Is Inflation Irrelevant?

Alice RIvlin in a speech before the Economc Policy Conference:  I want to draw your attention today to what I perceive as a cultural lag in thinking about the objectives of economic policy. Why are we still so focused on fighting inflation? Why are so many people in this room devoting so much time and attention to guessing when the Federal Reserve will start raising short-term interest rates and get back to its “normal” job of protecting us from inflation? Is inflation an important threat to our economic well-being? Is when to raise interest rates the most urgent question facing the Fed at the moment? Or are we suffering from cultural lag?

Central banks have amply proved that they know how to stop inflation—Paul Volcker showed that. They have been much less successful in getting little inflation going.

Does the new normal for which current tools of monetary, fiscal, and regulatory policy need to be restructured? In the Volcker era of central banking, inflation was the principal threat to sustainable growth—and central bankers had to be brave enough to raise interest rates to tame the beast and steadfast in communicating their determination to do so. Paul Volcker demonstrated that he was a brave man.

But after Volcker slayed the dragon over three decades ago, inflation gradually drifted down, and the beast has hardly wiggled its tail for a long time. The last time the core PCE hit 3.0 percent was 1992. The surprise of the second half of the 1990s was the co-existence of strong job growth, low unemployment—with the unemployment rate even dipping briefly below four percent—and no worrisome rise in inflation. The surprise of the current long recovery is that, even with decent economic growth and persistently impressive job creation, we still have wages barely budging and inflation below two percent and recently falling. Just possibly, destructive inflation is an oh-so-last-century threat that should be moved down our list of macro-economic concerns to make room for others. In any case, it is threat we know how to deal with, so we should focus on the ones for which we are less equipped.  Is inflation irrelevant

Inflation

Success in the Food Business?

Danny Meyer talks about success in the food business.  “Shake Shack was an accident.  We didn’t mean it to be anything more than a hot dog stand.  It was Chipotle that said, what the world wants is well-sourced, well-prepared food, not necessarily served at a table.  My hope is that people from the fine dining industry take their food public and make is accessible to people.

Sourcing has been at the heart of our growth. Our buns are made in Lancaster County.  Their flour had GMOs. We didn’t want to use flour with GMOs, so they began sourcing GMO free flour in Canada.

Chipotle, Whole Foods, and Starbucks care about their employees, their communities and make money for their shareholders.

Shake Shack. the original

How to Deal with Global Economic Divergence?

Mohamed a el Erian writes: The world is increasingly characterized by divergence, in economic performance, financial policy and financial markets.  We are on a very bump road to globalization.

Experimental policies in the advanced markets, like the Euro-zones large-scale asset purchases,were able to slow a vicious cycle of subpar economic performance.   At the same time, the US Federal Reserve is exiting from these policies.  Market forces have led to dramatic shifts in exchange rates.  Even healthy economies like South Korea are willing to lower the value of their currency and leave the US standing alone.

Political leaders worldwide seem unwilling to perform their economic governance responsibilities.  These include structural reforms to revamp the growth engines, efforts to rebalance aggregate demand, and elimination of debt overhangs.  This probably arises from ‘inertia’ politics —  a “can’t, won’t, shouldn’t’ mentality.  Leaving central banks and market forces to govern the globe is simply not enough.

Anti-Corruption Protests in Brazil

Paolo Prada writes: Close to a million demonstrators marched in cities and towns across Brazil on Sunday to protest a sluggish economy, rising prices and corruption – and to call for the impeachment of left-wing President Dilma Rousseff.

The protests in the continent-sized country come as Brazil struggles to overcome economic and political malaise and pick up the pieces of a boom that crumbled about the time Rousseff took office in 2011.

Rousseff, now early into her second four-year term, is unlikely to face the impeachment proceedings called for by many opponents. A fifth year of economic stagnation and a multibillion-dollar corruption scandal at state-run energy company Petroleo Brasileiro SA, or Petrobras, has fueled their anger.

But for a president narrowly re-elected just five months ago, the protests are a sign of a polarized country increasingly unhappy with its leadership, especially as the hard-won gains of the recent boom begin to succumb to an economic slowdown.

The unexpectedly large demonstrations also promise to embolden opposition parties and restive allies, including the leaders of both houses of Congress, who are nominally part of Rousseff’s ruling coalition, but nonetheless are hindering efforts to pass reforms intended to jump-start the economy.

In a press conference Sunday night, two members of Rousseff’s cabinet recognized the rights of protesters, but downplayed the importance of the demonstrations, saying they were expressions of discontent by those defeated at the polls.

They also sought to discredit those who suggest impeachment. Miguel Rossetto, one of Rousseff’s top aides, criticized what he called the “intolerance” of those opponents and likened their demands to coup efforts.

In a statement posted online Sunday, Aecio Neves, a centrist who was defeated by Rousseff in October, said the demonstrations marked a day when Brazilians “went to the streets to reunite with their virtues, their values and also with their dreams.”

Sunday’s gatherings were mostly calm, with little of the violence that tarnished a wave of massive demonstrations in 2013, when Brazilians protested billions of dollars of spending, even as the economy faltered, to host the 2014 World Cup.

But if less vehement, the rallies Sunday possibly matched those of two years ago in scale. Estimates for the size of the crowds differed, but most calculations suggested roughly a million protesters nationwide.

In Sao Paulo alone, state police in late afternoon said that a million had turned out to march along skyscraper-lined Avenida Paulista, the heart of Brazil’s financial capital and biggest city. A private pollster later said it was only 210,000.

Earlier, more than 10,000 residents of Rio de Janeiro poured onto the Copacabana waterfront. Most dressed in the blue, green and yellow of Brazil’s flag. Crowds sang the national anthem and shouted “Dilma, out!”

“People feel betrayed, said Diogo Ortiz, a 32-year-old advertising worker, who called the Petrobras scandal “a national and international disgrace.”

Many protesters hail from the country’s wealthier classes, who traditionally have opposed the ruling Workers’ Party.

Underscoring class divisions, marchers said Rousseff and the ruling party have instigated the polarization by pitting their traditional supporters, the recipients of popular social welfare programs, against the rest of Brazil.

The party “is inciting the people against the people,” said Helena Alameda Prado Bastos, a 61-year-old editor in Sao Paulo.

The Workers’ Party, opponents complain, for too long ignored critiques that its heavy spending, subsidized lending, protectionist policies and corruption have sapped the vitality that led to average growth exceeding 4 percent during the decade before she took office.

Although the party also presided over those good years, during two terms of Rousseff’s predecessor, economists say she failed to adjust policies when a global commodities boom ended and sapped once-soaring export revenue.

Rousseff herself has not been accused of wrongdoing in the corruption probe, but many blame her for lax oversight of Petrobras, especially during years she served as the company’s chairwoman, prior to becoming president.

The ongoing scandal stems from a scheme through which prosecutors say Petrobras contractors paid kickbacks to corrupt executives and some Workers’ Party members.

So grim are Brazil’s economic prospects that many economists expect it to slip into recession. Investors, meanwhile, fear the country could lose its investment-grade status.

Inflation is running at a 10-year high, while Brazil’s currency, the real, has lost over 22 percent of its value against the dollar this year.

Campaign to End Corruption in China

Benamin Kam Lin writes: The chairman of one of China’s top state-owned automakers, FAW Group Corp, and a senior provincial official are being investigated for “violating party discipline”, the Communist Party said on Sunday, employing its usual euphemism for corruption.

After taking over as party and military chief in late 2012, President Xi Jinping declared war on corruption at all levels in China, vowing to go after powerful “tigers” and lowly “flies”. Scores of senior officials have been brought down by the campaign, including former security tzar Zhou Yongkang.

Xu Jianyi, 61, chairman of state-owned China FAW Group Corp, and Qiu He, 58, deputy head of the party in southwestern Yunnan province, are being investigated for “serious violation of (party) discipline and laws”, the party’s Central Commission for Discipline Inspection said on its website. It gave no further details.

FAW Group Corp, which counts Faw Car Co Ltd as one of its units, is one of China’s biggest automakers which has joint ventures with Volkswagen, Toyota and General Motors in China.

Faw Car shares fell as much as 5.6 percent to more than a two-week low. The news also hit its other units with Tianjin FAW Xiali Automobile Co Ltd down as much as 3.6 pct and Changchun Faway Automobile Components Co Ltd declining as much as 2.2 pct.

Both Xu and Qiu hold a rank equivalent to a cabinet vice minister.

Qiu is well-known in China for ambitious projects and his autocratic and eccentric management style, demanding discipline from his staff. Once seen as a political rising star, his style won both praise and criticism.

Foreign automakers seeking to manufacture cars in China must form joint ventures with domestic partners and are restricted to 50 percent ownership limits, an arrangement generally seen as the cost of doing business in the world’s largest car market.

Such requirements expose companies to unknown risks at their JV partners and extend beyond the auto sector. Founder Securities, a joint venture partner of Credit Suisse AG, had assets frozen after accusations of embezzlement and its chairman later disappeared.

Caixin, a weekly magazine, said Qiu is being investigated for urban construction projects in Kunming, provincial capital of Yunnan, when he was the city’s party boss from 2007 to 2011.

China’s top prosecutor told the annual full session of parliament that prosecutors investigated 4,040 civil servants at the county level or above in 2014, or an average of 11 a day. The 11-day meeting ended on Sunday.

Weeding Out Corruption in China

 

US Falling Behind in Advanced Technologies?

Is the US falling behind in advanced technologies?  The United States’ GDP of $16.3 trillion in 2014 was the highest in the world, due in large part to the strength of U.S. industries. However, all industries are not equal in terms of their contribution to economic output. While the U.S. economy is among the world’s strongest, however, other countries continue to invest in education, technology, innovation, and other industries that invigorate economies, and the U.S. is falling behind. The percentage of U.S. workers employed in what the Brookings Institution calls “advanced industries” has fallen from 11.6% in 1980, to 8.7% in 2013. While this was a slight improvement from 8.4% in 2010, the need for a resurgence in the nation’s most important industries is more pressing than ever.

US Education

Gaming Industry for Men Only?

Natalie Zina Walshots writes:  Anita Sarkeesian, a feminist critic best known for her YouTube series “Tropes vs. Women in Video Games,” cancelled an appearance at Utah State University after she received an anonymous threat of a shooting massacre were the talk to go ahead (as a concealed carry state, security at the event could not guarantee no one with a gun would be allowed in the building while Sarkeesian was speaking.

Sadly, Sarkeesian has long been the target of sexist attacks—ever since she first launched a Kickstarter campaign in 2012 to support the series. “The threats against Ms. Sarkeesian are the most noxious example of a weeks-long campaign to discredit or intimidate outspoken critics of the male-dominated gaming industry and its culture,” Wingfield wrote.

Even former avowed Gamergaters have hung up their trilbies and abandoned their positions as everything became more extreme and untenable—or they suddenly found themselves on the opposing side of the harassment campaign. Those within the industry openly made statements against Gamergate, including: gaming companies such as Blizzard and the Entertainment Software Association (commonly know as the ESA and gaming’s top trade group); publications like Game Informer, Polygon, and Giant Bomb; and creative luminaries such as Tim Schafer and Damion Schubert.

And yet—and yet—it is still happening. On January 11, Zoe Quinn charted her struggles to get the legal system to do something about the avalanche of hate spewing her way. She talked about how demolished her life was and continued to be by the campaign. She wrote, in full: “The same wheels of abuse are still turning, five months later. I’ve been coming to terms that this is a part of my life now, trying to figure out what to do about it, and how to move forward with so many people trying to wrap themselves around my ankles. It’s been hard to accept that my old life is gone and that I can never get back to it. But I’ve found purpose in the trauma, in trying to stop it from happening again, to use my experience to show how these things are allowed to happen, and to further a dialog on how to actually stop it. If I can’t go home, maybe I can at least get out of this elevator shaft. Maybe I can help end August. Maybe you can, too.”

In the games publication Giant Bomb’s discussion forums, game developer and tech writer Brianna Wu wrote “I was talking to Zoe Quinn this week, who told me about a folder on her computer called, ‘The ones we lost.’ And it was young girls that wrote her saying they were too scared to become game developers.

For every visible woman who has stepped away from their platform, how many less vocal or less well-known participants have we lost? In the wake of Gamergate, for instance, Kathy Sierra, a tech writer who was once the target of hacker and horrible person weev, walked away from the online persona she’d built as Serious Pony to insulate herself from further violence.  How many women stopped participating in online communities and massively multiplayer online and co-op games? How can we possibly know the real numbers of the ones we lost.

Gaming Industry Women

Egypt Expands Suez

Egypt is expanding the Suez canal in a drive to boost economic growth, and the canal has already achieved record income in 2014, General Mahab Mameesh, Suez Canal Authority board chairman said.

The Egyptian people succeeded in collecting more than 64 billion pounds (USD nine billion) in eight days for the massive expansion project because they believe that Egypt was heading towards further security, stability and economic development, Mameesh said.
He was speaking at a workshop about the development of the Suez canal, held on sidelines of the Egyptian Economic Development Conference (EEDC), and attended by Egyptian President Abdelfatah Al-Sisi and Saudi Crown Prince Muqrin bin Abdulaziz.

The expansion of the Suez canal aims at boosting its capacity to receive giant vessels, through deepening the navigation path to 66 feets as well as setting waiting time to 11 hours, down from 18, he said.  The Egyptian government has created legislations to protect investors, established a solid infrastructure that lure businessmen.  The new Suez canal will be linked to land, sea and air networks in order to facilitate transport of goods.

Suez Expansion

People of the US V Credit Suisse

UPDATE March 16, 2015:   Individual ezperts who testitfed before the Labor Department’s hearing on a waiver for Credit Suisse have been asked to provide more documentation of proof that Credit Suisse has a culture of corruption.  Very specific documentation was sent last week.  No deicsion has yet been made on this matter.  The CEO of Credit Suisse stepped down last wee, perhaps in part because Credit Suise wants to keep their $2 billioin in US pension funds management.

Last year Credit Suisse pled guilty to criminal charges to aiding and abetting tax evasion in the United States.  Now a ‘criminal’ Credit Suisse was banned from continuing to operate 2 billion dollars in pension funds in this coutnry.  They applied to the Labor Department for an extension, which they expected to be pro forma, In fact, a temporary exemption was granted.

Then Maxine Waters, a US representative from California cried out, Wait.  Let’s take a deerper look at this.  Let’s hold a public hearing.

On January 15, 2015, the hearing was held.  From Credit Suisse, the same old, same old was heard.  Top executives knew nothing of these programs to aid and abet tax evaders.  All the bad guys had been removed.  But reporters in Switzerland, intimately familiar with Credit Suisse’s business practices, asked the obvious question: Is the culture of Credit Suisse so corrupt that under no circumstances should this exemption be granted?

Hard evidence from the European justice system suggests the answer to this question is: Yes.

Mr. Neil Radey, Managing Director, General Counsell-America, co-General Counsel-Investment Banking, Credit Suisse Securities (USA) LLC said:  “Some commenters have alleged that senior management at Credit Suisse knew of the active assistance to U.S. customers evading taxes described in the plea agreement. These are claims that are unsubstantiated. Indeed, it was an independent investigation. It was conducted by external counsel, but it concluded that senior management was not aware of that misconduct.”

On November 21, 2011 a German district court ruling – file number10 KLs 14/11 – attested Credit Suisse to have instigated a large scale system to entice German citizens to evade taxes. The verdict further stated that Credit Suisse top management knew about this deliberate assault against the German revenue service. The court found that training materials were used to systematically train Credit Suisse staff to seek out German tax evaders. The verdict clearly confirmed that Credit Suisse’s top management had knowledge of the tax evasion crimes.

Neither the Credit Suisse internal tax investigation nor Credit Suisse top management reported any of the bank’s tax fraud found by the German Court to the US authorities.

Considering the German court’s unambiguous verdict against Credit Suisse, the fact that the bank’s senior management is still denying its knowledge about the tax evasion scheme and the fact that Credit Suisse is a repeat offender, Credit Suisse or its affiliates should not be given any exemptions. Credit Suisse’s statements do not have credibility.

Since Credit Suisse has not come clean with its criminal past, it is hard to understand how the Department of Labor can grant an exemption.   The risk that Credit Suisse could continue to engage in criminal activities through its QPAM’s – as it has often done in the past —  is far too great.

Credit Suisse

 

Is US Debt a Moot Issue?

Bruce Bartlett’s testimony:  There is no debt problem if United States retains its present monetary regime of a non-convertible fiat currency, with a floating exchange rate, and no debts owed in any foreign currency. That’s because for such a currency issuer, whatever debt level exists and falls due at any point, that debt can always be repaid because it is denominated in the currency the debtor nation can issue at will. All repayment takes then is the willingness of the issuer to issue the money needed and to use it to repay the debt due.

1. The nominal debt is irrelevant. By this I mean the dollar figure, which, as this is written, is $18,138,459,241,907.59. That’s a lot of money and it scares people. It makes them accept policies that may not only be unnecessary, but harmful. Cutting spending in a recession is clearly counterproductive and I think that the cuts that have been enacted over the last several years were unwise and slowed growth in the economy. The fact that the U.S. economy is doing marginally better than some in Europe is because they cut spending even more than we did.

2. The debt is a stock, not a flow. To determine whether the debt is “excessive” we have to compare it to something that approximates ability to pay. Typically, we look at the debt as a share of the gross domestic product. But this is not a proper comparison; we are comparing apples and oranges. To get an apples-to-apples comparison, we should compare the debt to the federal government’s assets. The comparable figure to GDP would be interest on the debt. Presently, net interest is 1.3 percent of GDP, well down from 3.2 percent in 1992. CBO currently estimates that this percentage will rise in coming years to 3 percent of GDP in 2025. This is due primarily to a projected rise in interest rates, rather than a rise in debt. This problem could be mitigated if the Treasury issued more long-term debt now while interest rates are low.

The government has many valuable assets, and among them the most valuable financial asset is its constitutional authority to create money whose financial value it can specify at will (which under present legislation is delegated to the Federal Reserve System and its member banks, and to the Treasury.

So, there can never be any diminution or increase in the capacity of a fiat sovereign government like the US government to repay its debt instruments regardless how small or large the principal value of those debt instruments is. Whether that value is $50 million or $50 quadrillion the value of the federal money asset ratio is still zero.

3. . . . Budget conventions grossly overstate the interest cost. The reason is that the budget treats the Federal Reserve as part of the public rather than part of the government. Presently, the Fed owns $2.5 trillion of Treasury securities, on which it receives interest from the Treasury. . . . But the Fed pays almost all of it back to the Treasury. In 2014, Treasury paid the Fed $116 billion in interest. After subtracting various costs, the Fed returned $99 billion to the Treasury. . . This amount should be subtracted from the federal government’s interest expense, just as we do with interest paid on trust funds. Instead, the Fed’s payment to the Treasury is treated as a miscellaneous receipt. . . .

4. Tax cuts increase the debt. This may seem like an obvious point, but some of my conservative friends often act as though this is not the case. According to the Congressional Budget Office, tax cuts enacted between 2001 and 2011 added close to $3 trillion to the national debt. . .

More generally, the first four points in Bruce Bartlett’s testimony to the Senate Budget Committee provide many reasons why the “debt crisis” notion should be viewed as seriously overblown.

Debt Ceiling?