What’s Ahead for the Economy and Politics in 2010

Aus Robert Reich’s Blog. Robert Reich was the nation’s 22nd Secretary of Labor and is a professor at the University of California at Berkeley. He is for sure one of the best observers of – at least – American politics and society (hfk)

Just about everything you’ll hear coming out of Washington starting now is really about November’s mid-term election. The gravitational pull of the midterms was already apparent last year, as Republicans marched in perfect lockstep to vote against whatever the President and Dems proposed (Republicans always have authoritarian discipline on their side, which is why they’re Republicans) but you haven’t seen anything yet.

The Dems have enough votes to enact health care — the hurdle Bill Clinton failed to jump, contributing to the Republican takeover in 1994 — but when it’s enacted, expect the spin machines on both sides to be at full throttle. And because health care legislation won’t be implemented for another three or four years (depending whether the House or Senate versions prevail), Americans won’t be able to test the veracity of these wildly divergent claims. So don’t count on health reform to help Dems next November — nor harm them, either.

The Trade Factor

Date: 06-01-2010
 Source: Businessworld
Subject: The Trade Factor

The precipitous drop in trade last year as a result of the global financial crisis was evidence of the heightened interconnectedness of the world’s major economies. But such interconnectedness was also one reason why trade protectionism – the bogey everyone feared would send the globe into another Great Depression – never rose to a level that threatened a recovery. Indeed, there were many calls by domestic businesses to erect trade barriers. But policymakers chose not to heed such calls either out of fear of falling foul of WTO rules, or, more likely, recognizing that since the supply chain for many businesses crosses many borders, trade barriers would eventually harm the home country. Nevertheless, while trade may eventually return to pre-crisis levels, global imbalances – one of the factors that led to the crisis – remain. The US still spends; China still saves; and the Yuan remains undervalued. As long as these imbalances obtain, the risk of a protectionist backlash remains. Disaster was averted, but the nature of the recovery still remains in question. – YaleGlobal

While the US has been working to reform its financial system, trade remains a worrisome area

Nayan Chanda

Lost Decade for Stocks

James Hamilton

Dec 28, 2009 6:59PM

Why were the aughts so nasty for stocks?

The U.S. ended the decade more or less where it began in terms of total employment.  

 

  

Source: FRED.

The Dollar Bubble – Preparing Americans for Hyperinflation

Outstanding Video from Lebed.biz.

Most Americans have been brainwashed into believing the financial collapse of October 2008 through March 2009 was a once in a lifetime panic and now the worst is behind us and our economy is getting back to „normal“. 

Unfortunately, they don’t know what normal is… because they have been living inside of a bubble, The Dollar Bubble, which is getting ready to burst and when it does, the whole economic system will collapse and come to an end.

Investment Banking Regulation

Wenn auch schon 15 Monate alt, so doch weiter relevant: Aus der von Stiglitz redigierten Zeitschrift „The Economist’s Voice“. Offensichtlich vor der Lehmann Pleite geschrieben, aber gut in der Vorhersage dessen, was sich noch immer nicht geändert hat.

EconomistsVoice-2009-09_InvestmentBankingRegulation

2009: The Year Wall Street Bounced Back and Main Street Got Shafted

Robert Reich, Dec. 27, 2009.

In September 2008, as the worst of the financial crisis engulfed Wall Street, George W. Bush issued a warning: „This sucker could go down.“ Around the same time, as Congress hashed out a bailout bill, New Hampshire Sen. Judd Gregg, the leading Republican negotiator of the bill, warned that „if we do not do this, the trauma, the chaos and the disruption to everyday Americans’ lives will be overwhelming, and that’s a price we can’t afford to risk paying.“

In less than a year, Wall Street was back. The five largest remaining banks are today larger, their executives and traders richer, their strategies of placing large bets with other people’s money no less bold than before the meltdown. The possibility of new regulations emanating from Congress has barely inhibited the Street’s exuberance.

Who Should be Bailed Out?

Lucian Bebchuk, Dec 21, 2009 6:21PM

From Project Syndicate:

As governments around the world develop policies to deal with failing financial institutions, they should be sure to pick their beneficiaries wisely. In particular, they should study and avoid the mistakes made in the AIG bailout in late 2008.

A United States Special Inspector General recently issued a report criticizing the US government for failing to insist that AIG’s counterparties in the market for financial derivatives bear some of the costs of bailing out the company. Indeed, bailouts of failed institutions should never extend the government’s safety net to such counterparties.

The Age of Deleveraging

aus John Mauldin’s weekly e-letter

This is the season when pundits feel compelled to make annual forecasts. I will make mine, as I traditionally do, in the first letter of January. But already we have seen a wide range of forecasted outcomes. Are we going to grow at 5-6% or at 1-2% or dip back into recession? Why such disparity? I think part of the reason is a basic disagreement on the nature of the just-lapsed recession. Today we explore that issue. Then I point you to a way to help those who are desperately in need and only wish they had our problems. For those interested, I enclose a picture of my new granddaughter.

And finally, I start the process of getting ready, after ten years, to actually buy some stocks. Yes, it is true. Am I throwing in the towel and becoming a bull, or do I just see an opportunity? Stay tuned.

It’s All About Deleveraging

I did a very interesting one-hour show this week with Tom Ashbrook on his National Public Radio syndicated radio show called On Point. About 20 minutes into the show, Professor Jeremy Siegel of Wharton came on, and we had a pleasant debate and lively Q and A with listeners. Jeremy of course was the bull, expecting that next year the US will grow by 5-6%. I was the „bear,“ expecting growth in the 1-2% range. You can listen in at http://www.onpointradio.org/2009/12/an-economic-warning. It’s also available as a podcast on iTunes („On Point with Tom Ashbrook“) for a few more days.

We Face a Real Challenge in Dealing with that Feeling that the Crisis is Over

Mark Thoma, Dec 13, 2009 8:58PM

Paul Volcker is interviewed:  

Interview with Paul Volcker, by Gabor Steingart, Spiegel: …Spiegel: …[E]ven though there are still more people being fired than hired,… Ben Bernanke is saying that the recession is technically over. Do you agree with him?

Volcker: …We had a quarter of increased growth but I don’t think we are out of the woods. … The recovery is quite slow and I expect it to continue to be pretty slow and restrained for a variety of reasons and the possibility of a relapse can’t be entirely discounted. … We have not yet achieved self-reinforcing recovery. We are heavily dependent upon government support so far…, both in the financial markets and in the economy. …

Will The Three Trends of 2009 Prevail in 2010?

GaveKal Five Corners

Looking back at the past year, we can conclude that three inter-related trends have dominated financial markets: 1) an impressive weakness in the US$, 2) a significant rally in commodities, and 3) a pronounced out-performance of emerging markets, including Asia. Today, these three trends appear to be running out of steam: the US$ has been rallying, commodities have rolled over and, in November, for the first time in what feels like an eternity, the US MSCI actually out-performed all other countries in the World MSCI index. For us, this begs the question of whether the trends of 2010 will prove different to those of 2009? And the answer to that question may be found in the most unlikely of places, namely the Middle-East.