OECD forecast for next year

US government debt in numbers

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Deep impact

There is an apocryphal story that in the summer of 2006, the US Federal Reserve became worried about the property bubble that was raging in many US cities.

So the Fed dusted off its macroeconomic models and conducted a simulation to see how the US economy would respond to a 20 percent fall in house prices. The model predicted that the US economy could easily absorb that kind of correction and that there would be no major impact on output or employment.

A genuine exit strategy from the crisis

In 2010, the global economy enjoyed steady if unremarkable growth. By the third quarter of 2011, it teetered on the edge of recession. The post-crisis recovery lasted barely 2 years. Moreover, in many advanced economies, growth proved insufficient to ensure that GDP reached its pre-crisis level.

How did things get so bad so quickly? The answer lies in the public sector balance sheets of advanced economies.

When banking sector difficulties turned into an economic downturn, tax revenues took a hit, while expenditures on unemployment benefits rose. In some countries, the revenue decline was exacerbated by a long-standing dependence on asset prices and financial bubbles as sources of taxes.

Politicians believed that they could buy their way out of recession. With revenues already weakening due to the economic downturn, governments tried to stimulate activity by cutting taxes and increasing expenditures, pushing fiscal deficits up to levels not seen since the Second World War. With rising deficits came rising debt levels, which were already extremely high in many socialist leaning European countries.

How rich are the wealthiest 0.01 percent of Americans?

....er....very rich...? From Mother Jones.

(Click on the image for a larger graphic)

The looming pension crisis in the US

The WSJ did a nice survey of the coming US pensions crisis.

"The 401(k) generation is beginning to retire, and it isn't a pretty sight. The retirement savings plans that many baby boomers thought would see them through old age are falling short in many cases.

The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse."

All true; however, the situation will become even starker if inflation picks up and erodes the value of fixed income assets, which are often the bedrock of 401(k) retirement plans.

The financial crisis just keeps on giving.....

Balancing the budget; Wisconsin style

Wisconsin Governor Scott Walker talking to the media about his budget adjustment bill.

Goodbye Axel Weber and Kevin Warsh - we will miss you

Yesterday, Paul Krugman took another step on his journey from esteemed academic to banal journalist. In the New York Times, he produced a short and nasty piece on the departure of two highly respected central bankers, Axel Weber of the Bundesbank and Kevin Warsh, of the Federal Reserve.

Here is what Krugman had to say:

China and CO2

Between 2001 and 2008, worldwide emissions of CO2 has increased by 4.2 billion tonnes - an increase of about 18 percent.

Two thirds of that increase was due to emissions from China. Around 10 percent of the increase came from India. Emissions from OECD countries fell by 100 million tonnes.

In the case of the US, emissions have fallen fractionally. In 2006, it was overtaken by China, which is now the greatest provider of CO2 emissions in the World.

Yes, world food prices are higher because of speculation

World food prices have become highly politicised. Two views are battling it out. First up; the supply-siders, such as Paul Krugman and Ben Bernanke, who claim that prices are up because of global warming, declining harvests and world population growth.

Then, there is everyone else, who claim that it is the fault of speculators.

Here is how Mr. Krugman put it:

"What’s behind the surge in food prices? The usual suspects have made the usual claims — it’s all about the Fed, or it’s all about speculators. But I’ve been looking at the USDA World supply and demand estimates, and what stands out from the data is mainly that we’ve had a huge global harvest failure."

More disappointing employment numbers from the US

The latest US employment data was disappointing. The headline measure - non-farm payrolls rose by 36 thousand. Most analysts had expected U.S. non-farm payrolls to rise 150 thousand.

The recovery will be painfully slow.

The debt ceiling approaches

It is hard to believe there is a ceiling on US debt. Apparently, there is, and the Federal government is rapidly approaching it.

How the US healthcare industry tried to spin Michael Moore's film Sicko

How US corporations create fake foundations to spin debate.

UK house sellers offering 9 percent discounts

The January Hometrack report provided plenty of evidence that that the UK housing market was again weakening. Sellers are, on average, offering a 9 percent discount on asking prices.

In fact, asking prices have been sliding since early summer last year.

Teachers salaries: how does the UK compare?

Who would want to be a teacher? Not me, that is for sure. I would rather leave that task to other more dedicated people. Are we paying our teachers enough to look after those feral children now prowling around the wastelands of Britain.

The prophet speaks

James Goldsmith, speaking 20 years ago, on the world economy. Frighteningly accurate.....

British Chancellor stuffs Goldman Sachs

Goldman's fourth quarter results, which were announced today, revealed another shocking bonus payout the bankers. Despite the fact that net revenues fell by 13 percent, Goldman staff picked up a cool $15.3 billion. Thus it would appear that bank bonus payouts be little relationship to performance.

However, there was one interesting footnote in Goldman's statement:

UK bank payroll tax

During the second quarter of 2010, United Kingdom enacted legislation to impose a non-deductible 50% tax on certain financial institutions in respect of discretionary bonuses in excess of £25,000 awarded under arrangements made between December 9, 2009 and April 5, 2010 to "relevance banking employees." The estimated amount accrued in the second quarter of 2010 related to this tax was finalised during the fourth quarter at $465 million.

Can't you just feel the Goldman's pain oozing out of that short statement. Our old friend and former Chancellor Alistair Darling managed to take $465 million from the enemy. This was a victory for the people. If only Mr. Osbourne was brave enough to levy the tax this year.

Well done, Alistair - this was mighty work.

Those Chinese teddy bears

Ten things you should know about US foreclosures

Ten horrible facts about the terrible condition of the US housing market and the phenomenal rate of home foreclosures.

UK Government Debt: will the debt-to-GDP ratio hit 95 percent by 2012?

Should we worry about that 95 percent debt-to-GDP ratio? It is, after all, only a forecast by a group of frenchified economists working for the OECD in Paris. Anything can happen between now and 2012.

The financial crisis taught us some stunning lessons about the value of forecasts. It reminded us of our intrinsic vulnerability and that the future can be full of surprises. Moreover, some of those future shocks can be beyond our limited imagination.