Category Archives: Economy and Meltdown

Breaking Bad (Habits)

Authored by Stephen Roach, originally posted at Project Syndicate,

It was never going to be easy, but central banks in the world’s two largest economies – the United States and China – finally appear to be embarking on a path to policy normalization. Addicted to an open-ended strain of über monetary accommodation that was established in the depths of the Great Crisis of 2008-2009, financial markets are now gasping for breath. Ironically, because the traction of unconventional policies has always been limited, the fallout on real economies is likely to be muted.

The Federal Reserve and the People’s Bank of China are on the same path, but for very different reasons. For Fed Chairman Ben Bernanke and his colleagues, there seems to be a growing sense that the economic emergency has passed, implying that extraordinary action – namely, a zero-interest-rate policy and a near-quadrupling of its balance sheet – is no longer appropriate. Conversely, the PBOC is engaged in a more pre-emptive strike – attempting to ensure stability by reducing the excess leverage that has long underpinned the real side of an increasingly credit-dependent Chinese economy.

Both actions are correct and long overdue. While the Fed’s first round of quantitative easing helped to end the financial-market turmoil that occurred in the depths of the recent crisis, two subsequent rounds – including the current, open-ended QE3 – have done little to alleviate the lingering pressure on over-extended American consumers. Indeed, household-sector debt is still in excess of 110% of disposable personal income and the personal saving rate remains below 3%, averages that compare unfavorably with the 75% and 7.9% norms that prevailed, respectively, in the final three decades of the twentieth century.

With American consumers responding by hunkering down as never before, inflation-adjusted consumer demand has remained stuck on an anemic 0.9% annualized growth trajectory since early 2008, keeping the US economy mired in a decidedly subpar recovery. Unable to facilitate balance-sheet repair or stimulate real economic activity, QE has, instead, become a dangerous source of instability in global financial markets.

With the drip-feed of QE-induced liquidity now at risk, the recent spasms in financial markets leave little doubt about the growing dangers of speculative excesses that had been building. Fortunately, the Fed is finally facing up to the downside of its grandiose experiment.

Recent developments in China tell a different story – but one with equally powerful implications. There, credit tightening does not follow from determined action by an independent central bank; rather, it reflects an important shift in the basic thrust of the state’s economic policies. China’s new leadership, headed by President Xi Jinping and Premier Li Keqiang, seems determined to end its predecessors’ fixation on maintaining a rapid pace of economic growth and to refocus policy on the quality of growth.

This shift not only elevates the importance of the pro-consumption agenda of China’s 12th Five-Year Plan; it also calls into question the longstanding proactive tactics of the country’s fiscal and monetary authorities. The policy response – or, more accurately, the policy non-response – to the current slowdown is an important validation of this new approach.

The absence of a new round of fiscal stimulus indicates that the Chinese government is satisfied with a 7.5-8% GDP growth rate – a far cry from the earlier addiction to growth rates around 10%. But slower growth in China can continue to sustain development only if the economy’s structure shifts from external toward internal demand, from manufacturing toward services, and from resource-intensive to resource-light growth. China’s new leadership has not just lowered its growth target; it has upped the ante on the economy’s rebalancing imperatives.

Consistent with this new mindset, the PBOC’s unwillingness to put a quick end to the June liquidity crunch in short-term markets for bank financing sends a strong signal that the days of open-ended credit expansion are over. That is a welcome development. China’s private-sector debt rose from around 140% of GDP in 2009 to more than 200% in early 2013, according to estimates from Bernstein Research – a surge that may well have exacerbated the imbalances of an already unbalanced Chinese economy.

There is good reason to believe that China’s new leaders are now determined to wean the economy off ever-mounting (and destabilizing) debt – especially in its rapidly expanding “shadow banking” system. This stance appears to be closely aligned with Xi’s rather cryptic recent comments about a “mass line” education campaign aimed at addressing problems arising from the “four winds” of formalism, bureaucracy, hedonism, and extravagance.

Financial markets are having a hard time coming to grips with the new policy mindset in the world’s two largest economies. At the same time, investors have raised serious and legitimate questions about Japan’s economic-policy regime under Prime Minister Shinzo Abe, which unfortunately relies far more on financial engineering – quantitative easing and yen depreciation – than on a new structural-reform agenda.

Such doubts are understandable. After all, if four years of unconventional monetary easing by the Fed could not end America’s balance-sheet recession, why should anyone believe that the Bank of Japan’s aggressive asset purchases will quickly end that country’s two lost decades of stagnation and deflation?

As financial markets come to terms with the normalization of monetary policy in the US and China, while facing up to the shortcomings of the BOJ’s copycat efforts, the real side of the global economy is less at risk than are asset prices. In large part, that is because unconventional monetary policies were never the miracle drug that they were supposed to be. They added froth to financial markets but did next to nothing to foster vigorous recovery and redress deep-rooted problems in the real economy.

Breaking bad habits is hardly a painless experience for liquidity-addicted investors. But better now than later, when excesses in asset and credit markets would spawn new and dangerous distortions on the real side of the global economy. That is exactly what pushed the world to the brink in 2008-2009, and there is no reason why it could not happen again.


How Many Calories Does A Dollar Buy?

Whether you like it or not, America, the number of calories packed into fast-food eats are getting harder to ignore. McDonald’s, Subway and Panera Bread – and as of this week, Starbucks – have already begun voluntarily posting calorie counts on their menus, ahead of an anticipated federal mandate requiring all restaurants with more than 20 locations to do so. In the interest of openness and transparency, and as Marketwatch notes, assuming for a moment that you’re less worried about your waistline than about getting the most calories for the least amount of money, here are the highest-calorie menu items at 10 of the nation’s top fast-food restaurants offers the most bang for your buck.

Via MarketWatch,

#10 Panera Bread

* Steak and white cheddar on a French baguette, 980 calories

* $1 buys 112 calories

Panera has a lot of light, healthy-sounding items on its menus but the full steak and white cheddar on a French baguette isn’t among them, tallying 980 calories and 103 grams of carbs. That accounts for nearly half the USDA’s recommended daily intake of carbs. At $8.79, you’re getting a little more than one calorie per penny.

#9 Dunkin’ Donuts

* Frozen mocha coffee coolatta with cream, 730 calories

* $1 buys 166 calories

Dunkin’ Donuts’  frozen mocha coffee coolatta with cream is 730 calories with 142 grams of sugar (the equivalent of 35.5 teaspoons of sugar). It will cost you $4.39, or one cent for every 1.66 calories. Want a little something to eat with your beverage? A chocolate coconut cake donut, perhaps? That’ll be an additional 550 calories.

#8 KFC

* Chicken Pot Pie, 790 calories

* $1 buys 197 calories

At KFC, this pot pie packs more calories than the 490 in the chain’s extra-crispy chicken breast. Aside from the poultry, the pie contains “diced potatoes, green peas and carrots in a savory home-style sauce.” It’s also “covered with a flaky, buttery crust and freshly baked.” It’s recently sold for a promotional price of $3.99.

#7 Wendy’s

* Dave’s Hot ‘N Juicy 3/4 lb. triple patty with cheese, 1,120 calories

* $1 buys 184 calories

Wendy’s wins the fattest burger award with the Dave’s Hot ‘N Juicy 3/4 lb. triple patty with cheese, racking up a gut-busting 1,120 calories. At $6.09, that works out to 1.84 calories per cent. Some 620 are calories from fat, which is a jaw-dropping six times the recommended daily intake of calories from fat. You get 69 grams of protein too, well above the recommended dietary allowance of 56 grams of protein for men 19 years old and above, according to the Centers for Disease Control and Prevention.

#6 Subway

* Mega melt on flatbread with egg, 670 calories

* $1 buys 206 calories

To be sure, most of its six-inch sub sandwiches with meat range in calories from 290 to 320. But Subway, which has long marketed itself as a healthy alternative to fast-food burgers and fries, also has its heavy hitters: the 6-inch mega melt on flatbread with an egg has 670 calories. At $3.25 a piece, that works out to 2.06 calories for every penny you spend.

#5 Taco Bell

* Volcanic nachos, 970 calories

* $1 buys 243 calories

Taco Bell’s volcanic nachos are a mountain of calories at 970 with 92 grams of carbs for $3.99, or 2.43 calories per penny. The lowest calorie dish on the menu is a side of black beans at 80, less than the 90-calorie cilantro dressing.

#4 White Castle

* 20 chicken rings, 1,760 calories

* $1 buys 252 calories

A sack of White Castle’s hash brown nibblers, where available, pack 1,440 calories, while a hand-to-mouth session with 20 chicken rings settles in at 1,760 calories. The hash brown nibblers sack costs $2.99, which equals 4.82 calories per penny, which is a far better calorie deal than the chicken rings: $6.99, or 2.52 calories per cent.

#3 McDonald’s

* Big breakfast with syrup and margarine, 1,350 calories

* $1 buys 286 calories

It might surprise you that the highest-calorie item on McDonald’s regular menu isn’t a burger or even a meal deal but the big breakfast of scrambled eggs, sausage patty with hot cakes, hash browns and a large biscuit, weighing in at a hefty 1,090 calories. That is half of the recommended caloric intake for women ages 19 to 30. The hot cake syrup is an extra 180 calories and two pats of whipped margarine will cost you 80 calories. At about $4.72, it comes out to 2.86 calories per penny, including the syrup and margarine.

#2 Burger King

* Ultimate breakfast platter, 1,450 calories

* $1 buys 338 calories

Burger King’s BKW -1.41% ultimate breakfast platter lives up to its name with 1,450 calories (750 from fat), 134 grams of carbs, and 41 grams of sugar. It also has eggs, a sausage patty, a biscuit and hash browns. At $4.29, that works out to 3.38 calories per cent.


#1 Pizza Hut

* 14-inch large meat lover’s pan pizza, 470 calories

* $1 buys 376 calories

High-calorie meals reign at Pizza Hut but we’ll stick with its namesake entrée: One slice of a 14-inch large Meat Lover’s pan pizza has 470 calories. But who eats just one slice? Eat just two of the eight slices and you’ll hit 940 calories. (The entire pie is 3,760 calories.) At $10, it is easy math of 3.76 calories for each cent.


Obama Goes To South Africa, Protests Ensue

If Obama was hoping for a warm reception upon his arrival in the second leg of his 3 nation African tour, in Johannesburg, to celebrate the life of South Africa’s critically ill, 94 year old leader Nelson Mandela, he got quite a surprise when local police had to lob stun grenades at local protestors who had gathered at the world’s once most famous apartheid ghetto, Soweto, where they chanted against US foreign policy, American drone strikes, US policy in Guantanamo and Iran and much more. They were hardly racist.

Video courtesy of RT:

And from Reuters:

U.S. President Barack Obama met the family of South Africa’s ailing anti-apartheid hero Nelson Mandela on Saturday, offering words of comfort and praising the critically ill retired statesman as one of history’s greatest figures.


The faltering health of Mandela, 94, a figure admired globally as a symbol of struggle against injustice and racism, is dominating Obama’s two-day visit to South Africa.


But Obama also faced protests by South Africans against U.S. foreign policy, especially American drone strikes.


Police fired stun grenades to disperse several hundred protesters who had gathered outside the Soweto campus of the University of Johannesburg, where Obama addressed an afternoon town hall meeting with students.


The brief confrontation some distance away did not disrupt the event in the heavily protected campus, where Obama gave a speech praising what he called a new “more prosperous, more confident” Africa. He also took questions from students.




Obama met Mandela’s relatives to deliver a message of support instead of directly visiting the frail former president at the hospital where he has spent the last three weeks.


The half-hour meeting took place at the Nelson Mandela Centre of Memory in Johannesburg.


Obama said afterwards in a statement he had also spoken by telephone with Mandela’s wife Graca Machel, who remained by her husband’s side in the hospital in Pretoria.


“I expressed my hope that Madiba draws peace and comfort from the time that he is spending with loved ones, and also expressed my heartfelt support for the entire family as they work through this difficult time,” he said, using the clan name Madiba by which Mandela is affectionately known.


Machel said she had conveyed this message to her husband and thanked the Obamas for their “touch of personal warmth”.


Obama’s visit to South Africa had stirred intense speculation that the first African-American president of the United States would look in on the first black president of South Africa in his hospital room. But Mandela’s deterioration in the last week to a critical condition forced the White House to decide against such a visit.

Of course, not everyone was unhappy to see Obama:

“Obama, like Nelson Mandela, is the first black president in his country … His success in the U.S. shows that we as Africans can also make it,” said Nanzwakazi Zuma, a lecturer in electrical engineering who attended the Soweto event.

Yup. Those ‘Hope’ shirts still sell somewhere…


Guest Post: Has Brad DeLong Admitted To Being Unfair and Imbalanced?

Submitted by F.F.Wiley via Cyniconomics blog,

In May, I learned about this thing called the Wayback Machine from the Reinhart-Rogoff-Krugman tiff. (I know, I can be pretty clueless about Internet stuff.)

Basically, Carmen Reinhart and Kenneth Rogoff used it to show that Paul Krugman was being Paul Krugman – making claims that don’t stand up to the facts.  I wrote about it at the time, in “It’s Time to Change Focus from Reinhart-Rogoff Witch Hunts to Krugman’s Contradictions.”

Also in May, I wrote about economist Brad DeLong’s contradictions.

He had written a piece of pure fantasy that he called “Bernanke the Washington Super-Whale, Hedge Fundies and the Widowmaker.” In response, I posted “Fed Policy Risks, Hedge Funds and Brad DeLong’s Whale of a Tale.” Here are the last few paragraphs:

Now sure, I can understand why he wrote it the way that he did. Is there a better way to fire up your acolytes than by wrapping a clever little rant around a popular villain? According to DeLong’s crowd, hedge funds are about as villainous as they come. And this crowd was beside itself with glee as they spread the word about the whale of a tale. Check out the tweets noted above and you’ll see that the comments following them were full of giddy, backslapping fun and many happy contributions from DeLong himself.


But to me, the shoddy quality of DeLong’s work buries his wit. It’s nice to have camaraderie, but we all know that people are capable of some pretty ugly camaraderie.


In my opinion, DeLong and his joyful followers are once again behaving like a pack of fools. And he once again made a mockery of the header for his website. Beneath the simple title, “Brad DeLong,” his tagline reads “Grasping Reality with Both Invisible Hands: Fair, Balanced, and Reality-based.”


As I said, DeLong may have been grasping for some Twitter love with his whale of a tale, but he certainly wasn’t delivering reality, fairness or balance.

Getting back to the Wayback Machine, I fired it up this morning just to make sure I hadn’t lost my mind. You see, I could no longer find the tagline I referenced in the excerpt above.

I was relieved to find that I didn’t imagine it.

Here’s the Wayback snapshot of DeLong’s blog on May 12, coincidently with the article that I critiqued as the first post (he used a different title on his blog than on the Seeking Alpha post that I worked off):

delong tagline 1


And here’s the new DeLong blog:

delong tagline 2



Is there any chance the tagline was changed in response to my critique? Does Brad DeLong read CYNICONOMICS? Reading between the taglines (sorry, couldn’t pass that up), is there a subtle message in the decision to drop the old branding?