DOOM: I'm tore down, I'm almost level with the ground

Capitalism and civilization go hand in hand. Destroy one, and you destroy the other. It goes without saying that the OWS idiots don't understand the whirlwind they'd release if capitalism fell according to their wishes -- they are creatures of the capitalist state, after all, hothouse orchids who disdain the soil that gave them birth.

Obama: sowing the seeds of a new credit crisis.

Bammer’s latest scheme to jump-start the housing recovery. I use the word “scheme” because I no longer think that the Obama administration actually has a plan for anything. Obama isn’t trying to solve the problem at hand, but he wants to appear to be solving it.

Tomorrow is a big day for the various Eurozone nations as they struggle to come up with a strategy to address the debt crisis now threatening to crush them. I have a feeling that we'll get more of what they've been shoveling out all along: lots of words and grand ideas but no realistic plan of action.

Every time the Europeans put out one Eurozone fire, another one flares up.

A Eurozone fire that is still burning: Greece. 100,000 protesters gathered in Athens to protest the austerity-driven cuts imposed by the government. These protests, plus the strikes that have immobilized the country, tends to undercut the Greek message that austerity will carry the day. It's becoming apparent that the citizens simply will not stand for it.

Never forget: Teh Krugman really isn’t all that bright.

[W]hatever the likes of Ron Paul may believe, money creation isn’t inflationary in a depressed economy.

A personal note about inflation and deflation fears: Americans fear deflation more than inflation because our most traumatic economic experience (so far) was the Great Depression, which was a deflationary event. But in other countries, the fear is of inflation -- in Germany, for example, where the Weimar-era hyperinflation was the traumatic event. If our comfort with inflation is unwarranted, so is our atavistic terror of deflation: some deflation in the wake of an asset bubble is not only inevitable, it is necessary for the economy to recover. Trying to re-inflate the bubble by inflating the currency just buys bigger trouble later on.

Is “The Bulldozer Scheme” is simply another aspect of Bastiat’s “broken window” fallacy? In most cases, yes, but I’d be willing to consider that in certain instances, it would probably make sense to raze foreclosed housing stock and realize the loss. But I would view this approach is a very special-case exception, rather than the rule. Oversupply and overproduction is a signature trait of this downturn compared to previous downturns, and it in part explains why our recovery has been so slow: all those assets have to find an equilibrium price-level, but that means that someone has to realize the loss. Government subsidies and mandated cramdowns ultimately just displace the loss from the banks and homeowners to the taxpayers.

The essential problem with America’s housing market (and with Spain’s, and Ireland’s as well) is that there are too many houses and too few people who can afford them. It’s oversupply, again. The answer is not to establish price-controls on housing (which is all that government-mandated mortgage cramdowns are) -- the answer is to let the housing market find its own equilibrium. Most people who are in over their heads housing-wise are not in a little bit of trouble; they are in a whole lot of trouble, and won’t be able to afford the mortgage even with a cramdown.

One of the reasons I despise tax policy is that it so rarely turns on the utilitarian aspects of taxes and instead focuses on political and social issues (a tax “rewards” one group or “punishes” another). Liberals fret about how “progressive” a tax regime is because their main concern is that the wealthy pay more than the poor; conservatives fret about “punishing success” by taxing the creators and makers higher than the cheats and deadbeats. The problem is that the word “fair” is interpreted differently depending on where you stand in the ideological spectrum: to me, “fair” means that I pay the same tax rate for my place in this Republic as any other citizen; to a liberal, I suspect that “fair” involves overtones of social justice and victim-hood and so on. But regardless of where you come down on taxation, I think it is important that every person pay at least some amount of taxes, just to provide a reminder that government isn’t free -- and that the more government you have, the more it costs.

The employment picture in the short to medium term doesn’t look so hot, but you already knew that. We’re in for a tough decade or so. Also note the “aggregate demand” canard that I inveighed against yesterday: as on-point as some of Tarullo’s observations about what our employment problems are, he is a Keynesian in blood and bone and his solutions would only worsen the situation.

This widening inequality has been described as the result of a broader trend toward "occupational polarization."4 This theory posits that the diffusion of computer-related technologies, the related automation of routine work, and an increased capability for firms to move their activities offshore have combined to concentrate job creation in the poles of either high-skill, high-wage employment or low-skill, low-wage work. The high-skill occupations increasingly require at least a bachelor's degree. Demand has shifted away from traditional middle-class occupations. The kinds of workers who would have been employed in a traditional manufacturing or administrative job now often end up in lower-paying jobs.

Larry Summers: Keynesian to the end.

The central irony of a financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it can be resolved only with more confidence, borrowing and lending, and spending.

First, and perhaps most fundamentally, credit standards for those seeking to buy homes are too high and too rigorous. The characteristics of the average successful applicant in 2004 would make that applicant among the most risky today. The pattern should be the opposite, given that the odds of a further 35 percent decline in house prices are much lower than they were at past bubble valuations.

Netflix gets a pimp-slap from the invisible hand.

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I said I'll do it later, mom! Gee whiz! I'm in the middle of my show!

posted by Monty at 08:36 AM

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