Insiderman

Distinction Between Positive and Normative Economics Misses the Point

As an econ professor myself, I'm not sure that a third category will be required. Just because a civil engineer designs a highway and, along the way, some farmer gets a politician to bend the road doesn't mean there should be a separate branch of engineering to recognize politics.

I think we should examine the opposite problem; that is, why should we have a branch called "normative" economics? Economics generally describes the study of opportunity costs. You can have positive analysis (the function of economics) and normative analysis (the function of sociologists).

Then you can use economics to minimize the harmful impact of sociologists.

Commerce Department's Revised GDP Shows a Delineated Story for the Recession

I like the revisions BEA did to the GDP calculation methodology; it will do a lot to mitigate the positive GDP impact of natural disasters and better reflect current activity. They'll go back and restate prior periods, which can be annoying if you have older material. It happens every 10 years, so it's no big deal.

What I do find interesting is that the author of this post didn't say anything about the composition of GDP. EVERY category was down big time except government spending, which increased 10%. Essentially, our private sector economy actually got WAY worse, but the Feds pumped us up.

No one wants to make a move when the fiat power of the U.S. government trashes the risk and reward metrics for a market.

Plus, we still have Maiden Lane coming due and a bunch of larger banks that will surely fail if Geithner doesn't get FDIC and OTS under the Fed. Then we have the Fed essentially printing money to help Goldman Sachs, JPM, BA, and the like prop up the equity market.

Sad times for free markets.

The Next Debt Crisis

Oh, no! All these wonderful Obama infrastructure and expanded healthcare system only serve to increase the productive capacity of our great nation. That will certainly keep RECORD debt below GDP and repay the infrastructure/healthcare investments. Or maybe that's on some other planet; I get confused.

I see it coming... we'll see government workers smashing windows in order to increase GDP from Corning, transportation of the glass through Yellow, and installation of glass through Hank the glass installer. Or maybe that's the train from LA to Vegas and the center for arts performance in Florida.

So many reasons to hate over-powerful federal government.

We Can't Talk Our Way Out of This Market Mess

Here's a thought: Perhaps the government wasn't just talking up the economy but allowing big TARP borrowers to use unneeded funds to make principal trades. Hmmm. Evidence of that in spikes for Golden and Morgan Stanley?

The S&P 500: Five Things You Probably Don't Know

For cap weighting the index, you have to do it the way you describe:

"But the index’s P/E is not cap-weighted. To calculate the P/E, S&P sums the earnings-per-share for all 500 stocks over the past 12 months—unweighte... uses that raw number as the E in P/E. The numerator P is the index’s value, which as we have seen is cap-weighted. Thus the calculation of P/E is a hybrid: a cap-weighted P divided by an equal-weighted E for the 500 stocks in the index."

When I make an earnings forecast for each company in the S&P 500 and sum those results, I want to be able to multiply by some function of the P/E to know the value of the index.

Meet the Top Ten Creditors to the USA

Ever since the Fed came into being, our debt has increased remarkably and our currency debased commensurately. The PLAN is to inflate our way out of debt such that the base and the service on the base are not damaging to growth.


On May 25 09:16 AM Vuke wrote:

> Not to worry. Bernanke could print the way out of any one, or all
> of them, in a flash. That's the beauty of the new, digital money.

Meet the Top Ten Creditors to the USA

I agree with JohnDowd. Intergovernmental debt (borrowed SocSec and Medicare trust funds) are the largest creditor.


On May 25 08:57 AM johndowd wrote:

> You mean US entitities do not hold any US government debt. I am
> sure the aggregate held by US taxpayers might be the largest. Your
> headline does not carry the word Foreign.

Government Telegraphs Future Inflation

The Fed doesn't want us to know what the real balance sheet number is. This could be the best thing ever if Keynesian economics finally loses its luster.

Employment Is Defining the Shape of this Great Recession

I don't know why this is so hard unless you're a Keynesian! We're heading for 1970's style stagflation brought on by inappropriate macroeconomic fiscal policies. Housing price inflation was brought on by easy credit (enhanced through risk transference to blind third parties) stopped dead in its tracks by a supply shock (credit collapse).

I'm surprised that Obama selected Paul Volcker head of the Economic Recovery Advisory Board because Volcker raised the Fed Funds target to about 20% in 1981 and crashed the economy short-term in preparation for a longer-term growth phase.

This time the Fed wants to inflate us out of the crisis. Woe is us.

Where the Big Money Is Betting Big

"Of course, the big money isn’t always the smart money. After the tech bubble burst, the big money was decimated. The average mutual fund was getting crushed. Most were losing money between 2001 and 2003. During this time, the big money was not smart money."

This paragraph makes no sense in the context of your article. The BIG money isn't in mutual funds.

Mutual fund managers almost always have a mandate to invest their funds in a particular way; that is, if they were "high tech" funds, then they had to be invested in high tech (with wiggle room to be some proportion in cash). The mutual fund companies fired up funds with a new tech mandate after venture capital companies started bringing companies to IPO stage. The BIG money made more big money when they sold share through the mutual fund to the "herd" of sheep.

Now there IS big money that isn't necessarily smart, and sometimes even if they are smart they are too early or too late to the party. T. Boone Pickens just lost several BILLION over the last few years. Warren Buffett lost his mind over the last few years (well, he was an Obama supporter). Anyway, some might say he was a bit early to the party... but he always has been.

Anyway, don't confuse BIG money with big piles of money from small investors.

The Fed's True Purpose

Greenspan remains a mystery to me. How does a guy that "grows up" as a member of Ayn Rand's collective somehow become one of the "Controllers" of an economy.

Here's a simple model you could follow: Let money supply increase at the rate of forecast population growth, no mas. IF productivity remains the same, per capita GDP should remain the same. IF not, inflation/deflation will result (I won't delve into the conditions for each here) and some policy action might be required to maintain stable price relationships.

Blame Roosevelt or Nixon, this country crapped on itself by leaving the gold standard. Other countries that believed we "wouldn't inflate too much" after Bretton woods are learning better; that is, China.

Rising Treasury Yields Could Mean It's Time to Short Them

Although Treasuries represent the "risk-free" asset, they still reflect inflation fears in an increasing yield. With $4 trillion sitting in money market, the Fed will need to provide a lot of liquidity to unwind this. That, and a $1.8 trillion budget deficit will definitely cause a policy bind if they want to hold down interest rates.

The other real trick will be to prevent widening spreads when no one wants to be a debt holder after the government crams down GM and Chrysler senior obligations.

It's been bad enough to be an equity holder; now this.

Has 'The Trampoline Effect' Come to an End?

You can trace how spreading the failure of a few through the pockets of the many is PRECISELY the problem. Sure it hurts to hit pavement, but fools will learn in no other situation. Only when we all hit the pavement do we learn not to trust government with the solution to all our problems.

And we are certainly heading for the pavement on this one. But rather than have a few well-monied individuals lose their money, the government has doomed us all to years of economic atrophy and stagnation at best.


On May 11 08:08 AM abetterplace wrote:

> I prefer calling it a "safetynet". Being that it is not held as correctly
> as possible, it sure beats splatting the concrete if you're the one
> falling.

Job Numbers from the Bureau of Spurious Statistics

Are we to infer from your post that seasonal adjustment is NOT highly subjective?

It becomes even more suspect with the monthly backfill that continuously increases prior unemployment numbers.

And just to make things worse, we don't even count disenfranchised workers in the unemployment statistics because they are "not in the labor force." By comparison, our unemployment rate might be closer to about 15% if we included everyone in Detroit who decided to stop looking for work and sell drugs.

At least during the Depression era the government counted everyone who couldn't find a job.

No, having been a statistical analyst and economic forecaster, I side with Tyler on this one. The Larry Summers of the Obama administration are blowing smoke up our butts in a public sector Bernie Madoff scandal that will be uncovered shortly.


On May 08 11:37 AM cyclingscholar wrote:

> Reminds me of the articles which were carping during the Bush years
> that the 'inflation rate is actually 10% annually instead of the
> reported 2%," whining about hedonic price adjustments.
>
> The trials and tribulations of seasonal adjustments are discussed
> at length in ANY FRESHMAN STATISTICS course, and I suggest Durden
> and his tail of toadies take one.
>
> Better yet, since the BLS is supposedly so 'biased,' why not just
> get rid of the agency all together?
>
> cyclingscholar

Job Numbers from the Bureau of Spurious Statistics

More like Obama will train the unemployed to be census takers (fakers?) and community organizers.


On May 08 01:56 PM theobannion wrote:

> Cheer up, Yo', Obama's gonna retrain the unemployed to flip burgers.
>
>
> Best,
> SOB.