Last week’s Bank of England (BoE) poll of UK lenders turned up some good news: credit “availability” for both households and companies is on the rise – as we document in the upper right figure of today’s Geo-Graphic.  The Old Lady of Threadneedle Street was quick to take credit for the credit: “Lenders noted,” crowed the BoE, “that the Funding for Lending Scheme,” through which the BoE and UK Treasury have since August provided banks with cheap funds to boost their lending, “had been an important factor behind this increase.” Read more »

Back in March, we showed that the $1.4 trillion in U.S. direct federal student loans that will be outstanding by 2020 will amount to roughly 7.7% of the country’s gross debt. This is 6.3 percentage points higher than it would have been had the scheme not been nationalized in President Obama’s first term. Read more »

China “may have” overinvested to the tune of 12-20% of gross domestic product (GDP) between 2007 and 2011 – this is the diplomatically worded conclusion of a working paper released last week by the IMF.  This week’s Geo-Graphic backs it up.

As our figure above shows, the share of the Chinese labor force working in manufacturing and construction, at 38%, is roughly twice the global average – towering well above manufacturing powerhouses like Germany (25%) and South Korea (23%).  Manufacturing’s share of the Chinese work force, at 29%, is also 6 percentage points higher than the level at which other fast growing economies have typically begun slowing.  Once that share exceeds 23%, according to analysis by Barry Eichengreen, it “becomes necessary to shift workers into services, where productivity growth is slower.” Construction’s share of the Chinese labor force, at 9%, is also 2 percentage points higher than in the United States at the peak of the housing bubble in September 2006.  Labor data therefore suggest that China is headed for an extended slowdown in GDP growth. Read more »

The United States marches solemnly towards its fiscal cliff, awaiting only the command from the Goddess of Reason to halt. Unfortunately for Greece, that country plugged its ears back in March.

Like the United States, Greece made prior commitments on spending and taxation in order to bind itself to the mission of deficit reduction. Unlike the United States, Greece left itself little means to unbind itself. As shown in the graphic above, its massive debt restructuring in March only reduced its debt-to-GDP ratio from 170% to 150%, but in the process made further significant restructuring much more difficult. Read more »

President Obama is committed to pursuing a “[renewable-energy] strategy that’s cleaner, cheaper, and full of new jobs” (January 24, 2012). He highlighted the job point during the October 16 presidential debate: “I expect those new energy sources to be built right here in the United States. That’s going to help [young graduates] get a job.”

Green may be good, but this week’s Geo-Graphic shows that the jobs come at a hefty cost.
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In last week’s vice-presidential debate, Republican Paul Ryan defended the fiscal prudence of lowering top marginal income tax rates by arguing that it would be accompanied by “forego[ing] about $1.1 trillion in loopholes and deductions . . . deny[ing] those loopholes and deductions to higher-income taxpayers.” The $1.1 trillion he refers to is actually an amalgam of specific “tax expenditures” – benefits distributed through reductions in taxes otherwise owed – identified by the Joint Committee on Taxation.  We break out the largest 10 of these graphically in the figure above. The full list is available here: http://subsidyscope.org/data/ Read more »

Back in February, Benn argued that the Fed’s three-year zero-rate pledge, combined with a 2% long-run inflation target, may have been a pledge too far, given the Fed’s poor forecasting record going back decades.  The Board of Governors’ and Reserve Banks’ first three-year forecasts in October 2007, for example, were wildly off the mark: actual 2010 GDP, unemployment, and inflation were all outside the range of the 17 forecasts.  Yet at its September meeting, the Fed’s Open Market Committee extended its zero-rate pledge into 2015, on the basis of its forecast that unemployment would still be significantly above their “longer run” expectation at that time—as shown in the figure above.  But last week’s September payrolls report revealed that the unemployment rate had dropped more than anticipated, to 7.8%, putting the 6-month trend line into 2015 well within the Fed’s comfort zone.  This implies that interest rates, by the Fed’s own reasoning, may well need to rise sooner.  We think it’s time that the Fed pledged to stop pledging for a while. Read more »

The IMF last week told the Greek government to get with the program—specifically, the economic adjustment program that Greece agreed to as a condition for receiving loans from the Fund.  Greece is indeed way off target, but that’s apparently par for the course with such programs.  In 2003, the IMF’s own independent evaluation office looked at the difference between actual and projected changes in fiscal balances in countries receiving funds from its Extended Fund Facilities (EFF) and so-called Stand-By Arrangements (SBA).  As shown in the graphic above, nearly ¾ of market-based countries (that is, countries not in transition from central planning) receiving funds from the EFF or SBA underperformed their targets in the second year of their program.  By this standard, Greece looks like a normal ward of the IMF. However, Der Spiegel reported on Monday that the Troika of official Greek lenders (the European Commission, ECB, and IMF) was now pegging Greece’s budget deficit at €20 billion.  If accurate, that would put Greece on track to miss its IMF fiscal deficit target by €13 billion, or a whopping 6 percent of GDP – making it an extreme target-underperformer even by the standards of the many past underperformers. Read more »

Fed Chairman Ben Bernanke defended QE3 at his September 13 press conference by arguing that it would lower mortgage rates and increase home prices.  Over 80% of U.S. household debt is mortgage debt, so the extent to which he is right could be of considerable consequence to the future path of economic recovery.  Read more »

In his Path to Prosperity, Republican vice presidential candidate Paul Ryan called for $40 trillion in spending over the next 10 years, $7 trillion less than President Obama called for in his 2013 budget.  What accounts for the gap? $1 trillion is from Medicaid and other health programs. Another $1.4 trillion comes from anticipated (wished for?) interest-cost savings ($4.3 trillion compared with $5.7 trillion).  So where does Ryan make his really big cuts? “Other” mandatory spending.  $631 billion was spent on these programs in 2011, though Ryan proposes paring this to only $349 billion by 2018.  Over ten years, Ryan slashes a whopping $3.5 trillion vis-à-vis Obama, targets unspecified, from this large and broad category, which includes political minefields like unemployment compensation, retirement benefits, earned income and child tax credits, food assistance, and veteran benefits.  This sounds a lot like a New Year’s pledge to cut 1,000 calories a day from the category of “meals.” Read more »