Today's Buggy Subject
At Carpe Diem, a good libertarian economic web site --- yes, even for a decidedly non-libertarian like prof bug --- a thread was started by Prof. Mark Perry, who runs the site, on the recent strengthening of the US$ against a basket of other countries' currencies, each of them weighted by the importance of a country's trade with the US. Prof bug quickly posted a fairly lengthy commentary, which roamed widely over a variety of related subjects . . . some of them, as you'll see, no doubt surprising to most of you.
And as usual, prof bug tried to widen his economic comments to envelope some important political subjects, domestic and international alike. Click here for Prof. Perry's post and prof bug's wide ranging reply.
Is the Government Take-Over of Fannie and Freddie a Good Decision?
The buggy answer: Yes, and likely to have a fairly swift beneficial effect on the fortunes of the US economy. Click here for a perceptive analysis by a Wall Street specialist, who sets out the optimistic case, looks at pessimistic criticisms, and argues convincingly that the optimists are likely to prevail. By today, please note (September 11, 2008), we already know that the government take-over has lower mortgage rates back to where they were in April, and much lower than they were a year or so ago.
But will banks start lending to house-buyers even if more house-buyers line up and are qualified for the loans?
Almost certainly --- not least because Fannie and Freddie underwrite about half of the country's mortgages. Banks need to lend to make money. With the government behind the mortgage-market, they will very likely find that they need do only ordinary credit-analysis to find plenty of qualified buyers. Even in the greater Los Angeles area, house prices outside the city itself --- in surrounding suburbs --- have plunged to the point that housing sales have been up between 20% to 30% over a year ago.
Will the US Economy Stay Out of Recession?
Note that there is no official definition of a recession --- with the NBER, a private research group (National Bureau of Economic Research) using a variety of indicators, coming the closest in the US to an authoritative source on the subject. Its indicators cover numerous economic trends: not just GDP growth trends over three quarters or so, but changes in employment, per capita income, consumption, industrial production, retail sales, and so on. And it only voices its assessment at the end of those three quarters, retro-actively. Click here for a good, fairly up-to-date analysis that probes these trends in the US economy (late July 2008).
Right now, it's doubtful if we're in a recession --- unlike most of the EU or Japan . . . this, despite the growth of unemployment to around 6.1%.
Note though: that's a definition for many specialists of a "growth recession": GDP has grown, not dipped negatively for two quarters or so, but the growth hasn't been high enough to stop some lay-offs by businesses and to furnish jobs for new entrants into the labor market. Maybe so. It's not an encouraging sign, that's for sure.
Whether we fall into a full-fledged recession as defined eventually by the NBER hinges largely on two trends: on our trade balance --- the growth of exports (and a slowdown, if it occurs, in imports) --- and on a revival of the housing market, along with investment in export-oriented industries, and eventually, if we're lucky, a resumption of consumer confidence and buying and hence wider business investment across the economy. Then, too, if oil prices continue to fall --- today, they've dipped to just about $100 a barrel --- then we'll be doubly lucky: the value of imports will decline, consumers will find lower prices at the gasoline station, and the Federal Reserve will likely be more reassured about inflationary trends in the US economy . . . this, even though the core indexes it looks at (not least, core-CPI) exclude volatile food and energy prices as unreliable guides.
In that case, interest rates will likely stay low and help consumption and investment.
The Longer-Run Health and Future of Our Economy
So much for the short-run fortunes of the US economy.
In the long-run, as prof bug's comments at Carpe Diem today indicate, our economic future --- and our power, influence, and security in the world as a country --- will depend in no small part on our finding ways to become energy independent in the next decade or so.
If we could, then --- quite apart from reducing our dependence on vulnerable countries as sources of oil and helping our trade-balance --- we would stop fueling the aggressive behavior of Russia, the nuclear weapons programs of Iran, the Saudi export of Wahhabi extremist Islam, Venezuela's demagogy, and China's backing genocidal regimes in the Sudan and elsewhere that are engaged in something like mass-murder of minorities.
The Security Spillovers of Costly Oil: Ignored by 99.99% of Economists
All these countries (minus China) are basket-case economies, or would be without their huge oil imports.
And the future of our energy usage lies in electricity --- yes, even for vehicles . . . electricity itself able to be produced by a variety of energy sources, some of which can't be exported and hence would be shielded from the growing demand for energy resources by China and India: hydro-electric, wind-power, nuclear power, geo-thermo, and solar cells; plus eventually hydrogen.
For a while, in the transition, a growing use of natural gas (we have plenty as a country, and it is much more benign for the environment than oil) and domestic coal --- again, we're well endowed --- would be needed as well. And yes, coal can burn clean with proper existing technologies, plus sequestering its carbon dioxide . . . a technology that exists so far only on paper. It requires capturing the C02 and burying it deep underground or under the oceans.
Even the EU, observe carefully, has committed itself to building 50 new coke-burning power-sites in the near future. China, which is burning only dirty coal-generating power at about 550 electricity-generated sites, is building a new power-site a week. And though there's a commitment to building a new cleaner coal-power site that's under way right now, it appears that the Chinese government remains largely indifferent to the huge side-effects of massive smog and environmental deterioration.
Just Added Later in the Day: A Very Informative Read on Innovation