Archive for July 2013
Ignoring the Problem
Senator Warren’s proposal to make student loans available at just 0.75% actually exacerbates the problem. Cheap loans will increase the number of college applicants, allowing universities to raise prices, like builders did during the bubble because credit was easy. The underlying problem is the rising cost of tuition. A solution: force schools who accept cheap…
Read MoreWeek that Was
With the July consumer sentiment number rising to 85.1, it’s now at its highest level since 7/07, and way up from its all time low of 55.3 set in 11/08. Add to that a sharp rise in non-defense durable goods orders, a rise in home prices, and a tiny rise in first-time unemployment claims, entirely…
Read MoreEconomic Do-Over
The 14th comprehensive benchmark revision to all GDP accounts from 1929 forward will be released later this week. The revisions will probably show faster recent GDP growth bringing it line with improved employment numbers in 2012, higher labor productivity growth, higher household savings rates and higher personal incomes. In short, households will be found to…
Read MoreFly With Facts
The Friday File: While flying seems risky compared to automobile travel, seems is the operative word. For the decade ending in 2008 passenger fatalities per 100 million miles were 0.72 for automobiles, 0.05 for buses and trains and 0.01 for airlines. That means flying in a plane is 72 times safer than riding in a…
Read MoreFinancial Repression
While the Chinese government must rebalance its economy away from export and investment-led growth towards household consumption-led growth, the problem is that the combination of low wages, low interest rates on savings and an undervalued currency all conspire to keep the household share of Chinese GDP spectacularly low, constraining household spending. Reversing all these policies…
Read MoreFinance Failure
While the House and Senate work on competing bills to fix our broken housing finance system, where 91.2% of new mortgages are government backed, reform is years away. A Congress that can’t pass a budget, an immigration bill, or an Agriculture bill, and that is hurtling towards yet another ruinous debt ceiling fight, certainly doesn’t…
Read MoreGreener Greenback
The dollar has been dramatically strengthening against most currencies of late and this will hurt US exports by making them more expensive in local currency and boosting imports, worsening our trade deficit. It’s happening because as our economy strengthens, interest rates will rise, making our currency more desirable to hold. By contrast, interest rate increases…
Read MoreBleak Greek
While the US economy is not great, be grateful you don’t live in Greece. Unemployment there is 27.4%, youth unemployment is a staggering 58% and car registrations are down 80%. This is because GDP is in its fifth straight year of decline and by the end of 2013, will be back where it was in…
Read MoreSexual Evolution
The Friday File: Plants and pests naturally evolve in an arms race of resistance and conquest that usually has no winners. But grafted trees, because they don’t reproduce sexually, are genetically identical to each other and thus never evolve. However, the pests that prey on these trees continue to sexually reproduce and therefore evolve. Thus,…
Read MoreDisappointing Data
Given a widening trade deficit, disappointing retail sales, weak inventory accumulation and now yesterday’s surprisingly bad housing starts at just 836,000 units, I’m reducing my Q2 GDP estimate to just 1%. Interestingly, single-family starts, 2-4 unit starts, and 5+ starts have all lost ground and are each at their lowest level since 8/12. Second half…
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