Category Archives: Guest Post

Fed Needs to Stop Asset Acquisitions for a Generation or So

Yves here. Readers will take issue with some of former Fed staffer and banking expert Walker Todd’s comments on monetarism and Fed policy, but he nevertheless reaches the right general conclusions. The monetarist orientation of his post is a bit more understandable when you keep in mind that the central bank is run by monetary economists.

Todd treats quantitative easing as “money printing”. That sounds appealing but isn’t quite apt. The Fed was swapping assets, in this case cash for Treasury bonds or mortgage backed securities held by the public. The central bank seemed to think this would be useful due to its belief in the discredited but nevertheless very much alive “loanable funds” theory. In simple terms, if you make interest rates low enough, people will save less and spend more, and businesses will borrow and invest more because money is on sale.

In fact, what has happened is that many of those people who swapped bonds for cash went out and bought other financial assets, goosing stock prices, lowering yields on risky debt, and sending money sloshing into emerging economies. There appears to have been a modest amount of economic lift from that due to wealth effect among the rich. But big companies for the most part didn’t invest. They borrowed cheaply and are holding wads of cash that they can use to keep propping up their stock prices. Similarly, banks haven’t done much small business lending, in part because institutionally many have exited that business, and smaller enterprises themselves haven’t been too keen to borrow because in most regions and sectors, the recovery isn’t all that robust.

The Fed appears to have recognized that QE was largely a failed experiment before it announced the taper last year, but the market reaction was so lousy that it backed off and then tried again with lots more “we’re watching the market’s back” assurances. Cynics among my readers contend that the GDP figures today benefitted unduly from a 0.9% reduction in the GDP deflator, which would provide financial markets with a tailwind when QE was being halted officially.

Given that we’ve had three QEs so far, Todd has reason to argue against repeating this experiment. Another thread of his argument echoes that of Audit the Fed, which was the product of a left-right alliance, that the Fed never gave Congress an adequate explanation of the logic and expected effects of QE so it could be held accountable for this experiment.

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“The Tragedy of Electronic Medical Records”

Yves here. We’ve written about the pitfalls of electronic health records in the past. One of the surprising reactions is the “dazzled by technology” response of some readers. While there are problems with relying on paper-based records, and electronic records could in fact remedy many of them, a large swathe of the public seems unwilling to hear that what is good in theory may not turn out well in practice.

The sorry fact is that electronic health records, which in theory should reduce errors and allow for more consistent delivery of medical services, were instead designed only with patient billing and control over doctors in mind. As a result, they are if anything worsening medical outcomes. One indicator: as we reported, the latest ECRI Institute puts health care information technology as the top risk in its 2014 Patient Safety Concerns for Large Health Care Organizations report. Note that this ranking is based on the collection and analysis of over 300,000 events since 2009.

This is another example of crapification. Electronic medical records have been implemented, with apparent success, in other economics. For instance, when I lived in Australia from 2002 to 2004, it was normal for doctors to make use of them during patient visits, making entries into the system, and I never got the impression they found it onerous. Here, in New York City, I still see doctors making considerable use of paper records. As the article indicates below, the reason is the US systems are costly, lower productivity, and make doctors less likely to review patient information.

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ECB Stress Tests: The View of an Insider

Yves here. The ECB stress tests are starting to resemble the process that Japan’s Ministry of Finance used in dealing with zombie banks in its post-bubble years. The MOF would gradually acknowledge how bad the loan books were as the banks were able to make writeoffs (not that anyone was really fooled; foreign analysts were regularly making their own assessments). So the exercise is to pretend that the amount of disease revealed is credible, when those in the know recognize full well that is it much worse.

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Exploding Wealth Inequality in the United States

Yves here. This is a particularly important post on the state of inequality since Emanuel Saez, working with Thomas Piketty, was for over a decade tracking the rise in inequality in the US, particularly the way that the top 1% and 0.1% were pulling away from the rest of the population. Gabriel Zucman has made a recent important contribution to the analysis of wealth disparity by sizing the impact on global figures of the funds stashed in tax havens. A full 6% goes unrecorded, which by his estimates is enough to make the US less of a net debtor, Europe a net creditor, and of course, the rich in those regions even richer.

Saez and Zucman are particularly concerned that this level of wealth inequality is on its way to becoming entrenched.

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Yanis Varoufakis: Why the European Bank Stress Tests Have to be Phony

Yves here. I have to admit I never focused on what turns out is a blindingly obviously reason why the European bank stress tests are an exercise in optics. Even though this website derided the US stress tests as a cheerleading exercise, and earlier criticized the Administration for failing nationalize Citigroup as FDIC chairman Sheila Bair sought to do, the US authorities were in a position to Do Something about sick banks. Consider the European case (note I consider Yanis to be too charitable toward US bank regulators, but keep in mind that he’s comparing them to his home-grown version). And then you have the additional problem, which was widely discussed in 2009 to 2011 or so, that the apparent insolvency of states was the result of and bound up with the overindebtedness of European nations. Perversely, tha is almost never put front and center these days when the topic of seriously unwell European banks comes up.

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Drilling Deeper: New Report Casts Doubt on Fracking Production Numbers

Yves here. We’ve discussed the fracking bubble intermittently, particularly that many of the valuations ascribed to shale gas wells don’t reflect how short their production lives really are. This report by Steve Horn of DeSmogBlog focuses on a related result from the same set of unrealistically high production assumptions: that overall fracking output forecasts are likely to prove to be high.

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Bob Goodwin: ‘Drug’ is a Teetering Social Concept

Yves here. Bob Goodwin discusses how the idea of legal versus illegal drugs has become a more obviously porous barrier than it was in his youth, even given the differences in how those differences are enforced across income/racial groups.

One thing that Bob may have deemed to be so obvious as to not be worth discussing is the casualness of prescribing what amount to performance-enhancing drugs to children, such as Ritalin and Adderall, along with troublingly frequent dispensing of antidepressants. Studies on safety are all short term; the idea of messing with the chemistry of developing brains, save in circumstances when the child is in acute distress, is heinous. Yet in parallel, kids have wised up and use various prescription stimulants, most notably Adderall, as study and test aids. I recall reading a New Yorker article on it at least a decade and maybe even more than a dozen years ago, on how utterly routine it was for kids in elite private schools to get these drugs prescribed, or filch their parents’ supplies, and trade them among their peers. My understanding is that the use of these drugs during exams, and for some students, on an ongoing basis, is routine.

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Ilargi: Europe Redefines “Stress” in Its Bank-Boosterist Stress Tests

Yves here. As we’ve repeatedly pointed out, bank “stress tests” are officially-orchestrated bank PR. And the reason they worked so well the first time was that exercise was accompanied by all sorts of Administration “we’re fully behind the banks” messaging, including a commitment that any banks that fell short would get a heapin’ helping of new capital. But the effort to talk bank stock prices up worked so well that many, even the weaker ones, were able to float new shares.

The Europeans have tried emulating the Americans, but with more emphasis on the optics and less on prodding the banks to take meaningful steps to shore up their capital bases. Ilargi describes how even this exercise in porcine maquillage is failing to cover up the unhealthy state of many banks.

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Jamie Dimon: U.S. Must Create a “Safe Harbor” Where JPM’s Corruption Is Not “Punished”

Yves here. The irony is delicious. Chief bank apologist Andrew Ross Sorkin accidentally elicited a damning admission from JP Morgan chieftan Jamie Dimon. But that also reveals Dimon’s confidence that he is a member of a protected class, which sadly happens to be true.

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Class Traitors: How Ideological Brainwashing Gets Rich and Ordinary Americans to Undermine Their Economic Interest

Linda Beale, of ataxingmatter, has written forcefully and persuasively about some of the propagandizing-accepted-as-gospel that the well-heeled use to advocate policies that advance their economic interests. For instance, as most Naked Capitalism readers appreciate, but a remarkably large swathe of the US population does not, tax cuts for big corporations are simply a transfer to the rich. From a post last year:

I’ve argued frequently in the past that there is no there there–i.e., that lowering corporate tax rates will do nothing to create jobs. Instead, I’ve said, it will simply deliver an even higher profit margin to be skimmed off by the highest paid executives and, possibly, shareholders. The higher profit margins are unlikely even to be used to increase workers’ shares of the corporate revenues through higher wages, a place where they could most help the economy other than new jobs created. Thus, the drive for “revenue neutral” corporate tax reform (cut corporate taxes, cut expenditures elsewhere to make up for the decreased corporate tax revenues) is just another example of corporatism as an engine of the modern form of US class warfare

Beale takes up a different theme today: how the rich and poor act against their economic interest. For many in middle and lower income strata in red states, hostility to the government is an article of faith even though those states (and many of those same govement-hating citizens) are significant beneficiaries of Federal programs.

But less well recognized are the ways that the wealthy are undermining themselves. They’ve taken the “increase our distance from everyone else” experiment well beyond its point of maximum advantage, not just to the society around them but also in terms of the costs to the class warriors.

As we’ve pointed out, highly unequal societies have lower lifespans, even among the rich; the shallower social networks of stratified societies and the high cost of losing one’s perch, in terms of loss of friends and status, creates an ongoing level of stress that has a longevity cost. Beale points out something we’ve mentioned occasionally in the past, that creating an underclass with inadequate access to medical services is a great breeding ground for public health problems. The fact that many low income Americans can’t afford to take sick days and health plans generally have high deductibles, which discourage individuals from getting treated until they are sure they are really sick, isn’t a great program design if you want to reduce the spread of infectious diseases.

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