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Professor Mark J. Perry's Blog for Economics and Finance
ESPN: "In these dark economic times, there is still one beacon of light: Super Bowl XLII. America's corporations and citizens might be paring expenses and bracing for hard times in every other respect; but in metro Phoenix this week, the mantra is: Recession? What recession?
Here's a follow-up graph to the one in the post below, this one is through 2007-Q3 for "foreclosures started," from the Mortgage Bankers Association(MBA). What is pretty obvious is that subprime mortgages in general are not the problem, but subprime ARMs that are the real problem. Subprime fixed foreclosures in 2007-Q3 were actually below the last peak in 2003-Q4, and still aren't much higher than FHA foreclosures. Foreclosures on prime fixed-rate mortgages haven't moved much at all in the last 5 years.
Interesting chart above from Freddie Mac, showing foreclosures through the middle of 2007. Note that delinquency rates for FHA and VA loans were declining in 2007 and flat for prime conventional mortgages, so the delinquency problems (at least through the middle of 2007) were affecting only the subprime mortgage sector. It will be interesting to see how this changes in the last half of 2007.
Jan. 31 (Bloomberg) -- Germany's unemployment rate fell to the lowest level in 15 years in January. The jobless rate, adjusted for seasonal swings, dropped to 8.1%, the Federal Labor Agency in Nuremberg said today.
Forbes Magazine introduces the Forbes Misery Measure, based on a city's unemployment rate, personal tax rate, commute time, weather, crime, and toxic waste proximity. The top ten "most miserable" cities, according to Forbes:
Territory size shows the proportion of worldwide GDP, equalised in purchasing power parity, found there in the Year 1 A.D.
Territory size shows the proportion of all cars in the world that are found there.
Territory size shows the proportion of worldwide polio cases that were recorded there between 2000 and 2005.
Distribution of World Population of the World: Year 1
There are three ways government can get the money for a stimulus package. It can tax, borrow or inflate the currency by printing money. If government taxes to hand out money, one person is stimulated at the expense of another who pays the tax, who is unstimulated and has less money to spend. If government borrows the money, it's the same story. This time the unstimulated person is the lender who has less money to spend. If government prints money, creditors, and then everyone else, are unstimulated.
From Henry Payne.
"Hillary, I'd like to expand government by at least this much."
The Laffer Curve charts a relationship between tax rates and tax revenue. While the theory behind the Laffer Curve is widely accepted, the concept has become very controversial because politicians on both sides of the debate exaggerate. This video, featuring Cato Institute Senior Fellow Dan Mitchell, shows the middle ground between those who claim "all tax cuts pay for themselves" and those who claim tax policy has no impact on economic performance.
This is Part I of a three-part video series, and focuses on the theory of the Laffer Curve. Part II reviews historical evidence of Laffer-Curve responses. Part III discusses how the revenue-estimating process in Washington can be improved.
According to the Federal Reserve (via the St. Louis Fed), 30-year fixed-rate mortgage rates fell below 5.5% last week for the first time in almost 4 years (see graph above), since early March 2004.
From today's Commerce Department report:
New orders for manufactured durable goods in December increased $11.2 billion or 5.2% to $226.6 billion (Note: Expected consensus was only a 1.6% gain). This was the second consecutive monthly increase and followed 0.5% November increase. Excluding transportation, new orders increased 2.6%. Excluding defense, new orders increased 2.9%. Transportation equipment, up three consecutive months, had the largest increase, $7.3 billion or 11.3% to $71.4 billion. This was due to defense aircraft and parts, which increased $3.5 billion.
Bottom Line: Durable goods orders signal a much stronger economy today than a year ago, as Brian Wesbury suggests. Further, the continued gains in durable goods orders indicate that the U.S. economy is nowhere near a recession, see the graph above (data available here) and notice the steep decline in durable goods orders before, during and after the last recession in 2001.
Last week there was a CD post featuring the graph above of initial claims for unemployment benefits, which was mentioned on Greg Mankiw's blog.
The government's resources are not infinite. If it gives out $150 billion today, it must collect an extra $150 billion in taxes tomorrow (unless the government cuts spending, which nobody seems interested in). That's a law of arithmetic. Where will that future $150 billion come from? From the same people who are being encouraged to spend their rebate checks today. That's why this whole thing is eerily similar to the sub-prime lending crisis that got us into this mess — people are being encouraged to spend beyond their means and forgetting that it's all got to be paid back someday.
In China 25 years ago, over 600 million people—two-thirds of the population—were living in extreme poverty (on $1 a day or less). Now, the number on $1 a day is below 180 million. In the world as a whole, a stunning 135 million people escaped dire poverty between 1999 and 2004. This is more than the population of Japan or Russia—and more people, more quickly than at any other time in history.
From today's LA Times:
I object. The last time large numbers of people were showered with loan money and encouraged to live beyond their means, it was called the sub-prime crisis, which is what got us into this mess to begin with.
Note: All week in the LA Times, Jason Furman, an advisor to President Clinton, and author-economist Steven E. Landsburg discuss the U.S. economy and the recently announced stimulus package.
Standings So Far: Landsburg 1, Furman 0.
A recent post reported that every major U.S. commercial bank was profitable last year. An anonymous commenter reported some 2008 earnings per share (EPS) estimates for some of the banks listed in the post. That comment inspired the table above (click to enlarge), which shows 2007 EPS (actual) and 2008 EPS estimates for 17 of the largest U.S. commercial and investment banks.
NEW DELHI: Sears, yet another American retail chain, has shown interest in starting operations in India.
The chart above (click to enlarge) is from the most recent study on income tax shares from the Joint Economic Committee of Congress, which reported that:
The graph above shows the share of personal income taxes paid by the top one-half percent of earners from 1960 to 2001. During this period, there were 4 major reductions in marginal tax rates.
Answer 36 questions to check you political compass here, and make sure you're backing the right presidential candidate.
"What makes you think that this tax rebate will put anyone to work? The idea behind the stimulus deal is to give people tax cuts so they'll feel richer and spend more. But government can't make people richer on average; all it can do is shuffle wealth around. To pay Peter, you must tax Paul (or at least promise to tax Paul in the future, when your debts come due). Peter spends more, but Paul spends less.
In 1980, the highest marginal tax rate was 70% and by 1988 the highest rate was cut to only 28%. The chart above shows what happened during that decade, exactly as predicted by the Laffer curve:
Some U.S. statistics for the year 1904:
30-year fixed rates for conventional mortgages (5.69% as of last week) are the lowest in 2.5 years, since since July of 2005 (see chart above).
Chief Executive’s fourth annual “Best & Worst States” survey recently asked 605 top executives to evaluate their states on a broad range of issues, including proximity to resources, regulation, tax policies, education, quality of living and infrastructure. CEOs were also asked to grade each state based on the following criteria: 1) Taxation & Regulation, 2) Workforce Quality, and 3) Living Environment.
The chart above (click to enlarge) shows pay around the world for the positions "Head of Marketing and Sales" and "Data-Entry Operator," according to Mercer. Also listed is the cost of living rank and expected pay increase in 2008.
From Business Week (1/17/2008): "Big Blue has built a global network for client services and in the past three years has hired 90,000 people in low-cost countries."
Political rhetoric: According to Governor Jennifer Granholm, "No state has been ravaged more than Michigan by unfair trade policies."
The chart above shows the number of new claims for unemployment benefits in the first month of the last four official recessions using data from the Department of Labor (claims) and the National Bureau of Economic Research (recession dates).
Detroit Mayor Kwame Kilpatrick and his chief of staff Christine Beatty (pictured above) probably thought so when they both lied under oath about their romantic relationship last summer at a police whistle-blower trial that cost the cash-strapped city more than $9 million, according to records obtained by the Detroit Free Press. (Note: Kilpatrick is married, and he and his wife Carlita have three sons.)
Kilpatrick and chief of staff Christine Beatty denied during testimony in August that they had a sexual relationship. But the records, a series of text messages, show them engaged in romantic banter as well as planning and recounting sexual liaisons.
The newspaper examined nearly 14,000 text messages on Beatty's city-issued pager. The exchanges, which the Free Press obtained after the trial, cover two months each in 2002 and 2003.
The false testimony potentially exposes them to felony perjury charges, legal experts say.
Read all about it here.