Mind Over Market

American households have embarked on a process of debt reduction that could take years to complete, based on historical comparisons, according to a study by the San Francisco Fed. This deleveraging will be painful whether it is from belt-tightening to increase savings and reduce debt -- or through foreclosures, short-sales of homes or bankruptcies. This seems to suggest that the economic recovery that is on the horizon will be weak and that gains in economic growth could be terribly slow in coming. By Robert Stowe England May 30, 2009 Americans have been living beyond their means for so long that they can no longer do so. They have, in fact, begun a long and likely painful process of deleveraging or debt reduction that could last for many years. Economists measure household frugality or profligacy by calculating the ratio of debt to personal disposable income. In 2007 that ratio for the average American household reached an all-time high of 133 percent. By contrast, in 1960 the ratio s...

China's current retirement schemes are provided to only a distinct minority of workers, have limited portability, are mostly unfunded and deliver an inadequate benefit at retirement. To meet the challenge of an aging society, in which the elderly will constitute 24 percent of the population by 2030, China needs to start over with a new system that is universal and provides a better benefit at a lower payroll cost, according to economist Richard Jackson and fellow researchers at the Center for Strategic and International Studies. By Robert Stowe England May 20, 2009 "China needs to develop a [retirement] reform strategy every bit as bold as the demographic challenge about to overcome it," according to Richard Jackson, program director and senior fellow of the Global Aging Initiative at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Jackson offered his own bold proposal for reform at a policy forum yesterday (May 19) at CSIS. The demographic c...

Government – not the market – played the dominant role in creating the systemic risk we now face, and the government poses a greater systemic risk in the future. “Reining in this risk should be the highest priority, higher than creating a new systemic risk regulator,” says economist John Taylor. By Robert Stowe England May 13, 2009 In the ongoing debate about whether the market or the government played a larger role in the ongoing financial crisis, Stanford University economist John B. Taylor places the greater share of blame on the government. Taylor, a Treasury undersecretary from 2001 to 2005, laid out his case last night (May 12) in a dinner keynote speech at the Federal Reserve Bank of Atlanta’s Conference on Financial Innovation and Crises at Jekyll Island, Georgia. Taylor cites a number of government mistakes. At the top of the list is the Federal Reserve’s decision to keep interest rates too low too long in the period from 2002 to 2005. Taylor faults policy makers for a misdiag...

The $1 trillion Geithner public-private partnership investment plan offers a broad framework for using private-sector capital to enable price discovery and government-backed leverage to boost returns. Policy-makers hope the effort will move troubled assets off the balance sheets of banks. By Robert Stowe England Mortgage Banking May 2009 Firefighters sometimes start a controlled fire ahead of a raging forest fire. The idea is to have the staged fire burn toward the dangerous out-of-control fire with the goal of stopping its advance by denying it a way to spread toward a protected target. In a similar move, a new federal program -- the $1 trillion Public-Private Investment Program (PPIP) -- is designed to use leverage and the lure of very high investment returns (the proximate causes of the financial meltdown) to help begin to undo the damage done to the financial system, to banking and to the mortgage markets. Here is a link to a read-only version of the story as it appears in the May ...