Critics of the Federal Reserve's policies during the current recession argue that the bargain-basement fed funds rate and the central bank's balance sheet expansion will mean a return to 1970's-style inflation. But there are a couple of reasons to doubt that this will be case. On his Econbrowser blog, University of Wisconsin economist Menzie Chinn showed last week that both survey- and market-based inflation expectations are well-grounded, though he cautioned that dangers loom.
"My personal credit crisis" - a New York Times economics reporter on how he got caught up in the subprime mess. Second quarter GDP on track to drop 1.3% - not great, but certainly better than Q1's 6.1% contraction. Did biz press provide fair warning of the crisis? - Columbia Journalism Review's Dean Starkman doesn't think so. How the credit card industry uses data-driven psychology to track cardholders. A Krugman Flip-Flop? - Bentley University's Scott Sumner points out discrepancies in the NYT columnist's views over the last decade. --Zubin Jelveh
As G.M. and Chrysler cut loose almost 2,000 dealers around the country, here is a chart that takes a longer view at the Motor City carmakers' decline: The plot is taken from a recent report by Thomas Klier, an economist at the Chicago Fed, and shows the former Big Three's market share for passenger cars between 1955-79 and the market share for both passenger cars and light trucks (like minivans, SUVs, etc) from 1980 onward. Detroit got its first taste of foreign competition in the mid-1950's as smaller-sized imports made inroads into the Big Three's market share. The U.S.
How to fix the banks? Get them out of the hedge fund business and back to basics. Recession over by the fall - Say economists in latest WSJ survey. Options for unwinding the Fed's reserves Changes for ratings agencies may be coming - Bernanke hints in letter released today. Wal-Mart now competing with dollar stores - The consumer spending bellwether also says year-over-year sales were flat. --Zubin Jelveh
GM and Chrysler to drop 3,000 dealers. Geithner wants derivatives traded on exchanges - Shares of CME Group and Intercontinental Exchange rise. In defense of the stress test scenarios - Cleveland Fed economists say they were "viable and relevant." Government workers delaying retirement - another casualty of the recession. Baby-faced CEOs - It's bad to have one if you're a white CEO, but not if you're black. --Zubin Jelveh
Just in time for Jewish-American Heritage Month, here's a bit of disturbing news from the Boston Review (HT: Brainiac): "In order to assess explicit prejudice toward Jews, we directly asked respondents “How much to blame were the Jews for the financial crisis?” with responses falling under five categories: a great deal, a lot, a moderate amount, a little, not at all.
Backdoor Social Security reform? - What should the U.S. do about cost of living adjustments when prices fall? The Soda Tax - The Senate is considering a sin tax on sugary drinks to help pay for heath care costs. The value of picking the right 'peers' - For CEO's, about $400,00. Jimmy Cayne, 4:20 - The former Bear CEO's doobie smoking proclivities. Why mortgage modifications shouldn't be subsidized. --Zubin Jelveh
It seems not a day goes by without some new forensic dissection from academia on how things went terribly wrong during the boom years. The latest is from University of Chicago economists Atif Mian and Amir Sufi who provide some details on how households turned their homes into ATMs during bubble era and exacerbated the disconnect between consumption and debt. Obtaining data from an unnamed credit bureau agency, Mian and Sufi track 100,000 homeowners living in all of the big cities across the country between 1997 through the end of 2008.
Reinventing monetary policy - Why not target nominal GDP? Gary Becker and Richard Posner on what's wrong with the conservatives. WSJ wants to try micropayments - And Jonathan Berr tells us why it won't work. "Communists can't outspend capitalists" - China's economic pains. Is there life after the crisis? - Dani Rodrik on why China may not come out on top. --Zubin Jelveh
One of the more grievous missteps in the construction of subprime mortgages was their sensitivity to home prices. In a world where values are always flat or rising -- as was thought to be the case in the U.S. -- this relationship could safely be ignored. That’s because with the help of an adjustable rate loan, a borrower could buy a home with little or no-money down, and when it came time for the interest rate to reset updward, he could instead refinance into another adjustable rate mortgage and get started on a new set of affordable monthly payments.