Yes, Krugman is right in requesting the Fed that it needs to allow the economy to
recover. Classical Keynesians are always vary of the Gold Standard and Krugman
sticks to his roots! However, the lack of coordination between the branches of
financial policy could cause many problems.
Well, yes, Krugman is again right on the idea that Government is for the people and
the banks are for the investors. Yet he does not explain the issue correctly. Funds for
bailout/TARP etc. have to flow into the real economy. By picking up the shortfalls
of AIG, the system is set up for more imbalance, and credit markets are frozen while
bonus payments are not is an issue. It is the average homeowner and the economy that
needs a bailout, however only the creditors to AIG were bailed out.
Bernanke and Geithner and Summers seem to be missing this key issue and Krugman
should explain this well - to the people on Main Street - Freddie, Fannie and Ginnie can
possibly become full fledged banks whose main role is to repair the housing market. That
is where the TARP is best used. As banks go under, start selling branches to Freddie, Fannie
and operate in local depressed markets. Reopening credit in Mahoney City, Miami and Modesto
implies that the Govt. must operate in the sub-prime markets. New ways to do this include
equity instruments, insurance etc. Reflating housing will bring a semblance of restitution -
Scarcity theory today is the better model.
Today, there are prime-borrowers with sub-prime loans. and the downfall of some communities has lead to tough problems. quick govt. intervention that liquefies these markets is necessary.
one thing that the Fed can do is to buy up the CMOs and MBSs and then reintegrate them and resell them also. The answer is to have operations at the local level while cutting up the red tape
through efficient handling of foreclosures and stopping those that can be stopped. This calls
for the skills of a community organizer.
Today there are those who have lost their home who might like to be homeowners again. Lending to these folks can be the job of these new nationalized banks. Call this ownership society-II or the New Deal-II but reintroducing ownership albeit at a depressed price is called for.
Removing this structural issue from the economy will clear the way quickly. Fixing this fully and
well is extremely important - it is not the houses or the owners that need fixing, it might be
said.
Tuesday, October 20, 2009
Friday, October 2, 2009
Krugman call for stimulus - yes and no
While Krugman's call for stimulus is a good one, he squarely avoids faulting his buddies at the
Fed, who were responsible for the problem in the first place. Fiscal stimulus presently would
be a welcome panacea, but Krugman needs to notice the broader issue.
The jobs report indicates the economy bled jobs in construction, durable goods manufacturing,
retail and govt. with local govt shedding jobs.
Bush grew govt in a big way in 2001. The construction industry was stimulated through a drop
in interest rates and the whole idea around ownership society. The auto industry gave no interest
loans and retail expanded on the stimulus from refinancing cash back. Amazon turned a profit
in 2001.
This time it is different. Tight credit implies that the auto industry, construction & housing industry and retail are shedding jobs. Bernanke is currently trying to keep his finger on the dollar with no ability to raise interest rates. But the credit markets need to be reflated. The question "Where are the helicopters, Ben?" is not being asked by Wall Street but it is being asked on Main Street.
A new stimulus from the Obama administration would help the economy but what is unclear is how it would be different from the ghost of stimulus' past. The Keynesian answer to most questions is always stimulus.
With Congress ready to help Obama it is clear that he needs to more quickly use the stimulus already allocated. One approach is Municipal and State Debt retirement. By offering Federal loans to states, cities and counties, a road towards rejuvenation is built. Better funded school districts would reduce layoffs in local Govts.
Obama needs to be more proactive on the auto industry. Both Chrysler and GM are best broken into a few companies and these companies can then merge to form a new set of focused companies - for example one that builds electric cars, one that builds trucks etc.
For construction, the roads and transportation stimulus can be quickly used.
Obama is America's first Green President and he should get the Department of Energy to work
with various universities on the new technologies. Public sector spending on scientific research often produces longer term rewards. This can lead to hiring and rejuvenation of the university system.
Obama's other big task is to reform Medicare. The answer to Medicare is to not think single payer but to get into the "Provider" side of Medicine. Buying up new hospitals and SNFs can be a tremendous cost cutter in the long run. Drug manufacture can reduce costs in a big way. Such cost cutting and efficient Govt. service providing is a key to the success of Medicare. Today, the private public partnership is so bloated that Medicare alone can push the deficit to a breaking point.
Over the long term, the size of the US economy will be similar to that of China and the BRIC countries will be similar in size to the G-8. As this time nears, the US has to nominally reduce its debt levels to about 50% of its GDP from the projected 120% or so in 2014.
Fed, who were responsible for the problem in the first place. Fiscal stimulus presently would
be a welcome panacea, but Krugman needs to notice the broader issue.
The jobs report indicates the economy bled jobs in construction, durable goods manufacturing,
retail and govt. with local govt shedding jobs.
Bush grew govt in a big way in 2001. The construction industry was stimulated through a drop
in interest rates and the whole idea around ownership society. The auto industry gave no interest
loans and retail expanded on the stimulus from refinancing cash back. Amazon turned a profit
in 2001.
This time it is different. Tight credit implies that the auto industry, construction & housing industry and retail are shedding jobs. Bernanke is currently trying to keep his finger on the dollar with no ability to raise interest rates. But the credit markets need to be reflated. The question "Where are the helicopters, Ben?" is not being asked by Wall Street but it is being asked on Main Street.
A new stimulus from the Obama administration would help the economy but what is unclear is how it would be different from the ghost of stimulus' past. The Keynesian answer to most questions is always stimulus.
With Congress ready to help Obama it is clear that he needs to more quickly use the stimulus already allocated. One approach is Municipal and State Debt retirement. By offering Federal loans to states, cities and counties, a road towards rejuvenation is built. Better funded school districts would reduce layoffs in local Govts.
Obama needs to be more proactive on the auto industry. Both Chrysler and GM are best broken into a few companies and these companies can then merge to form a new set of focused companies - for example one that builds electric cars, one that builds trucks etc.
For construction, the roads and transportation stimulus can be quickly used.
Obama is America's first Green President and he should get the Department of Energy to work
with various universities on the new technologies. Public sector spending on scientific research often produces longer term rewards. This can lead to hiring and rejuvenation of the university system.
Obama's other big task is to reform Medicare. The answer to Medicare is to not think single payer but to get into the "Provider" side of Medicine. Buying up new hospitals and SNFs can be a tremendous cost cutter in the long run. Drug manufacture can reduce costs in a big way. Such cost cutting and efficient Govt. service providing is a key to the success of Medicare. Today, the private public partnership is so bloated that Medicare alone can push the deficit to a breaking point.
Over the long term, the size of the US economy will be similar to that of China and the BRIC countries will be similar in size to the G-8. As this time nears, the US has to nominally reduce its debt levels to about 50% of its GDP from the projected 120% or so in 2014.
Sunday, March 15, 2009
Note to Premier Wen
Dear Premier Wen Jia Bao,
Congratulations on a great year! Every year, the Chinese economy improves and grows stronger, more diverse and creates more jobs for its people and products for the world. It is a great win-win equation. However, this year, I must congratulate you on your prudent investing. By choosing Treasuries, and making safe harbor investments you have the best performing sovereign fund in the world. I look at the plight of pension funds that invested in Mortgage backed securities, in other speculative investments, - I look at investors like Warren Buffett who have had a bad year, or the Saudi Prince Bin Talal and I think that China has invested the wealth of its people prudently.
Going forward too, US Treasuries are a sound investment up until the rest of the world economy revives. The US dollar has done well as a safe haven currency. When growth in the world economy returns to normal and China, India, Russia, Brazil and the rest of the emerging world start to grow again, it might be a good idea for China to reinvest in a broad basket of
currencies and slowly readjust the yuan to a peg to a basket of currencies.
Chinese companies have gained from the ability to raise capital in the world markets as have investors from the ability to invest in Chinese companies. Trade has provided a great boom to
China. China will soon gain a seat at the G-8 table.
While there are downsides to stimulus, it seems warranted in the present circumstance. Reviving the American consumer is likely to be a stimulus for China's rapid industrialization
and export driven growth as well. Additionally, revival will offer an opportunity for all countries
to invest in R&D in areas like Energy and Health. And the continued expansion of the Internet.
While there is still substantial imbalance in the world economy, it is hoped that in about 20 years, it would have corrected. There is hope that a world economy that has fewer poor and a
much larger middle class emerges worldwide.
Congratulations on a great year! Every year, the Chinese economy improves and grows stronger, more diverse and creates more jobs for its people and products for the world. It is a great win-win equation. However, this year, I must congratulate you on your prudent investing. By choosing Treasuries, and making safe harbor investments you have the best performing sovereign fund in the world. I look at the plight of pension funds that invested in Mortgage backed securities, in other speculative investments, - I look at investors like Warren Buffett who have had a bad year, or the Saudi Prince Bin Talal and I think that China has invested the wealth of its people prudently.
Going forward too, US Treasuries are a sound investment up until the rest of the world economy revives. The US dollar has done well as a safe haven currency. When growth in the world economy returns to normal and China, India, Russia, Brazil and the rest of the emerging world start to grow again, it might be a good idea for China to reinvest in a broad basket of
currencies and slowly readjust the yuan to a peg to a basket of currencies.
Chinese companies have gained from the ability to raise capital in the world markets as have investors from the ability to invest in Chinese companies. Trade has provided a great boom to
China. China will soon gain a seat at the G-8 table.
While there are downsides to stimulus, it seems warranted in the present circumstance. Reviving the American consumer is likely to be a stimulus for China's rapid industrialization
and export driven growth as well. Additionally, revival will offer an opportunity for all countries
to invest in R&D in areas like Energy and Health. And the continued expansion of the Internet.
While there is still substantial imbalance in the world economy, it is hoped that in about 20 years, it would have corrected. There is hope that a world economy that has fewer poor and a
much larger middle class emerges worldwide.
Monday, March 2, 2009
Obama must renegotiate directly with troubled Mortgage payers
Through Fannie, Freddie and Ginnie, the Obama administration should renegotiate payments
with all troubled mortgage owners and fix the mortgage crisis first. Once it becomes clear that
home prices will not decline any further as the govt, has stubbed that leak, the rest of the
credit crisis will start to slowly resolve. The banks will stop making reservations of capital in
anticipation of future losses. And will start to lend money into the public economy. Once home
prices have a floor, the govt can then reopen the securitization channels initially through Fannie
and Freddie. Keeping a low interest environment in place offers a good opportunity for some
kind of borrowers, when the economy starts to turn around.
Look at it this way. The Govt sees a social role in ensuring everyone is covered for health insurance. Why not see mortgage also in that light. Lend to those who are not able to get a lender
thus becoming a lender of last resort. The other side of this is a Govt that slowly and surely
becomes both a bank and finally the biggest homeowner with a large bureaucracy in its payroll
which is letting and servicing all those foreclosed homes. Better to keep the homeowners there
in the first place. Some homes can be given to homeless veterans. Shinseki can help create a
plan that allows homeless vets to own a home that is anyway foreclosed and sitting in govt.
hands waiting for someone to move in. Why not a veteran?
Fixing mortgages will not directly fix the rest of the rot that seems to be setting in. Employment
is in rough water. The steep rise in unemployment is perhaps just as alarming. Obama needs
to ask how he is going to "stimulate" employment again. Employment has usually followed from
the availability of equity capital and credit. What this means is that investment lead to jobs,
more often with more dollars ploughed in per job. Today, the ability to create cheap jobs is
needed. Cheap jobs can be created possibly by farming govt. land, manufacturing drugs and
in rejuvenating the public health care system. Govt. needs to ask how it is going to enter into
energy. The Govt. for one could create its own technology and manufacture panels and install
them. The general idea that you need a Boone Pickens to do it is really old-fashioned and silly.
A clean public energy grid should not be called Communism. As long as people are productively
employed and are creating clean energy that is adding to the national infrastructure, it is
no longer a bad idea. In fact, it can help save the govt. money as it does not need to buy clean
energy or wait for a credit crunch challenged private economy to do anything substantive.
It is time for Obama to think originally and be visionary and bold. A 100 billion dollar mistake
or two that create jobs, healthcare and energy can not do harm. Nor can a program that keeps
people in their homes.
Instead, TARP programs that bailout one investment bank but not another, - continuous
loans that move govt. into single companies have gone on and not yet done anything.
with all troubled mortgage owners and fix the mortgage crisis first. Once it becomes clear that
home prices will not decline any further as the govt, has stubbed that leak, the rest of the
credit crisis will start to slowly resolve. The banks will stop making reservations of capital in
anticipation of future losses. And will start to lend money into the public economy. Once home
prices have a floor, the govt can then reopen the securitization channels initially through Fannie
and Freddie. Keeping a low interest environment in place offers a good opportunity for some
kind of borrowers, when the economy starts to turn around.
Look at it this way. The Govt sees a social role in ensuring everyone is covered for health insurance. Why not see mortgage also in that light. Lend to those who are not able to get a lender
thus becoming a lender of last resort. The other side of this is a Govt that slowly and surely
becomes both a bank and finally the biggest homeowner with a large bureaucracy in its payroll
which is letting and servicing all those foreclosed homes. Better to keep the homeowners there
in the first place. Some homes can be given to homeless veterans. Shinseki can help create a
plan that allows homeless vets to own a home that is anyway foreclosed and sitting in govt.
hands waiting for someone to move in. Why not a veteran?
Fixing mortgages will not directly fix the rest of the rot that seems to be setting in. Employment
is in rough water. The steep rise in unemployment is perhaps just as alarming. Obama needs
to ask how he is going to "stimulate" employment again. Employment has usually followed from
the availability of equity capital and credit. What this means is that investment lead to jobs,
more often with more dollars ploughed in per job. Today, the ability to create cheap jobs is
needed. Cheap jobs can be created possibly by farming govt. land, manufacturing drugs and
in rejuvenating the public health care system. Govt. needs to ask how it is going to enter into
energy. The Govt. for one could create its own technology and manufacture panels and install
them. The general idea that you need a Boone Pickens to do it is really old-fashioned and silly.
A clean public energy grid should not be called Communism. As long as people are productively
employed and are creating clean energy that is adding to the national infrastructure, it is
no longer a bad idea. In fact, it can help save the govt. money as it does not need to buy clean
energy or wait for a credit crunch challenged private economy to do anything substantive.
It is time for Obama to think originally and be visionary and bold. A 100 billion dollar mistake
or two that create jobs, healthcare and energy can not do harm. Nor can a program that keeps
people in their homes.
Instead, TARP programs that bailout one investment bank but not another, - continuous
loans that move govt. into single companies have gone on and not yet done anything.
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