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Archive for the ‘American Politics’ Category

I COMPLETELY agree with the points made by Bill Gross in this article.  Here is an excerpt and the link:

“Faced with these two decidedly different routes to “level the playing field” it seems obvious that the United States is opting for “Easy Street” as opposed to “Buckle Down Road.” Granted, “The Ben Bernank” as a YouTube cartoon rather hilariously labeled him, has for several months importuned Congress and the Executive Branch to institute substantive reforms, while he attempts to keep the patient alive via non-conventional monetary policy. But very few others are willing to extract their heads from the sand. The President’s debt commission with its insistence on low personal and corporate income tax rates and a mere 15 cent increase in the gasoline tax was one example. The Republicans’ reluctance to advance detailed ideas for budget balancing is another. And the Democrats’ two-year focus on the biggest entitlement program since Social Security – healthcare – as opposed to fundamental reforms to counter our lack of global competitiveness – is perhaps the most grievous example of lost opportunity. Unlike the United Kingdom, where Prime Minister Cameron has championed fiscal conservatism, or even Euroland, which is being forced in the direction of Angela Merkel’s Germanic work ethic, the United States seems to acknowledge no bounds to what it can spend to bolster consumption or how much it can print to support its asset markets. We will more than likely continue to “level the playing field” via currency devaluation and an increasing emphasis on trade barriers and immigration, as opposed to constructive policies to make this country more competitive in the global marketplace.”

http://www.pimco.com/Pages/AllentownDecember2010.aspx

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QE2

The links below present two opposing conclusions on the second round of quantitative easing (QE2), which began today.

Quantitative easing refers to a process that involves the Fed printing new money to buy long-term treasury bonds.  The practice aims to stimulate demand and prevent deflation by lowering long-term interest rates, but QE also has many other effects.  QE raises the risk of inflation, distorts risky asset prices and disturbs currency markets.  Low US interest rates have created a “carry trade” where investors borrow dollars at superficially low rates and invest abroad.  This does nothing to help the US economy and has the potential to distort foreign asset prices.  Finally, to cap it off, QE supports our current fiscal irresponsibility by keeping the government’s borrowing costs artificially low.

I side with Feldstein on this one.

http://www.ft.com/cms/s/0/9ba381d0-e6b5-11df-99b3-00144feab49a.html

http://www.nytimes.com/2010/11/04/business/04leonhardt.html?partner=rss&emc=rss

Also note the international implications:

http://www.reuters.com/article/idUSTRE6A30PY20101104?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+reuters/businessNews+(News+/+US+/+Business+News)&utm_content=Google+Feedfetcher

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I have mixed feelings about Obama’s bank reform proposal that was outlined today.  For a start, the timing is terrible.  This may have genuinely been months in the making but the alignment with Bank bonus season and Brown’s election makes the announcement seem like more popularist bank bashing.  The American Dream is about opportunity not outcome.  Let’s not forget that, OK?

Intent aside, I have advocated for Volcker’s comparatively radical proposals for some time now.  Fundamentally, proprietary trading operations should not enjoy access to cheap borrowings as implicit (or explicit) federal support grants them.  Yet their integration with commercial banks recently provided many such operations with extensive access to federal resources like the discount window.  The moral hazard implicit in a system of financial risk taking that includes any such backstops (the “Greenspan/Bernanke Put” being another issue entirely) will never create efficient, long-term investment and is thus unacceptable.   While I see some economies of scale in commercial banking (BOA’s online services, ATM networks) I see no efficiency gains from the existence of banks so large they pose a systemic danger.  I also don’t believe proprietary trading operations  enhance commercial banking services, or vice verse, for combined companies’ customers.  I don’t care how many republicans (with frustratingly little knowledge of economics) start tossing around buzz words like “government interference” and “stifled innovation,” I believe separating proprietary trading from commercial banking and disassembling/preventing too-big-to-fail institutions makes good economic sense from the perspective of this nation’s best interests.  That said, the devil is usually in the details.  We’ll wait and see where the hows, whos and whens leave this proposal.

http://online.wsj.com/article/SB10001424052748703699204575016983630045768.html?mod=igoogle_wsj_gadgv1&

Additional Reading:

http://www.project-syndicate.org/commentary/johnson3

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