Jort Kelder thinks that exorbitant pay packages create jobs. Despite the unfathomable rise in income inequality in the United States over the past couple of years, unemployment is expected to soar to 10 percent by the end of this year. Maybe Jort wants to elaborate a bit on his piece in NRC Handelsblad?
Check out this op-ed in yesterday’s Financial Times by economic historian Niall Ferguson comparing Barack Obama to Felix the Cat: ”Felix was not only black. He was also very, very lucky.” Ferguson was in a very public spat a few months ago with The New York Times-columnist and Nobel laureate Paul Krugman about the feasibility of the Obama stimulus plan. Now that the economy is picking up thanks to the stimulus, Krugman claims victory (urging for more stimulus). Ferguson, meanwhile, is licking his wounds using a black cat trying to score some points still.
Anyone who thinks that only women can have a catfight?
This is a great piece by New York Times reporter Gretchen Morgenson. It shows that then Treasury secretary and former Goldman Sachs CEO, Henry Paulson, contacted his successor at Goldman Sachs, Lloyd C. Blankfein, over a dozen times in the week that A.I.G. was rescued. Thirteen billion of the $ 85 bln aid for A.I.G. went straight to Goldman Sachs, which had already pressed A.I.G. for an a$ 7 billion worth of collateral in the weeks before the rescue operation, prompting the insurer’s fall. If A.I.G. had not been rescued in September 2008, Goldman Sachs probably would not have been around either.
A week ago the director of communications of the New York Fed went out of his way to convince me that there had been no meeting between Paulson and Blankfein or Geithner (then governor of the New York Fed) and Blankfein to discuss the A.I.G. rescue. He sure won’t like today’s report in The New York Times.
The article also confirms that Goldman Sachs was in deep trouble in September 2008. After all, the reason that Henry Paulson received a waiver was not the A.I.G. bailout but the possible bailout of Goldman Sachs.
Following earlier statements by Zhou Xiaochuan of the People’s Bank of China in March, China renewed its criticism of the dominant role of the US dollar as a global reserve currency at the meeting of the G-8, The Financial Times reports today. In front of President Obama, the Chinese state councilor Mr Dai unequivocally called for the world to diversify the reserve currency system. The country that holds an estimated 2 trillion dollar in U.S. T-bills clearly doesn’t shy away from using its leverage in the international political arena.
The Financial Times reports today that investment banks, including Goldman Sachs and Barclays Capital, are inventing new schemes to reduce the capital cost of risky assets. Financial innovation, which brought about the current economic crisis, is far from dead.
Instead of shifting risk to the economic agents and institutions most willing and able to bear risk, financial shifted risk to the imprudent, the reckless, and the fraudulent. As recent history showed us, this may cause costly financial crashes, defaults and bankruptcies. As Willem Buiter pointed out in his Maverecon blog, financial innovation does not only distribute risk in the economy inefficiently, but also increases the total quantum of risk as it increases the likelihood of abnormal times—panics, manias and crashes—occurring, and the scope and severity of financial crises.
The CIA has established a special unit to investigate economic and financial threats to the United States’ security. The unit sends President Obama daily briefings with an assessment of the economic risks. In March the Department of Defense already organized an economic war simulation. The Pentagon invited hedgefund managers, bankers and economic scholars to assess different scenario’s that might shift the balance of power in the world. Quelle surprise… China turned out to be the smartest economic warrior. Perhaps China’s decision to accumulate over two trillion dollar in foreign currency reserves wasn’t such a blunder after all.
The Dutch Central Planning Bureau (CPB) foresees in its June 16, 2009 Forecast a historic contraction of the Dutch economy: a 4¾ percent decline in GDP this year and a further ½ percent for next year. Unemployment will go up sharply according to the CPB: an average of 5½ percent of the labor force will be out of work in 2009 and 9½ percent in 2010. These unemployment rates correspond with 430,000 unemployed persons in 2009 and 730,000 unemployed persons in 2010.
A couple of weeks ago I wrote in Going Dutch? Not So Fast! that in the Netherlands ‘more than one million and a half people under 65 are living on some type of state benefit. If the crisis persists, and chances are that it will, this number will likely increase to two million people, or a quarter of the working population.’ Some readers questioned these numbers.
According to the Dutch Central Bureau for Statistics’ (CBS) most recent dataset there were in September 2005 1,727,000 persons in the age range of 15-to-65 living on welfare. At that time the number of unemployed persons stood at 456,000.
The CPB uses the same definition of ‘unemployed’ as the CBS does. That is to say: the criteria to be classified as unemployed concern availability for work (at least 12 hours per week) and actively seeking work. Being counted as unemployed does not imply eligibility for benefits (e.g. married women seeking to reenter the labor market count as unemployed but aren’t eligible for benefits) and vice versa (e.g. women with young children living on welfare are exempted from the job-search requirement).
Since most people losing their job will be eligible for benefits for some period of time under the unemployment act (WW) and economic downturns generally discourage people from actively seeking work, the number of people in the age range of 15-to-65 living on some type of state benefit can roughly be expected to rise to about 2,001,000 in 2010. That is almost 30 percent of the employed labor force (7,020,000 persons).
Furthermore, by 2010 there will be about 2,900,000 persons receiving old age benefits (AOW), which puts the welfare recipients to employed persons ratio in the 70 percent range. If you bear in mind that employment in actual labor years is expected to be 6,442,000 in 2010 (Source CPB, no link), the actual ratio comes closer to 80 percent.
The good news is that, while Europe seems to be going off the cliff, elsewhere (most notably in China and the US) the economy is picking up. As Willem Buiter put it Wednesday in his Maverecon-blogpost Green Green Shoots of Home: ‘I’ve been down so long, it looks like up to me.’ Given the better-than-expected unemployment figures that the CBS released yesterday, that may even ring true for the Low Countries.