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Economics - Dec 15

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Oil producers shun dollar

Haig Simonian, Javier Blas and Carola Hoyos, Financial Times
Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements.

The revelation in the latest BIS quarterly review, published on Monday, confirms market speculation about a move out of dollars and could put new pressure on the ailing US currency.
(11 Dec 2006)


Runaway globalisation, the dollar and Saudi Arabia

Jerome a Paris, Daily Kos
Nothing shows how globalisation has accelerated at the turn of the century than this graph showing the exports of the 4 biggest exporters: Germany, the USA, China and Japan: [graph]

The staggering increase in Chinese exports is all too visible, but the performance of German exporters over the past few years is also quite notable, and the USA and Japan have also enjoyed record export growth.

Trade, free or not, is certainly doing well.

...The really odd case is that of the USA. While the above 3 [countries] export about 20% more than they import, the USA import a staggering 90% more than they export, which means that their trade deficit is almost equal to their total exports.

So it's not that the USA is not exporting, or that its manufacturing based is hollowing out (the value of industrial production is reaching record levels), it's just that (i) it requires a lot fewer jobs to do so, and (ii) its growth outside the export sector has been a lot slower than that of the rest of the economy, and thus its relative share is declining. And of course that exports are overshadowed by massive imports, themselves fuelled by record debt-driven consumption. [graph]

And the problem is not so much imports from Asia (although they do add up, and are growing), but the combination of these with an increasing oil bill.
(15 Dec 2006)


The Great Wealth Transfer

Paul Krugman, Rolling Stone
It's the biggest untold economic story of our time: more of the nation's bounty held in fewer and fewer hands. And Bush's tax cuts are only making the problem worse
----
... The reason most Americans think the economy is fair to poor is simple: For most Americans, it really is fair to poor. Wages have failed to keep up with rising prices. Even in 2005, a year in which the economy grew quite fast, the income of most non-elderly families lagged behind inflation. The number of Americans in poverty has risen even in the face of an official economic recovery, as has the number of Americans without health insurance. Most Americans are little, if any, better off than they were last year and definitely worse off than they were in 2000.

But how is this possible? The economic pie is getting bigger -- how can it be true that most Americans are getting smaller slices? The answer, of course, is that a few people are getting much, much bigger slices. Although wages have stagnated since Bush took office, corporate profits have doubled. The gap between the nation's CEOs and average workers is now ten times greater than it was a generation ago. And while Bush's tax cuts shaved only a few hundred dollars off the tax bills of most Americans, they saved the richest one percent more than $44,000 on average. In fact, once all of Bush's tax cuts take effect, it is estimated that those with incomes of more than $200,000 a year -- the richest five percent of the population -- will pocket almost half of the money. Those who make less than $75,000 a year -- eighty percent of America -- will receive barely a quarter of the cuts. In the Bush era, economic inequality is on the rise.

Rising inequality isn't new. The gap between rich and poor started growing before Ronald Reagan took office, and it continued to widen through the Clinton years. But what is happening under Bush is something entirely unprecedented: For the first time in our history, so much growth is being siphoned off to a small, wealthy minority that most Americans are failing to gain ground even during a time of economic growth -- and they know it.

A merica has never been an egalitarian society, but during the New Deal and the Second World War, government policies and organized labor combined to create a broad and solid middle class. The economic historians Claudia Goldin and Robert Margo call what happened between 1933 and 1945 the Great Compression: The rich got dramatically poorer while workers got considerably richer. Americans found themselves sharing broadly similar lifestyles in a way not seen since before the Civil War.

...In the end, the effects of our growing economic inequality go far beyond dollars and cents. This, ultimately, is the most pressing question we face as a society today: Will the United States go down the path that Latin America followed -- one that leads to ever-growing disparity in political power as well as in income? The United States doesn't have Third World levels of economic inequality -- yet. But it is not hard to foresee, in the current state of our political and economic scene, the outline of a transformation into a permanently unequal society -- one that locks in and perpetuates the drastic economic polarization that is already dangerously far advanced.
(30 Nov 2006)


Top-level insiders selling their stock

Paul Tharp, New York Post
America's corporate chiefs are unloading their own stocks at one of the boldest paces in 20 years.

In cases of the very rich, such as Microsoft's Bill Gates and Google's top brass, the executives are selling a whopping $63 for each $1 of stock they bought, says a report by Bloomberg.

In November alone, leaders of public companies dumped $8.4 billion worth of stock they owned as insiders, most of it awarded as compensation, bonuses or other management incentives.

But the vast majority of the executives put their windfall cash to work elsewhere, with just $133 million being plowed back into purchases of more company stock.

Analysts say a take-the-money-and-run flight from their own companies signals a growing lack of confidence in the economy's future course, as well as fears of a possible global meltdown if the Iraq crisis escalates across borders.
(7 Dec 2006)


A loan that'll get ugly fast

David Streitfeld, LA Times
EVERY day, Will Hertzberg owns a little less of his three-bedroom house in Corona.

Like hundreds of thousands of other homeowners around the state, Hertzberg has a mortgage that lets him choose how much he pays each month.

Like many of them, he always chooses to pay as little as possible.

For the moment, this allows the 56-year-old Hertzberg to continue living in his tract home despite being only marginally employed. But his debt is swelling, and his mortgage company controls his fate.

"I am rather screwed," he said.
(11 Dec 2006)


Is deflation possible in the U.S.?
Interview with Paul Kasriel

Michael Shedlock, Mish's Global Economic Trend Analysis
...U.S. banks currently hold record amounts of mortgage-related assets on their books. If the housing market were to go into a deep recession resulting in massive mortgage defaults, the U.S. banking system could sustain huge losses similar to what the Japanese banks experienced in the 1990s. If this were to occur, the Fed could cut interest rates to zero but it would have little positive effect on economic activity or inflation.
(11 Dec 2006)

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