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  • It's Not Structural Unemployment, It's the Corporate Savings Glut [View article]

    Just because I use the term 'glut' in the article does not mean that I'm faulting the firms! Yes, firms are increasing assets relative to investment spending by way of productivity gains and meager wage, hours, and jobs hires. I blame the government for stimulus that didn't spur true demand for the slack in the current resource stock. Firms are making rational decisions: rolling over debt at record low rates, increasing cash balances, adding back short-term hires and hours, and paying some dividends back to share holders. But to what end?

    Currently we have labor and capital lying idly by, and if this stock goes unused for much longer, workers and machines will be permanently idle. This is NOT a supply-side issue, it's a demand problem. This is where the governemnt could step in with targeted policy (again, targeted at firm saving to provide incentives to dissave) to stimulate (or add back, really) demand that goes unchecked.

    You clearly have missed the economic debate over whether or not a portion of the increase in the unemployment rate since 2007 is structural or cyclical.

    Mar 22, 2011. 02:28 PM | 1 Like Like |Link to Comment
  • It's Not Structural Unemployment, It's the Corporate Savings Glut [View article]
    If you look at the top chart, you will see that households are drawing down on savings in order to finance current consumption. At the same time, firms are increasing saving (at least over the last quarter). Hard to think that there's not an argument for causation, although admittedly this is a qualitative exercise not a quantitative one.

    Look at the feedback loop that I stated in the text: "higher demand increases sales rates, revenues and production which grows firm profits that are translated into wage and income gains, only to drive demand further upward"

    It starts with demand! If firms in their fiduciary interest are borrowing at low rates in order to finance the investment of depreciated capital and foreign direct investment while adding back temporary labor, so be it. Hard to think how that's going to get the economy spinning. The problem is that there's a hole in aggregate demand, and it needs to be filled. Government incentives can work here.

    Also as in the last sentence, the point of this article is to urge government officials to drive sensible policy to the one sector that can 'afford' to get economic growth going!

    I suppose that each one of you is happily employed and reaping the benefits of the 24% cumulative gain on the S&P.

    Mar 21, 2011. 05:24 PM | 1 Like Like |Link to Comment
  • Q4 2010 Flow of Funds: Household Leverage Down, Wealth Effect Dead, And Equities Surge [View article]
    Agreed, and I will add debt service for my report next quarter. However, I've not seen official research to this point - but just as wealth has an economic impact on consumption, I suspect the stock of debt relative to income has an economic impact on the desire to save. Debt service ratios are lagged by one quarter - but you can view them here:
    Mar 11, 2011. 06:25 AM | Likes Like |Link to Comment
  • Q4 2010 Flow of Funds: Household Leverage Down, Wealth Effect Dead, And Equities Surge [View article]
    I agree - there's a distribution below the aggregate numbers that doesn't reflect the true disparities in incomes and wealth among the American population. I mean, the employment remains stuck at 58.4%, and while the diffusion of hires hit a record, the nonfarm payroll still adds just 192k and hours rise to a meager 92.8% of those in 2007 and up just 0.2% over the month. Something's wrong. The reason that the saving rate is high is due to the top earners, who are cutting back, not the average homeowner who's underwater on his/her mortgage. The rate of foreclosures dropped, but that's because the banks cut corners, slowing up the foreclosure process; this number will spike again. The Fed holds a considerable portion of the financial market's asset base...this is essentially financial repression.

    Touche - the aggregated data certainly masks the truth that is mass unemployment and a broken system.

    Mar 11, 2011. 06:21 AM | 3 Likes Like |Link to Comment
  • How China Can Achieve Its Top Economic Priority of Price Stability [View article]
    I can't disagree with anything that you said. China's investment is set to weigh-in on the global economy, as surging productivity and overinvestment reduces the near-term desire to invest. Going forward, though, McKinsey has an interesting study out that suggests the longer-term investment rate is set to surge on the back of a global re-balancing (developing markets grow their domestic economies). The consequence will be a lot more volatility and higher real rates.

    Mar 10, 2011. 09:31 PM | Likes Like |Link to Comment
  • The ECB's Now in Hiking Mode [View article]
    @ Old Trader,

    Current inflation is driven, theoretically, by the output gap (or some labor equivalent, like real marginal cost) and inflation expectations. Clearly inflation expectations can be driven by some other things like import prices, energy prices (i.e., gas), labor conditions, whatever. The point is, that there is a theoretical precedent for caring about the level of unemployment, or economic slack. So yes, in so much as inflation can be determined by the slack in the economy, the ECB's simple inflation target - headline no less - misses half of the equation.

    But now that you bring it up, that's not the only way to go. David Beckworth and Scott Sumner promote a nominal income target - this would get at the aspect of real economic activity plus price pressures.

    In times of energy and food price shocks, hiking on rising headline inflation is a lose-lose situation. You're damned if you do, and that's all...that's what the ECB did in 2008 - it looks like they have not learned.

    What do you mean the Fed is unconcerned about inflation? QE1 and QE2 prevented DEFLATION, which all else equal, is the worser of the two.

    @ pdtor - this rate hike is not by any stretch of my imagination 'good for Germany'. The price pressures are not coming from the demand side in Germany, mainly food and energy. With rate hikes, the ECB is essentially trying to crimp domestic demand. This, in my view, leaves Germany very exposed to global shocks.

    Mar 6, 2011. 03:16 PM | Likes Like |Link to Comment
  • How The NY Times Is Wrong About the Japanese Economy [View article]
    @American in Paris

    "You haven't made the case that deficits caused the problem. Moreover, the demographcs don't explain the slow down either since their impact lies in the future."

    Actually, the demographic shift in Japan has been underway for some time - this is mostly a story that has already occurred. The economic impact is already being felt. Here are a few statistics (the official labor statistics in Japan can be seen here:

    Spanning the period 1999-2010 (f), the annual level of employment fell 3.4% in Japan but grew 4.4% in the US.

    The Japanese labor force participation rate has dropped markedly over the second half of the century: 69.2% in 1960 to 60.2% in 2008.

    Spanning 1968-now, employment for those aged 15-24 declined more than 50%, while that for 25-34 is essentially unchanged.

    "It does not support a Republican or conservative view of fiscal policy."

    I've made no such argument here. Simply put: for a given current account surplus and/or deficit, if the desire for private sector saving rises, then public deficits will result in order to maintain liquidity in the system. That's an identity = income must equal expenditure, which is covered in Koo's presentation. For reference, I wrote about this at the following Seeking Alpha link:

    Oct 24, 2010. 09:58 AM | Likes Like |Link to Comment
  • The Money Quandary [View article]

    I understand that demand deposits will move from account to account when the purchase is made, so that including credit card balances would actually double-count the transaction. But if the loan goes into default, then theoretically, there was never any payment made but a transaction does exist.

    Rebecca Wilder
    Oct 1, 2010. 10:26 AM | Likes Like |Link to Comment
  • Harmonized Unemployment Rates: A Tad Scary [View article]
    From the EU Commission's press release and forecast (

    "On the upside, the impetus from the export-led industrial rebound to private consumption could prove stronger than assumed in the baseline, as was the case in the first half of the year."

    "Upward revisions are reported for all seven Member States considered in this interim forecast and notably so for Germany, where the underlying dynamics appear to have gained much more strength than earlier anticipated."

    Rebecca: Point, they didn't expect such a precipitous decline in the euro to shift the real exchange rate. Therefore, exports and industrial production in the first half of the year were much stronger than expected. It's not really a brighter outlook, per se.

    Sep 19, 2010. 09:29 AM | Likes Like |Link to Comment