Investors generally are too pessimistic these days. It’s understandable. They remember too clearly 2008. But things have changed, and you should recognize that.
Here’s one good review, set up at 10 Key Questions About the Economy. I agree with much of these views. One I disagree with is inflation. I don’t see any sign of rising inflation and continue to believe that deflation is more of a risk now than inflation. Read this piece and compare it with a lot of the pessimistic forecasts out there. I’m not a pollyanna or blind optimist. There are a lot of problems out there, and things could get worse down the road. But for now, the trends are positive and are likely to remain that way at least through the end of the year.
Each year the trustees of Social Security and Medicare issue a report. The main focus of the report is the financial condition of the “trust funds.” In recent years one of the public trustees, Charles Blahous, wrote his own summaries of the annual reports with an emphasis on the points he believes are important. Not surprisingly, he believes most media reports emphasis the wrong points or misinterpret those points. Here’s his latest review of Medicare.
His main point this year is that the media overstated the improvement in the program’s finances and the benefits of the recent reduction in the growth of medical costs. But the program isn’t going to go bankrupt, because the law requires contributions from the government’s general taxes to make up for any shortcomings in the program’s funding. So, the pressure really is on the federal government’s budget, not on Medicare.
There is no reason to believe that the recent reported slowdown in health care cost growth will improve the long-term picture significantly relative to current projections. At our press conference announcing the release of the trustees’ report, I was surprised to hear questions asking in effect whether a recent slowdown in health care cost growth might have a significant effect on the outlook and debate surrounding the Medicare program. To my ear the questions reflected an incomplete understanding of the factors underlying current projections. It would be mistaken to conclude that the recent slowdown in health care cost growth (partially though not wholly attributable to the recent recession) should relax pressure for much-needed Medicare reforms.
It’s important to understand that our long-term projections already assumed a substantial slowdown in health care cost growth relative to historical rates. This is because the projections are based on demonstrated trends in the elasticity of health care cost growth – in layman’s terms, how much people’s health care consumption patterns change as a result of factors that include health care prices, income levels, and insurance coverage. To put it more crudely, we have never expected that historical rates of health care cost growth will continue to the point where health care services absorb our entire economy. We are not going to have a society in which we are all walking around homeless, naked and starving but with impeccable health care.
The bond market’s gone haywire ever since Ben Bernanke’s May congressional testimony, when he indicated that the Fed would change monetary policy “in the next few meetings.” I’ve expressed previously the belief that the market over-reacted to and misinterpreted Bernanke’s remarks. Here’s a good summary of what the bond market appears to be telling the Fed. It might be a little bit technical or jargon-filled for some of you, but I think it is accessible to most of my readers.
One thing the market is saying is that inflation expectations are low. In fact, the bond market seems to be saying that deflation is a real possibility. Bonds also are saying that short-term rates are likely to rise sometime in 2014. The Fed probably didn’t intend that, expecting long-term rates to rise before short-term rates do. Another thing the bond market is saying is that the Fed is likely to make the same mistake it has made many times in the past: It will tighten too rapidly once it decides to tighten. Take the classic case of 1994, the worst year for bonds, when the Fed surprised investors with its tightening and then increased interest rates rapidly.
Ben Bernanke will try to clarify things today.
The “lower for longer” message on rates, which has been so carefully crafted by the FOMC’s forward guidance, seems to have been thrown overboard by the bond market with remarkable alacrity as soon as the Fed has indicated that it may slow the pace of policy easing. The reason for this is that past history is replete with episodes in which the Fed has tightened policy very rapidly once its enthusiasm for easing has started to wane.
The 1994 example, when the Fed failed to guide the markets about the likely pace of tightening, is of course part of the folklore of the bond market. Less well remembered is the example of 2003, when the first signal that the Fed was slowing the pace of easing was followed by a 100 basis point rise in bond yields within a few months, even though the Fed’s forward guidance about tightening at a moderate pace was increasingly explicit.
The problem is that, once the market starts to believe that the Fed is “done”, it will inevitably start to build into the yield curve a rising probability that the FOMC will embark on a normal path of tightening before too long. In order to mitigate this, Mr Bernanke is likely this week to remind the markets that the intention to slow asset purchases “in the next few meetings” is contingent on events in the labour market, is not the start of policy tightening, and is completely distinct from any intention to start raising rates.
The recent Flow of Funds statement from the Federal Reserve indicated that household net worth now exceeds the 2007 high. So, the first conclusion is that we’ve more than recovered the net losses from the crisis. But a look at the details paints a somewhat different picture. I llnked to some of the commentary previously, but this piece from The New York Times attracted a lot of attention. It especially focuses on how younger households have lagged behind in the recovery. They’ve lagged substantially. This is another reason why the rate of economic growth after the bottom has been low, and while it is likely to remain low for a few more years.
Those averages are deceptive, in that they are raised by the high wealth of a relatively small number of households. A very different picture emerges from looking at the median — the level at which half the households are richer and half poorer. That statistic can be calculated from the Fed’s triennial survey of consumer finances. In the studies conducted in the 1990s, the median net wealth was about one-quarter of the average. In the 2000s, the median fell to about one-fifth of the average, and in 2010, it was down to about one-sixth of the average.
During the housing boom, said William R. Emmons, the chief economist of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis, “exactly the people you would think need to act conservatively were doing the opposite.” Homeownership rates, and mortgage debt levels, rose for younger households, as well as for less educated and minority ones. Those groups suffered more during the crisis, he said, and have been slower to recover.
Once a global brand that dominated its market, Kodak now is finishing a bankruptcy organization. It sold or closed its film businesses and now is trying to develop a few businesses that will sustain at least part of the company. One interesting story is whether it can reinvent itself. But the more interesting story to me is what happened to Kodak. You can read about it here.
The “what happened” story is more interesting to me, because it is a story of failure to notice and adapt to change. What makes the Kodak story really interesting is that Kodak invented the technology that eventually killed it. As longtime readers know, one of my themes over the years is that “retirement has changed and will change again.” I routinely hear from or run into people who learned a their personal rules of finance some time ago and are sticking with them. That’s too bad, because in many cases things have changed. You have to keep up if you want to keep your standard of living. The Kodak story is important for those who don’t own or manage businesses, because its lessons also apply to your personal finances.
The tipping point had come years earlier, in 1975.
That year, Steve Sasson was a 25 year-old electrical engineer working in Kodak’s Photographic Research Laboratory. His assignment was not considered pressing or significant to anyone but himself, his team, and his supervisor: the task was to find a way for captured light to be converted into an electronic signal with a numeric, or digital, value.
For digital imaging, this was the genesis.
To many people at Kodak who were not involved with the project, Sasson’s camera looked more like a device built by a hobbyist, recalls Robert Shanebrook, a retired Kodak employee who worked near the research lab at the time. It was impressive and interesting, they thought, but it was a toy, like their Instamatic plastic cameras. “Electronic photography was certainly paid attention to by some, but many didn’t think much of it,” he recalls.
It’s no secret that Japan’s stock market has been on a roll and its currency in decline since it changed monetary policy in late 2012. But in the last month, there was some reversal. Interest rates rose, and the stock market declined. I believe the sudden reversal contributed to some global declines in assets, as investors who took leveraged positions in Japan in 2012 and early 2013 had to sell other assets to meet margin calls.
So, what’s going on in Japan? Is its version of QE a failure? I don’t think so. I think the recent reversal in both Japan and the U.S. are temporary. But here’s a good review of some different arguments. I agree with the bottom line of the piece, but it also does a good job laying out alternative views, in case you want to know all the arguments or you agree with the others.
Imagine, for the sake of exaggeration, that a country had a debt-to-GDP ratio of three thousand to one. Suppose this was all in 30-year bonds, so that every year the government would have to roll over about 1/30 of its total debt, or 10,000% of GDP. Suppose that interest rates are just barely above zero – low enough to allow the government to maintain this debt burden.
Now suppose that interest rates suddenly “normalize” to 1%. Next year, the government will abruptly owe 1% of 10,000% of GDP in interest on the portion of its debt that it had to roll over. 1% of 10,000% is equal to 100%, so the government would owe all of the country’s GDP in interest costs, in the first year alone. In the second year of the recovery, it would roll over another 10,000% of GDP, and thus owe 200% of GDP in interest costs!
How could it pay up? You can’t tax 100% of GDP. So the government would have to borrow the rest. It seems clear that the higher the debt/GDP ratio, the less likely it would be that the private sector would be to lend to the government at an interest rate less than the economy’s growth rate (the necessary condition for “stable Ponzi finance”; see discussion in comments with Nick Rowe for why this would be the case).
A lot of charities do great things. Some do good things. But some are a waste of your money. Don’t make your charitable contributions to charities that use the money poorly, waste too much on administration, or give the bulk of their proceeds to marketers. There are ways to avoid having your good intentions go for naught. Read this review of a recent expose on America’s worst charities, and then take advantage of the links that allow you to examine charities in detail before giving a dollar.
While Cancer Fund provides care packages that contain shampoo and toothbrushes, the people in charge have personally made millions of dollars and used donations as venture capital to build a charity empire. Less than 2 cents of every dollar raised has gone to direct cash aid for patients or families, records show.
For years, Cancer Fund founder James T. Reynolds Sr. and his family have obscured that fact with accounting tricks, deceptive marketing campaigns and lies, the Tampa Bay Times and The Center for Investigative Reporting have found.
Stories about ripping people off in the name of a cause are as old as the concept of charity itself.
But the Reynolds family is something different.
After spending nearly 20 years building Cancer Fund, the family began spinning off new cancer charities, each with a similar mission and a relative or close associate in control.
The family has founded five cancer charities that pay executive salaries to nearly a dozen relatives.
During a yearlong investigation, the Times and CIR identified America’s 50 worst charities based on the money they divert from the needy by paying professional solicitation companies.
There’s no doubt that we’ve had some sweeping economic crises during the last twenty years or so. Easy money, leverage, and poor regulators were keys to each of the frauds. I’m not talking about your garden variety scam or theft. I’m talking about the big patterns of bad behavior that end up affecting a lot of people, such as the savings & loan crisis of the 1980s and the great leveraging that resulted in the crisis of 2008. Here’s one analysis that says clearly each of the last three great financial crises was a fraud, and that Alan Greenspan bears the most responsibility for them. According to Bill Black, Greenspan’s beliefs in efficient markets and his own monetary policy allowed and enabled these crises.
A dangerous cycle begins when prominent economists pander to plutocrats and bought politicians, who reward them with top posts, where they promote the perverse economic policies that cause fraud epidemics. Crises develop, and millions of people are ripped off. Those who fight for truth are ignored or ruined. The criminals get wealthier, bolder and more politically powerful, and go on to hatch even more devastating cons.
The three most recent financial crises in U.S. history were driven by a special type of fraud called “control fraud” — cases where the officers who control what look like legitimate entities use them as “weapons” to commit crimes. Each time, Alan Greenspan, former chairman of the Federal Reserve, played a catastrophic role. First, his policies created the fraud-friendly (criminogenic) environment that produces epidemics of control fraud, then he failed to identify those epidemics and incipient crises, and finally, he failed to counter them.
Video games are a big business. It’s a business with a lot of quirky characters, more than you’re likely to find in most other businesses. That’s why an entertaining and education read is this detailed look at a lawsuit involving some of the premier players in the industry. I won’t reveal any of the details. I think you’ll enjoy reading about how people advanced in the industry and the things they do to each other. Some of the strategies and economics of the business also are informative.
Even so, West and Zampella initially thrived under Kotick’s regime. They released Call of Duty games for Activision in 2003 and 2005, the second of which was chosen as a launch title for Microsoft’s Xbox 360 game system and moved more than a million copies in its first year. Still, West says, Activision’s focus on developing wildly profitable franchises and then milking them for all they were worth quickly grew stifling. He longed to let his imagination run beyond the narrow bounds imposed by historical fiction. He imagined a war game that would use contemporary weapons and tactics, while addressing anxieties about terrorism and violence. World War II had a clear hero and a clear villain; war in the modern era is full of ambiguity.
At a steak house not far from Respawn’s headquarters—and supervised by a publicist and a lawyer—I asked West if there were times when Infinity Ward had clashed creatively with its bosses. He paused for a minute. “Well, Activision wanted us to make another World War II game,” said West, his words clipped, his voice rising. “So that’d be an example of when we pushed for something creatively. And now they have billions of dollars they didn’t have before.
It’s likely to shorten your life, according to this study. It’s an academic study, and the link is to the abstract. You can download the entire paper free in PDF. The paper says to some extent older people who live with younger people should be expected to have shorter life expectancies, because health problems often are the reason for such living arrangements. But the paper says the authors were able to adjust for this factor and that elderly people living with people under age 18 still decreases life expectancy. Here’s the full abstract.
Elderly Americans who live with people under age 18 have lower life evaluations than those who do not. They also experience worse emotional outcomes, including less happiness and enjoyment, and more stress, worry, and anger. In part, these negative outcomes come from selection into living with a child, especially selection on poor health, which is associated with worse outcomes irrespective of living conditions. Yet even with controls, the elderly who live with children do worse. This is in sharp contrast to younger adults who live with children, likely their own, whose life evaluation is no different in the presence of the child once background conditions are controlled for. Parents, like elders, have enhanced negative emotions in the presence of a child, but unlike elders, also have enhanced positive emotions. In parts of the world where fertility rates are higher, the elderly do not appear to have lower life evaluations when they live with children; such living arrangements are more usual, and the selection into them is less negative. They also share with younger adults the enhanced positive and negative emotions that come with children. The misery of the elderly living with children is one of the prices of the demographic transition.
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