Category Archives: Economic fundamentals

The BLS Report Covering December 2013: A Bad Report

Yves here. In case you missed it, there was a great deal of consternation at the surprisingly low level of job additions in Friday’s employment reports.

Servaas Storm: Secular Stagnation, Green Shoots or What?

The Obama administration and the mainstream media are now talking up an imminent recovery, perhaps even a modest boom. There is no reason why we should be optimistic now.

Michael Klare: Have the Obits for Peak Oil Come Too Soon?

Among the big energy stories of 2013, “peak oil” — the once-popular notion that worldwide oil production would soon reach a maximum level and begin an irreversible decline — was thoroughly discredited. The explosive development of shale oil and other unconventional fuels in the United States helped put it in its grave.

But this assessment may be premature.

How Serious is China’s Shadow Banking/Wealth Management Products Problem?

George Soros has caused a bit of a frisson by calling China the greatest risk to the global economy. The Chinese shadow banks are the trouble spot to watch.

Chris Mayer: How Fiat Money Works

Warren Mosler tells a good story that shows how our economy works at its most basic level.

Imagine parents create coupons they use to pay their kids for doing chores around the house. They “tax” the kids 10 coupons per week. If the kids don’t have 10 coupons, the parents punish them. “This closely replicates taxation in the real economy, where we have to pay our taxes or face penalties,” Mosler writes.

So now our household has its own currency. This is much like the U.S. government, which issues dollars, a fiat currency. (Meaning Uncle Sam doesn’t have to give you something else for it. Say, like a certain weight in gold.) If you think through this simple analogy, all kinds of interesting insights emerge.

Death By A Thousand Cuts: The Silent Assassination Of European Democracy

The European Union is riddled with fatal flaws and defects. Chief among them is the single currency which, rather than serving as the Union’s springboard to global dominance, could well be its ultimate undoing.

Simon Johnson Reminds Us That the Banks’ Quiet Coup is Still Very Much in Place

Simon Johnson wrote a remarkably blunt article for the Atlantic in May 2009 titled The Quiet Coup. In case you managed to miss it, it remains critically important reading. He provided an update of sorts in a New York Times column today.

Wolf Richter: Fizzing Optimism For Wild Financial Engineering In 2014

Nothing could have been a more potent metaphor for the current investment climate than the headline, “Macau gambling revenue hits record $45 bn in 2013.”

“Honey, I Shrunk Killed the Middle Class”

A new Bloomberg story, Americans on Wrong Side of Income Gap Run Out of Means to Cope, is a zeitgeist indicator: the normally-well-insulated-from-realty investing classes have noticed that large swathes of what was once the middle class aren’t just downwardly mobile but are struggling.

Wolf Richter: Next Shoe To Drop In Broke California’s Lopsided ‘Recovery’

f you come to San Francisco or Silicon Valley and look around, you’d arrive at the conclusion that California is booming, that companies jump through hoops to hire people, that they douse them with money, stock options, and free lunches. But in the rest of the state, the picture isn’t that rosy.

Ilargi: The Taper And The China Credit Power Struggle Squeeze

Yves here. We described the funding mismatch with Chinese wealth management products during the first liquidity crunch earlier in the year, but given that most readers aren’t familiar with these structures, it’s good to have another summary as to how they work and more discussion of why they pose a risk to the Chinese economy. They are troublingly similar to structured investment vehicles, which were one of the detonators of the credit crisis in the US and UK.

Essays in Monetary Theory and Policy: On the Nature of Money (Continued)

Yves here. I thought this essay on money was useful in and of itself, and it also contains a useful primer on the views of major schools of thought in orthodox economics.

Wolf Richter: What Happens Next, Now That The 10-year Treasury Yield Hit The Psycho-Sound Barrier Of 3%

Yves here. As Wolf describes, in our brave new work of super-low interest rates, the 10 year Treasury breaching 3% was regarded with fear and loathing by the officialdom. Now with the Fed’s reassurances that the Fed funds rate will remain at just about zero for the foreseeable future, the stock market has popped the Champagne. But will the impact of the withdrawal of support for bond prices impact stocks sooner than the current rally would have you believe?

Michael Hoexter: Malign Confusion about Growth, Economic Growth or “Degrowth”: Which Way Forward? – Part 2

Yves here. One of the big problems with the growth v. “de-growth” debate is how terrible our measures of productive activity are.