Oil Rises to Three-Day High as Saudi Arabia Is Seen Targeting $100 Crude
Bloomberg | Jan 17
Oil rose to the highest level in three days on speculation that China will intensify monetary stimulus, supporting fuel demand, and as France pushed for a ban on Iranian imports. France wants a European Union embargo delayed by no more than three months as members seek alternative supplies, an official with knowledge of the matter said yesterday. China’s economy expanded at the slowest pace in 10 quarters, sustaining pressure on Premier Wen Jiabao to ease monetary policy. Saudi Arabia aims to stabilize the average of crude prices worldwide at $100 a barrel in 2012, Oil Minister Ali al-Naimi said in an interview with CNN yesterday. “Everything is rising because of China,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “It’s general market sentiment.”
Is The Yield Curve Still A Reliable Signal Of Recession Risk?
In the current debate about recession risk, some commentators have rolled out the yield curve argument or variations thereof. On first glance, this line of analysis looks like a slam-dunk refutation of the forecast by some that another economic contraction is now fate. But such arguments based heavily (or exclusively) on the yield curve risk overplaying their hand. It’s true that the yield curve has been a reliable predictor of recessions for half a century, as many studies assert. Indeed, the literature on this topic is now quite extensive and persuasive. But in the dark art of developing macro forecasts, one can never assume that a predictor’s track record—even one as strong as the yield curve’s—seals its fate for repeat performances. It’d be wonderful if we could point to one indicator as a dependable predictor, but macro’s just not that simple.
Book Bits For Saturday: 1.14.2012
● Broke: How Debt Bankrupts the Middle Class
Edited by Katherine Porter
Summary via publisher, Stanford University Press
While the recession that began in mid-2007 has widened the scope of the financial pain caused by over-indebtedness, the problem predated that large-scale economic meltdown. And by all indicators, consumer debt will be a defining feature of middle-class families for years to come. The staples of middle-class life—going to college, buying a house, starting a small business—carry with them more financial risk than ever before, requiring more borrowing and new riskier forms of borrowing. This book reveals the people behind the statistics, looking closely at how people get to the point of serious financial distress, the hardships of dealing with overwhelming debt, and the difficulty of righting one’s financial life. In telling the stories of financial failures, this book exposes an all-too-real part of middle-class life that is often lost in the success stories that dominate the American economic narrative. Authored by experts in several disciplines, including economics, law, political science, psychology, and sociology, Broke presents analyses from an original, proprietary data set of unprecedented scope and detail, the 2007 Consumer Bankruptcy Project. Topics include class status, home ownership, educational attainment, impacts of self-employment, gender differences, economic security, and the emotional costs of bankruptcy. The book makes judicious use of illustrations to present key findings and concludes with a discussion of the implications of the data for contemporary policy debates.
The Fed’s Undistinguished Macro Discussions Circa Jan 2006
Anticipating recessions is hard, especially the ones in the future. Just ask the Fed officials who attended the January 2006 FOMC meeting to discuss the outlook for the economy. The newly released transcripts from this meeting have attracted attention far and wide about Fed’s ability, or lack thereof, to see macro changes. Unfortunately for the central bank, the reviews are in and most pundits aren’t impressed (see news reports here and here, for example.) The Atlantic’s Derek Thompson finds the transcript “damning” in light of the “blithe ignorance in the face of impending doom.”
Jobless Claims Rise As Retail Sales Slow
There are two ways to interpret today’s economic updates on weekly jobless claims and retail sales for December. If you’re inclined to see a recession coming, a view that appeals to some analysts, the numbers du jour offer some marginally stronger support for expecting trouble. But the latest reports are hardly game changers and so it’s not obvious that a moderately optimistic outlook is suddenly indefensible.
Research Review | 1.12.2012 | Austerity Economics
The “Austerity Myth”: Gain without Pain?
Roberto Perotti (University of Bocconi) | November 2011
As governments around the world contemplate slashing budget deficits, the “expansionary fiscal consolidation hypothesis” is back in vogue. I argue that, as a statement about the short run, it should be taken with caution. Alesina and Perotti (1995) and Alesina and Ardagna (2010) (AAP) show that fiscal consolidations may be expansionary if implemented mainly by cutting government spending. IMF (2010) criticizes the data and methodology used by AAP, and reach opposite conclusions. I argue that because of the multi-year nature of the large fiscal consolidations, which are precisely the most informative ones, using yearly panels of fiscal policy is limiting. I present four detailed case studies, two — Denmark and Ireland — undertaken under fixed exchange rates (the most relevant case for many Eurozone countries today) and two — Finland and Sweden — after floating the currency. All four episodes were associated with an expansion; but only in Denmark the driver of growth was internal demand. However, after three years a long slump set in as the economy lost competitiveness. In all the others for a long time the main driver of growth was exports. In Ireland this occurred because the sterling coincidentally appreciated. In Finland and Sweden the currency experienced an extremely large depreciation after floating. In all consolidations interest rate fell fast, and wage moderation played a key role in generating a gain in competitiveness and a decline in interest rates. Wage moderation was facilitated by the direct intervention of the government in the wage negotiation process. In Finland and Sweden, the adoption of inflation targeting at the same time of the consolidation helped the decline in interest rates. These results cast doubt on at least some versions of the expansionary fiscal consolidations hypothesis, and on its applicability to many countries in the present circumstances. A depreciation is not available to EMU members today (except vis à vis countries outside the Eurozone). A net export boom is not feasible for the world as a whole. A further decline in interest rates is unlikely in the current situation. And incomes policies are not popular nowadays; moreover, international experience, and the Danish case, suggest that they are ineffective after a few years.
Crunch Time For The Business Cycle
If there’s one corner of the economy that concerns me more than others, it’s the recent trend in disposable personal income (DPI). As I discussed last month with the update of the November data, the falling pace of annual growth is starting to look troubling on this front.
The Great Debate About Recession Risk Rolls On
The economy appears to be on the mend, but the great debate about recession risk in 2012 is in no danger of fading. The labor market may be reviving, but that’s not enough—at least not yet—to convince some analysts that the danger has passed.
Equal Weighting: A Timely Antidote For Uncertainty?
Are investors irrational or just cautious when it comes to the fundamental stock/bond asset allocation decision? It’s a topical question in light of MarketWatch’s Jonathan Burton article that reviews the case for “Why stocks will beat bonds over the next 20 years.” The basic outline is by now familiar: bonds have done well in recent years while stocks have performed poorly. For example, over the past five years, the stock market (Russell 3000) is flat while bonds (Barclays Aggregate Bond) are up an annualized 6.5% through the end of 2011 (for a summary of recent returns, see my latest update of the major asset classes). Assuming a dose of mean reversion, the outlook for equities is favorable and prospective returns for bonds look relatively mediocre if not negative.
Book Bits For Saturday: 1.7.2012
● American Gridlock: Why the Right and Left Are Both Wrong – Commonsense 101 Solutions to the Economic Crises
By H. Woody Brock
Summary via publisher, Wiley
Pessimism is ubiquitous throughout the Western World as the pressing issues of massive debt, high unemployment, and anemic economic growth divide the populace into warring political camps. Right-and Left-wing ideologues talk past each other, with neither side admitting the other has any good ideas. In American Gridlock, leading economist and political theorist H. Woody Brock bridges the Left/Right divide, illuminating a clear path out of our economic quagmire. Arguing from first principles and with rigorous logic, Brock demonstrates that the choice before us is not between free market capitalism and a government-driven economy. Rather, the solution to our problems will require enactment of constructive policies that allow “true” capitalism to flourish even as they incorporate social policies that help those who truly need it.
