Relevant and even prescient commentary on news, politics and the economy.

Angry Bair

Sheila Bair, who ran the FDIC during the crisis, argues against further bank bailouts. She earned great respect. One thing, which she doesn’t mention, is that she refused to let Geithner use the FDIC trust fund to bear the lower tail risk while leaving the upper tail profits to investors in Public Private Investment Partnerships. She insisted on having a veto on non-recourse FDIC loans used to purchase newly made pools of iffy mortgages. As a result, the prediction by Paul Krugman and Joe Stiglitz that the program was a scam turned out to be incorrect, while my prediction turned out to be correct.

Nonetheless I partially disagree with her firm op-ed. Oddly, the point is that it completely neglects the accomplishment of people like Sheila Bair (there may be only one of them). In her column she doesn’t mention the fact that the US Federal Government made a huge profit bailing out the financial system. The careless reader might imagine that the bailout consisted of grants and that the national debt was increased by the amount disbursed not reduced.

This isn’t key to her conclusion that such generous bailouts should be forbidden and that the Dodd-Frank act which requires that future interventions be more painful for bankers should be preserved. Her valid point is that the crisis caused huge losses, even though the bailout added less than nothing to those losses. She argues that planning future bailouts with profit for the US government but not enough pain for the bankers would create moral hazard. I absolutely agree.

But it is also a fact that the US government made huge profits (I think the hugest in world history). The moral hazard argument is valid and can stand totally aside from the insinuation that the bailouts cost taxpayers anything.

I think this is important, because since public onwnership of risky assets bought at higher than market clearing prices to save the financial system was profitable by accident, we must know there is a gigantic inefficiency. I think the reasonable response is to sell bonds and buy risky assets for market prices. That means that the profitability of the bailout is strong evidence that there should be partial public ownership of the means of production.

This was noted by John Quiggin decades ago (arguing against privatizing state owned firms in Australia). It has been argued by Miles Kimball for years. A little bird told me that Olivier Blanchard talked about it over lunch with Brad DeLong recently.

I think it is an important part of the lesson of 2008 (I admit I have been advocating it since 2005).

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Emoluments As Grounds For Impeachment

Emoluments As Grounds For Impeachment

I have said this before, but am saying it again.  The clearest grounds for impeaching Donald Trump are not his obstruction of justice on which so much attention is being focused, but in my view his blatant and unequivocal acceptance of emoluments from foreign governments, with this most clearly evident at his hotel in Washington, with these emoluments the basis of lawsuits by the governments of Maryland and D.C. going forward slowly.  But somehow none  in Congress pushing impeachment have raised this issue as grounds for impeachment, even though this is something expressly forbidden in the Constitution of presidents.  What clearer grounds for impeaching a president could there be?

I think there are four interrelated reasons we have not seen much discussion of this matter.  One is that there has been so much focus on the Mueller Report, which focused on Russian interference in the 2016 election and the relation of the Trump campaign with that. While Mueller failed to find sufficient evidence of conspiracy, the door was left open for possible obstruction of justice, even though A.G. Barr has vigorously tried to slam it shut.  And then we have seen Trump apparently doing more of it as he tries to get his whole administration ignoring Congressional subpoenas.

Another reason for this focus is that charges on this were key in the move  to impeach President Nixon, with him being forced to resign as fellow Republicans made it clear they would support the move to impeach on these grounds.  Needless to say, today, with the  exception of Rep. Justin Amash of Michigan, no Republicans are supporting the move to impeach, a major  reason Speaker Pelosi continues to resist opening a formal impeachment inquiry, even as the pressure to do so rises.

A third reason is that Mueller apparently accepted the demand by Trump to recognize a “red line” around his personal finances.  Those are now increasingly coming under investigation, and we are beginning to see some of his tax returns. But an impeachable focus out of what may come has not fully come into  view, although possible money laundering of Russian oligarch money through Deutsche Bank is widely thought to have occurred and may soon be exposed. But is that impeachable as it all happened before Trump became president?

Which brings us to the fourth reason, we have never had a president ever in the 232 years since George Washington took his oath of office who has even remotely been suggested to have violated this very clear rule stated in the Constitution, not a poor one (and we have had a few not rich, if not outright indigent) nor a rich one.  None of them, until at least now.  We have not been able to think about this.

But now it is here, if partially buried in all the carryings on about so many other matters, especially this matter of obstruction of justice.  But here we have a president for the first time ever clearly taking money from foreigners while in office, and in the case of the Saudis in particular, who have dumped piles of money into the Trump Hotel in Washington, acted in ways the Foreign emolumenter wants, arguably against the interests of the US.  Did we need to have “Bone Saw” MBS take power in a coup supported by Trump and Kushner?  Should we be rushing to war with Iran at their behest?  Should we be continuing to arm them for their brutal war in Yemen?

I would like to see at least one of the people either running for president or stomping about in the Congress demanding impeachment bring this up.  This is a far clearer violation of the Constituton than anything else Trump has done.  This is exactly why the Founding Fathers both put the emoluments clause into the Constitution and gave Congress the power to impeach presidents.  If there is a “high crime and misdemeanor” the Founding Fathers would have had in mind when they did all this, is not violating the emoluments clause at the very top of the list?  Out with the crooked bumb!

Barkley Rosser

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Weekly Indicators for May 20 – 24 at Seeking Alpha

by New Deal democrat

Weekly Indicators for May 20 – 24 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

The big contradiction between what the yield curve is forecasting, and what most of the rest of the long leading indicators are forecasting, continues.  Meanwhile Trump’s tariff  “policies” are creating chaos in other sectors.

As usual, clicking over and reading should not only bring you up to date, but helps reward me with a penny or two for my work.

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Yes, Virginia, the government shutdown really did cause a mini-recession

Yes, Virginia, the government shutdown really did cause a mini-recession

For the past several months, I have been pounding on the idea that the government shutdown, during which 800,000 jobholders were temporarily laid off without pay, had a much bigger impact on the economy than was originally thought.

This morning we get the following graph from Bank of America Merrill Lynch, which speaks for itself:

 One of the most important insights from behavioral economics is that losses have an outsized effect on behavior compared to gains, usually on the order of 2 to 1. In the case of the government shutdown, about 0.5% of the workforce went without pay for about 45 days. Using the 2:1 ratio, that would translate into a -1% deadweight loss to the economy during that time.

Of course, the workers got back pay when the government reopened – but if the 2:1 ratio holds, there wouldn’t be an equivalent “kick” from renewed spending. Which seems to have been the case, since the March +1.3% rebound in real retail sales didn’t make up for the -1.6% decline in December.

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San Francisco Fed: ease of finding a new job is driving improved labor force participation

San Francisco Fed: ease of finding a new job is driving improved labor force participation

This is a surprising result that is worth noting: the San Francisco Fed found that the increase in prime age labor force participation in the past five years has not been due to new people being drawn into the labor force, but rather by a very large decrease in people leaving it:

[Note: keep in mind that prior to the early 1990s, both inflows and outflows are increasing due to the secular trend of women entering the workforce.]

Why is this surprising? Because you would think that increased wages would draw people on the sidelines into the workforce. This is something I’ve looked at a few times in the past several years, and the pattern has been clear:

1. The unemployment rate declines

2. Once the unemployment rate declines enough, the decline in labor force participation decelerates, but nevertheless continues.

3. Average hourly wage growth starts to improve.

4. Labor force participation starts to increase.

Here’s a graph showing this relationship since 1994:

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A comment about the economy and the 2020 election

A comment about the economy and the 2020 election

Recently I’ve seen a bunch of takes to the effect that “the economy is doing great, and therefore it is likely that Donald Trump will be re-elected.” In my opinion that fear is overblown for three important reasons.

The first, least noteworthy reason, is that there is still a lot of time between now and the election. As I noted Monday, many – but not all – models of the economy indicate that a recession is likely between now and then, for reasons having nothing to do with the age of the expansion. Needless to say, a recession in 2020 would not bode well for either Trump or the GOP.

Secondly, consider what economic interventions Trump and the GOP have made since they inherited the economy from Obama. There have been three:

1. They passed a tax cut that lopsidedly favored the wealthy and corporations, that has generated zero acclaim from the middle and working classes – and with the decrease in tax refunds, may have generated net negative feelings.

2. Trump has started several trade wars that are proving unpopular, partly because they mainly have hurt portions of his own base, partly because they are  resulting in net higher prices to consumers that may be getting noticed, and partly because negatively affected businesses may start laying off workers.

3. Trump is held responsible for the government shutdown that resulted in a mini-recession.

In short, it’s not clear to say the least that the public at large would give Trump credit for an economy that he mainly inherited from Obama and as to which his known interventions have been received negatively.

Finally, and most notably, the example of the Bush vs. Gore 2000 election strongly cuts against Trump. As I wrote in 2016, all of the fundamentals-based election models, such as the “bread and peace” model, or models based on the unemployment rate or on consumer income and spending, indicated that Gore should have won by nearly a landslide, on the order of 55%-45%, as shown in the graph below:

Instead, Gore won the popular vote by only 0.5%, despite being able to run on both peace and prosperity – the biggest outlier of the entire series going back to 1952.

Two big factors held Gore back: first, the economic expansion had gone on for nearly 10 years, and at some point the public takes it for granted, or in other words, “so what have you done for me lately?” Second, as his Vice President, Gore was stained by Bill Clinton’s slimy personal life.

Both of the factors that worked against Gore in 2000 are likely to work against Trump in 2020: if the economy remains in expansion, the public will probably take it for granted; and Trump’s pervasive sliminess, both public and private, will work against him. In short, Trump is likely to underperform compared with the fundamentals even more than did Gore.

While the example of 2016 certainly means that the 2020 election is another “all hands on deck” moment for Democrats, and nothing should be taken for granted, even if the economy remains in expansion as it is now I do not think that means Trump wins the election.

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Twelve Big Picture bullet points on the economy

Twelve Big Picture bullet points on the economy

It’s a really slow week for economic data. Really the only important report is new home sales, which will be released Thursday.

I’ve been working on a few things, but they are really information-dense and time-consuming to organize, and because they deal with how long leading indicators interact with one another, I’ll probably post them on Seeking Alpha.

So in the meantime, let me give you a few hopefully pithy Big Picture observations.

1. Virtually every economic model that relies upon the yield curve is forecasting recession to happen sometime in 2020.

2. The few economic models that don’t rely upon the yield curve suggest a recession *could* happen later this year.

3. If we use a “fundamentals” based model that doesn’t rely on financial conditions like interest rates (“real” corporate profits, housing, and cars), the important data is deteriorating, but not enough at this point to forecast recession vs. slowdown.

4. All of these models seem to have a shortcoming in that they rely too heavily on monetary and interest rate policy, and do not adequately account for fiscal policy, like stimulus. Thus all of them “forecast” a recession in 1966-67 that didn’t happen!

5. The reason no recession happened in 1966-67 was LBJ’s “guns and butter” fiscal policy of Vietnam War military spending + domestic Great Society spending, which increased the budget deficit by 500% (!) and helped keep industrial production from declining.

6. The stimulus passed by the Congress at the end of 2016 is much smaller, amounting to only a 50% increase in the deficit. It is also much smaller than either Reagan’s or W’s tax cut stimulus.

7. In any event, the stimulative effect is estimated to end by the end of this year.

8. Contrarily, Trump’s tariffs amount to large, regressive sales tax increases.

9. Which means that, if things don’t change, by next year fiscal policy will be a net drag on the economy.

10. The question remains whether the positive effect of lower mortgage rates can overcome that drag, and the drag of higher short term interest rates.

11. In the meantime, every metric I use indicates that job gains are set to decrease substantially starting more or less right now. The UCLA forecast puts this figure at about 160,000 a month for this year.

12. Needless to say, if a recession happens by the end of 2020, especially if Trump’s tariffs play an important role, fundamentals-based Presidential election models do not bode well for Trump or the GOP.

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Weekly Indicators for May 13 – 17 at Seeking Alpha

by New Deal democrat

Weekly Indicators for May 13 – 17 at Seeking Alpha

My Weekly Indicators post is up at Seeking Alpha.

The stock market’s “tariff tantrum” is driving down interest rates in bonds. We are in a time when government policy decisions – sometimes just passing tweets – are driving winners and losers in economic activity. And these can have immediate impact, disrupting the scheme of long leading -> short leading -> coincident indicators of the economy.

As usual, clicking over and reading helps reward me a tiny little bit for my efforts.

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Sanctions On Iran Are Hitting Hezbollah

Sanctions On Iran Are Hitting Hezbollah

That is the top headline, upper right corner front page, of today’s Washington Post, a quite long article by Liz Sly and Suzan Haidamous.  WaPo has been much criticized by Trump and his supporters for alleged “fake news” critical of his leaving the Iran nuclear deal while Iran was compliant and not only reimposing the sanctions put on by Obama to get Iran to the negotiating table for that deal, but adding more and yet more leading to a military escalation that may have peaked.  So, now maybe WaPo is rewarding Trump for saying he does not want a war with Iran (I approve of that) by headlining this story that has long been pushed by his fans as a justification for all this sanctions imposing on Iran.  Maybe Iran has been well behaved on the nuclear deal (while wickedly testing ballistic missiles, not part of the deal), but, ah ha! the sanctions will hurt its evil terrorist proxies like Hezbollah, and, wow, now we learn they are, whoopee!

It does look that indeed the heightened economic sanctions on Iran have reduced its financial support for Hezbollah, and I am not a big fan of that group.   One source quoted in the WaPo story put Iran as providing about 70 percent of Hezbollah’s funding, with it unclear by how much that has been reduced.  Hezbollah has publicly reported that it has had its funding reduced and has initiated lots of fundraisers to help offset that.  It claims not to have reduced its support of social services or paying “families of martyrs.”  It is unclear if it has had to pull back much from its involvement in the war in Syria, where the final round is probably now in place in Idlib province in the Northwest.

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US Library of Congress selects Angry Bear to archive

Dan here…the United States Library of Congress will be archiving and collecting material from Angry Bear. The overall digital archiving project began in ernest since 2013.   Abbie Grotke,  Lead Librarian Web Archiving Team, affirmed the process.  Below are excerpts from the letter of request and the Library website.


The United States Library of Congress has selected your website for inclusion in the historic collection of Internet materials related to the Economics Blogs Web Archive. We consider your website to be an important part of this collection and the historical record.

The Library of Congress preserves important cultural artifacts and provides enduring access to them. The Library’s traditional functions, acquiring, cataloging, preserving and serving collection materials of historical importance to foster education and scholarship, extend to digital materials, including websites. Our web archives are important because they contribute to the historical record, capturing information that could otherwise be lost. With the growing role of the web as an influential medium, records of historic events could be considered incomplete without materials that were “born digital” and never printed on paper.

The following URL has been selected for archiving:

(Dan here…from the FAQ section)

Why was my web site selected?

The Library maintains a collections policy statement and other internal documents to guide the selection of electronic resources, including web sites. Web sites are selected for archiving by Library Recommending Officers. Sites in the web archive are generally representative samples of web content that document an event or cover a particular theme or subject area for our thematic and event collections.

How often and for how long will you collect my site?

The Library archives sites at various frequencies and for various time periods based on the type of site and the collection it was selected for. Typically the Library crawls web sites once a week, once a month, or quarterly, depending on how frequently the content changes. Some sites are crawled less frequently—just once or twice a year. In some instances, the Library uses RSS feeds to identify rapidly changing content and to crawl multiple times per day.

The Library may crawl your site for a specific period of time or on an ongoing basis. This varies depending on the scope of a particular project. Some archiving activities are related to a time-sensitive event, such as before and immediately after a national election. Other collections we are developing may be ongoing with no specified end date, in order to capture changes in web sites over a longer period of time.

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