Unified Finance Theory

By | 2014-09-11T11:14:24+00:00 July 29th, 2011|Global Market Update|

In physics, people are looking for a unified theory. It’s possible one doesn’t exist. Ever since Maxwell discovered the way to combine the forces of electricity, magnetism, and light, physicists have sought a unified theory that ties all the forces in the universe together. Einstein worked to describe both electricity and magnetism, but there are other forces in the universe—the forces that hold a stable atomic nucleus together, or tear it apart when it’s radioactive. Scientists haven’t yet figured out a uniform way to [...]

Now He Tells Us

By | 2014-09-12T10:43:52+00:00 July 28th, 2011|Global Market Update|

Larry Summers is out of government. And he’s talking (and talking, and talking …). In a recent interview Summers proclaims that Keynesian economics has been totally vindicated, because, as he says, “macroeconomics is about filling in the gaps, not smoothing the cycle.” In other words, economics is about stopping the bleeding, not about getting the patient healthy. Well you could have fooled me. The Keynesian in the Treasury Department argues that cutting spending, even when tied to lower taxes, will contract the economy. It [...]

Producing Incentives

By | 2011-07-27T06:03:02+00:00 July 27th, 2011|Global Market Update, Investing|

I don’t know why so few jobs are being created. But here’s one idea: In a normal market, you have three main economic actors: owners, workers, and customers. Customers want the most good at the lowest price. Workers want the most pay for the least work. And owners want the most return for the lowest risk. […]

Flying On One Engine?

By | 2017-07-17T12:35:03+00:00 July 26th, 2011|Global Market Update|

Many of those observing the debates in Washington and Brussels have compared our fiscal issues to household finance, complete with kitchen table discussions, bill-paying, and saving for a rainy day. But to my mind, it’s the language of flight that is more telling. Economies buffeted by turbulence, approaching stall-speed, policymakers at the controls, trying to avoid a crash or a hard landing—these are all images from the flight-deck. And like the most successful pilots, policymakers with poise and experience will make all the difference [...]

Producing Incentives

By | 2014-09-12T10:43:59+00:00 July 25th, 2011|Global Market Update|

I don’t know why so few jobs are being created. But here’s one idea: In a normal market, you have three main economic actors: owners, workers, and customers. Customers want the most good at the lowest price. Workers want the most pay for the least work. And owners want the most return for the lowest risk. These conflicting objectives come together and you get reasonable goods at a reasonable cost delivered by reasonably paid workers and a reasonable return to the owners. The marketplace [...]

South of the Border

By | 2014-09-11T11:12:12+00:00 July 24th, 2011|Global Market Update|

Borders is going out of business. Why now? It’s reasonable to ask why they’re liquidating right now. Yes, the franchise has operational problems: they were slow to embrace eReaders, and their web site is a joke. But in their official filings, they listed assets of $1.28 billion and liabilities of $1.29 billion. Surely something could have been worked out. The reason is a new law: it’s because of 40 stores. Congress restructured bankruptcy laws a couple years ago. In that revamp, bankrupt companies were [...]

Greek Butterflies

By | 2014-09-11T11:09:49+00:00 July 21st, 2011|Global Market Update|

Is it possible for the Greek debt crisis to unravel the Euro? That’s what it looks like may happen. A country whose GDP is about 2.5% of the Eurozone has gotten into fiscal trouble, and now hedgies are running a bear raid on Italy, a core European country whose $2.1 trillion economy is larger than California’s. If Italy goes down, the Euro is at risk. How did we get here? It’s not as if the Greek debt problems are breaking news. Their bloated debt [...]

The Time Machine

By | 2017-07-17T12:35:04+00:00 July 20th, 2011|Global Market Update|

Imagine you had a time machine and could go back to 1986. Congress was discussing a sweeping bipartisan tax reform plan. Billions in deductions would be eliminated in favor of lower rates. The debate was intense. Fast forward 25 years. Why are House Republicans opposing this? Corporate tax rates are being cut while special subsidies are being eliminated. Personal tax rates are being lowered somewhere between 6 and 12 percent from current levels. Social Security and Medicare would be shored up through changes in [...]

Regulating Pendulums

By | 2014-09-12T10:44:11+00:00 July 19th, 2011|Global Market Update|

How much regulation do the banks need? The Dodd-Frank bill has been around for a year now, and it’s reasonable to ask if anything has changed. The logic behind Dodd-Frank is simple: our capitalist system runs on self-interest and profits. Regulation is necessary to make sure things stay within reasonable limits—things like systemic risk, concentration of power, and prevention of fraud. If professional ethics, self-regulation, and a sense of limits could be counted on, we wouldn’t need formal laws. Sadly, they can’t. But regulators [...]

Giving China Credit

By | 2014-09-11T11:07:44+00:00 July 18th, 2011|Global Market Update|

Is China a triple-A credit? Many people think so. China’s economy has surpassed Japan’s as the second largest in the world, it’s growing at 10% per year, and it has currency reserves equal to ¾ of its economy. By contrast Japan’s economy is stagnant, they have a net debt level about equal to their GDP, and their aging electorate seems vote for a new prime minister every year. But the rating agencies have them both notched at AA-. Some folks think that China is [...]