I get worried when I find I agree with Krugman.
Secondary Sources: Oil Speculation, Fed, China, Stimulus
WSJ.COM
A roundup of economic news from around the Web.
# Oil Speculation: In the New York Times, Paul Krugman continues to argue against those blaming speculation for the rise in oil prices. "Suffice it to say that some economists, myself included, make much of the fact that the usual telltale signs of a speculative price boom are missing. But other economists argue, in effect, that absence of evidence isn?t solid evidence of absence. What about those who argue that speculative excess is the only way to explain the speed with which oil prices have risen? Well, I have two words for them: iron ore. You see, iron ore isn?t traded on a global exchange; its price is set in direct deals between producers and consumers. So there?s no easy way to speculate on ore prices. Yet the price of iron ore, like that of oil, has surged over the past year. In particular, the price Chinese steel makers pay to Australian mines has just jumped 96 percent. This suggests that growing demand from emerging economies, not speculation, is the real story behind rising prices of raw materials, oil included." Krugman provides much of the backstory on his blog.
# Fed Watch: Writing for the Economist's View blog, Tim Duy says the Fed is in something of an untenable position. "In theory, the best outcome is to find is a sweet spot that allows global growth outside of the US to decelerate while avoiding a free fall in the Dollar. In the absence of such equilibrium, the US economy can hobble along only as long as the following three conditions hold: 1. The Federal Reserve can maintain easy monetary policy. 2. The US government can sustain repeated fiscal stimulus measures. 3. China and the rest of the dollar bloc continue to be willing to accumulate US assets, primarily the Treasury debt needed for fiscal stimulus. When these conditions no longer hold ? such as the Fed needs to tighten to counter energy inflation, or the demand for US debt drops sharply ? then I suspect the US economic environment will shift decisively toward higher inflation or significant recession. Or both."
# Chinese Inflows: The Economist says that China is being flooded by the biggest wave of speculative capital ever to hit an emerging economy. "It is one thing to deduce how much money is coming in. It is another to work out where it is going and how it gets past China?s strict capital controls. The stockmarket, which continues to plunge, is no home for hot money. Some has gone into property. The lion?s share is in bog-standard bank deposits. An interest rate of just over 4% on yuan deposits compared with 2% on dollars, combined with an expected appreciation in the yuan, offers a seemingly risk-free profit for those who can get money into China."
# How I Spent My Stimulus:Barry Ritholtz points us to a site that asks users to post how they spent their stimulus checks. One example: "I put my $600 to releasing a music album. Here are some sample lyrics from it: 'they're paying off the taxpayer hive acceptin Chinese financed rebate bribes buyin Chinese TVs to put in their lives national debt, we're just getting behind lowest in savings, people still slaving all time productive to give to their cravings not me see, I'm droppin' baggage hip-hop is my stimulus package' The money went to an American company for the printing/replication. I hope to sell enough CDs and mp3s to buy a new television."
Compiled by Phil Izzo |
