By Kindred Winecoff

Greece is in big, big, trouble:

Most blatantly, Greece misled the world about the acuteness of its fiscal plight. Back in March, the situation looked bad – but manageable. The European Commission forecast that the Greek public sector deficit this year would be above the 3% limit set under EU rules and “exceed 4% in 2010”. At the time, officials were concerned the actual numbers would be higher. Nobody, however, was prepared for the shock unveiled by the Socialist government elected in October. Statistical revisions showed the public finances so much worse that the Commission changed its projections to a deficit of 12.7% this year and 12.2% in 2010. ...
On almost every measure, Greeks have been living beyond their means. The current account deficit reached almost 15 per cent of gross domestic product last year, making the US deficit of 5 per cent look modest. External public debt now exceeds GDP. ...
Since joining the euro, Greece has regularly flouted the deficit and debt limits set in the zone’s “stability and growth pact” that is meant to correct for the lack of a single eurozone fiscal authority. Scant progress has been made in reforming the country’s public sector, which added 50,000 mostly low-skilled employees in 2004-09.

by Alex Parets

International news agencies and informants inside of North Korea are reporting that North Korea issued an order yesterday morning to redenominate the won, North Korea's currency. The Central Bank of the Democratic People's Republic of Korea [DPRK] has slashed two zeroes off of its currency and has placed limits on how much of the old currency can be converted into new bank notes.

By Kindred Winecoff

This is a shocking sentence from the New York Times:

It has come to this: Germany will almost certainly have a bigger budget deficit next year than Italy will.

By Kindred Winecoff

The above picture, from David Beckworth, is shocking. It shows that nominal spending (total demand in an economy) among OECD countries had a jarring drop last year, and that this is the proximate cause of the economic slowdown. (For a short post on why nominal spending matters, see this post). Beckworth is arguing that the Fed screwed up majorly by targeting inflation rather than spending, and is still making the same mistake.

By Kindred Winecoff

Trade skeptics Eyes on Trade noticed that wages decline during a recession:

By Kindred Winecoff

By Kindred Winecoff

Look, we've spent something like 4-5% of GDP in stimulus, from the American Recovery and Reinvestment Act (a.k.a ARRA a.k.a. stimulus bill) to the bailouts. (You can track ARRA spending here and bailout spending here.) We've spent about $120bn in ARRA and $575bn in other bailouts. That represents about 5% of GDP spent in deficit by the government: $700bn/$14.25tn. Those expenditures affect GDP evaluations, since GDP = Consumption + Investment + Government + Net Imports. If GDP's "natural" state rate now if government spending had stayed constant is negative 1-2%, then that translates into roughly 4% growth: -1 + 5 = 4. We actually got 3.5%, which is right in the back-of-the-envelope range.

But it's unclear if that means anything good. If the fiscal multiplier is greater than one, as CEA head Christina Romer believes, then that spending should have led to higher reported GDP than we actually saw (something like 5-6%, using Romer's estimate of the multiplier as close to 1.5)*. If the multiplier is less than or equal to one, as these folks argue, then at best this quarter's GDP report is a statistical mirage based on an accounting identity rather than actual economic improvement. If the multiplier is close to zero or even negative, as Robert Barro thinks, then economy is in great shape indeed.

By Alex Parets

On Friday afternoon, just like every Friday afternoon, the FDIC announced which banks it was in the process of closing and who would be taking over the seized bank's assets. The announcement always comes on Friday afternoon after the institutions have closed so that the FDIC and the new owners have enough time over the weekend to transfer all information and accounts, keep business disruptions to a minimum and prevent panicked customers (who aren't aware of the FDIC's insurance policy) from running to the bank to try to withdraw their funds. So far this year, every Friday has been met with an FDIC announcement and 106 banks have been closed, the most since 181 were closed in 1992.

By Kindred Winecoff

Martin Wolf has a good column on the difficulties of crafting an appropriate regulatory structure. Basically, he says, in order to get a truly safe system we have to abolish banking. Despite recent difficulties, that isn't desirable. So he offers an outline for how improve the system without destroying it:

By Alex Parets

Thursday's announcement by the Obama administration that they "will order the firms that received the most aid to slash compensation to their highest-paid employees" has drawn much criticism and discussion across the blogosphere, including right here on this blog.

The United States government hold large equity stakes in some financial firms. It has decided to punish those firms by heavily restricting the pay of the top employees. Proponents say that it is unfair for financial executives to benefit from taxpayer-funded bailouts. Skeptics of this plan agree that it's unfair, but note that this incentivizes the best employees to seek employment elsewhere, leaving the U.S. taxpayer with few qualified employees overseeing the trillions of taxpayer dollars invested in those companies. In fact, the government may wish to pay employees more in order to lure the top talent to the firms with public investment in order to maximize the return on that investment.

Obama sided with the crowd who wants the pound of flesh. The result: employees at Bank of America (BAC) and AIG (AIG) have already jumped ship:

By Kindred Winecoff

The NY Times ran a series of articles on how stimulus funds have been spent in the U.S., E.U., India, and China. Let's have a look:

By Kindred Winecoff

Jagdish Bhagwati is characteristically blunt in a full-bore attack on capitalism's critics in a recent World Affairs piece. He accuses anti-capitalists of having short memories, selectively using examples, and missing "both the point of the issue and the sweep of history".

J. Paul Getty once said:

If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem.

by Kindred Winecoff

Remember last month when Ryan Grim wrote a terrible article arguing that the Fed had taken over the entire economics profession and didn't allow dissent? I went ballistic on him at the time, but it now appears that his timing couldn't've been worse. First was the "saltwater" vs. "freshwater" argument started by Krugman that showed that economic theory is not as unified as Grim makes out. But now we see deep divisions within the Fed, even at the top levels:

By Kindred Winecoff

By Kindred Winecoff

We hear a good bit about how deregulation contributed to the financial crisis. Much less often do we specifically hear which pieces of deregulation are to blame. As expected, Krugman puts it all on Reagan's shoulders, but this is a very selective view of history. McMegan:

KPC lays the beatdown on this Thomas Friedman column:

Even dumber than the notion that China, the world's biggest polluter, has gone green is the notion that going green is a zero sum competition. Friedman doesn't even try to argue for this point, he simply assumes it as self evident.