Investing Curiouscatblog

Category: Economics

  • Revised GDP Calculations for China

    The great fall of China

    World Bank, which published updated statistics on the economic output of 146 countries. China’s economy, said the bank, is smaller than it thought. About 40% smaller. China, it turns out, isn’t a $10-trillion economy on the brink of catching up with the United States. It is a $6-trillion economy, less than half our size.
    …
    Unfortunately, comparing hundreds and even thousands of prices in almost 150 economies all over the world is a difficult thing to do. Concerned that its purchasing-power-parity numbers were out of whack, the World Bank went back to the drawing board and, with help from such countries as India and China, reviewed the data behind its GDP adjustments.

    It learned that there is less difference between China’s domestic prices and those in such countries as the United States than previously thought. So the new purchasing-power-parity adjustment is smaller than the old one — and $4 trillion in Chinese GDP melts into air.

    Related: China Economy Report by the World Bank – Accuracy of Manufacturing Data – Manufacturing Jobs Data: USA and China – Curious Cat Economics Web Search

  • Paul Krugman Speaks at Google

    Paul Krugman, who was named Columnist of the Year by Editor and Publisher magazine, writes a twice-weekly column for the op-ed page of the New York Times. He is a professor of economics and international affairs at Princeton University, and the author or editor of 20 books and more than 200 professional journal articles. In recognition of his work, he has received the John Bates Clark Medal from the American Economic Association, an award given every two years to the top economist under the age of 40. The Economist said he is “the most celebrated economist of his generation.”

    Related: Google Tech Webcasts – Steven Levitt (Freakonomics author) – Income Inequality in the USA

  • Fed Plans To Curb Mortgage Excesses

    Fed Plans To Curb Mortgage Excesses, way late but at least they may do something.

    Before Ben S. Bernanke became chairman nearly two years ago, “the Fed racked up a long record of neglect in regards to predatory lending,” said Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), who introduced his version of mortgage-lending reform this week

    Yes the Fed should have taken more aggressive action. But the legislators should not throw stones at others – what have they done? A recent example – they want to lower the down payment required for FHA loans to 1.5%. I can’t take anyone’s opinion, of how others should have behaved seriously, when they vote for such legislation in the midst of a subprime mortgage loan crisis. What are these people thinking. Ok, everyone now says loan standards were to lax, people stopped putting 20% or even 10% down on home purchase. Ok, lets blame the Fed and then lower the down payment required for federal backed mortgages to 1.5% (from the already very low 3%). Did this crazy legislation just barely squeak by? Nope, passed the senate 93-1! Lets have the politicians explain what they have done right before they just criticize others. Their game of blaming others while doing next to nothing positive themselves is sad.

    “If you are too severe or too draconian, you are going to eliminate value in the marketplace,” said Steve O’Connor, senior vice president of government affairs for the Mortgage Bankers Association.

    Another real voice of reason. The Mortgage Bankers Association (MBA) really expects anyone to pay any attention to their opinions. They have someone managed to create a threat to the economy so large that $90 a barrel oil is not the threat to the economy people are worried about. I think anyone that reads these opinions from the MBA and doesn’t see them as self serving statements and nothing else should be ashamed of themselves. Shouldn’t the Washington Post at least include some follow up question on why the public should listen to that organization. What was there senior vice president saying 5 years ago to ensure the economy wasn’t threatened by the reckless action of their members? We seem to have forgotten that individuals and organization should be held accountable for their actions. Quote some people that are not only concerned with their benefits without regard for what it does to everyone else. If that is not what they are doing, lets see 5 policy recommendations they have made in the last 5 years that are good for America and bad for you and your members. I don’t think the rest of us believe what is good for the MBA is good for America.

    Related: Why do we Have a Federal Reserve Board? – Ignorance of Many Mortgage Holders – How Not to Convert Equity – Washington Paying Out Money it Doesn’t Have – Legislation to Address the Worst Credit Card Fee Abuse (Maybe) – Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren

  • Randomization in Sports

    Here is my comment on, The Sun Devil Suggestion System a few days ago:

    My father was a professor at the University of Wisconsin. I remember one time he wanted the football coach to randomly select the play for certain situations. They would have say 4 plays for 3rd and 3. Instead of making the decision of which to run he thought they should just randomly pick from those 4. The idea was that would eliminate the coaches’ bias which the defense could predict and plan for. The theory was being more unpredictable would lead to more success. They didn’t go for it.

    Here is a post on the Freakonomics blog today, Why Don’t Sports Teams Use Randomization? by Ian Ayres:

    Levitt and others have tested the degree to which professional tennis and soccer players are successful at playing randomized strategies. But it remains a mystery to me why coaches don’t have random number generators (any laptop would do) to help them pick the next pitch in baseball, or the next play they will call in football.

    He then goes on to discuss an equally interesting but different topic faulting coaches for failing to take enough risk in football – in going for a first down on fourth down. That supports my gut instincts. The “conventional wisdom” seems mainly about not “seeming stupid” not the best long term results.

    Related: Testing Mixed-Strategy Equilibria When Players Are Heterogeneous: The Case of Penalty Kicks in Soccer – Minimax Play at Wimbledon

  • Freezing Mortgage Rates

    “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” J. Paul Getty

    Individual mortgage holders are in the first situation; together they are in the second.

    I want to look into this whole situation of freezing some adjustable rates (that are scheduled to increase for adjustable rate mortgages) more – because I don’t really understand what is actually involved in the “agreement.” But my impression is that the government is paying nothing, giving no other incentives (like reducing taxes owed). With that being the case I can’t see why some people think it is bad. some people are saying it is unfair to people that were careful They don’t get this benefit. That makes little sense to me. One of the things you have to learn about investing and personal finance is there are no guaranties. You enter into mortgages with your best guess about what will happen (as the lender or the one receiving the loan).

    From my very surface understanding of what is involved is that the government used some moral suasion to try and get lenders to step up and provide more favorable terms than originally agreed to. I not that confident such a think we end up happening in practice but I don’t have a problem with the attempt. It is an interesting case where no single mortgage holder owes enough to harm the lenders but together the class does hold enough to harm them. So the lenders have gotten themselves into a situation where the problem is not just one for the mortgage holders but one that could harm them (because they have too much lent to the class – risky residential mortgages).

    The risk of a cascading bad impact. One waive of foreclosures triggers another and another… Thus creating huge losses for lenders. For that reason it makes sense to me that if (which is a huge if) they class of lenders can all agree to sacrifice some to avoid starting the runaway cascade of foreclosures they may benefit. Of course each individual lender would likely benefit if just everyone but them sacrificed.

    It seems to me if there really is some significant amount of freezing of loan rates that will have a significant impact on how much harm the foreclosures do to real estate prices and the economy. And so I can see how such an agreement could benefit everyone. But as I say I really need to read more about all this. And I am skeptical that individual lenders will try to limit there sacrifices and as each cuts back there sacrifice the risk of the cascade increases.

    An actually bailout – government money paying off those that took bad financial risks I would be very reluctant to support.

    Related: How Not to Convert Equity – Housing Inventory Glut – mortgage terms explained – 30 year fixed Mortgage Rates – Homes Entering Foreclosure at Record – Ignorance of Many Mortgage Holders – Beginning of the End of Housing Bubble? (April 2004)
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  • Smaller Companies Grab Bigger Share of Surging USA Exports

    Smaller Companies Grab Bigger Share of Surging U.S. Exports

    American businesses without international subsidiaries accounted for 46 percent of sales abroad in 2005, up from 38 percent in 1999, according to a Commerce Department analysis published last week.
    …
    Lower tariffs as a result of free-trade agreements have also helped. Since the North American Free Trade Agreement with Canada and Mexico in 1993, the U.S. has entered into accords with Chile and Central America. Treaties with Peru, Colombia, Panama and South Korea are currently awaiting congressional approval. “The free-trade agreements are really an important element for the smaller companies because tariffs and non-tariff barriers pose less difficulties for large multinationals,” the U.S. Chamber’s Murphy said. “For smaller enterprises, the tariffs can be a deal-breaker.”
    …
    A European customer eyeing an American product priced at $100, would now need to come up with only about 68 euros to make the purchase, compared with 99 euros five years ago.
    …
    That may be one reason spending by factories on new equipment rose for a fourth straight year in 2006, according to the Commerce Department’s Annual Survey of Manufacturers. The last time that occurred was from 1994 to 1998.

    Interesting article. Once again I repeat my message that the end of manufacturing in the USA is greatly overstated. While surging exports are good for the economy the massive current account deficit needs to shrink a great deal before the USA can be said to have stopped living far beyond its means.

    Related: Manufacturing Jobs Data (USA, China, Europe, Asia…) – USA Manufacturing Plant Construction – Manufacturing and the Economy

  • Frontline Explores Kiva in Uganda

    Frontline World traveled to Uganda to explore the impact of microfinance and provide some great details on how Kiva is bringing economic opportunity to entrepreneurs. The site includes details and a nice webcast. It is great to see how people can connect directly using Kiva. And it is great to see how people can take small loans and some effort and financial literacy to make a living for themselves. The effort of these entrepreneurs to manage their finances would benefit many people in the rich world plan for retirement…

    As I have mentioned before, if you loan through Kiva send me a link to your Kiva page and I can add it to the Curious Cat Kivans page.

    Related: Make the World Better Using Capitalism – Helping People Help Themselves – Make the World Better – How Rich are You

  • Washington Waste

    Weed It and Reap

    For starters, the Old Guard on both agriculture committees has managed to preserve the entire hoary contraption of direct payments, countercyclical payments and loan deficiency payments that subsidize the five big commodity crops — corn, wheat, rice, soybeans and cotton — to the tune of $42 billion over five years.
    …
    When you consider that farm income is at record levels (thanks to the ethanol boom, itself fueled by another set of federal subsidies); that the World Trade Organization has ruled that several of these subsidies are illegal; that the federal government is broke and the president is threatening a veto, bringing forth a $288 billion farm bill that guarantees billions in payments to commodity farmers seems impressively defiant.
    …
    And the government would not need to pay feedlots to clean up the water or upgrade their manure pits if subsidized grain didn’t make rearing animals on feedlots more economical than keeping them on farms. Why does the farm bill pay feedlots to install waste treatment systems rather than simply pay ranchers to keep their animals on grass, where the soil would be only too happy to treat their waste at no cost?

    Related: Farming Without Subsidies in New Zealand – Washington Pays Grandchildren’s Taxes to Special Interests Today – USA Federal Debt Now $516,348 Per Household

  • Easiest Countries from Which to Operate Businesses

    The World Bank compiles a ranking of the easiest countries from which to run a business. The rank counties on categories such as: protecting investors (New Zealand is #1), enforcing contracts (Hong Kong is #1), employing workers (USA and Singapore tied for #1). The overall ranking for 2007:

    1. Singapore – 2006 #2
    2. New Zealand – 2006 #1
    3. United States – 2006 #3
    4. Hong Kong, China – 2006 #7
    5. Denmark – 2006 #8
    6. United Kingdom – 2006 #9
    7. Canada – 2006 #4
    8. Ireland
    9. Australia – 2006 #6
    10. Iceland

    Related: Countries Which are Easiest for Doing Business 2006 – Top 10 Manufacturing Countries – Farming Without Subsidies in New Zealand – Growing Size of non-USA Economies

  • Raising Taxes on Future Generations

    A Washington official dares to tell the truth

    Washington is bankrupting future generations. The longer we wait to address the $9 trillion national debt and ongoing annual budget deficits, the more taxes our children and grandchildren will have to pay, says David M. Walker, comptroller general of the United States, head of the General Accountability Office and just about the only public official in Washington these days telling the truth about the country’s fiscal situation. We’re basically taxing future generations without representation (because they can’t vote or haven’t been born), which he says is immoral.
    …
    Walker: The present value of future unfunded liabilities for Medicare, Social Security and other plans is $53 trillion.
    Walker: “You’re supposed to leave the country not just the way you found it, but better prepared for the future. The baby boom generation is failing on that.”
    Walker: President Bush’s Medicare drug plan and the way it was sold to Congress and the public was “unconscionable.” The true, $8 trillion pricetag “was never calculated, disclosed or debated.”
    Walker: The $9 trillion national debt is much more important than the budget deficit. Through the miracle of compound interest on the debt, he says, it will eat up more and more of the country’s resources.

    Right. I keep posting on this because it is very important. To understand economics you need to understand the true shape of the economy. And to manage your investments you need to understand the great risk of a rising debt load (whether it is you personally or a country). Charge It to My Kids – USA Federal Debt Now $516,348 Per Household – Why Investing is Safer Overseas – Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren – Broke Nation