Uncle Sam Wants His AAA Rating
Two major credit ratings agencies warned Thursday that the United States might tarnish its triple-A credit rating if its national debt kept growing…But many economists say the reckoning, if it comes, is still years or even decades away. The bond market shrugged at Thursday’s news. Indeed, even some experts who want to see the deficit reduced said now is not the time to cut federal spending drastically, given the weakness in the economy and high unemployment.
New York TImes, Jan 14
New Hit to Strapped States
With the market for municipal bonds tumbling, cities, hospitals, schools and other public borrowers are scrambling to refinance tens of billions of dollars of debt this year, another sign that the once-safe market is under duress. The muni bond market was hit with the latest wave of bad news Thursday, prompting a selloff that sent the market to its lowest level since the financial crisis. A New Jersey agency was forced to cut the size of a bond issue by about 40% because of mediocre demand, and pay a higher rate than expected. And mutual fund giant Vanguard Group shelved plans for three new muni bond funds, citing market turmoil.
Wall Street Journal, Jan 14

India’s annual inflation accelerates past 8%
India’s inflation rate accelerated to 8.43 percent in December on a 12-month basis, raising the prospect of another rate hike from the central bank later this month, government data showed on Friday.
AFP/Jan 14
Home Foreclosures Top 1 Million for First Time in 2010
Banks seized more than a million U.S. homes in one year for the first time last year, despite a slowdown in the last few months as questions around foreclosure processing arose, a leading firm said Thursday. Banks foreclosed on 69,847 properties in December, bringing the year’s total to 1.05 million, topping the prior record of 918,000 homes seized in 2009, real estate data firm RealtyTrac said.
CNBC/Jan 13
Europe Failed to Clear ‘Skepticism’ on Debt Crisis, IMF Says
Europe has yet to allay investor “skepticism” about the sustainability of the region’s debt, and any spread of the crisis would cloud global economic prospects, the International Monetary Fund’s number three official said. “At least for now it looks like the spillover from the European sovereign crisis to areas outside of the region will be limited,” Naoyuki Shinohara, deputy managing director at the IMF, said in an interview in Tokyo yesterday. “However, if the European sovereign debt problems were to become bigger, we need to keep in mind that that could bring about considerable downside risks.”
Bloomberg/Jan 13
Strengthen Ties with China, But Get Tough on Trade
As President Obama prepares to host Chinese President Hu Jintao next week, Americans increasingly see Asia as the region of the world that is most important to the United States. Nearly half (47%) say Asia is most important, compared with just 37% who say Europe, home to many of America’s closest traditional allies
Pew Research Center/Jan 12
Could Federal Spending be Capped at 20 Percent of GDP? Should it Be?
As the budget debate heats up, we will hear much about capping U.S. federal government spending at 20 percent of GDP, roughly its level for several decades leading up to the global financial crisis. Likely presidential candidate Rep. Mike Pence (R-Ind.) has been among the most vocal backers of this idea. Together with colleagues, he has packaged it in the form of a proposed Spending Limit Amendment. Would it really be possible to impose such a spending limit? Yes. Would we like the results if we tried it? Not all of us would. Here is why.
Part of its attraction is that the 20 percent solution appears to require no real sacrifice. If we were content with the level of government services enjoyed in past, pre-crisis decades, why would there be any hardship in holding to that level in the future? Unfortunately, the pretense that it would be possible to maintain the same level of real government services as in the past without future increases in spending is an illusion. The reality is that holding government spending to past levels would require a significant reduction in real public services
Ed Dolan’s Econ Blog/Jan 13
The End of Procyclical Labor Productivity?
The fact that falling hours have been accompanied by rapidly-rising productivity is what has given us not a jobless recovery but a massive job-loss recovery. The normal pattern we would expect from the past two years’ output growth would be that employment and hours would have been nearly flat. Why the different pattern this time? We think that it is because firms are no longer “hoarding labor” when times are slack because the industries losing jobs no longer expect employment to bounce back…
These days U.S. labor productivity looks to be countercyclical: firms take advantage of downturns in demand to rationalize operations and increase labor productivity, pleading business necessity in the face of the downturn to their workers.
It seems fairly clear to me that calling this “structural change” is somewhat of a misnomer. Structural change is when workers find jobs in expanding industries. That happens overwhelmingly during booms. For workers to lose jobs in contracting industries and to not find them in expanding industries is not “structural change” but rather something else.
The Semi-Daily Journal of Economist J. Bradford DeLong/Jan 13