible in the data. The U.S. merchandise trade deficit with China continued to grow from $17.6 billion in June 2005 to around $21 billion as the global economic slump settled in and dampened worldwide trade.
Stronger copper prices are thought to be a good sign for the economy, as copper products such as wiring and piping in homes, automobiles, appliances and electronics have a myriad industrial uses. As avid MarketBeat-ers know, copper is used as a proxy for economic growth. In fact, such is the reputation of copper that, among Wall Streeters, the metal is sometimes called “Dr. Copper” — the metal with a PhD in economics — because its prices are believed to signal turning points in the global economy.
By Kenneth P. Green and Hiwa Alaghebandian Tuesday, July 27, 2010
July 27, 2010
Because a Value Added Tax (VAT) has been floated as a solution to the government’s budget problems, we did a back of the envelope estimate of the VAT rates that would be needed to raise enough money to cut Obama’s deficits to zero. Assuming a VAT base of 41 percent of GDP (the average of European-style VAT, we would need a 22 percent VAT in 2011 to close the $1.4 trillion deficit.
Why Is US Employment So Weak?
July 26, 2010
Richard Berner | New York
Policy uncertainty is a negative for the economy and markets. America’s long-term challenges – healthcare, budget and tax reform, financial regulatory reform, retirement saving, infrastructure, education, energy, and climate change – are not new. Solving them is imperative, and major legislation to address them represents important steps toward those ends – e.g., promoting increased access to healthcare and a safer financial system. But the uncertainty around the costs of those policy changes and the uncertain magnitude of prospective tax hikes that will be required to address our fiscal problems is weighing on business and consumer decisions to hire, expand, buy homes and spend.
Recent work confirms this intuition, underlining how uncertainty produces negative growth shocks. Nicholas Bloom shows how a rise in uncertainty makes it optimal for firms and consumers to hesitate, which results in a decline in spending, hiring and activity. In effect, the rise in uncertainty increases the option value of waiting as volatility rises. Moreover, this line of reasoning suggests that uncertainty reduces the potency of policy stimulus. That’s because the uncertainty can swamp the effects of lower interest rates, transfers or tax cuts. In effect, uncertainty raises the threshold that must be cleared to make a business choice worthwhile, and as uncertainty declines, the threshold falls with it. This notion squares with our long-held view that policy traction from easier monetary policy, improving financial conditions and fiscal stimulus was lacking through much of last year, but improved as uncertainty fell.
July 24, 2010 12:00 AM
“The Economy Is Back,” trumpets the upper left corner of the cover of Time magazine. “The Economy Stinks,” moans the lower right corner. More professionally, Federal Reserve Board chairman Ben Bernanke tells Congress that most of the participants on the Fed’s monetary policy committee view “uncertainty about the outlook for growth and unemployment as greater than normal.” Titans of industry are also confused. They can’t decide whether to give more weight to the good news than the bad, and so they are sitting on $2 trillion in cash that, because of low interest rates, is earning almost nothing. They can’t even seem to find acquisitions that are both strategically sensible and well-priced.
July 21, 2010
Saturday, July 17, 2010
Increased Worker Productivity Has Destroyed Millions of Jobs, and We Should Be Grateful
John P. Hussman, Ph.D.
Question. Why do workers in developing nations earn a fraction of the wages American workers earn? While protective and regulatory factors such as trade barriers, unionization, and differences in labor laws have some effect, the main reason is fairly simple. U.S. workers are, on average, more productive than their counterparts in developing countries. While the gap between U.S. and foreign wages can make open trade seem very risky, it is simply not true that opening trade with developing nations must result in a convergence of wages. The large difference in relative wages is in fact a competitive outcome when there are large differences in worker productivity across countries.
The main source of this difference in productivity is that U.S. workers have a substantially larger stock of productive capital per worker, as well as generally higher levels of educational attainment, which is a form of human capital. This relative abundance of physical and educational capital has been a driver of U.S. prosperity for generations. Neither advantage in capital, however, is intrinsic to American workers, and it will be impossible to prevent a long-term convergence of U.S. wages toward those of developing countries unless the U.S. efficiently allocates its resources to productive investment and educational quality. This is where our policy makers are failing us.
By Invictus – July 12th, 2010, 6:16AM