To resolve the long-term fiscal mess hounding so many Western developed nations, we’ll have to find a “cure” for Baumol’s Disease and its nagging ally, Moynihan’s Corollary.
What?
You read correctly. Essentials of the long-term budget deficit woes in Western Europe and in the U.S. can be found in those dreadful sounding economic dictums. Ask Larry Summers.
Ever since it became apparent that tax legislation would not include an extension of the popular Build America Bond program, the traditional tax-exempt muni bond market has been in somewhat of a tailspin. Prices have fallen, yields have risen and investors have been pulling money out of long-term municipal bond funds.
That trend continues. The latest data from the Investment Company Institute showed more money flowed out of longer-term funds in the week ended Dec. 8. Apparently, investors are concerned that municipal issuers, without the BAB program, will be flooding the traditional municipal market with new bond issues. Thus, there will be to much supply and not enough demand.
All we need are jobs.
The U.S. economy, as described by the U.S. Federal Reserve and based on incoming data such as mildly encouraging holiday shopping to date, is doing all right. There is growth. The haves (those with jobs) are a bit more confident they will stay employed and are therefore spending more.
The have nots without jobs remain in too high numbers.
Earlier this year, when the Banks for International Settlements came out with its triennial FX survey, we learned that 85% of the growth in the FX market over the past three years came in a category called “other institutions,” a group that includes funds of all stripes, including hedge funds, as well as small banks and insurance companies. In fact, for the first time, there was more trading in this category than among reporting dealers.
Now, we learn from the BIS Quarterly review what the BIS believes drove those increases. Number one on the list: High-frequency trading strategies grew. Followed by more trading among smaller banks. And finaly the emergence of retail (individuals as well as small institutions.)
Standard & Poor’s made some tweaks to its S&P 500 stock index in the U.S. based on market cap sizing. But when you look at the companies headed into the index – and those headed out – it makes a statement about how much the corporate world we live in has changed.
On its way out is Eastman Kodak, a company that didn’t see the digital revolution coming to the camera and film business and moved too late to try to recapture a business it owned. Also is out is warehouse superstore Office Depot who has lost business to placed like Amazon. And then there is the old gray lady, the New York Times. The newspaper business has been in a recessoin much longer than our economy has been in one.
This time, the jab at the Federal Reserve comes from the Congressional left.
So it goes these days for the U.S. central bank, which, as we have noted, finds itself more centrally located in the political maelstrom than at any time in the past two decades.
For weeks, conservative Congressional Republicans, unhappy with the Fed’s plan to stimulate the economy by buying $600 billion of U.S. Treasurys, have been firing away. Now, the Senate’s lone socialist. Sen. Bernie Sanders, a Vermont independent, takes a turn.
Federal Reserve Chairman Ben Bernanke made clear he is ready for prime time.
In a presumed effort to counter critics of the U.S. central bank’s $600 billion Treasury bond buying plan to spur the economy, Bernanke took to the airwaves via a Sunday broadcast interview on the popular CBS news program 60 Minutes. Fed chairmen of an earlier generation would be shocked at the straight forwardness of it all, though leaders like to talk on television because they feel they can get their points more directly across.
Bernanke didn’t break any big news on 60 minutes, but that wasn’t the point.
When people talk about the U.S. Federal Reserve, or when central bankers talk about themselves, it’s instructive how often the word ‘effectively’ comes up. Effectively, as in virtually, but not official nor completely spelled out.
The Fed has no official target for where it wants the U.S. inflation rate, but effectively it’s around 2% or a bit below that.
The Fed officially has a dual mandate for price stability and to promote maximum, sustainable economic growth and employment. But, effectively, its goal – like that of other central banks – is to maintain price stability. Presumably, economic growth will flow from an environment of stable prices and expectations for modest future inflation.
A socialist U.S. senator and a central banker issued very separate critiques of the U.S. banking system, but in their own ways they both question the interconnectedness of the big-time, global financial system.
The seemingly odd couple consists of Sen. Bernie Sanders, the independent from Vermont, who was much in media demand on Wednesday, since he was key to forcing the Federal Reserve to reveal the names of the recipients of the Fed’s loan largesse during the dark days of the financial crisis. The other is Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City and a lone, serial dissenter from the super-easy monetary policies of the U.S. central bank.
Both implicitly were praising a bygone time, when national politics and policies were not so out of sync with the fully global and totally tangled nature of the financial services world. It’s an open question whether U.S. decisions alone can challenge that structure and leave a vibrant financial services industry in its wake.
Over the past couple of weeks, Moody’s Investors Service has been downgrading more pools of commercial mortgage backed securities. And buried in releases of a couple of those downgrade notices comes word that a loan on famous New York City office building landmark has moved into special servicing.
The building is 666 Fifth Avenue and it was built in 1957 by Tishman Realty & Construction. It at one point had Citigroup as a major tenant, with a “Citi” logo replacing the numbers “666″ on the side of the building. Kushner Properties bought the building for nearly $1.8 billion near the top of the NYC real estate market in late 2006.
And now there appear to be some issues with that loan.
Tell It To Al – A Newswires Blog
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