Browse by Tags

KnowNOW!

Global Economic Watch

Syndication

Recent Posts

Tags

Archives

  • Marketplace Whiteboard: Debt and Deficit

    We humans have tendency to conflate debt and deficit--our well-heeled political leaders included. They are related, of course, but distinct. And Paddy Hirsch steps up to the Marketplace Whiteboard to help us respect the differences:
  • Young Workers Still Reluctant to Take On Mortgage Debt

    Young workers who went to college no doubt enjoy the vast wealth of knowledge and fond memories from their university experience. They also carry around another strong reminder of their time--at least many of them do--enormous student debt. But it seems that workers under 30, with or without student debt, are not following the script when it comes to taking on more debt and buying homes. Meta Brown , Sydnee Caldwell , and Sarah Sutherland of the New York Fed take a look at the recent data that shows a reluctance to get into the housing game: From Liberty Street Economics : Despite an 11 percent house price recovery over the course of 2013 and an increase in overall mortgage debt, thirty-year-olds with and without student loans continued to retreat from the housing market. Further, student borrowers failed to exhibit the differential recovery one might expect in 2013. Prior to the most recent recession, homeownership rates were substantially higher for thirty-year-olds with a history of student debt than for those without. This pre-recession pattern is typically explained by the fact that student debt holders have higher levels of education on average, and hence, higher income potential. Simply put, these more educated, often higher-earning, consumers were more likely to buy homes by the age of thirty. However, the recession brought a sudden reversal in this relationship. As house prices fell, homeownership rates declined for all types of borrowers, and declined most for those thirty-year-olds with histories of student loan debt. In last year’s blog, we reported that 2012 was the first time in at least ten years that thirty-year-olds with no history of student loans were actually more likely to have home-secured debt than those with a history of student loans. Did student borrowers regain their homeownership advantage in the course of the broader recovery? They did not. Surprisingly, student loan holders were still less likely to invest in houses than nonholders in 2013, despite the marked improvements in the aggregate housing market. Read the full post here .
  • Marketplace Whiteboard: Restructuring

    Restructuring. More of us need it than actually go through it. Perhaps that is because it sounds so costly and complicated, or, as Paddy Hirsch puts it, "intimidating." In reality it is quite straightforward. At least it is when Paddy explains it to us:
  • Spain's Path to Recovery

    It was bad enough to be in economic turmoil, but Spain had the additional indignity to be included in a group of economies that we labeled either PIGS or PIIGS (depending on whether we included both Ireland and Italy). The PIIGS were EU nations that had amassed so much public debt that they were threatening to bring down the EU economy as a whole. So it is nice to read about signs of a turnaround. At Project Syndicate , Michael Spence writes that investors are beginning to find Spain attractive again. Spain was not in an enviable position. The rapid deterioration of fiscal position after the crisis made any substantial countercyclical response impossible, while regulatory constraints limited the economy’s structural flexibility. The path to recovery, though difficult and lengthy, has been relatively clear and specific. First, unit labor costs needed to decline toward productivity levels to restore competitiveness – a painful process without the exchange-rate mechanism. In fact, there has been substantial post-crisis re-convergence toward German levels. Second, both capital and labor needed to flow to the tradable sector, where demand constraints can be relaxed as relative productivity converges. Like many other southern European countries, however, labor-market and other rigidities dramatically reduced the speed and increased the costs of structural economic adjustment, resulting in lower levels of growth and employment, especially for young people and first-time job-seekers. But Spanish policymakers and business leaders appeared to grasp the nature of the pre-crisis economic imbalances – and the importance of the tradable sector as a recovery engine. Recognizing that the economy could not benefit from a partial restoration of competitiveness without structural shifts, the government passed a significant labor-market reform in the spring of 2013. It was controversial, because, like all such measures, it rescinded certain kinds of protections for workers. But the ultimate protection is growing employment. With a lag, the reform now appears to be bearing fruit. Read The Gain in Spain here .
  • L.A. Times: Would-Be Home Buyers Held Back By Student Debt

    We'll be seeing some new data sets on home buying this week, and we'll spend a lot of air and cyber-ink trying to make links between home buying and overall economic growth. One of the factors that does not show up in the data: why people don't buy homes. One of the reasons is surely existing debt. And for a lot of would-be first-time home buyers, that existing debt is left over from college. L.A. Times reporter Tim Logan : The amount owed on student loans has tripled in a decade, to nearly $1.1 trillion, according to the Federal Reserve Bank of New York. People in their 20s and 30s — often the best-educated and highest-earning among them — owe most of that tab. That is keeping a crucial segment of home buyers on the sidelines, deferring one of the traditional markers of adult success. The National Assn. of Realtors recently identified student debt as a key factor in soft demand for home-buying this spring. A recent study by the trade group identified student loans as the top reason many home buyers delayed their purchase. Many more didn't buy at all. Surveys show today's adults value homeownership just as much as their parents did. But the shaky job market, higher debt loads, and the roller-coaster market of recent years is keeping many from pulling the trigger, said Selma Hepp, senior economist with the California Assn. of Realtors. "They're just postponing," she said. "It's the economy and the recession and what that generation has gone through." The share of buyers who are first-timers has dropped well below historical averages — 28% of California buyers last year, compared with 38% typically, according to CAR surveys. The absence of a new generation of customers could become a long-term problem for the industry, said Dustin Hobbs, spokesman for the California Mortgage Bankers Assn. Read Student debt holds back many would-be home buyers here
  • A New Primer on China From McKinsey

    Do you have an hour for China? That is, do you have an hour you can spare to understand the leading economic story of the century? McKinsey's Jeffrey Towson and Jonathan Woetzel have written The One Hour China Book in an effort to bring us all up to speed on the key pieces to understanding what is happening in the world's most populous country and the impact of activity there on life everywhere. If you can't spare an hour just yet, here are the "six big trends" from the book, as shared at McKinsey Insights : Here's a little more on trend number 3: The American middle class was the world economy’s growth engine throughout the 20th century. Now, the engine is the Asia–Pacific region, which will account for two-thirds of the world’s middle class by 2030. While Chinese consumers’ focus on “value for money” has driven the rise of companies such as apartment builder China Vanke and Tingyi Holding Company—the business behind China’s dominant instant-noodle brand—buying habits are changing. As urbanization accelerates, consumer spending is becoming more like that of the West’s middle class. Urban Chinese are shopping to meet emotional needs, driving a skyrocketing demand for middle-class goods, food, and entertainment. As an example, China consumed more than 13 million tons of chicken in 2012—more than the United States. Tyson Foods’s China operations has facilities able to process more than three million chickens per week, and Chinese chicken consumption, which grew by 54 percent from 2005 to 2010, is expected to grow an additional 18 percent annually during the next five years. For additional evidence, look no further than the fact that the largest Chinese acquisition of a US company had nothing to do with technology, cars, or energy. In 2013, Chinese Shuanghui International spent $7.1 billion to buy American Smithfield, the world’s largest pork producer and processor. It’s not surprising, then, that agribusiness is one of China’s hottest new industries. Almost every aspect needs to be improved, from land and water use to logistics and retail. Legend Holdings, the parent company of Lenovo, now lists modern agriculture as one of its five core areas, with a portfolio that includes kiwi and blueberry farming. Read All you need to know about business in China here .
  • Marketplace Whiteboard: The Wealth Effect

    As we learned from Andrew Kohut , a lot of Americans are not feeling it when it comes to the U.S. economy. Or, for many of them, when it comes to their own finances. And that makes it a little harder for the economy to keep picking up steam. As Paddy Hirsch explains in this Marketplace Whiteboard , when people feel wealthy, they spend more.
  • Economic Letter: 'Private Credit and Public Debt in Financial Crises'

    In a new San Francisco Fed Economic Letter , economists Òscar Jordà , Moritz Schularick , and Alan M. Taylor try to settle the debate over whether private credit or public debt was the bigger culprit in the global economic crisis. They award points to each. In short, their research seems to show that private credit booms put economies in difficult positions. And public debt makes it difficult for economies to recover. The narrative of the recent the global financial crisis in advanced economies falls into two camps. One camp emphasizes private-sector overconfidence, overleveraging, and overborrowing; the other highlights public-sector profligacy, especially with regard to countries in the periphery of the euro zone. One camp talks of rescue and reform of the financial sector. The other calls for government austerity, noting that public debt has reached levels last seen following the two world wars. Figure 1 Credit and debt since 1870: 17-country average Credit and debt since 1870: 17-country average Source: Jordà, Schularick, and Taylor (2013). Figure 1 displays the average ratio of bank lending and public debt to GDP for 17 industrialized economies (Australia, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States). Although public debt ratios had grown from the 1970s to the mid-1990s, they had declined toward their peacetime average before the 2008 financial crisis. By contrast, private credit maintained a fairly stable relationship with GDP until the 1970s and then surged to unprecedented levels right up to the outbreak of the crisis. Spain provides an example of the woes in the euro zone periphery and the interplay of private credit and public debt. In 2007, Spain had a budget surplus of about 2% of GDP and government debt stood at 40% of GDP (OECD Country Statistical Profile). That was well below the level of debt in Germany, France, and the United States. But by 2012, Spain’s government debt had more than doubled, reaching nearly 90% of GDP, as the public sector assumed large losses from the banking sector and tax revenues collapsed. Thus, what began as a banking crisis driven by the collapse of a real estate bubble quickly turned into a sovereign debt crisis. In June 2012, Spanish 10-year bond rates reached 7% and, even at that rate, Spain had a hard time accessing bond markets. Once sovereign debt comes under attack in financial markets, banks themselves become vulnerable since many of them hold public debt as assets on their balance sheets. The new bout of weakness in the banking system feeds back again into the government’s future liabilities, setting in motion what some have called the “deadly embrace” or “doom loop.” The conundrum facing policymakers is this: Implement too much austerity and you risk choking off the nascent recovery, possibly delaying desired fiscal rebalancing. But, if austerity is delayed, bond markets may impose an even harsher correction by demanding higher interest rates on government debt. Matters are further complicated for countries in a monetary union, such as Spain. Such countries do not directly control monetary policy and therefore cannot offset fiscal policy adjustments through monetary stimulus by lowering domestic interest rates. In addition, central banks in these countries have limited capacity to stave off self-fulfilling panics since their lender-of-last-resort function evaporates. Fluctuations in fiscal balances over the business cycle are natural. As economic activity temporarily stalls, revenues decline and expenditures increase. With the recovery, fiscal balances typically improve. But the debate on what is a country’s appropriate level of public debt in the medium run continues to rage. It is unclear whether high debt is a cause or a consequence of low economic growth. That said, public debt is not a good predictor of financial crises. Read the full letter here .
  • Wealth: Not Just About Money

    You can't judge a book by its cover. And you shouldn't judge someone's wealth by looking at all the flashy things they own. In this Marketplace Whiteboard , Paddy Hirsch reminds us that wealth is not only about assets, but also about debts.
  • Lagarde: Three Reform Steps for Spain (and Europe)

    Christine Lagarde was in Bilbao, Spain this morning to discuss the state of the economy in Europe in general, and Spain in particular. The IMF managing director noted that there are encouraging signs of growth across the EU. But the big challenge remains the high unemployment rates in member nations. Spain, of course, is the poster child for the jobs problem. Lagarde: I am here reminded by President Rajoy who said: “Spain is out of recession but not out of the crisis….The task now is to achieve a vigorous recovery that allows us to create jobs." I fully agree—creating jobs must be the overriding focus for Spain. What does this mean in practical terms? It means there can be no let-up in the reform momentum. The strong reform momentum must be maintained. And we can see three key areas where further progress will be crucial. The first area is labor market reforms—which need to be deepened so that they can work for all. Both firms and their workers need to be assured that they can reach appropriate agreements on working conditions and wages. This is essential for jobs to be protected and created. Workers need to be directly supported as well—through enhanced skills training and job-search assistance for the unemployed. And by further cutting the tax costs of employing people, especially the low-paid, the unemployed would face fewer barriers in finding work. The second area concerns debt—which needs to be lowered. For firms, this means helping insolvent but viable ones restructure their debts, so they can stay in business and continue to invest and hire people. For the government, it means continuing to reduce the fiscal deficit in a gradual, growth-friendly way—especially by relying more on indirect taxes. The third and final area is the business environment—which needs to be strengthened. Making it easier for businesses to start up and grow will lift their capacity to create employment. Making domestic firms more competitive will also boost their employment and productivity. The government’s plans to liberalize professional services and promote free trade among Spain’s regions go very much in this direction. Read the full speech here .
  • NY Fed Household Debt and Credit Report for 4th Quarter 2013

    When the global financial crisis hit, Americans got more concerned about debt. Household debt continued to drop almost every quarter over the next 5 years, with only tiny increases in the first quarter of 2011 and the fourth quarter of 2012. That trend seems to have turned. Household debt increased $127 billion in the third quarter of 2013, and then another $241 billion last quarter, according to the New York Fed . That's a 2.1% increase. From the NY Fed quarterly report: Mortgages, the largest component of household debt, increased 1.9% during the fourth quarter of 2013. Mortgage balances shown on consumer credit reports stand at $8.05 trillion, up by $152 billion from their level in the third quarter. Furthermore, calendar year 2013 saw a net increase of $16 billion in mortgage balances, ending the four year streak of year over year declines. Balances on home equity lines of credit (HELOC) dropped by $6 billion (1.1%) and now stand at $529 billion. Non-housing debt balances increased by 3.3%, with gains of $18 billion in auto loan balances, $53 billion in student loan balances, and $11 billion in credit card balances. Delinquency transition rates for current mortgage accounts are near pre-crisis levels, with 1.48% of current mortgage balances transitioning into delinquency. The rate of transition from early (30-60 days) into serious (90 days or more) delinquency dropped, to 20.9%, while the cure rate – the share of balances that transitioned from 30- 60 days delinquent to current –improved slightly, rising to 26.9%. Read the full report here .
  • Bloomberg: 'The European Debt Crisis Visualized'

    The European debt crisis is old news. And while the heat may have come down in the last year, it is not over. The interactive team at Bloomberg News has put together a new way of telling the story of the debt crisis. Some students may find the debt crisis easier to understand through this visualization. And we appreciate that this telling of the story goes back almost a century, so there students get the deeper context of Europe's current challenges.
  • Larry Summers on the Cost of Not Taking Advantage of Low Interest Rates

    Lawrence Summers isn't officially an adviser to the White House at the moment, but that doesn't mean he is without advice for politicians in Washington. In an interview with Here and Now 's Jeremy Hobson , following the latest deal in Congress to raise the debt ceiling, Summers said "we don't have a realistic option, ever, of defaulting on the debt." Summers went on to discuss the importance of smart spending while interest rates are low. Costs for fixing infrastructure and improving education will get higher in the future, and the costs for not fixing infrastructure and improving education will be great, he argues. Here is the full interview:
  • Marketplace Whiteboard: Debt, Borrowing, and Waiting for Your Ship to Come In

    One of the best ways to lose a lot of money is also one of the best ways to lose a lot of money. Going into debt has been a proven path to wealth for centuries. Paddy Hirsch gives us a history and economics lesson tied into one as he explains how borrowing can create wealth in this Marketplace Whiteboard explainer:
  • CBO: The Budget and Economic Outlook for the Next Ten Years

    The Congressional Budget Office has released its economic projections for the next ten years, and while most of the coverage so far has focused on the effects of the Affordable Care Act, we're also interested in the expectations for economic growth. The CBO is expecting slow and steady growth in GDP. And slow and steady increase in government debt--but only after continuing to decline in 2014 and 2015. The overall GDP picture is not so bad: The debt picture is a little less pretty: From the report: The large budget deficits recorded in recent years have substantially increased federal debt, and the amount of debt relative to the size of the economy is now very high by historical standards. CBO estimates that federal debt held by the public will equal 74 percent of GDP at the end of this year and 79 percent in 2024 (the end of the current 10-year projection period). Such large and growing federal debt could have serious negative consequences, including restraining economic growth
in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increas- ing the risk of a fiscal crisis (in which investors would demand high interest rates to buy the government’s debt). After a frustratingly slow recovery from the severe reces- sion of 2007 to 2009, the economy will grow at a solid pace in 2014 and for the next few years, CBO projects. Real GDP (output adjusted to remove the effects of infla- tion) is expected to increase by roughly 3 percent between the fourth quarter of 2013 and the fourth quarter of 2014—the largest rise in nearly a decade. Similar annual growth rates are projected through 2017. Nevertheless, CBO estimates that the economy will continue to have considerable unused labor and capital resources (or “slack”) for the next few years. Although the unemploy- ment rate is expected to decline, CBO projects that it will remain above 6.0 percent until late 2016. Moreover, the rate of participation in the labor force—which has been pushed down by the unusually large number of people who have decided not to look for work because of a lack of job opportunities—is projected to move only slowly back toward what it would be without the cyclical weakness in the economy. Beyond 2017, CBO expects that economic growth will diminish to a pace that is well below the average seen over the past several decades. That projected slowdown mainly reflects long-term trends—particularly, slower growth in the labor force because of the aging of the population. Inflation, as measured by the change in the price index for personal consumption expenditures (PCE), will remain at or below 2.0 percent throughout the next decade, CBO anticipates. Interest rates on Treasury securities, which have been exceptionally low since the recession, are projected to increase in the next few years as the economy strengthens and to end up at levels that are close to their historical averages (adjusted for inflation). You can download the full report (.pdf) here .
1 2 3 4 5 Next > ... Last »