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'Japanese' pair reportedly held with $134 billion in U.S. bonds | The Japan Times Online
Two Japanese were detained by Italian financial police last week after trying to enter Switzerland with $134 billion worth of undeclared U.S. bonds, mostly Treasury bonds, an Italian newspaper reported Wednesday.
The Japanese Consulate General in Milan acknowledged that two people had been detained, but it was still trying to confirm with Italian authorities their identities and whether they are Japanese nationals.
According to the report in il Giornale, two unidentified Japanese in their 50s concealed the bonds, including 249 U.S. Treasury bonds worth $500 million each, in a suitcase with a false bottom. The bonds were found June 3 during a search by Italian authorities in Chiasso, on the border with Switzerland about 50 km north of Milan.
The newspaper did not say on what grounds the two were detained, but they may have been held on suspicion of attempting to take a large amount of securities out of Italy without declaring them.
It said the Italian authorities were investigating whether the securities are genuine, given their huge value.
If the bonds are genuine, the two could be fined around 40 percent of their total value, it said.
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Next Test - Value of $125,000-a-Year Teachers - NYTimes.com
So what kind of teachers could a school get if it paid them $125,000 a year?
An accomplished violist who infuses her music lessons with the neuroscience of why one needs to practice, and creatively worded instructions like, “Pass the melody gently, as if it were a bowl of Jell-O!”
A self-described “explorer” from Arizona who spent three decades honing her craft at public, private, urban and rural schools.
Two with Ivy League degrees. And Joe Carbone, a phys ed teacher, who has the most unusual résumé of the bunch, having worked as Kobe Bryant’s personal trainer.
“Developed Kobe from 185 lbs. to 225 lbs. of pure muscle over eight years,” it reads.
They are members of an eight-teacher dream team, lured to an innovative charter school that will open in Washington Heights in September with salaries that would make most teachers drop their chalk and swoon; $125,000 is nearly twice as much as the average New York City public school teacher earns, and about two and a half times as much as the national average for teacher salaries. They also will be eligible for bonuses, based on schoolwide performance, of up to $25,000 in the second year.
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Economic View - Freshman Economics Won’t Be Quite the Same - NYTimes.com
MY day job is teaching introductory economics to about 700 Harvard undergraduates a year. Lately, when people hear that, they often ask how the economic crisis is changing what’s offered in a freshman course.
They’re usually disappointed with my first answer: not as much as you might think. Events have been changing so quickly that we teachers are having trouble keeping up. Syllabuses are often planned months in advance, and textbooks are revised only every few years.
But there is another, more fundamental reason: Despite the enormity of recent events, the principles of economics are largely unchanged. Students still need to learn about the gains from trade, supply and demand, the efficiency properties of market outcomes, and so on. These topics will remain the bread-and-butter of introductory courses.
Nonetheless, the teaching of basic economics will need to change in some subtle ways in response to recent events. Here are four:
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Bernanke Presses For Fiscal Restraint - washingtonpost.com
The nation needs to begin planning now to eventually bring taxes and spending in line, Federal Reserve Chairman Ben S. Bernanke said yesterday, arguing that large budget deficits, if sustained, could deepen the financial crisis and choke off the economy.
Bernanke's testimony to Congress reflected growing concern among economists and investors that the nation's long-term fiscal imbalances could stand in the way of economic recovery by driving up the interest rates that the government, businesses and consumers pay to borrow money. The rate the government pays has already risen in recent weeks.
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FT.com / Comment / Opinion - History lesson for economists in thrall to Keynes
On Wednesday last week, yields on 10-year US Treasuries – generally seen as the benchmark for long-term interest rates – rose above 3.73 per cent. Once upon a time that would have been considered rather low. But the financial crisis has changed all that: at the end of last year, the yield on the 10-year fell to 2.06 per cent. In other words, long-term rates have risen by 167 basis points in the space of five months. In relative terms, that represents an 81 per cent jump.
Most commentators were unnerved by this development, coinciding as it did with warnings about the fiscal health of the US. For me, however, it was good news. For it settled a rather public argument between me and the Princeton economist Paul Krugman.
It is a brave or foolhardy man who picks a fight with Mr Krugman, the most recent recipient of the Nobel Prize for Economics. Yet a cat may look at a king, and sometimes a historian can challenge an economist.
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FT.com / Columnists / Martin Wolf - Rising government bond rates prove policy works
Is the US (and a number of other high-income countries) on the road to fiscal Armageddon? Are recent jumps in government bond rates proof that investors are worried about fiscal prospects? My answers to these questions are: No and No. This does not mean there is no reason for worry. It is rather that there are powerful arguments against fiscal retrenchment right now and strong reasons for welcoming recent moves in the bond markets.
Last week, the Financial Times carried two columns arguing that the US fiscal path was unsustainable, one by Stanford University’s John Taylor and the other by the Harvard historian Niall Ferguson. The latter, in turn, was a comment on a debate with, among others, the New York Times columnist and Nobel laureate Paul Krugman at the end of April.
On one point all serious analysts agree: public debt cannot rise, relative to gross domestic product, without limit. To embark on fiscal stimulus in the short run, one must be credible in the long run.
So what is the disagreement? Prof Ferguson made three propositions: first, the recent rise in US government bond rates shows that the bond market is “quailing” before the government’s huge issuance; second, huge fiscal deficits are both unnecessary and counterproductive; and, finally, there is reason to fear an inflationary outcome. These are widely held views. Are they right?
The first point is, on the evidence, wrong.
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The Biggest Holders of US Government Debt - Slideshows - CNBC.com
Biggest Holders of US Gov't Debt
As the US government spends an unprecedented amount of money to fix the nation's economy, there is an equally great need to raise the cash to pay for it. This is accomplished through borrowing, whereby Uncle Sam sells Treasury securities of varying maturity.
For investors, the government bills, notes and bonds are considered a safe financial product because they have a guaranteed rate of return, based on faith in future US tax revenues. The government has been partially funding operations via Treasury securities for decades. This borrowing adds to the national debt, which is now above $11 trillion and is rising every day. Much of that debt is held by private sector, but about 40 percent is held by public entities, including parts of the government. Here's who owns the most.
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Wolfram|Alpha - computational knowledge engine
Making the world's knowledge computable
Today's Wolfram|Alpha is the first step in an ambitious, long-term project to make all systematic knowledge immediately computable by anyone. You enter your question or calculation, and Wolfram|Alpha uses its built-in algorithms and growing collection of data to compute the answer. Based on a new kind of knowledge-based computing... more »
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FT.com | The Economists' Forum | Will stimulus spending stifle recovery?
A great article outlining the likelihood of "real" versus "financial" crowding-out that may result from the US fiscal stimulus
...the key question is whether government spending that comes into action during recession is likely to crowd out new private spending, dollar for dollar. The answer depends on the extent to which real and financial resources are currently under-utilised.
“Real” crowding out occurs when labour and capital are already fully employed so that further spending exceeds capacity and leads to inflation. The logic of the harm done by inflation is well understood. But the logic of “financial” crowding out is less intuitive and more complex.
Simply put, financial crowding out results from rising interest rates when government deficits put pressure on bond markets. This kind of crowding out is most plausible in the US, which began the recession with the biggest deficit in world history. However, relative to national income, it is not nearly as large as that which Britain ran after the Napoleonic wars. And currently, the biggest as a percentage of national income is Japan’s: almost 200 per cent of its gross domestic product. It doesn’t seem to be crowding out private spending as the Japanese long-term interest rate is still only 1.5 per cent.
Nevertheless, skeptics argue that dramatic doubling of US deficits this year and beyond could leave little room for private sector borrowing. If the US deficit stifles rather than stimulates recovery of its private sector, prolonged worldwide recession is inevitable.
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The Crisis and How to Deal with It - The New York Review of Books
All should read this, it is a powerful exposition of the competing ideologies about the solutions to our global recession:
Following are excerpts from a symposium on the economic crisis presented by The New York Review of Books and PEN World Voices at the Metropolitan Museum of Art on April 30. The participants were former senator Bill Bradley, Niall Ferguson, Paul Krugman, Nouriel Roubini, George Soros, and Robin Wells, with Jeff Madrick as moderator.
—The Editors
Jeff Madrick: It was six months ago now that the Lehman debacle occurred, that AIG was rescued, that Bank of America bought Merrill Lynch; it was about six months ago that the TARP funds started being distributed. The economy was doing fairly poorly in much of 2008, and then fell off a cliff in the last quarter of 2008 and into 2009, shrinking at a 6 percent annual rate—an extraordinary drop in our national income. It is now by some very important measures the worst economic recession in the post–World War II era. Employment has dropped faster than ever before in this space of time.
We have a three-front problem: a housing market that went crazy as the housing bubble burst; a credit crisis, the most severe we've known since the early 1930s; and now a sharp drop in demand for goods and services and capital investment, leading to a severe recession. What gives us the jitters is that all of these are related. We have seen some deceleration in the rate of economic decline, and many people are saying that "green shoots" are showing. What is the actual state of the economy, and do we need a serious mid-course correction on the part of the Obama administration?
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Gauging your welfare | Free exchange | Economist.com
IT MAY be surprising, but the objective of economists is not to maximise income. We aim to maximise welfare. Welfare can mean different things to different people, and is often correlated with income, but they are not the same. Economists usually focus on consumption as being an indicator of well-being, but that leaves out leisure and intangibles such as family and friendships.
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FT.com | The Economists' Forum | Why Keynes was wrong, and why it matters
This is a good article about the Keynesian/Classical debate in macroeconomics:
The Obama administration and Congress justify the vast new government borrowing and spending by asserting that it constitutes “fiscal stimulus.” Not only would each dollar the government borrowed and spent produce a dollar of GDP that would never have been created had the dollar been left in private hands (a fiscal “multiplier” of 1.0), but it would stimulate a wave of new private sector spending, investment and employment that would generate 30, 40, 50 cents or more of additional new wealth per dollar (a multiplier above 1.0)...
...there are two brands of remedy. The first are government measures intended to eliminate obstacles to the adaptation of supply to changing demand. This is the now much-maligned classical brand of remedy. The second are fiscal and other government measures designed to force demand to adapt to supply. This is the Keynesian brand of remedy, now beloved in Washington, based on the belief that under-employment is a congenital defect of the economic system.
Each huge dose of this second remedy serves to further obliterate the functioning of the price mechanism, thus necessitating another huge dose of it. In the long run, this almost certainly means crippling debt, inflation or both. But Keynes, of course, advised against thinking too much about the long run.
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How the Government Dealt With Past Recessions - Interactive Graphic - NYTimes.com
Since the Great Depression, presidents have frequently experimented with Keynesian economics to combat recessions. Three economists chronicle the history of government policy during past recessions and explain what worked and what didn’t.
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Small Firms Wait for a Credit Thaw - WSJ.com
Are credit markets still "frozen"? Apparently so for small businesses, which account for 80% of America's economic activity:
Big companies are rushing to issue stocks and bonds to suddenly hungry investors. But credit is still scarce for thousands of mostly smaller companies that rely on bank lending.
U.S. corporations such as Ford Motor Co. and MGM Mirage Inc. raised more than $34 billion by selling stock in the first two weeks of May. At around the same time, Bill Mulrooney, chief financial officer of UniFoil Corp., was setting aside plans to borrow money for new equipment that the company had hoped would boost sales.
"I hear about the credit markets' freeing, but it's clearly not the case for small businesses," Mr. Mulrooney says.
more fromonline.wsj.com
RealClearMarkets - Articles - Barack Obama's Risky Deficit Spending
What future threat might the massive US budget deficits pose to America? Here's what Robert Samuelson has to say...
At best, the rising cost of the debt would intensify pressures to increase taxes, cut spending -- or create bigger, unsustainable deficits. By the CBO's estimates, interest on the debt as a share of federal spending will double between 2008 and 2019, to 16 percent. Huge budget deficits could also weaken economic growth by "crowding out" private investment.
At worst, the burgeoning debt could trigger a future financial crisis. The danger is that "we won't be able to sell [Treasury debt] at reasonable interest rates," says economist Rudy Penner, head of the CBO from 1983 to 1987. In today's anxious climate, this hasn't happened. American and foreign investors have favored "safe" U.S. Treasurys. But a glut of bonds, fears of inflation -- or something else -- might one day shatter confidence. Bond prices might fall sharply; interest rates would rise. The consequences could be worldwide because foreigners own half of U.S. Treasury debt.
The Obama budgets flirt with deferred distress, though we can't know what form it might take or when it might occur. Present gain comes with the risk of future pain. As the present economic crisis shows, imprudent policies ultimately backfire, even if the reversal's timing and nature are unpredictable.
more fromwww.realclearmarkets.com
Op-Ed Contributor - The Almighty Renminbi? - NYTimes.com
THE 19th century was dominated by the British Empire, the 20th century by the United States. We may now be entering the Asian century, dominated by a rising China and its currency. While the dollar’s status as the major reserve currency will not vanish overnight, we can no longer take it for granted. Sooner than we think, the dollar may be challenged by other currencies, most likely the Chinese renminbi. This would have serious costs for America, as our ability to finance our budget and trade deficits cheaply would disappear.
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ThinkEconomics: Introduction
Through interactive graphs, ThinkEconomics illustrates basic economic principles that are taught in a college-level introductory economics course. These graphs enable students to develop analytic and deductive reasoning skills by manipulating graphical elements of the economic models. Students also learn how to apply these models to analyze and understand economic phenomena.
Economic models represent causal economic interrelationships that occur in a particular sequence or order. Textbooks offer written explanations accompanied by static illustrations, but they cannot capture or animate the step-by-step dynamics of an economic model. In a classroom, a professor typically draws a graph on the chalkboard, explains its construction, and then uses the graph to analyze the effects of various changes in the model's parameters or variables. This classroom explanation and graphical manipulations happen only once and the total analysis can be very difficult to replicate in student lecture notes.
With the interactive possibilities of Macromedia Flash and the anytime, anyplace nature of the Web, students can now experience the models as they were meant to be, and in the process, learn to "think economics." Because of the vector capabilities of Flash, the models do not require a broadband connection for fast downloading and students can easily repeat each model as many times as necessary to understand the economic principle. Animation and interactivity combine to create a greatly improved learning environment.
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A good read for AP Macro teachers: Liquidity preference and loanable funds - Paul Krugman Blog - NYTimes.com
I thought it might be useful to re-explain why our current predicament can be thought of as a global excess of desired savings — which means that fiscal deficits won’t drive up interest rates unless they also expand the economy.
Here’s what I imagine Niall Ferguson was thinking: he was thinking of the interest rate as determined by the supply and demand for savings. This is the “loanable funds” model of the interest rate, which is in every textbook, mine included. It looks like this:
INSERT DESCRIPTION
where S is savings, I investment spending, and r the interest rate.
What Keynes pointed out was that this picture is incomplete if you allow for the possibility that the economy is not at full employment. Why? Because saving and investment depend on the level of GDP. Suppose GDP rises; some of this increase in income will be saved, pushing the savings schedule to the right. There may also be a rise in investment demand, but ordinarily we’d expect the savings rise to be larger, so that the interest rate falls:
INSERT DESCRIPTION
So supply and demand for funds doesn’t tell you what the interest rate is — not by itself. It tells you what the interest rate would be conditional on the level of GDP; or to put it another way, it defines a relationship between the interest rate and GDP
more fromkrugman.blogs.nytimes.com
The Fed should focus on deflation | The greater of two evils | The Economist
Inflation is bad, but deflation is worse
MERLE HAZARD, an unusually satirical country and western crooner, has captured monetary confusion better than anyone else. “Inflation or deflation,” he warbles, “tell me if you can: will we become Zimbabwe or will we be Japan?”
How do you guard against both the deflationary forces of America’s worst recession since the 1930s and the vigorous response of the Federal Reserve, which has in effect cut interest rates to zero and rapidly expanded its balance-sheet? On May 4th Paul Krugman, a Nobel laureate in economics, gave warning that Japan-style deflation loomed, even as Allan Meltzer, an eminent Fed historian, foresaw a repeat of 1970s inflation—both on the same page of the New York Times.
There is something to both fears. But inflation is distant and containable, while deflation is at hand and pernicious
more fromwww.economist.com
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