A Leading Indicator

The Jobless Claims number's expected
To predict whither growth is directed,
For there's much one may plumb
When aware what the sum
Of those getting an unemployed check did.  

Indeed, a higher-than-expected jobless claims number yesterday helped to drive the dollar lower against the euro, which now costs nearly $1.50.  In combination with Fed Chairman Ben Bernanke's dovish comments at his first-ever press conference, the indication of higher unemployment tells the markets to expect a period of slow growth and low interest rates in the US, both of which would make other currencies more attractive.

Royal Wedding

Said Prince William, admiring his commoner,
"Such pageantry's cert'nly becomin' 'er,
As my bride-to-be's hot,
(Though I dare say there's not
As much as some think of my Mum in 'er)."  

Said the Chancellor of England's Exchequer:
"Young prince, have no royal home-wrecker;
For your troth, once avowed,
Brings the touristy crowd
To Big Ben and the red double-decker."  

Commerce takes a holiday in London and Limericks, as the world turns to affairs of the Heart and of State. Britain's Prince William and his fiancée Kate Middleton will join together in holy matrimony at 11:00 AM tomorrow in Westminster Abbey, broadcast live at 6:00 AM in New York and 3:30 PM in Mumbai. In Sydney, it's already over.

Fightin' Words

A woman who loved a good fight
Would demand, as she argued all night,
Philosophical heft
From those on the left
And empirical proof from the right.

A recent walk through the economic blogosphere left the impression that liberals (of the progressive variety, as in this randomly selected post by Paul Krugman) like to base their arguments on data, history and "whatever works;" while conservatives (particularly of the supply side or libertarian variety) seem to prefer philosophy, game theory, analogies or even the US constitution - anything but empirical studies.

QE2's Final Voyage

The Fed sought to raise asset prices
As a way to combat the debt crisis,
And so now we know
Half a trillion or so,
As a stimulus, more than suffices.  


Tomorrow the Fed will announce their follow-up course of action to the second round of quantitative easing, or QE2, which expires in June.  QE2, which comprised $600 billion of Treasury note purchases, was intended to stimulate the economy by increasing liquidity and lowering long-term rates, thereby goosing the appetite for riskier assets. This space is generally supportive of goosing, but notes the uncertain inflationary impact of QE2.

A Taxing Unwillingness

A peculiar American silliness
Is to claim that our taxes are killing us;
When we glob'ly compare,
We pay less than our share,
So it's not that we can't, but our willingness.  

Standard and Poor's, in putting US Treasuries on negative watch last week, noted that the American public sector takes up a smaller percentage of national income than those of other AAA-rated countries. This suggests that the US has the financial flexibility to raise taxes in order to lower the deficit. That's the good news; the bad news is we haven't mustered the political will (or maturity) to do it.

Hat tip to The Economist's Free Exchange blog.

Matzo Madness

A salad bar manager said:
"We give away rolls, but instead,
Let's leaven our margin
A little by chargin'
A dollar for unleavened bread."

Dr. Goose, who - like many economists - celebrates Passover, was surprised to find this week that his local takeout salad place, where bread is a free side dish, charges $1.19 for a matzo. He surprised himself even more by paying it; such is the price of faith.

Happy Holidays to all those celebrating Easter and Passover this week!

Higher Prices In China, Or Abroad?

If, for China to hike the renminbi,
A domestic political sin be,
But yuan 'ppreciation
Would quiet inflation,
Then therein the Yang and the Yin be.

China's Premier Wen Jiabao broke new ground for his government yesterday with a public acknowledgment of the role that a strengthening yuan could play in restraining Chinese inflation. Although the central bank had begun to allow very gradual appreciation of the renminbi ("people's currency") last summer, it has seemed until now that the government's top priority was to check the yuan's rise so as to hold down the prices of Chinese exports. Now however, rising inflation may bring Chinese policy more in line with that favored by competitors such as the USA and Germany. 

If It's Cheap Funding Yuan...

In Beijing they've enabled Hong Kong
To market yuan bonds for a song;
If they let these renminbi
In China, they'll then be
Enabling growth in Guangdong.


The Wall Street Journal reports that China is considering allowing the inflow of yuan that are borrowed in the low-cost financial center of Hong Kong.  This could not only give the domestic Chinese economy the boost of cheaper funding, but also create the first building blocks of an international capital market in their currency.

Happy Tax Day

A thrifty young fellow named Kevin, who
Was filing with Internal Revenue,
When the bottom line showed
All the money he owed,
Admitted: "I'm rich and I never knew."

Happy Tax Day to all those who didn't realize how much money they had until the IRS wanted to take it away from them.

Origin of Language

Before 60 or 70 millennia,
In the gen'ral vicinity of Kenya,
An intelligent word
Was origin'ly heard,
But is long since forgot, as so many ah.  

A new study, published in the journal Science by psychologist Quentin Atkinson of the University of Auckland, theorizes that complex language originated some 50,000 to 70,000 years ago in Africa. This theory is based on the "founder effect," the phenomenon that, when a small group of individuals breaks off from a larger group, the smaller group gradually loses some genetic complexity and variation. If the same holds true for languages, then the fact that those of Africa are the most phonetically complex would indicate that other languages broke away from there.  A fascinating follow-up question is whether anapestic meter comes "out of Africa" as well.

The President's Rebuttal

"The GOP budget cut packet
Is so flawed that I've got to attack it;
The shortfall won't close
Unless we put those
Such as me in a higher tax bracket."

US President Barack Obama responded to the Republican deficit reduction proposal yesterday, declaring that he would "refuse to renew" an extension of the "Bush tax cuts" for the wealthiest Americans, including himself. The proposal put forward by House Budget Committee Chair Paul Ryan (R - Wis.) would privatize Medicare and make drastic cuts in many federal programs, and yet not result in a projected balanced budget until 2030. As the President and most non-partisan experts have pointed out, the federal budget cannot be balanced in a reasonable time frame - even with substantial cuts in programs - without reverting to the tax rates of Clinton years.

Rising Imports

Low prices on imports had checked
The inflation the Feds would project,
But metals and wages
May have a contagious-
ly Inflationary effect.

The US had long imported disinflation along with t-shirts, toys and tchochkes from China, but lately a combination of higher commodity prices, currency moves including a strengthening yuan, and wage pressures in China and elsewhere have boosted the prices of manufactured goods imported into the US.  According to the latest figures from the Labor Department, manufactured imported goods have gone from a source of disinflation to its opposite.

Hot Metal

With the copper price four-fold inflated,
Commodity analysts debated
Whether Chinese demand,
From the stockpile on hand,
Really could or just couldn't be sated.  

Copper prices, which have quadrupled after a two-year rally, are now drawing some skepticism.  Although Chinese industrial demand has driven the rally, recent signs indicate that a slight revaluation is in order. According to the Wall Street Journal, evidence has surfaced that up to a million tons of copper may be sitting in bonded warehouses around the country, implying a weaker consumption than was heretofore assumed. Copper bulls counter that these stockpiles could be consumed in less than one month; such is the voracious appetite of Chinese industry.

Beyond a Shutdown

Our partisan federal malaise
May collapse for a couple of days,
But weightier yet
Is our national debt -
How to shrink it, what's cut and who pays?  


As the clock wound down to a Friday midnight deadline before a US federal government shutdown, many were caught up in the short-term drama.  Congressional agreement was needed on a plan to keep the government operating for the rest of the year.   However, the long-term - and more important - question of arresting the growth of the federal debt remains wide open.  This will take a combination of spending cuts and tax increases that no major federal officer-holder has yet proposed. 

Corny, But True

The proportion the price of grain takes
Of the pay that a poor nation makes
Is more, as a rule,
For a serving of gruel
Than a similar serving of flakes.

Everyone's talking about the rising price of food, but only in poorer nations has it led to political upheaval. One reason is that, not only does food make up a greater percentage of the household expenses of lower-income nations, but by economizing with foods made from scratch they are more exposed to commodity price fluctuations. As Cornell University professor Per Pinstrup Andersen explains on the public radio Marketplace program: "[With Corn Flakes] you're paying a little for corn and the rest for the person who makes the cereal, packages the cereal, sells the cereal, and prints that fancy rooster on the box. That corn tortilla, well, that just requires corn."

So, while the flakes may be overpriced, the tortilla is more affected by overpriced corn.

GOP Deficit Reduction

House Budget Committee Chair Ryan
To balance the budget is tryin',
But without tax-rate hikes
He may cut as he likes
And fall short of the goal he's implyin'.  

The budget proposal unveiled by Rep. Paul Ryan (R., Wisconsin) serves up an unusual recipe of brutal realism and wishful thinking. On the one hand, Mr. Ryan correctly identifies healthcare spending as the element most in need of control, and makes potentially explosive changes and cutbacks to Medicare and Medicaid. On the other hand, by starting from the revenue base of the Bush tax cuts, he doesn't project a balanced budget until 2030. Even this achievement relies on such rosy assumptions as 4% unemployment and a reduction in federal spending from  24% to 14.75% of the US economy. A truly realistic plan to balance the budget will require more revenue as well as less spending.

Fed-Fueled Feeding Frenzy?

The Federal Reserve was attacked
By many who cited the fact
Of unrest overseas
Since they started to ease,
A tack which the right never backed.  

"Food inflation is quite a misstatement,"
Said the Fed, "Of what lowering the rate meant;
For oil and wheat
Beat a hasty retreat
On the days when we signaled abatement."  

The Federal Reserve's "QE2" program of stimulating the markets through purchases of Treasury bonds has coincided with price increases of 30-50% for metals, fuels and food since last August. Hawkish commentators such as Larry Kudlow and right-wing bloviators such as Rush Limbaugh have seized on this fact to claim that the Fed's easing caused commodity inflation. The argument is that it created excess capital flows that bid up the prices of assets around the world. The criticism took on apocalyptic overtones when food protests erupted in Arabic countries and led to political upheaval.

In response, two reasearchers from the San Francisco Fed have published a rather polite study, which concludes that they "cannot provide evidence" that QE2 caused food inflation. The reason is that, on the days when new asset purchases were announced, commodity markets tended to retreat; the market therefore thought of QE2 as bearish for commodities. Left unanswered, however, is the question of whether excess capital did in fact cause more buying of commodities and the overall bullish trend.

The San Francisco Fed's omission does of course leave the field wide open for blogging poets to address this crucial question, which we will bravely attempt.

That Empty Feeling

A fellow was fit to be tied:
"How the food makers subtly misguide!
While the price has held steady
Per box of spaghetti,
There's not as much noodle inside."  

This week, Limericks Économiques looks at food inflation.  You've probably noticed that those grocery items that have not gotten pricier have gotten smaller. This phenomenon was documented behind the paywall of the New York Times by Stephanie Clifford and Catherine Rampell. They quote one mother of nine who, only after the pasta dinner came up a bit short, noticed that the boxes that once contained 16 ounces now only held 13.25.  In this way,  food processors hope to mitigate the perception of the unavoidable passing of higher costs along to the consumer.

Fed Funds Folly

Said a wavering dove at the Fed:
"With no growth in employment ahead,
We're tempting the fates
By holding down rates,
So we'd best fight inflation instead."  

As reported by Kelly Evans in the Journal's Ahead of the Tape today, even some dovish governors of the Fed are worried that inflation may return ahead of job growth.  All signs point to a "no-hire, no-fire" job market, in which companies earn renewed profits from a skilled and less dispensable  work force, while many unskilled jobs have structurally disappeared and cannot be brought back by monetary stimulus. Meanwhile, both headline and core inflation figures show signs of picking up, leading erstwhile doves to make hawkish suggestions for gradual 1% hikes in the Fed funds rate.