Friday, March 30, 2007

My True Nature Revealed...:-)

The Simpsons character ( via Redheadmaniac) that most closely resemble me is.....

You Are Mr. Burns

Okay, so you're evil...

You have big plans to rule the world, and you'll destroy it in the process if necessary!

You will be remembered for: the exploitation of the masses

Life philosophy: "One dollar for eternal happiness? I'd be happier with the dollar."

Thursday, March 29, 2007

Income Inequality, Monetary Policy & The Left

The New York Times reports that income inequality in America rose sharply in 2005, to its highest level since 1928. This was also noted by the leftist Economic Policy Institute.

What is missed is why inequality has increased. Leftists typically blame foreign trade and Bush's tax cuts, while paleoconservatives , in addition to trade, often blame immigration. Yet while there may be some limited truth in these explanations, the perhaps most important explanation is left out. What explanation, you might wonder. Well, ask yourself, what was special about 1928? The answer is that it was the peak of a stock market bubble and strong cyclical boom. Income inequality then fell sharply during the great depression. Similarly, income inequality previously peaked in 1999, at the height of the tech stock bubble, and then fell back in 2001-2003.Only to rise again in 2004-2005. See the pattern here? Income inequality rises during booms and falls during busts, as the prices of assets mainly held by the wealthy rise druing booms and falls during busts.

This is the way it has always been, and it is predictable from a theoretical perspective. Because newly created money tends to affect asset prices before product prices and product prices before wages, monetary driven booms will tend to increase relative income for the wealthy and reduce it for the poor.

So if the left really thinks rising income inequality is so bad, why don't they fight for hard money? In reality, Economic Policy Institute and other leftists typically supports inflationary monetary policy, see for example here.
The idiots at EPI in fact seems to be under the illusion that inflationary monetary policies will reduce income inequality, when basic economic theory and all historic evidence shows that it will increase it.

Wednesday, March 28, 2007

Risk Of U.S. Recession Increasing

New information this week implies that the risk of a U.S. recession increases further.

First, oil prices are increasing as traders are putting an increased risk premium on oil after Iran's abduction of 15 British sailors and the increasing tension over the Mullah's nuclear weapons program. Fundamentally, it is difficult to justify an oil price over $60 per barrel given the fundamental supply and demand conditions over the world. But in the case of an armed conflict between Iran and the U.S. and/or Britain and/or Israel, oil shipments from Iran, and possibly if Iran decides to attack oil tankers from Arab gulf states, the entire Persian Gulf region, oil would rise to $100 per barrel or more. As the perceived risk of this increases, oil prices will increasingly have a significant risk premium. Higher oil prices implies that the purchasing power of U.S. consumers will be reduced which in turn means that consumer spending will be reduced.

Second, new home sales fell to a 7 year low. And as Nouriel Roubini points out, new home sales are what matters for construction activities. And as home sales reach new lows and prices fall while inventory levels rises, this means that residential investments are likely to continue to fall.

Thirdly, orders of core (Non-defence, non-aircraft) capital goods continue to fall. As this is a proxy of future business investments this means that business investments are likely to fall in the second quarter.

All in all, this means that growth will be below 2% during the first quarter, perhaps as low as 1%. And with the leading indicators of both business investments and residential investments indicate future declines and with higher oil prices ,as well as the increased fear of the ramifications of the subprime mortgage mess, indicating that consumer spending will be stagnant or declining, there is now a significant probability of negative growth in the second quarter.

UPDATE: I see the markets are interpreting the upward revision of fourth quarter GDP from 2.2% to 2.5% as a bullish sign. But this number in fact implies increased risk of a recession as it was based on an upward revision of inventories. This means a higher risk of reduced inventories in the future. Meanwhile, business investment was downwardly revised while corporate profits fell, also bearish indicators.

The Twisted Ways Of Tony Blair

British soldiers have been sent to Iraq to do things which are really none of their business and which in many cases are futile and unattainable. Such as the hopeless mission of making warring primitive tribes civilized or the prevention of smuggling into Iraq. British interests are in other words sacrificed for people who despise them and whose values are alien to British society.

When being on a mission to prevent smuggling, 15 British sailors were surrounded by Iranian naval vessels who then abducted them and are now holding them hostage in Teheran, something which you all presumably already know.

I now read in the New York Post that the sailor's escorting ship, HMS Cornwall witnessed all this and had the power to destroy the Iranian naval vessels who attacked their comrades. Yet the British Defence Ministry apparently ordered them not to defend their comrades and simply hold still and witness their kidnapping.

Such is the ways of Tony Blair. First he sends out British soldiers to do things which are none of Britain's business (preventing car smuggling in Iraq) in a hostile area, then he refuses to allow them to defend themselves when attacked by one of the hostile forces. The only thing consistent in his actions is his altruistic betrayal of Britain's interests for the benefit of hostile people.

Tuesday, March 27, 2007

Swedish Money Supply Growth Accelerates

Swedish money supply growth rose to 17.3% in February, far higher than in other Western countries. This again illustrates the strong cyclical content in Swedish economic growth.

Update: I see Euro-zone M3 growth accelerated to 10,0%, a record high. While being lower than in Sweden it is certainly far too high, strengthening the case for more agressive tightening of monetary policy.

Monday, March 26, 2007

The Issue Of China's Relative Importance

When I recently participated in a seminar about a report in Financial Analysis authored by me and some other people, I ended up in a brief discussion with my teacher regarding a part of the report where I (I was the author of that part) argued that the entry of China in the global economy had contributed to increasing the difference in return between interest bearing assets and real investments. This is because China's purchase of western bonds have directly pushed down interest rates and the downward pressure on consumer prices through the influx of cheap Chinese goods have indirectly enabled central banks to keep short-term interest rates low. Moreover the increase in global labor supply through China's entry into the global economy have weakened worker's bargaining power and so contributed to rising corporate profits. This means that it is more profitable than ever to borrow more money for real investments.

My teacher argued that the Chinafactor was "overrated". In hindsight, my reply was unusually unsatisfactory as I am normally good at debates, but this time I left out the strongest arguments for my case. In that brief discussion I allowed myself to be dragged in a debate about China's present GDP at current exchange rates, which is the measure which gives the lowest estimate of China's economic importance. What I should have pointed out was that China's significance for the global economy is much larger than relative GDP at current exchange rates because 1) Because the yuan is so undervalued, real domestic activity is much larger than what current exchange rates apply. This is evident in the fact that China's commodity consumption is as big or bigger than America's. 2) China have a much larger foreign trade relative to GDP than for example America or Japan. China's goods exports surpassed Japan's in 2005 and will this year surpass America's. Already China is a bigger supplier of goods to the European Union than the United States (or anyone else), and will likely overtake both Canada and .the EU as a goods supplier to the U.S. in 2007.

China's current account surplus already took over Japan's in 2006 to become the biggest in the world, and will likely increase significantly in 2007, considering how fast the trade surplus increased in January-February.

When my teacher then asked of how long it will take for China to overtake America in GDP at current exchange rates, I made the mistake of quoting some calculations that I have read, estimating it to occur by 2040. Yet after having made some calculations tonight, I realize that that estimate is based on unrealistically low estimates of relative Chinese growth.

China's GDP was 20,94 trillion yuan in 2006, which with year end exchange rates was $2.7 trillion. America's GDP in 2006 was $13,24 trillion, meaning it was 4.9 times China's GDP.

In order for it to take as long as 34 years for China to surpass America, relative growth would have to be just 4.8%. Considering that growth currently seems to be about 10% higher in China and the 10-year average is nearly 7% higher, this seems unrealistically low. Moreover, this would also assume no real exchange rate appreciation. Another unrealistic assumption given the tendency for real exchange rates to rise in rapidly growing countries and given the strong external and internal pressure on China to revalue the yuan significantly.

The current 10% growth differential is unlikely to be sustained as China's growth is pushed up by cyclical factors, while America's is pushed down (so far only slightly) by cyclical factor, so the longer term 7% differential is more appropriate to uses in these calculations. And with the much more realistic assumption of 7% growth differential and a 5% real annual appreciation of the yuan relative the dollar, China would overtake America by 2020.

So, whether you like it or not (And there are good reasons to be both happy and concerned about it), China is one of the most important factors in the global economy today. And it will become the most important much faster than what most people think.

Better Dead Than Fed?

Robert Bidinotto has an excellent post about the twisted moral view of the so-called "animal rights"-movement, which leads them to demand the killing of polar bear cub Knut.

Friday, March 23, 2007

More on Subprime Mess & Free Markets

Thursday, March 22, 2007

The Fed Was The "Abusive Lender"

In a all too typical fashion, the free market gets the blame for government failings, as Emory Rushton, the U.S. Office of the Comptroller of the Currency's senior deputy comptroller, blames so-called "abusive lenders" for the sub-rime mortgage crisis. He does blame the Fed, sort of, but he faults them for not regulating enough. But the real problem was that the Fed held interest rates too low for too long time and thus provided these lenders with the money they needed for their "abusive lending". The Fed was thus the real "abusive lender" and the Fed is thus responsible for the subprime mortgage crisis.

Wednesday, March 21, 2007

Wishful Thinking On Wall Street

If you desire power over other people-then aim at becoming central banker. You don't actually have to do any formal policy action to cause dramatic movements on global financial markets. All you have to do is to delete a sentence in a statement. Watch now how stock- and bond markets in America rallied because the Fed deleted the sentence "additional firming that may be needed" from the statement accompaning the decision to hold the Fed funds rate unchanged. Even though the Fed still explicitly says it is more concerned about price inflation than weak economic growth, the financial markets are now pricing in a 44% chance of a imminent (during the next three months) rate cuts.

Yet with price inflation showing strong upwards pressure, I have difficulty seeing how the Fed could cut rates. Not that I buy into the myth of the Fed as "inflation fighter", but it will be difficult for the Fed to retain that myth if they cut rates in the face of rising price inflation. Since the Fed values that myth so much, they will be unable to cut rates anytime soon.

Update: I see blogger Calculated Risk have a great summary how the Fed in its statements is slowly recognizing how the U.S. economy is becoming more stagflationary, just as I have been saying all along, with both the risk to growth and inflation being greater than in previous statements.

Sunday, March 18, 2007

Stagflation Is Not "Mixed Signals"

AFP reporter Rob Lever reports about the dilemma for the Fed as inflation remains high, while the subprime mortgage meltdown creates a risk of a recession. So far, so good, that's what I've been telling you for some time.

The problem is that he labels this as being "mixed signals", thus revealing his Keynesian bias. But the combination of falling output and rising inflation is not a case of "mixed signals". It is a case of stagflation.

Saturday, March 17, 2007

China's Economy Re-Accelerating

China again raises interest rates today. Yet despite several interest rate increases and increases in banks' reserve requirements and a slow appreciation of the yuan against the dollar, the Chinese economy actually appears to be re-accelerating after slowing down to "just" 10% growth in late 2006. The trade surplus for the first two months of the year rose a full $27 billion compared to a year earlier, which if sustained in March, will add 6 to 7% to growth. Yet domestic demand seem very strong too, with retail sales rising 14,7%. Not surprisingly, industrial production growth therefore rose 18,5% in January-February compared to the previous year. Even if the trade surplus rises somewhat less in March and even if ( note how I wrote if, I haven't seen any evidence that it actually has done so) investment growth have slowed somewhat, GDP growth probably rose back to 12% or so during the first quarter.

While this is mostly the result of the structural strength of the Chinese economy, with its extremely high savings rate and vast supply of workers, it seems clear that it is also to some extent a result of the failure of the People's Bank of China to contain monetary excesses. Money supply growth re-accelerated to 18% in February.The reason why it has failed is of course its unwillingness to allow the yuan to rise in value faster than its current slow rate. While the yuan reached a new high against the dollar in Friday at 7,728, it is still rising too slowly to prevent foreign exchange reserves from accumulating at an unsustainable rate. This means both that there will be excess investments despite its increases in interest rates and reserve requirements and administrative lending restrictions, and it will also mean that to the extent these investment restrictions are successfull, an increasing amount of Chinese savings will be squandered in foreign exchange reserves.

Friday, March 16, 2007

"Greenspan Causing Stir On Wall Street"

When Alan Greenspan was Fed chief he consistently pretended that everything was fine and that thanks to him, there was no problems in the U.S. economy. He kept pretending that for some time after he left office. But lately, he have suddenly become dramatically more bearish, saying a recession is possible (later being more specific and pinning the probability to a third) and noting how a significant proportion of issued subprime mortgages are unsound. This, of course, completey contradicts his previous statements of how the former housing boom was completely sound and that no recession was in sight.

Now, many of Greenspan's Wall Street buddies are angry at him, accusing him of being a hypocrite. They accuse him of opportunistically changing his mind according to what will maximize his income and prestige. Greenspan a opportunistic hypocrite? That's like saying Adolf Hitler was a Nazi or Karl Marx a communist. Anyone who knows Greenspan's past would know that he practically defines the word opportunistic hypocrite. I must say that I can't feel sorry for the Wall Street suckers who now feel betrayed. Anyone who trusts someone like Greenspan deserves to be screwed. It's like that old saying "Fool me once-shame on you. Fool me twice-shame on me".

China Becomes Even More Capitalist

Now property rights will be formally instituted in China, further underlining China's transformation into a capitalist society. Now, the de facto transformation from this new law will of course not be as dramatic as the formal transformation, because property rights were mostly respected even before and it won't be consistently respected even now. But land seizures -a frequent source of rural riots- will be reduced as a result of this new law and the symbolic meaning of a law so obviously contradicting communism still means it is positive change.

Thursday, March 15, 2007

Further Evidence of Stagflation

I've been telling you for quite some time now that the U.S. faces a significant slowdown, probably a recession, combined with strong inflationary pressures, i.e. stagflation.

Today offered further evidence of that view, with weak manufacturing survey data from New York and Philadelpia. Note however how the price indicators in these surveys rose. And while initial jobless claims fell somewhat, continuing claims rose much more.

Meanwhile producer prices rose far more than Wall Street forecasts, with not only energy and food prices soaring, but even the "core" index rising significantly too.

A Merril Lynch analysis meanwhile argued that unless the Fed cut interest rates, the probability of a U.S. recession is 100%. While I think that a recession now seems more likely than not (i.e. my current estimate is a 70-75% probability), I wouldn't put the probability fully as high as 100% as there is always a possibility of some positive supply shock like another dramatic oil price decline. However, I don't think the Fed will have any room to cut interest rates with inflationary pressures being so strong.

Tuesday, March 13, 2007

Today's Quote

Pat Buchanan about the failure of increased government spending on education to raise real educational performance in America that I have discussed on several occasions (for example here) before:

"Taxpayers are being lied to and swindled by the education industry, which has failed them, failed America and flunked its assignment -- and should be expelled for cheating".

Latest Economic Statistics

China's trade surplus unexpectedely soars to $23.8 billion in February. That was really suprising given the fact that the Lunar year holiday occurred in February this year. The total January-February surplus was $39.6 billion-up from $12.6 billion last year. Given that the surplus is typically low at the beginning of the year, this means that the seasonally adjusted surplus is running at least at $25-30 billion per month.

This creates 3 problems for China: 1) It increases the risk of protectionist legislation elsewhere 2) It forces them to accelerate the build up of foreign exchange reserves 3) It contributes to rising inflation. All of which would be remedied if China allowed the yuan to appreciate at a significantly faster.

Meanwhile, Denmark's current account balance is going the opposite way. Despite a surging government budget surplus, the January current account balance fell to -1.1 billion Danish kronor, from a surplus of 0.3 billion last year, bringing down the 12 month surplus to 37.3 billion. Denmark's economic boom, like that of Sweden, is built on a unsustainable credit expansion and property price bubble. However, there are now signs that prices may have peaked, at least in Copenhagen.

The American economy on its hand is showing fresh signs of weakness.Business sales fell a full 0.7% in nominal terms (even more in real terms, of course) in January, while inventory levels reached a two year high. And retail sales rose a mere 0.1% in February, and that's also in nominal terms, meaning real consumer spending likely fell in February

Monday, March 12, 2007

America Today- Sweden Tomorrow

While for reasons mentioned in the previous post, the fall-out on the overall economy may be less severe than it would have been in the past, we are now seeing increasing problems created by the bursted housing bubble in America, as sub prime mortgage lender New Century Financial is basically bankrupt. This will likely be followed by similar news, and implies that the worst is far from over.

Meanwhile, Sweden, which is yet in the blowing up of bubbles stage of the business cycle, is seeing housing affordability fall sharply. While I don't expect the Swedish housing bubble to burst anytime soon, particularly given how the planned housing tax reform is likely to fuel it further, it clearly illustrates the strong cyclical element of the current Swedish boom.

Sunday, March 11, 2007

Why the Economy is Less Cyclical

While I believe there is a high probability of another U.S. recession soon, and while this one is likely to be more severe than the ones of 1990-91 and 2000-01, it nevertheless remains a fact that business cycle fluctuations have become less intense. In some other countries, the pattern is even more clear, with countries like Britain, Australia and Sweden not experiencing a full blown recession since the early 1990s.

The interpretation statists would make is that monetary policy has become more skillfull in managing the economy and that monetary policy now finally "works" in stabilizing the economy. I, on the other hand, have argued that the fact that the recession in America 2000-01 was very mild and in Britain, Australia and Sweden completely non-existent reflects that problems have been postponed, not avoided.

I still believe that. However, there is also a strong case that structural changes in the economy have made the economy less cyclical, and that monetary policy mistakes that in the past would have created a recession will now only produce a slowdown because of these changes.

Carl Steidtmann of Deloitte has written an interesting article where he argues that three structural changes in the U.S. economy (changes which is even more pronounced in Britain, Sweden and Australia) have made it less cyclical.

First, non-cyclical sectors constitute a much higher proportion of the economy than in the past. Second, more effective inventory management have reduced inventory levels and thus made swings in inventory levels much smaller than in the past. Third, increased level of foreign trade ensures that foreigners take a much higher proportion of the fall-out in case of slowing demand. And when governments inflates, the influx of cheap goods from China and elsewhere ensures that consumer prices don't increase as much as in the past, thus enabling government to inflate the money supply without having to revers it quickly as consumer price inflation gets out of hand.

This doesn't imply that government monetary policy has become more successfull. Just that the economy is now less vulnerable to its distortions.

Saturday, March 10, 2007

One Thing Leads To Another

I have written previously about the irrational ethanol policy of the U.S. government. On the one hand they heavily subsidize ethanol based on U.S. corn with the alleged intent of reducing dependence on oil imported from hostile countries like Iran, Saudi Arabia and Venezuela. On the other hand they slap heavy tariffs on ethanol from Brazil, whose sugar is far more suitable than corn for producing ethanol, thereby negating the oil dependence reducing effect of the first policy. The real intent behind this scam -supported both by President Bush and Democratic leaders like Hillary Clinton and Barack Obama- is to benefit the parasitical U.S. farm lobby, at the expence of Brazilian sugar producers, U.S. taxpayers and consumers and corn consumers in Mexico (and elsewhere).

Now we see an interesting article about another effect of the priviliges given to corn farmers-meat prices will rise too as the cost of feeding animals with corn soars. While Democratic leaders like Hillary Clinton and Barack Obama claim to be concerned about the plight of low income workers in America, they support policies that raise food prices and therefore lower the real income of low income workers,

Friday, March 09, 2007

Government Intervention Weakening Mexico's Oil Industry

Interesting New York Times article on how government mismanagement have prevented the development of Mexico's oil industry-making Mexico and most other parts of the world poorer, benefiting only other oil exporters like Venezuela, Iran and Saudi Arabia.

Latest News About the U.S. Economy

A lot of important news about the U.S. economy has been released during the latest 24 hours. Including last night's flow of funds report, the trade balance report and the employment report.

Starting with the flow of funds report. It was actually somewhat more bullish than I had anticipated. While household debt again rose to a new all time high, to 131,8% of disposable income up from 130,4% the previous quarter, it was still a lot slower increase than expected given the much sharper increase in bank lending. Presumably, this apparent statistical discrepancy is a result of a significant slowdown in non-bank lending.

Another bearish number was a continuing decline in owner's equity in homes, which fell to a new all-time low of 53,1%. Yet another bearish indicator was the corporate financing gap (the amount of money corporations need to raise from outside sources) which rose to an annual rate of $70,5 billion, up from $48,3 billion in the third quarter. For all of 2006, the gap was $47,1 billion, compared to a surplus of $138,3 billion in 2005.

One bullish number was the significant increase in household net worth, which occurred despite higher levels of debt and the slower house price increases. Indeed, asset values and therefore net worth increased faster than debt for the first time for quite some time, lowering the debt to net worth ratio. This was the result of the stock market rally last year, which is illustrated by the fact that mutual fund shares and pension fund reserves were the assets that increased the most. This bullish trend is however unlikely to continue in the first quarter of 2007 as stock prices have been stagnant.

Turning now to the trade deficit number, it came in roughly as expected at $59,1 billion. Contrary to Gregg Robb of marketwatch, however, it won't add to first quarter GDP, as the deficit was somewhat higher than in October 2006, both in absolute number and in the "2000 Chain-Weighted Dollars" used for calculating real GDP growth.

The employment report was seemingly bullish at first glance. For some reason, "professional analysts" are obsessed with the non-farm payroll number, even though it is actually one of the less relevant. And as the non-farm payroll number came in line with expectations and as the unemployment rate fell and average hourly earnings increased a full 0,4%, the number was interpreted as a vindication of the bulls.

However, the small increase in non-farm payrolls masks a unusually large decline in the more interesting number of hours worked, which fell 0,3%. And the decline in the unemployment rate was a result of a significant decline in the labor force participation rate. Employment actually fell according to the household survey and is lower than two months ago.

The increase in average hourly earnings will likely be cancelled out by an even bigger increase in consumer prices as energy prices have recovered from the January lows and both food prices and "core" prices rise rapidly.

So, contrary to the Wall Street interpretation, the employment report was bearish as hours worked and probably also real wages fell, supporting the stagflation scenario I've predicted for some time. Also supporting this is the fact that commodity prices have started to rise again after a brief correction, while rising level of defaults of sub-prime mortgages is likely to put further pressure on the housing market.

Thursday, March 08, 2007

More ECB Rate Hikes Should And Will Come

As just about every economic analyst expected given the use of the magic word "vigilance" at the last meeting, the ECB raised interest rates today, to 3,75%. While no rate hike is likely the next meeting given the fact that the word vigilance wasn't used today, it will likely come in the next 3 months. Escpecially given the fact that ECB chief Jean- Claude Trichet used the phrase "accomodative" to describe ECB policy.

It certainly is an "accomodative" (i.e. inflationary) policy given the fact that M3 money supply grows at a 9,8% rate. While lower oil prices have helped push consumer price inflation slightly below the supposed 2% ceiling, the momentum is clearly in favor of rising inflation given the rapid money supply increases which in turn have increase in the price of other commodities and contributed to tightening labor markets, which in turn have emboldened unions in Germany and elsewhere to demand high pay increases.

Given this, more rate increases are inevitable. The ECB by keeping interest rates too low for too long and then being too slow to raise them again will face consumer price inflation over 2% again soon. To correct past mistakes, they will have to raise more dramatically than had been necessary had they not kept them so low in the past.

Tuesday, March 06, 2007

Stagflation Coming

This news item certainly supports the "hawkish bear" point of view that I have been arguing for. While commodity prices have pulled back somewhat from recent highs as traders have betted that a U.S. recession will lower prices, they will likely rise again because of a falling dollar and strong non-U.S. demand.

Friday, March 02, 2007

Damn Environmentally Irresponsible Marsians!

We need to send Al Gore to Mars immediately! It seems that the Marsians have been polluting Mars' atmosphere with so much green house gases that ice have started to melt in Mars! Al Gore needs to go to Mars immediatelly (using ethanol driven space ships, of course) and tell the Marsians the inconvenient truth that they need to stop consuming so much oil and coal and instead only use ethanol driven cars.

Thursday, March 01, 2007

Economic Statistics Review

After weeks of unanimously bearish news about the U.S. economy, the bulls had a relatively good day today, with one really bullish news, one moderately bullish, one mixed and one bearish. The really bullish one was the increase in the ISM Manufacturing index. But while the ISM Manufacturing index is an important indicator, one isolated monthly rise is not enough to signal an end to the manufacturing recession, given the otherwise overwhelmingly bearish news and given the fact that the absolute level of the index, 52.3, is still relatively low. Another seemingly positive news was the significant increase in personal income. But this seems to be mostly a one-time event related to bonuses on Wall Street and elsewhere, so this doesn't really contradict the bearish view of the U.S. economy.

The mixed news consisted of a sharper than expected drop in January construction spending combined with an upward revision of December construction spending, leaving January construction spending at about the expected level. The bearish news consisted of higher levels of both initial and continuing jobless claims. Also, as expected, the personal income and consumption report reported that the "core" PCE deflator increased at its fastest rate for quite some time.

Yesterday, we saw an expected sharp downward revision in U.S. fourth quarter GDP growth, from 3,5% at an annual rate compared to the previous quarter to 2,2%. The downward revision was pretty broad based, with personal consumption, fixed investments, inventories and net exports all being downwardly revised. The only thing that was upwardly revised was -ominously- government spending.

Hong Kong also reported fourth quarter GDP. The trend continued to be positive, with overall growth being 7.0% compared to a year before, led mainly by rising investments. Government spending has stopped falling in absolute terms, but still falls relative to GDP.

Sweden also reported strong growth, although at 4,7%, it is still a low lower than Hong Kong. The Swedish boom is driven by a combination of sound factors, such as a relatively favorable demographic structure (Sweden is one of the few Western countries where the working age population is rising relative to overall population) and a falling relative burden of government spending, and the very unsound factor sonstituted by the too inflationary policies of the Riksbank (Money supply growth in Sweden is higher than in China, even though potential structural growth is far, far lower).

Good Point

Cafe Hayek blogger and GMU Economics professor Don Boudreaux comments on the argument made by Sebastian Mallaby and others about the alleged need to compensate the losers from free trade by job training programs. Like me, he doubts the usefulness of these programs. And he also makes the good point, that even had these job training programs been just and efficient, this wouldn't justify tax hikes. With government spending up sharply in recent years, there's more than enough "fat" that could be used to finance these job training programs.