You are browsing the archive for 2014 March 23.

Avatar of admin

by admin

Mortgage Market Roulette

March 23, 2014 in Economics

By John P. Cochran

Following the Fed meeting last week, I was interviewed Thomas Ressler, editor

Inside the CFPB(Published by Inside Mortgage Finance Publications) focusing on the impact of Fed policy on MBS and the housing market.

His summary of our discussion:

More broadly speaking, Fed watcher John Cochran, emeritus professor of economics at Metropolitan State University of Denver, agreed that one of the first things that needs to happen to attract private capital back into the MBS market is for the Fed’s footprint in the space to shrink. However, given the drop-off in new issuance, the Fed’s share of the pie may actually be increasing.

It’s true that the Fed is reducing its purchases somewhat, but “the trend seems to show that they’re buying a larger and larger percentage of total new securities issued,” Cochran said. “So I’m not really certain when and how private money is going to be attracted in on a significant basis when we’re really overly dependent on these extremely low rates and holding onto, in the Fed’s balance sheet, significant portions of these MBS.”

He also shares the concern that the housing market is on the verge of another bubble because of the low interest-rate environment. “What part of a bubble don’t people understand, where they’re looking at returns to 2007, 2008 housing prices as a sign of recovery?” the professor said

In our discussion sumarized in the last paragraph I refered  Mr. Ressler to the excellent Housing Bubble 2.0 by David Stockman posted at LewRockwell.com . If you haven’t seen it is well worth a read.

Even with tapering QEIII is a large intervention is important credit markets and is still an ineffective (relative to its stated goals) and long term harmful mondustrial policy.

After being relatively stable from  September 2013 through December 2013, both the monetary base and bank excess reserves restarted their upward trend in January. Fed while slowing purchases on long end must be very active on short end again to maintain near zero interest.

…read more

Source: MISES INSTITUTE

Avatar of admin

by admin

The Perception of Economics

March 23, 2014 in Economics

By Per Bylund

A recently published article at The Week, with the title “How can we unleash positive animal spirits into the economy? Change the narrative,” provides a clear example of what’s wrong with the perception of economics and why modern economic approaches, possibly aiming to amend the shortcomings “identified” by this perception, is at a loss of explaining anything important.

Perhaps the title of the article, written by John Aziz, is sufficiently telling, but let’s have a look at the assumptions and assertions in the first couple of paragraphs – and how they apply (if at all) to economics. Aziz begins:

Economics is a tough science. People are complicated — they have different (and unstable) desires, react differently to events, and view the world in different ways. Markets are complex interactions between millions of these different people.

It appears Aziz finds it highly problematic for economics that people have different desires. This is indeed a problem for a science attempting to understand or predict those desires. In this sense, I certainly feel for those psychologists working on such issues. But as an economist, it is hard to get puzzled by the statements. Rather, one feels excitement about the “complex interactions” that Aziz mentions. Yes, that’s where it gets interesting – the social phenomena arising due to individuals’ actions independently, in concert, and within an institutional framework. Here’s where the economics is. So let’s see where Aziz takes us from here:

In this respect, understanding the economy requires an understanding of people’s motivations. They invest and spend money (or withhold from investing and spending money) to fulfill certain desires and objectives, such as making a profit, building a nest egg, or simply acquiring useful goods and services. Sometimes these economic decisions are rational. Other times, instincts like greed (during an economic boom) and fear (during and after a bust) can cloud our rationality.

This paragraph is at best puzzling. The first sentence makes no sense: why does understanding “the economy” requiring understanding “people’s motivations”? It does not follow. The economy does not reflect the motivations, but people’s actions based on them. In order to understand what happens to the water when ice melts we do not need to know what the source of heat is. In order to understand the storyline of a novel we do not need to know on what type of machine it was typed or printed. Likewise, we do not need to understand …read more

Source: MISES INSTITUTE

Avatar of admin

by admin

The Justice Department's Unjust Toyota Fine

March 23, 2014 in Economics

By Walter Olson

Walter Olson

Toyota has agreed to pay $1.2 billion and submit to federal oversight for three years to resolve Justice Department charges that it withheld information at the height of a 2009 national media furor. A triumph for safety? Or have aggressive federal prosecutors seized on relatively minor missteps to stampede an image-conscious company into a big payout?

In 2011 the National Highway Traffic Safety Administration (Nhtsa) published a thorough study by its engineering staff of the claims of unintended acceleration (UA) in Toyotas. Car and Driver magazine concisely summed up its findings: Aside from situations “caused by accelerators hanging up on incorrectly fitted floor mats, the accidents were caused by drivers depressing their accelerators when they intended to apply their brakes. ‘Pedal misapplication’ was the DOT’s delicate terminology for this phenomenon.”

Cost of safety violations: $0. Cost of paperwork violations: $1.2 billion.”

Nhtsa examined 58 Toyota vehicles that figured in alleged UA crashes. It found no signs that either throttles or brakes had failed, and typically no data indicating sustained braking at all. Of 40 vehicles with usable “black-box” data on board, one was a floor-mat entrapment case. The agency concluded that it “believes that the most likely cause of the remaining 39 UA incidents was pedal misapplication.”

The original uproar was set off when a Lexus crashed in San Diego on Aug. 28, 2009. In later investigations, both Nhtsa and the San Diego County sheriff’s office concluded that the car had been fitted out with too-long floor mats belonging to another model, trapping a floored accelerator.

Horrifying as mat-entrapment accidents may be, they are rare: The feds have identified only one fatal Toyota crash with this pattern other than the one in San Diego. There also is nothing unusual about sudden-acceleration claims—they’ve been lodged against Audi, Honda, Ford, Mercedes, GM, Subaru, basically every auto maker.

Toyota had recognized the mat concern as early as 2007 on a Lexus model, and now, out of caution, it also recalled millions of cars to have gas pedals altered so oversize, stacked, or otherwise errant mats would be less likely to overtake and smother them.

Nevertheless, the Justice Department on March 19 announced a one-count wire fraud indictment of the Japanese company, simultaneously settled by Toyota’s agreement to pay $1.2 billion. Why the huge sum? Supposedly, the company had made that much in extra sales by inappropriately reassuring the public, Congress and regulators that it was adequately handling the (almost …read more

Source: OP-EDS

Avatar of admin

by admin

The Euro Is Not Overvalued (Nor Is Any Other Currency)

March 23, 2014 in Economics

By Mises Updates

Change your money

Frank Hollenbeck writes in today’s Mises Daily: 

The Economist magazine publishes twice yearly the Big Mac Index (video) which measures the “over- or undervaluation of a currency. Of course, the price of a hamburger has more to do with the cost of labor and rent than with the cost of the bun, meat, or pickles in a Big Mac. It is also a non-traded good, so we should not expect arbitrage to force uniformity in prices across countries or regions. The Economist is trying to sell magazines, so it is justified in being less than precise. However, professional economists should not be using this index, or any index, to identify a currency as undervalued or overvalued. In reality, such statements are total nonsense.

The value of a currency, as reflected in the exchange rate, is determined by supply and demand. The price of rice is not overvalued nor is the price of apples undervalued. Such a statement would be considered idiotic for rice or apples, but is considered justified for exchange rates. Equilibrium exists where the quantity demanded is equal to the quantity supplied. No one is overpaying or underpaying. To suggest that someone is indeed “overpaying” implies the buyer is irrational.

…read more

Source: MISES INSTITUTE