Archive for May 2011
Food is Expensive
In poor countries people spend much more on food than we do. In the Philippines 47% of income is spent on food. The amount is 45% in India, 40% in Vietnam, 36% in Indonesia, 33% in Thailand, 30% in China, 22% in Singapore, 14% in S. Korea. Here it’s just 8%. Because it’s so high…
Read MoreEconomics of the Indy 500
The Indy 500 is more than a huge financial Memorial Day event. Via trickledown technology it has vastly improved our lives. Turbochargers were 1st used in ’52, rearview mirrors in ’11 and seatbelts after WWII. Wide low-profile tires now used were also perfected there. When Indy cars were 1st outfitted with crash test recorders in…
Read MoreWinners and Losers
Because Quantitative Easing Two (QE2), which is soon ending, forced interest rates down to record lows, stocks and commodities soared as investors’ searched for better returns than those available on Treasuries. US exporters also enjoyed the lift they received from the weak dollar. But, seniors were pounded as their savings have been earning virtually nothing.…
Read MoreExpansive Gas, Cheap House
When gas prices rise we become leery about driving. That lowers the value of homes far from jobs. But, by how much? If gas costs $4/gal and you get 20 mpg, each mile you drive costs $0.20. When commuting, you drive that mile twice a day. So, each extra mile costs $100/yr. Based on this,…
Read MoreIcelandic Luck
The gov’t of Iceland wasn’t smart. It just couldn’t afford to bail out its banks, so they failed and foreign creditors including the UK and the Netherlands got badly burned, to the tune of $6 billion. While Iceland has suffered, their economic performance has been fabulous compared to Greece, Ireland or Portugal. The lesson, bailing…
Read MoreWeak Growth, Low Rates
The output gap, the difference between what GDP is and what it could be, at 5.2% has never been this large this late in an economic recovery. Usually the gap has completely disappeared by the 2nd anniversary of the expansion which is why interest rates usually rise at that point. And, this is precisely why…
Read MoreDemocracy and Perishability
Trade predates agriculture. The advent of ag sped up the trend towards specialization in temperate zones, but not in the tropics. Why, perishability. If you can store what you make (cereals) you trade it. And trade leads to cities, stable gov’t, and a tilt towards democracy. But tropical produce (bananas) was traditionally hard to store…
Read MoreBogus Budget Cut
Remember the $39 billion spending cut pushed by Republicans in April that averted a gov’t shutdown? It was all smoke and mirrors! Instead of cutting outlays the CBO now figures it will actually increase spending by $3.2 billion. The cuts were mostly phony like cancelling budget authorization for programs that weren’t actually going to get…
Read MoreAggregate Demand MIA
Major averages have hit post-recovery highs aided and abetted by fattening margins provide by massive excess labor and the decline in unit labor costs that go along with that as well as the torque from a vibrant overseas economy and the currency translation effects of the ever weakening dollar. But, it really has nothing to…
Read MoreConsumer Sediment
The good: University of Michigan consumer sentiment index (a nat’l index) improved more than forecast in May. It’s at 72.4 up from 69.8 in April. The Bad: Economist had predicted 70. The Ugly: This reading is below the avg of 73.9 that we see in RECESSIONS and light years away from the 90 avg during…
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