Stop Blowing Bubbles

Thomas Hoenig, the hawkish Fed governor,
Says: "The Dollar has way too much dove in 'er;
With a null target rate,
I doubt we'll deflate,
But inflation is bound to be stubborner."  

Retiring Kansas City Federal Reserve Bank President Thomas Hoenig summed up his argument for tighter money in a speech at the London School of Economics yesterday.  In what may be his valedictory address, Hoenig stressed the urgent need for a transition from short-term liquidity crisis management to longer-term inflation-fighting.  As he pointed out, the Fed's overly accomodative policy in 2003 set the stage for the asset bubble that crashed five years later.  Hoenig also added his voice to those blaming "QE2" for the recent round of commodity inflation, though without really making the case for it.

Washington Doesn't Get the Housing Bust

The index of US home prices
Shows no end to the real estate crisis
Ev'rywhere but DC;
Counter-cyclically,
There the job market more than suffices.  

The S&P Case-Shiller Index of existing home prices showed continuing weakness in the residential market in January. Year over year, prices fell by an average of 3.1%, in every metropolitan area except Washington DC. There, a combination of a crowded housing market and a resilient job picture for politicians, bureaucrats, military and lobbyists contributed to a 3.6% annual increase.  San Diego was essentially unchanged at +0.1%, no doubt demonstrating the calming effects of warm Pacific breezes.

Why We Fly

"The grounds to take action are legion,
When applied to the Middle East region,
That the Libyan rise
Does not compromise
The Egyptian, much less the Tunisian."  

US President Barack Obama took to the airwaves last night to explain his typically nuanced approach to foreign intervention to a skeptical audience of hawks and doves. Aside from the prevention of atrocities at the hands of Col. Moammar Qaddafi and his supporters, one of the President's chief objectives is to prevent the spread of chaos to the neighboring countries of Egypt and Tunisia, where nascent democracies are struggling to take root.

Fashion Police Warning

We should check, before leaving our houses,
The reaction our clothing arouses,
In view of the sights
Of those asses in tights
Who should rather have put on their trousers.    

Dr. Goose's informal survey of New York streetwear corroborates this report of the Fashion Police, who admonish ladies everywhere to remember that "leggings are not pants, and tights are not leggings."

A Fruitless Market

Said a husband: "The Lord will not bless me,
Dear wife, with descendants, unless we
Make a deal with a neighbor
The fruit of his labor
To compensate with a success fee."

Many offers came in by the bunch,
And a contract was drawn up at once,
But later said Eve:
"I cannot conceive
Why it hasn't worked out in six months."

So the laws of supply and demand
May not always function as planned,
For sometimes you need,
For a deal to succeed,
More than just the Invisible Hand.    

Via Tyler Cowen's Marginal Revolution blog comes the story of a couple in Stuttgart, Germany who hit upon a commercial solution to the age-old problem of male infertility.  To compensate for the husband's shortcomings, they elected to pay a neighbor to impregnate the wife.  As with so many forms of economic stimulus however, and despite months of earnest endeavor on the part of the neighbor, the results fell short and there were unintended consequences.  You can read the entire story in a surprising source: the July 27, 1978 issue of Jet magazine.

Time to Buy a Home?

A house on the market, priced rightly,
Will sell at a pace that is sprightly,
So a backlog that grows
Leads one to suppose
That homes are expensive, if slightly.  

The Commerce Department announced that new home sales fell to 250,000 in February, the lowest number on record.  Moreover, the supply of homes on the market has increased from 7.4 to 8.9 months of sales.  These among other factors prompted investment strategist Barry Ritholtz to ask: "Should You Buy a Home?"  Based on a comparison of home prices and home-owning costs to 1) personal income, 2) renting and 3) US GDP, Mr. Ritholtz concludes that the residential real estate market, though fallen from great heights, is still a bit pricey.

Progressively Taxing Debate

Overtaxed, an economist meant,
Are America's top ten percent,
But his figures, while true,
Don't progressively view
The top tent' o' da tent' o' da tent'.

The Tax Foundation, a Washington-based think tank, concluded based on figures  published by the OECD that "no country leans on upper-income households as much as the US."  They based this conclusion on the fact that the income tax share of the top-earning 10% of US households is 1.35 times its income share, compared to the OECD average of 1.11 times.  However... the OECD economist behind the Tax Foundation's figures points out that the overall level of taxes and social spending in such countries as Sweden is far higher than in the US, resulting in more income equality there than here.  Moreover, a UC Berkeley study showed that the average tax rate actually paid by the US' top-earning 0.1% (where wealth is really concentrated) has declined from 65% in 1970, to 45% in 1994, to less than 35% in 2004.  

Hat tip to Harvard's Professor Greg Mankiw, who linked to the Tax Foundation on his blog and became the lightning rod for progressive criticisms such as this one.

AT&T's Lessons on Lobbying

"Since the need's too uncertain to time it,
One must keep at the pump so to prime it;
Thus largesse we have spread
To the Blue and the Red
For an easier anti-trust climate."    

AT&T's announced $39 billion acquisition of rival T-Mobile USA would combine the second- and fourth-largest US mobile providers, setting the stage for a potential confrontation with the regulators who would have to approve the transaction.  Fortunately for AT&T, as the top contributor to members of Congress for the last generation, they may find a receptive audience.  So, for example, their $15 million in annual contributions to Republicans and Democrats may weigh against the fact that the proposed merger would leave 3 out of 4 US mobile users in the hands of two carriers.

The Obama Doctrine

In crises of foreign affairs
When hostility suddenly flares,
The force one projects
Is enhanced, one expects,
If one's allies, as well, project theirs.

As noted in the Wall Street Journal on Sunday, the international campaign in Libya marks the first usage of the "Obama Doctrine," receiving "unambiguous legal authority through the United Nations, getting clear support from Arab states and then letting others—France and Britain —lead the military charge."  It remains to be seen how effectively this doctrine can help to replace the mad dictatorship of Qaddafi with popular representation, at a minimum of popular casualties.

The Toast of Ireland

For Guinness, a source of great profit
Are the crowds on St. Paddy's that quaff it,
But at home it appears
That alien beers   
Have weaned many Dubliners off it.     

So the stout-brewer's future is really   
In overseas markets ideally,   
As they're growing the most   
Where the typical toast   
Is in Haussa, Chinese or Swahili.    

Guinness stout, the iconic "official drink of St. Patrick's Day", was once the beer of choice for two out of three Irish pub-goers.  However, a 2006 study by Ireland's Competition Authority found that foreign lagers such as Budweiser and Heineken had become "more fashionable" and taken 63% of Ireland's beer market, compared with just 32% for stout.  As the luck of the Irish would have it, however, emerging markets in Asia and Africa continue to provide a boost to global sales.    

* Let us not forget, as we toast a serpent-free Ireland, the example of Guinness' parent company Diageo plc, which supports the Red Cross, and with it, the people of another afflicted island nation. *

Erin Go Broke?

Said Noonan: "We'd like to inject less
In these albatross banks on our necklace,
For we've already blown
So much cash of our own
To atone for when lenders were reckless."  

Irish Finance Minister Michael Noonan would like the EU and the European Central Bank to agree on a longer timetable for the deleveraging of its banking sector. After the banking collapse brought on by overly aggressive property lending, the Irish government has injected €46 billion, or 29% of GDP, into the country's banks, and could evidently use a breather.

Dublin Down on Taxes

Said the Irish Prime Minister Kenny:
"I'd be glad of a bailout, if any."
"'Til you tax as we do,"
Replied the EU,
"For you we'll accrue not a penny."    

Irish eyes will be smilin' this St. Patrick's Day, if Dublin can secure an EU financing package to cover its deficits.  However, the 12.5% Irish corporate tax rate, an irritant to the other EU member states, has disrupted the negotiations.  France and Germany particularly would prefer that newly elected Prime Minister Enda Kenny move to end the tax disparity, which would  reduce the fiscal deficit as well as the perceived unfair competition for corporate locations.  For this latter reason of course, Ireland is most reluctant to comply.

Shaken to the Core

While reading of quakes and reactors,
One ponders the many risk factors
Of God and of man,
And how much one can plan
To mitigate all these impactors.  

The earthquake, tsunami and subsequent nuclear accidents in Japan have renewed the debate on the trade-offs of risks and benefits: radiation dangers vs. energy independence, safety vs. costs, catastrophic risk vs. financial risk.  Odds are that the optimal choice will comprise a disciplined vigilance toward those things that we can control, and a calm acceptance of those we cannot.

It is within all of us to help the victims of this and other disasters, and here are some ways to do so, courtesy of Yahoo.

Fed Nominee Blocked

"Peter Diamond," said Senator Shelby,
"A talented theorist may well be,
But his Keynsian views
I'll flatly refuse,
However deserved his Nobel be."    


If you were a conservative Republican trying to derail the confirmation of a Democratic president's nominee to the Federal Reserve Board of Governors, you could not have done a better job of it than Sen. Richard Shelby (R-Alabama).  After graciously praising Dr. Diamond's accomplishments, and arguing that they lack relevance for the Fed, Sen. Shelby got down to brass tacks: his opposition to "an old-fashioned, big government Keynesian" on policy grounds.

#Winning Labor Relations

A comedy actor was hired
Though ev'ryone knew he was wired,
Abusive, depraved,
And bizarrely behaved;
He insulted his boss and was fired.  

(Okay, you've read about Charlie Sheen everywhere else - why not a limerick blog?)  The affair about which everyone is talking has taken a legal turn after TV's highest-paid actor was fired, and he sued for breach of contract.  Did he fail to hit his marks, as alleged by Warner Brothers, or have his caustic comments regarding producer Chuck Lorre hit too close to home?

Interest Not Yet Peaked

While growing his debt astronomic'ly,
Uncle Sam must prepare for ignominy;
As the bond int'rest cost,
Left unchecked, may exhaust
Ten percent of the US economy.  

Okay - not right away; however, the $200 billion annual interest cost on the federal debt, at current trends, could grow to 10% of US GDP by 2080, reports the Wall Street Journal.  That should be enough to focus everyone's attention on reducing the growth of Medicare, Medicaid, Social Security and defense spending.

The Expressway's Not The Best Way

The Highway to Credit Perdition
One may exit with acts of contrition;
One may also backslide
In a shiny new ride,
When a loan is the key to ignition.  

The Federal Reserve reported that US consumer debt increased at an annual rate of 2.5% in January. While credit card balances continued to fall, as they have for the last two years, non-revolving consumer loans - especially auto financing - were up sharply.

We Owe How Much?

The two trillion dollars in debt
Of the states may incite one to fret,
But if one were to mention
Their unfunded pensions,
They'd triple their borrowing yet.  

Taking some poetic license with the figures cited by Josh Barro in National Affairs (that's a public policy journal, not a racy romance novel), we note that US state and local governments' $2.4 trillion in total debt would increase to $6.4 trillion if their obligations to underfunded pensions were included.  This is the urgent arithmetic to which governors of every political stripe must now respond.  (Hat tip to "The Analyst.")

Yuan an Alternative?

The factors that long ago made
US dollars the means of world trade
May soon usher in the
Yuan (or renminbi)
For cross-border bills to be paid.  

China's currency may soon become a medium of regional if not global trade, writes Barry Eichengreen in the Wall Street Journal.  He argues that three factors led to the dollar's heretofore exclusive role: the depth of US securities markets (including Treasuries as well as the instruments for hedging risk); safety, particularly in times of international crisis; and the lack of alternatives.  China's growth may soon bring it the first two attributes, while making the third irrelevant.  The Euro, meanwhile, is even closer to becoming a dollar alternative.

Anyone But China

The fervently flung accusation
That commodities' rampant inflation
Is the fault of Bernank's
May be gentler on Yanks
Than a less US-based explanation.    

Federal Reserve Chairman Ben S. Bernanke appeared before a Senate committee yesterday, once again facing questions on the Fed's role in rising prices for food and fuel.  Since these commodities comprise a global market in which prices are set by international supply and demand, one may wonder whether the blame directed at quantitative easing willfully ignores the  the "£800 million panda in the room."  Most knowledgeable observers agree that Chinese demand is a more important driver of commodity prices than US money supply.

Crude Commodities

When politics don't go as planned,
Commodities get out of hand,
As markets pay heed
To the fear and the greed,
Instead of supply and demand.    

The gyrations in the price of oil that have accompanied the uprising in Libya - a country with only 2% of global oil reserves - once again highlight the fact that markets are often more focused on the fear of adverse consequences (and the greed for what scarcity could do to prices) than actual changes in supply.