Category: US & Canada

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Steve Keen on Post-Keynesian Macroeconomics

Prof Steve Keen’s presentation to the UMKC Post Keynesian conference in 2012.

Paul Krugman would argue that Income = Aggregate Demand when the economy is in equilibrium.
Steve Keen shows that the economy is not in equilibrium when aggregate debt is rising or falling:

Income = Aggregate Demand + Change in Debt

He illustrates (at 13:20) how, while GDP fell from $14.5 to $14.0 trillion, the US economy went from $18.5 to $11.5 trillion because of private debt contraction.

US GDP compared to GDP + Debt Change

This does not seem entirely accurate as my earlier chart of US Debt shows that Domestic (Non-Financial) Debt growth slowed but at no stage contracted during the GFC. I suspect that Steve has omitted Government Debt which acted as an important counter-weight to Private Debt contraction during the GFC.

US Domestic Debt Growth

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Chinese Yuan hits highest level against USD, but PBOC wants it weaker

by Zarathustra

After a long period since late last year as Chinese Yuan was expected to depreciate, it appears that the expectation of Chinese Yuan appreciation is back on people’s mind. Chinese Yuan hits the highest level since the revaluation started in 2005, completely reversing the depreciation since earlier this year…..

via Chinese Yuan hits highest level against USD, but PBOC wants it weaker.

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Obama's economic saviour savaged as Keating lets rip

By Peter Hartcher

In a speech to a closed gathering at the Lowy Institute in Sydney on Thursday, Paul Keating gave a starkly different account of Geithner’s record in handling the Asian crisis: “Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis.” In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.

For the record, Indonesia’s GNP fell 83% by July 1998.

via Obama's economic saviour savaged as Keating lets rip.

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Philadelphia Fed: Worrying drop in state coincident indicators

Tom Porcelli, economist at RBC Capital, points out a worrying drop in the Philadelphia Fed survey of state coincident indicators. The Monthly Index has turned up but the 3-Month Index continues downward. Reversal of the Monthly Index in the next few months would be cause for concern.

Philadelphia Fed State Coincident Indicators Diffusion Indexes

When we look at the index over the last 30 years, down-turns of the Diffusion Index below 50 normally precede a recession. The only false signal (so far) was the recent 2011 dip of the Monthly Index (DI1) to 20 and the 3-Month Index (DI3) to 46.

Philadelphia Fed State Coincident Indicators Diffusion Indexes - Long Term

The Federal Reserve Bank of Philadelphia calculates monthly coincident indexes for each of the 50 states. The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

For further details of Diffusion Index performance in predicting recessions, read Marking NBER Recessions with State Data by Jason Novak (2008).

Hat tip to Pedro da Costa at Macroscope.

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If You Want to “Soak the Rich,” Keep Tax Rates Low « International Liberty

by Dan Mitchell

I’ve pulled evidence from IRS publications to show that rich people paid a lot more to Uncle Sam after Reagan reduced the top tax rate from 70 percent to 28 percent…….. The United Kingdom saw similar dramatic results when Margaret Thatcher lowered the top tax rate from 83 percent to 40 percent. Allister Heath explains.

During the 1970s, when the tax system specialised in inflicting pain, the top one per cent of earners contributed 11pc of income tax. By 1986-87, with the top rate down to 60pc, that had increased to 14pc. After the top rate fell to 40pc in 1988, the top 1pc’s share jumped, reaching 21.3pc by 1999-2000, 24.4pc in 2007-08 and 26.5pc in 2009-10. Lower taxes fuelled a hard-work culture and an entrepreneurial revolution. Combined with globalisation and the much greater rewards available for skilled workers, Britain’s most successful individuals earned a lot and paid a lot in tax.

via Evidence from England Shows that If You Want to “Soak the Rich,” Keep Tax Rates Low « International Liberty.

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Caterpillar Cuts Outlook on Weak End Demand | PRAGMATIC CAPITALISM

Caterpillar outlook on the worldwide economy:

“MODEST GROWTH LIKELY, BUT RECESSION REMAINS POSSIBLE.

Much of Europe already mired in recession.”

via Caterpillar Cuts Outlook on Weak End Demand…. | PRAGMATIC CAPITALISM.

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Down with politics | WashingtonExaminer.com

By Gene Healy

Politics makes us worse because “politics is the mindkiller,” as intelligence theorist Eliezer Yudkowsky puts it……. we indulge our tribal hard-wiring by picking a political “team” and denouncing the “enemy.”

But our atavistic Red/Blue tribalism plays to the interests of “individual politicians in getting you to identify with them instead of judging them.”

……..We’ll get more of the same, Yudkowsky argues, until “Republifans and Demofans … stop enthusiastically cheering for rich lawyers because they wear certain colors, and begin judging them as employees severely derelict in their duties.”

via Down with politics | WashingtonExaminer.com.

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Canada: TSX60 tests support

The TSX 60 is retracing to test support at 700. Respect would indicate an advance to the 2012 high of 725. Rising 63-day Twiggs Momentum suggests a primary up-trend; a trough above zero would strengthen the signal. Only breakout above 725 would confirm.

TSX 60 Index

* Target calculation: 725 + ( 725 – 640 ) = 810

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US: Fedex warns of declining activity

Bellwether transport stock Fedex fell hard in the last week, testing support at $84. Breakout would confirm the primary down-trend signaled by 63-day Twiggs Momentum below zero. A down-trend on Fedex would warn of slowing activity in the broader economy.

Fedex

A daily chart of the S&P 500 index shows narrow consolidation above 1450. Bearish divergence on 21-day Twiggs Money Flow continues to warn of selling pressure. Reversal below 1450 would indicate a test of 1400.

S&P 500 Index

Weekly chart of the Nasdaq 100 shows the index hesitating below 2900. Expect retracement to test the new support level at 2800.

Nasdaq 100 Index

* Target calculation: 2800 + ( 2800 – 2450 ) = 3150

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More than 67 million Americans dependent on government

Interesting charts from The Heritage Foundation: The 2012 Index of Dependence on Government
By William Beach and Patrick Tyrrell – February 8, 2012

The percentage of US citizens who do not pay federal income taxes, and who are not claimed as dependents by someone who does pay them, has climbed more than four-fold from a low of 12 percent in the late 1960s to 49.5 percent in 2009.

Index

More than 70 percent of federal spending goes to programs that encourage dependence.

Index

Index

Index

Index

The Index of Dependence on Government multiplies each program’s yearly expenditure by its weight. The total of the weighted values is the Index score for that year. The Index is calculated using the following weights:

  1. Housing: 30 percent
  2. Health Care and Welfare: 25 percent
  3. Retirement: 20 percent
  4. Higher Education: 15 percent
  5. Rural and Agricultural Services: 10 percent

Index

More than 67 million Americans receive assistance through the programs included in the Index.

Index

If we add government employees, the number dependent on government increases to more than 91 million.

Index

Reproduced with permission from The Heritage Foundation
Read the full report at The 2012 Index of Dependence on Government

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