Wednesday, October 31, 2012

Southern European CA Deficits Continue To Plummet

Here are the results for the current account balances in the period January-August for the main four Southern European countries. The numbers in () represents the deficits during the same period in 2011:

Spain: -€16.1 billion (-€26.6 billion)
Italy: -€14.7 billion (-€39 billion)
Greece: -€4.6 billion (-€13.7 billion)
Portugal: -€1.7 billlion (-€8.4 billion)

As you can see, the biggest improvement has been in Portugal where the current account deficit has dropped nearly 80%, while the deficits in Italy and Greece has dropped by nearly two thirds, with Spain showing the smallest improvement as its deficit dropped by "only" about 40%. Compared to my last update on this issue two months ago every country except Italy has seen their rate of drop accelerate, with Greece in particular showing faster imrpovement as it has in fact run two straight monthly surpluses. These monthly surpluses could to some extent reflect seasonal or temporary factors, but as the 8 month numbers show there is clealy an underlying improvement.

Monday, October 29, 2012

Are Hurricanes Getting More Frequent?

Hurricane Sandy who is about to create large problems in north eastern United States has now because of those problems overtaken the upcoming elections as the big media issue.

Quite predictably, some "climate change" alarmists are saying that things like "Sandy" are the result of "climate change, The problem with that theory is that hurricanes have occurred in North America, and certain other parts of the world, since the beginning of human history (and likely for an even longer period of time before it as well), long before any "man made climate change".

It is in fact not even the case that hurricanes have become more frequent. Statistics on hurricane frequency isn't available for most of human history since the Indians of North America didn't keep such statistics, nor was it kept during the first two hundred years of European presence in North America.

However, data exists for the period since 1851, kept by the National Oceanic and Atmospheric Administration. And that data shows that during the second half of the 19th century, 1851-1900 there were 97 hurricanes in the United States. In the second half of the 20th century, there were only 73 hurricanes. The decade with the single highest number of hurricanes was the 1880s, when there were 27 hurricances. Since "global warming" is generally believed to have begun around the year 1900, these results are the opposite of what the "climate change" alarmists wants us to believe, yet they are the true results.

Saturday, October 27, 2012

Down Under Economy Is Going Down?

Interesting article about how the sharp slowdown in China's economy will have dire consequences for Australia's economy

China's boom has helped Australia, through its commodity exports to China, boom a lot faster than almost all other advanced economies, its per capita income is currently the highest in the world among countries with a population above 10 million, even as Australia has had population growth of 1.5 to 2% per year, the highest population growth rate among all advanced countries except Luxembourg and Israel.

But now as China's economy slows its demand for Australian commodities has started to fall. This factor is already apparent in Australia's trade statistics which showed a yearly drop in exports of  as much as 12% in August following a 3% yearly decline in July, causing its previous trade surplus to turn in to a deficit.

The labor market isn't doing as bad as exports so far because of rising domestic demand, yet employment growth has also dropped sharply, and at 0.5% it is well below the 1.5% rate of population growth. As a result the unemployment rate has increased the last year even as the labor force participation rate has dropped.

Tuesday, October 23, 2012

Presidential Vs. Senatorial Races

As very few, if anyone, who aren't completely cut off from the rest of the world could have avoided, there will soon, more specifically exactly two weeks from now, be U.S. elections. Almost all focus has however been on the Presidential election, even though there are also congressional elections with all seats of the House of representatives and a third of all seats in the Senate also being up for election.

Though Democrats will probably pick up more House seats than they will lose, Republicans will still probably retain a majority in the House. The story is roughly similar in the Senate, but with the parties in reverse roles: Though Republicans may perhaps (though that is less certain than the likely Democratic gains in the House) make a net gain of one or two seats, but the Democrats will still most likely keep the majority. Currently, realclearpolitics lists based on polls, 47 Senate seats as likely Democratic, 43 as likely Republicans and 10 as "toss ups" (the 47 and 43 numbers includes seats not up for election this year). Assuming half the "toss ups" are won by Republicans and half by Democrats, this would imply a Democratic majority of 52-48, compared to the current 53-47 majority.

This means that regardless of whether Obama or Romney is elected President, their power to change particularly domestic policy will likely be constrained by one of the chambers of Congress being held by the other party.

Usually, people vote for the same party in all elections, which is why the solidly  Republican state Texas is near certain not only to be won by Mitt Romney in the Presidential election, but also to elect Republican Ted Cruz for the U.S. Senate. and why similarly the solidly Democratic states of California and New York are not only near certain to be won by Barack Obama in the Presidential election, but also by Democratic candidates Diane Feinstein and Kirsten Gillibrad respectively in the Senate election.

However, sometimes Senate candidates from one party do better than their Presidential nominee.  Massachussets and Connectitut are both basically left-liberal states and Obama therefore currently has an average lead of 15 and 12 percentage points, respectively. Yet though Democrats Elisabeth Warren and Chris Murphy both have a lead in the polls against their Republican opponents Scott Brown and Linda McMahon, that lead is far slimmer than Obama's lead, only 2 and4 percentage points respectively. Meaning that though Romney has virtually no chance of winning over Obama in those states, McMahon and Brown has a shot of winning their Senate elections.

I'm not entirely sure why Chris Murphy and Elisabeth Warren are doing so much worse than Obama, but in part it likely reflect that their campaigns haven't been well run, and particularly in the case of Warren it also reflects that her opponent Scott Brown has tried to present himself as more moderate than the rest of his party.

By contrast, though Romney has a significant 10 percentage point lead in Missouri, the Republican Senate candidate Todd Akin trails his Democratic opponent Claire McCaskill by 5 percentage points. The main cause of why Akin is doing so much worse than Romney is of course his infamous gaffe about rape and impregnation.

Sunday, October 21, 2012

Krugman Doesn't Get The Lessons That Latvia Offers

Paul Krugman criticize those who point to Latvia as an example of how austerity can be associated with growth by pointing to how real GDP is still significantly below, and the unemployment rate significantly above, the pre-crisis level.

But the issue here isn't whether or not Latvia should be content with the current state of affair in its economy, as far as I know no one has asserted that they should be (and I certainly don't think they should be content). The issue is what effect the austerity measures had, and when you evaluate a certain policy, you should compare current GDP and unemployment not with some previous cyclical peak, but with the point in time when the policy was implemented. And Latvia didn't implement austerity in 2007 or 2008, they implemented them mostly in 2010 and 2011. And GDP grew and unemployment fell significantly in both 2010 and 2011.

That alone doesn't of course prove a causal link between austerity and expansion, just like the economic contraction in some other countries that have implemented austerity doesn't prove a causal link between austerity and contraction, as there are other factors that either negatively or positively affect outcome, but the point is that first of all a minimum requirement of empirical testing is that it compares GDP and unemployment in the time period right before the policy was implemented with current results, and secondly that the Keynesian assertion that austerity is always empirically associated with negative growth is simply false.

Wednesday, October 17, 2012

Canadian Mortgage Debt Now Exceeds U.S. Bubble Level

Canada's mortgage debt to disposable income level is now higher than in the U.S. during the height of its housing bubble.

Saturday, October 13, 2012

Government Debt & Inter-Generational Distribution

There is currently a big debate between on the one hand Nick Rowe of the Worthwhile Canadian Initiative (who has written about it first here and then here and here) and several leftist bloggers including Brad DeLong, Dean Baker and Paul Krugman.

The basic argument of the leftists have been that government debt doesn't create a burden for the economy because one person's, or institution's (like the government) debt is another person's or institution's asset and so higher debts also means higher assets. And this also means that for the nation as a whole there might not be any inter-generational redistribution (though it is likely to create some intra-generational redistribution) as the next generation doesn't just inherit more debts, it also inherits more assets.

Rowe's counter-argument is essentially that the next generation might not inherit more assets if the previous generation sells their bonds and consumes the proceeds rather than pass it on to the next generation. Assuming that the buyer is someone from the coming generation, this will indeed need inter-generational redistribution as the older generation gets to consume more than whey earn, while the younger generation must reduce their consumption to get the assets matching the debts that the older generation passes on to them.

Krugman's response to this is to concede that debt financed spending can redistribute between generations, but to argue that this doesn't mean that the country as a whole will be poorer. So who is right? Actually both sides are right, sort of, when it comes to the direct distributional effect. Rowe is certainly right that deficit spending that goes to consumption will redistribute from the generation that consumes that buys the bonds that finances it to the generation that consumes. Krugman is however right when he notes that this still doesn't make the country poorer because this just mean that during the period that the debt is created, the group that buys the bond will reduce their consumption by the same amount as the generation that receives the benefits will increase their, leaving overall net savings and therefore also net worth and economic output unchanged.

Nick Rowe attempts at creating another impression with an example of the government buying apples from cohort A in an axchange for an IOU that they receive, and then gives the same people those apples back as a transfer payments. Cohort A then eats the apples and sells their IOUs to cohort B. Cohort B then sells their IOUs to cohort C and uses the proceeds to buy apples. At that point, the government decided however that the debt level is unsustainable and decides to tax cohort C to buy the IOUs back. But all this shows is that there was a redistribution between the generations. At no point was total consumption changed. At point 1, when cohort A received that transfer payment they were forced to first give the government the apples in exchange for an IOU they later received as a transfer payment. At point 2, when cohort A sells their IOU to cohort B, they can consumer more, but cohort B are forced to consume less by the same amount to buy the IOUs. Similarly, when cohort B at point C sells the IOUs to cohort C, cohort B can increase their consumption but cohort C must decrease their consumption by the same amount. And finally at point 4, when cohort C is taxed tp finance the repurchase of the bonds, this won't affect total consumption either because the negative cashflow for cohort C from the extra taxes is matched exactly by the positive cashflow from selling the bonds. At none of these four points in time were total consumption either higher or lower. It is true that cohort A got to consumer more as a result of this procees while cohort C got to consume less, but since cohort A:s extra consumption happened at the same time when cohort B reduced theirs and cohort B:s compensated extra consumption happened when cohort C consumed less, total consumption at all points in time was never changed.

 Basically the dispute seems to be what is most important: the issue of whether or not debt redictributed between generations, which it clearly does, or whether or not it at any point in time changes aggregate net wealth of a nation, which it doesn't, at least not directly, assuming debt is financed domestically.

Note however, the disclaimers "directly" and "financed domestically". If foreigners finance the deficit spending directly or indirectly, then the country as a whole will become poorer because the increase in debt is larger than the increase in assets held by residents. And to the extent it crowds out, or promotes, investments it will reduce or increase growth. Similarly, to the extent this process affects incentives it could also reduce or increase growth.

What If They Lowered Ratings And Nobody Cared?

Two days ago, Standard & Poors lowered Spain's credit rating. Yet in the two days that followed Spanish bond yields have fallen, from 5.80% to 5.625% for the 10-year bond and from 3.27% to 3.076% for the 2-year bond. This is almost certainly due to other factors, but it also illustrates that credit rating institutes have increasingly lost their relevance. Which is a good thing since they don't deserve such relevance.

Thursday, October 11, 2012

Not Hard To Make $100 Million

...if your fellow Democrats in the Obama administration gives companies you invested in $2.5 billion. That's what Al Gore did. He makes a lot of green dollar bills by selling the green ideology, one might say.

Gore says he is offended by the idea that he is pushing his ideas out of greed, but if he is so idealistic, then how come he charges $175,000 to make a speech? Especially considering that he already has $100 million, couldn't he do it for free?

An example of how many in the top 1% are in fact benefited by big government, and therefore has economic reasons to support Obama.

Tuesday, October 09, 2012

Joe Biden: A Preview

After President Obama's defeat in his first debate with Romney, his campaign now focuses on his running mate Joe Biden's debate on Thursday with Romney's running mate Paul Ryan. Since I am not psychic I'm not entirely sure how this will end, but considering clips like the one below, it seems unlikely that Biden will help Obama.

Monday, October 08, 2012

The Debate Had Effect

The debate between Obama and Romney that ended in a decisive Romney victory seems to have provided a significant boost for Romney. Before the debate, Obama had a solid lead of on average 3 to 4 percentage points in the polls. In a poll that was partly conducted after the debate, Obama however only leads with one percentage point, and in the poll made by Rasmussen tracking entirely after the debate, Romney leads by 2 percentage points.

Obama still has a good chance of winning, but Romney's odds have clearly improved dramatically as a result of the debatel.

Germany Now Has A Deficit With Rest Of Euro Area

Today Germany published its trade statistics for August. It showed that its overall trade surplus continued to increase, from €7.9 billion in August 2011 to €11.1 billion August this exports increased 5.8% while imports rose only 0.7%.

However, if we look at trade with other euro area countries alone, we can see that last year's surplus of €300 million turned into a €1.1 billion deficit in August this year as exports to the rest of the euro area fell by 3.1% while imports from the rest of the euro area rose 1.1%. The rest of the euro area thus slightly increased its share of German imports while sharply decreasing its share of exports.

This means that Germany is in fact doing what others have called upon them to do: helping to reduce the deficits of the crisis struck countries in Southern Europe by selling less to and buying more from them. That however doesn't mean that Germany's overall surplus has to fall, it has in fact increased due to rising surpluses both with non-euro area EU countries like Britain and Sweden and to non-EU countries.

Friday, October 05, 2012

Hyperinflation In Iran?

Steve Hanke highlights a near collapse in the black market foreign exchange value of the Iranian rial.
Based on this Hanke estimates that monthly inflation is 69.6%. That is probably too high, at least for now, as much of the drop probably reflects real depreciation of the exchange rate, but it is likely that inflation is indeed very high, perhaps high enough to create a hyperinflationary spiral where people's aversion to holding money causes money demand to drop sharply, causing further price inflation something that lowers money demand further and so on.

Thursday, October 04, 2012

You Know Romney Won The Debate....

...when even ardent Democrats like Paul Krugman's only reaction to the debate is to express frustration about how inadequate and disappointing Obama's performance was.

I haven't seen the entire debate myself yet, but the consensus among those who have seen the entire debate, including even people who like Krugman root for Obama,  is that Romney won it. If he, and his running mate Paul Ryan, can repeat that performance in coming debates they may just compensate for previous blunders, including the 47% gaffe, and ensure the defeat for Obama that Obama deserves considering his horrible record.

Tuesday, October 02, 2012

"The View" In 9 Seconds

Instead of going to the U.N. General Assembly, President Obama chose to vist the show "The View". For those of you unfamiliar with the show, here is a 9 second summary made by Family Guy

U.S. Savings Rate Isn't "Above Historical Norms"

This Washington Post article complains that Americans are saving too much and asserts that the current savings rate of 3.7% is "above historical norms". While it is true that it is higher than during the lows of the housing bubble, it is still lower than during most of recent American history as this chart illustrates.