De la bouche du gourou

Nathalie Elgrably-Levy
26 mars 2009

Cela fait déjà quelques semaines que j’ai envie de vous parler de l’Australie, mais ce n’est ni pour ses marsupiaux ni pour son célèbre Opéra. C’est plutôt parce que nous aurions intérêt à tirer quelques enseignements économiques de son histoire.

À l’instar de nombreux pays, l’Australie n’a pas échappé à la Grande Dépression. Mais le défi que cette île du bout du monde devait relever était d’autant plus considérable qu’elle était relativement désavantagée: elle était peu peuplée; son économie, relativement petite, reposait sur l’agriculture et les exportations minières; sa base industrielle était limitée; les investissements manquaient et, pour couronner le tout, les grèves étaient très fréquentes.

Mais, contre vents et marées, l’Australie réussit à se sortir de la Dépression plus rapidement que les États-Unis. Ainsi, en 1932, les taux de chômage aux États-unis et en Australie étaient respectivement de 23,6% et de 23%. En 1938, il atteignait encore 19% chez l’Oncle Sam, mais avait diminué à 8,9% au pays des kangourous.

L’Australie avait-elle accompli cet exploit grâce à un plan de relance encore plus ambitieux que le New Deal? Avait-elle généreusement aidé les entreprises en difficulté? Sa Banque Centrale avait-elle injecté d’importantes quantités de monnaie? Non! Rien de tout cela. Exception faite de dépenses minimes en infrastructures, l’Australie n’avait aucun plan de relance d’inspiration keynésienne, aucun plan de sauvetage, aucun budget de crise.

En revanche, le gouvernement de Canberra adopta le «Premiers’ Plan» dès 1931, par lequel il s’engageait à réduire les dépenses gouvernementales de 20%, y compris les dépenses militaires, à maintenir l’équilibre budgétaire, et à réduire aussi bien les salaires des travailleurs du secteur public que ceux du secteur privé.

Ces mesures, aux antipodes de l’interventionnisme que J. M. Keynes prônait alors, n’étaient pas le produit des délirantes élucubrations du premier ministre australien, James Scullin. Elles n’étaient que la concrétisation des bonnes vieilles théories économiques classiques selon lesquelles, comme l’exige le gros bon sens, un pays doit réduire sa consommation, épargner, investir et être plus productif s’il veut prospérer.

Presque huit décennies plus tard, l’héritage de Keynes domine encore l’économie politique. Faisant fi des enseignements de l’histoire, politiciens et commentateurs restent convaincus de la nécessité de dépenser massivement et de générer un déficit pour stimuler l’économie.

Exception faite du Nouveau-Brunswick qui a récemment annoncé d’importantes compressions de la fonction publique et un allégement du fardeau fiscal des contribuables et des entreprises, le reste du monde semble vouloir imiter, à divers degrés, les initiatives keynésiennes de Washington.

Au Québec, la ministre des Finances, madame Monique Jérôme-Forget, a fait également référence à J.M. Keynes pour justifier son dernier budget. Manifestement, le célèbre économiste britannique est devenu le gourou de la plupart des décideurs publics dont le comportement moutonnier n’a d’égal que leur manque de culture économique.

Pourtant, s’ils se donnaient la peine de se renseigner convenablement, ils apprendraient que les déficits, même s’ils sont suivis d’un retour à l’équilibre budgétaire, ne sont pas une panacée. Bien au contraire! Ils réaliseraient également que la pensée keynésienne qu’ils vénèrent tant a été totalement discréditée entre autres par Friedrich Hayek, récipiendaire du prix Nobel d’économie de 1974.

Mais surtout, ils découvriraient que, dans un article posthume, publié en 1946 dans le Economic Journal, Keynes lui-même admet avoir eu tort de dédaigner la pensée de l’école classique qu’il juge finalement empreinte d’une grande vérité. Ces politiciens qui veulent paraitre instruits en invoquant la pensée de Keynes auraient vraiment intérêt à lire ses écrits plutôt qu’à répéter ce que certains leur soufflent!

Nathalie Elgrably-Lévy est économiste senior à l'Institut économique de Montréal.

* Cette chronique a aussi été publiée dans Le Journal de Québec.

D'Asie, un message libéral

Guy Sorman
24 mars 2009


En ces temps de crise de la pensée autant que de l’économie, qui veut entendre un éloge raisonnable de l’économie de marché et du libre échange devra s’éloigner de l’Europe et partir vers l’Orient. À l’Ouest et à l’Est, les analyses et les comportements se trouvent radicalement contraires. En Europe, l’incertitude politique répond à la récrimination sociale : persuadés d’agir pour le bien commun, les gouvernements de toute appartenance creusent des déficits publics qu’à terme, il faudra bien financer par l’impôt ou par l’inflation. Le bénéfice de ces relances ? Peu démontrable, elles restent, pour l’instant, sans effet concret. Ne serait-ce pas, se demande-t-on en Europe, du capitalisme même dont il conviendrait de se défaire ? Le retour de l’Etat est très à la mode, mais en quoi rétablirait-il la prospérité ? On ne nous le dit pas. Il se crée même – en France il est vrai - des partis Anticapitalistes : ils sont contre mais se gardent de proposer des alternatives. Quant aux grèves rituelles, celles des fonctionnaires en France ou en Italie, on ne voit pas non plus par quel mécanisme, elles adouciraient le sort des chômeurs ?

Passons à l’Est. Au Japon, en Corée, à Taiwan, il m’a été impossible de lire ou d’entendre le moindre débat idéologique sur le capitalisme ou le libre échange. En Asie - à l’exception de la Chine où le socialisme fut importé depuis l’Occident- il n’a jamais existé de tradition autre que celle du marché : en temps de crise ou pas, le capitalisme est vécu en Orient comme étant la forme naturelle de l’économie. « Il nous est arrivé de nationaliser des banques », reconnaît Il Sakong, le chef de la stratégie économique du gouvernement coréen, mais « il est clair chez nous que ces sauvetages sont provisoires ». Il n’appartient pas à l’Etat, dit Il Sakong, de se substituer aux entrepreneurs.

En Corée, l’Etat ne répond-il pas, lui aussi, à la crise par des dépenses publiques ? « La baisse des taux d’intérêt ne suffit plus à stimuler la demande », reconnaît Il Sakong. On distribue donc des fonds directement à la population : mais c’est seulement pour aider les chômeurs et les plus pauvres dans une société où n’a jamais existé d’Etat providence. Ces aides sont destinées à rester ponctuelles et brèves : « Nous ne voulons pas du modèle européen qui démotive l’esprit d’entreprise et installe de la dépendance permanente », conclut Il Sakong. Autre trait, ancré dans la civilisation des lieux : les ouvriers de Hyundai partagent volontairement salaires et temps de travail de manière à ce que nul ne soit licencié.

Au Japon, dont on tend à oublier qu’il reste la deuxième puissance mondiale, la prudence est comparable : Heizo Takenaka, l’économiste le plus réputé du pays, inspirateur de la libéralisation des services publics, quand il fut ministre des Finances au début des années 2000, soutient lui aussi des aides sociales si elles restent ponctuelles ; et il nous met en garde contre la « stimulation ». Ne tombez pas, dit Takenaka, dans « l’erreur japonaise » des années 1990 : au cours de cette « Décade perdue », les gouvernements japonais s’étaient acharnés à relancer l’activité par la dépense publique : il en a résulté dix années de stagnation. La demande publique s’était substituée à l’investissement privé et à l’esprit d’entreprise. La stimulation, dit Heizo Takenaka, n’est acceptable que pour passer un cap difficile ; mais « au-delà de deux ans, il faut arrêter », pour ne pas courir le risque de détruire l’innovation.

Dans cette Asie, qui doit sa fortune à l’exportation, remettrait-on en cause un modèle économique fondé sur le libre échange ? « Ceux qui sont restés à l’écart du libre échange, comme la Corée du Nord ou la Chine de Mao Zedong, » rappelle Ma Ying Jeou, Président de Taiwan, « n’ont connu que la misère ». C’est par plus de libre échange, ajoute Ma, que l’Asie rebondira. À Taipei, Tokyo ou Séoul, on prépare déjà ce rebond : les entreprises qui ne survivent pas à la crise sont « restructurées » avec l’aide de l’Etat, les chômeurs sont assistés provisoirement mais la priorité publique va à l’innovation. Ainsi, au Japon et en Corée, les universités se voient-elles accorder plus d’autonomie, de manière à se rapprocher du modèle américain. « Il nous faut de meilleures universités, pour devenir plus novateurs et plus créatifs sur le marché mondial », commente Ahn Byong-man, le ministre coréen de l’Education, de la Science et de la Technologie. Dans cette même logique, le marché du travail coréen deviendra plus flexible pour faciliter la « destruction créatrice » et attirer les investisseurs étrangers.

La crise incite les dragons d’Asie vers plus de libéralisme. Sans panique, mais avec une seule crainte : le protectionnisme des Etats-Unis ou de l’Europe ou d’interminables stimulations publiques à la Obama qui prolongeraient la récession. Au sommet du G20 à Londres, le 2 avril, espère le Président coréen Lee Myung Bak, l’annonce (en principe acquise) d’un accord de libre échange entre l’Union européenne et la Corée du Sud devrait réveiller l’Occident et bousculer les Etats-Unis : de cette crise, nous dit-on en Asie, on sortira par l’échange, pas par l’étatisme ni le protectionnisme.

Where's The 'Change'?

Lorne Gunter
Monday, March 23, 2009

So much for "change." Will Barack Obama's pledge of "hope" be the next to go? If this week's scandal in the United States over $165-million in retention bonuses paid to executives of the failed American International Group (AIG) insurance company proves anything, it's that politics as usual -- rather than the politics of change--dominates in Washington.

President Obama's promise to bring a new, bipartisan and meritocratic philosophy to government was an illusion. His vow to take money out of policy calculations and replace it with fact and reason was a farce.

Just who was the U. S. Senate's second-largest recipient of donations from AIG in the 2008 election cycle? Why, then-senator Barack Obama of Illinois, with over $100,000 received. And who was number one? Democratic Senator Chris Dodd ($103,000), who, as chairman of the Senate's banking committee, was responsible for inserting an amendment into President Obama's stimulus bill last month exempting all bonuses "executed on or before Feb. 11, 2009."
(John McCain was third on the AIG donations list at $59,000. So it's clear the company was trying to cover itself, no matter who won last fall's presidential race.)

Essentially, the AIG bonuses that have provoked such outrage among ordinary Americans were legal because the White House's own stimulus bill made them so. Only the handful of bonus packages negotiated between companies and their executives in the five weeks since the stimulus bill passed would have been forbidden. And how many of those could there possibly be?
I'm not trying to say none of this is the Republicans' fault, or that all of it can be pinned on the Democrats. My point is simple: No new clean-sweeping broom followed Mr. Obama into office. The same old feather duster that merely redistributes the particles every four or eight years is still in use.

Interestingly, though, the White House has tried to hang Senator Dodd out to dry over the AIG bonuses, and, specifically, the Feb. 11 exemption. But Dodd's original amendment would have given the U. S. Treasury Secretary discretionary authority to roll-back bonuses negotiated -- and even those paid -- since last fall.

According to The Wall Street Journal, the Feb. 11 limit was inserted into the final version under pressure from the Obama administration, which was eager to get bankers to accept money from the President's stimulus package. The White House was afraid bankers would turn down bailouts if they contained too many restrictions on executive compensation, so it pressured members of Congress to insert the bonus-exemption clause.

Also, according to the political donations monitoring site opensecrets.org, many of the biggest recipients of stimulus and bailout cash so far have been among the top-20 donors to Mr. Obama's presidential campaign: Goldman Sachs, Citigroup, J. P. Morgan, Morgan Stanley and others.

Now consider that Mr. Obama won last fall with a lot of help from unions, who mobilized their members to come out and vote for him. In return, President Obama is backing the cynically named Employee Free Choice Act, which permits unions to win certification on job sites without a secret ballot vote by workers. If union organizers can get enough workers to sign certification cards -- something that can easily be achieved through intimidation--no vote need be taken.

And the President has enlisted the voter registration group ACORN to help with the next U. S. census, the results of which determine not only federal funding to cities and counties by population, but also how many congressional districts each state will have and where. This is an interesting choice, considering ACORN was previously mired in controversy for adding people's names to voters' rolls without their knowledge and for allegedly added deceased and imaginary voters.

It is little wonder, then, that many recent opinion polls show Mr. Obama losing the support not just of Republicans, but of independent voters, too. While still over 50%, his approval ratings are flirting with those of George W. Bush at the same early stages of his presidency.

The more thing change ...

lgunter@shaw.ca

George Washington Patrols the Pacific : Anchored by its nuclear-powered carrier, the Seventh Fleet protects global trade.

Winter 2009 vol. 19, no. 1

Guy Sorman
23 mars 2009

On a gorgeous morning this autumn, at Yokosuka, south of Tokyo, I was expecting a huge popular demonstration, maybe even a riot. The U.S. aircraft carrier George Washington was about to enter Yokosuka's harbor, the base of the Seventh Fleet in the Pacific. Never before had a nuclear-powered vessel been based in Japan. It was a clear demonstration of how the U.S. was reinforcing its presence in this part of the world - a danger zone, with China, Korea, Taiwan, and Japan itself, all historical rivals, ranged around it. Japan has a long tradition of pacifist, antinuclear, and anti-American protests, and until now, the only country to have been bombed with nuclear weapons had always opposed hosting nuclear ships.

Yet no riot erupted; in fact, there was no trace of protest. Yokosuka was quiet. The only crowd on hand was on the base: 1,000 Japanese - mostly local dignitaries, politicians, and representatives of the Japanese Navy - joined a group of American officials to attend the majestic and complex maneuver of the George Washington from the high seas to the pier.

Speeches were numerous. The American speakersambassador to Japan J. Thomas Schieffer, Secretary of the Navy Donald Winter, and a number of admiralspredictably lavished praise on U.S.-Japanese friendship and expressed their commitment to peace in the Pacific. The surprise came from the Japanese side. Yokosukas mayor, Ryoichi Kabaya, said that while the Japanese had felt some initial reluctance about hosting a nuclear-powered ship in the port city, they had eventually concluded that the George Washington posed no safety threat. Japan's newly appointed foreign affairs minister, Hirofumi Nakasone, was even more enthusiastic. He declared that no better friends existed on earth than Japan and America and that their alliance was the cornerstone of peace and prosperity in Asia. I wondered if the good feelings hadn’t received a boost from the recent rekindling of the North Korean nuclear program.

The George Washington eventually reached the pier. Following a Navy tradition, the first men to come ashore were fathers whose children were born in Japan while they were away at sea. Several family reunions ensued, demonstrative enough to embarrass the reserved Japanese.

“The purpose of the Navy,” Vice Admiral John Bird, commander of the Seventh Fleet, tells me, “is not to fight.” The mere presence of the Navy should suffice, he argues, to dissuade any attack or attempt to destabilize the region. From Yokosuka, Guam, and Honolulu, the Navy is sending its ships on missions to locales as far away as Madagascar. On board the Blue Ridge, the vice admiral’s command ship anchored at Yokosuka, huge display screens allow officers to track the movements of any country’s military vessels cruising from the international date line in the east to the African coast in the west—the range of the Seventh Fleet’s zone of influence.

How dangerous and unstable would Asia become without the Seventh Fleet? The Navy points to two different threats. The first is China, which has territorial claims against most of its neighbors. Taiwan comes immediately to mind, of course, but the Chinese government is also disputing ownership of the oil-rich Spratly Islands with Vietnam and the Philippines. If North Korea were to collapse, moreover, the Chinese Army could take over its territory before South Korea or the U.S. had time to intervene. China is building a very large deepwater fleet—the first in its history. (South Korea and Japan are similarly increasing their naval power.) Thus far, this Chinese fleet seldom moves far from China’s territorial waters, something that surprises the Seventh Fleet leadership. The lack of a high-seas tradition, perhaps?

The other peril comes from Islamic terrorism: a loose network of al-Qaida affiliates operating in East Java, northern Sumatra, the southern Philippines, and southern Thailand. The dream of an Islamic caliphate based in northern Sumatra, a revival of a former Arab kingdom, foments instability in Indonesia and the Philippines, both already shaky. U.S. Special Forces are active in the region, especially in Mindanao.

We have to project simultaneously our hard power and our soft power,” Bird says. The Seventh Fleet’s missions are often humanitarian, taking care of local medical or infrastructure problems. The largest recent effort of this kind took place in the aftermath of the 2005 tsunami that devastated Indonesian and Thai coastal areas. “The image of the U.S. in Indonesia has been transformed by our intervention there,” Bird observes. “Suddenly, Indonesians, who had never met real Americans before, saw the U.S. as a compassionate and helpful nation.”

Friendship is also growing with India. After some 50 years of “neutrality,” including a long pro-Soviet period, India has become a strong American ally, thanks to the active diplomacy of Bill Clinton and George W. Bush. “We were surprised to discover our common background,” notes Bird. The American and Indian navies share a British maritime culture, which made joint operations smooth. India now seems as committed as Japan to an alliance with the U.S.—and as uneasy about China; India also finds itself more destabilized daily by domestic Islamic radicals.

For a stark example of what the region would be like without the American presence, look at the piracy occurring these days along the Somali coast, an area that America does not patrol. Pirates hijack and ransom tankers, interrupting the flow of oil, increasing insurance premiums, and ultimately raising the price of gas. In the Pacific, however, pirates act cautiously or not at all because they know that the Seventh Fleet is never far off.

In the long run, says Bird, regional conflict in the Pacific could even disappear, thanks to expanded global trade. But the presence of the Seventh Fleet is exactly what makes global trade possible here—and no other country has the power and the inclination to do it. The ultimate role of the U.S. Navy, the vice admiral concludes, is to keep the channels of commerce and communication open and safe, just as the British Navy did in the nineteenth century. “I am a disciple of Adam Smith,” he says wryly. “Peace can be reached by free trade, but free trade requires that the sea be policed by a strong navy.”

Guy Sorman, a City Journal contributing editor, is the author of numerous books, including the forthcoming Economics Does Not Lie.

Roi ou pantin?

Nathalie Elgrably-Levy
Le Journal de Montréal, p.29
19 mars 2009

C’est aujourd’hui que la ministre des Finances, madame Monique Jérome-Forget, dépose son budget, et on peut raisonnablement s’attendre à ce qu’elle propose des mesures pour encourager la consommation. Le Mouvement Desjardins a d’ailleurs récemment publié une étude fortement médiatisée dans laquelle les auteurs insistent pour qu’elle emprunte cette voie. Et puis, comment pourrait-elle faire autrement alors qu’on nous martèle que la frugalité des consommateurs fait régresser l’économie? Pourquoi n’incriminerait-elle pas les acheteurs puisque les économistes de nos institutions financières les accusent avec véhémence?

Le discours actuellement véhiculé est sans équivoque: dépenser prudemment est un geste antipatriotique; épargner nous rend coupables de terrorisme économique. Si seulement nous, consommateurs individualistes et narcissiques, pouvions délier les cordons de notre bourse, tout irait mieux. C’est du moins ce qu’on tente de nous faire croire. Et, si on suit cette logique, les acheteurs compulsifs et les accros du shopping seraient des mécènes, de grandes âmes dont le comportement permet aux entreprises d’être rentables et aux travailleurs, de conserver leurs emplois.

Dans l’ordre du monde qu’on nous présente, les consommateurs sont au service des entreprises. Ils n’existent que pour permettre aux vendeurs d’écouler leurs marchandises. Et quand ils ne se conforment pas aux attentes, quand leurs goûts, leurs habitudes ou leurs priorités changent, on les blâme de saboter le système. Quand ils épargnent, on leur reproche de provoquer une crise économique.
Cette interprétation du système économique est tordue. On achète des biens pour combler nos besoins, non pour satisfaire les entreprises. Ce sont elles qui doivent répondre aux attentes des acheteurs, et non l’inverse. Si elles produisent des biens qui ne trouvent pas preneurs, c’est leur problème, non celui des consommateurs. Il n’y a pas si longtemps, une entreprise qui rencontrait des difficultés devait revoir son modèle d’affaire. Aujourd’hui, l’État imagine des moyens pour nous forcer à acheter ses produits. Jadis, le consommateur était roi. À présent, c’est un pantin à la disposition des producteurs. Nous étions libres de consommer ou d’économiser, mais cette époque est révolue. Après la société de consommation, voici maintenant l’ère de la consommation par coercition!

Certes, cette coercition est bien intentionnée, mais elle reste irrationnelle. On le sait, l’État doit financer ses programmes destinés à stimuler la consommation. Il doit donc taxer. Ainsi, il commence par réduire le pouvoir d’achat des individus pour ensuite l’augmenter. Il déprime la consommation pour après la stimuler. Or, si nos bons gouvernements étaient moins gourmands, s’ils résistaient à l’envie de vider nos poches, ils n’auraient pas besoin de nous «gratifier» de plans de relance.

Ce n’est pas tout. Tout le monde s’entend sur le fait que l’État réduit la rentabilité des entreprises et les décourage d’investir ou de prendre de l’expansion en raison d’une fiscalité étouffante et d’une bureaucratie débilitante. Or, quand les entreprises rencontrent des difficultés, quand elles sont incapables de compétitionner sur les marchés, on accuse les consommateurs de dépenser trop peu. N’est-il jamais venu à l’idée de nos élus que le secteur de la production se porterait mieux si on le laissait respirer un peu? N’ont-ils pas compris que le plus efficace des plans de sauvetage est celui qui délivre l’entrepreneurship de l’étau qui l’étrangle?

Malgré tout, on peut s’attendre à ce que le budget d’aujourd’hui présente des mesures de relance aussi illogiques qu’inutiles. Du bling-bling économiquement stérile, mais électoralement rentable. Pourtant, ce dont l’économie a besoin, ce n’est pas que l’État lui administre un antidote, c’est qu’il cesse de l’empoisonner!

Nathalie Elgrably-Lévy est économiste senior à l'Institut économique de Montréal.

* Cette chronique a aussi été publiée dans Le Journal de Québec.

Fed to Buy $1 Trillion in Securities to Aid Economy

By EDMUND L. ANDREWS
Published: March 18, 2009

WASHINGTON — The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

Having already reduced the key interest rate it controls nearly to zero, the central bank has increasingly turned to alternatives like buying securities as a way of getting more dollars into the economy, a tactic that amounts to creating vast new sums of money out of thin air. But the moves on Wednesday were its biggest yet, almost doubling all of the Fed’s measures in the last year.

The action makes the Fed a buyer of long-term government bonds rather than the short-term debt that it typically buys and sells to help control the money supply.

The idea was to encourage more economic activity by lowering interest rates, including those on home loans, and to help the financial system as it struggles under the crushing weight of bad loans and poor investments.

Investors responded with surprise and enthusiasm. The Dow Jones industrial average, which had been down about 50 points just before the announcement, jumped immediately and ended the day up almost 91 points at 7,486.58. Yields on long-term Treasury bonds dropped markedly, and analysts predicted that interest rates on fixed-rate mortgages would soon drop below 5 percent.

But there were also clear indications that the Fed was taking risks that could dilute the value of the dollar and set the stage for future inflation. Gold prices rose $26.60 an ounce, hitting $942, a sign of declining confidence in the dollar. The dollar, which had been losing value in recent weeks to the euro and the yen, dropped sharply again on Wednesday.

In its announcement, the central bank said that the United States remained in a severe recession and listed its continuing woes, from job losses and lost housing wealth to falling exports as a result of the worldwide economic slowdown.

“In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability,” the central bank said.

As expected, policy makers decided to keep the Fed’s benchmark interest rate on overnight loans in a range between zero and 0.25 percent.

But to the surprise of investors and analysts, the committee said it had decided to purchase an additional $750 billion worth of government-guaranteed mortgage-backed securities on top of the $500 billion that the Fed is already in the process of buying.

In addition, the Fed said it would buy up to $300 billion worth of longer-term Treasury securities over the next six months. That would tend to push down longer-term interest rates on all types of loans.

All these measures would come in addition to what has already been an unprecedented expansion of lending by the Fed. The central bank also said it would probably expand the scope of a new program to finance consumer and business lending, which gets under way this week.
In effect, the central bank has been lending money to a wider and wider array of borrowers, and it has financed that lending by using its authority to create new money at will.

Since last September, the Fed’s lending programs have roughly doubled the size of its balance sheet, to about $1.8 trillion, from $900 billion. The actions announced on Wednesday are likely to expand that to well over $3 trillion over the next year.

Despite a trickle of encouraging data in the last few weeks, Fed officials were clearly still worried and in no mood to cut back on their emergency efforts.

Fed policy makers sharply reduced their economic forecasts in January, predicting that the economy would continue to experience steep contractions for the first half of 2009, that unemployment could approach 9 percent by the end of the year and that there was at least a small risk of a drop in consumer prices like those that Japan experienced for nearly a decade.
The Fed rarely buys long-term government bonds. The last occasion was nearly 50 years ago under different economic circumstances when it tried to reduce long-term interest rates while allowing short term rates to rise.

Ben S. Bernanke, the Fed chairman, has been extremely cautious in recent weeks about predicting an end to the recession, saying that he hoped to see the start of a recovery later this year but warning that unemployment, a lagging indicator, would probably keep climbing until some time in 2010.

In contrast to several recent Fed decisions, with the presidents of some regional Fed banks dissenting, the decision at Wednesday’s meeting of the 10 members of the Federal Open Market Committee, the central bank’s policy making group, was unanimous.

Jan Hatzius, chief economist at Goldman Sachs, said the Fed had adopted a “kitchen sink” strategy of throwing everything it had to jolt the economy out of its downward spiral.
But while Mr. Hatzius applauded the decision, he cautioned that the central bank could not solve the economy’s problems by expanding cheap money.

“Even if the Fed could make interest rates negative, that wouldn’t necessarily help,” Mr. Hatzius said. “We’re in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more. You can have a zero interest rate, but if you just offer more money on top of the money that is already available, it doesn’t do that much.”

Fed officials have been wrestling for months with the fact that lenders remain unwilling to lend and borrowers are unwilling or unable to borrow. Even though the Fed has been creating money at the fastest rate in its history, much of that money has remained dormant.

The Fed’s action is an expansion of its effort to bypass the private banking system and act as a lender in its own right.

The Fed and the Treasury are starting a joint venture this week called the Consumer and Business Lending Initiative in their latest effort to thaw the still-frozen credit markets. The program will start out with $200 billion in financing for consumer loans, small-business loans and some corporate purposes.

Fed officials have said they hope to expand the program next month, possibly to include the huge market for commercial mortgages, and both the Fed and Treasury hope the program will eventually provide up to $1 trillion in total financing.

Has the Economy Hit Bottom Yet?

By VIKAS BAJAJ
Published: March 14, 2009

The economist John Kenneth Galbraith once said, “The only function of economic forecasting is to make astrology look respectable.”

Still, we have to ask: was that the bottom we just hit?

After months of punishing economic news, the gloom seemed to lift last week if only for a moment. The stock market shot up 12 percent in four days. Two of the nation’s biggest banks said they had returned to profitability. General Motors said it wouldn’t need another $2 billion in government help this month. And retail sales were better than expected.

Then again, perhaps that’s what passes for good news these days.

The market is still down by more than 50 percent since its high 17 months ago. Yes, the banks made money, but for just two months, and never mind the billions of bad assets that remain on their books. G.M. will still, in all likelihood, need billions in taxpayer help down the road and there’s no guarantee it will survive. And those retail sales numbers? They were still bad, just not as bad as analysts were expecting.

Still, there was a sense among some economists and Wall Street analysts that if the bottom was not touched, perhaps the freefall was at least slowing. No less than Lawrence Summers, President Obama’s top economic adviser, said on Friday that while the economic crisis would not end anytime soon, there were early signs that it was easing.

Which leads to a question: When we do hit the bottom — this year or years from now — how will we know?

There’s no easy answer.

Mr. Galbraith was not the first or last economist to acknowledge fallibility at predicting turning points. (Just think back to assurances by top government officials in early 2007 that the growing problems with subprime mortgages were “contained.”)

Forecasting the end of the current recession is even more difficult because it will hinge on how quickly and efficiently governments resolve the crisis in the banking system. Many investors continue to worry that the world’s biggest financial institutions are insolvent, despite assurances from Washington that those firms have plenty of capital.

How political leaders diagnose and fix the banks will be critical. Analysts say misguided and erratic government responses exacerbated Japan’s “lost decade” in the 1990s and the Depression of the 1930s. “The things that can screw it up are bad policies,” said Thomas F. Cooley, dean of the Stern School of Business at New York University.

In the end, there’s probably no way to know for sure that we’ve hit bottom until we’re on the rebound. Still, analysts say there are some key indicators that might help in spotting a bottom and recovery at a time when it can be hard to see past the despair.

STOCKS

History shows that the stock market usually hits bottom before the economy does.
In October, Warren E. Buffett, one of the world’s most successful investors, said he was buying American stocks because they usually rise “well before either sentiment or the economy.” But even he acknowledged not having “the faintest idea” what would happen in the next month or year.

Since then, stocks have dropped by another 20 percent, and with the market at levels last seen in 1997, stocks are cheap by historical standards. The price-to-earnings ratio — which investors use to gauge how much they are paying for each dollar of corporate profit — is around 13, about 20 percent lower than the average of the last 130 years.

But many investors remain on the sidelines. Money market funds have swollen to $3.8 trillion, up from $2.4 trillion two years ago. And the cash banks are holding in their vaults and at the Federal Reserve has more than doubled in the last nine months.

What has made the current recession so pernicious is the eroding pressure of deflation, the general decline in prices that has hurt both businesses and consumers. They earn less and the value of their businesses and homes has fallen, yet they still owe as much as they did before, said Russell Napier, a consultant with Credit Lyonnais and author of “Anatomy of the Bear: Lessons From Wall Street’s Four Great Bottoms.”

He said he believed stocks would not rise until deflation ended and businesses could charge higher prices to pay off debts. Early indications suggest that this may be happening and that the stock market may be near the bottom, Mr. Napier said. He pointed to three indicators that often signal that economic growth and inflation are on the way — the prices of copper, corporate bonds and inflation-protected Treasury securities. Prices for all three are higher today than they were in November.

“All the indicators suggest you should be buying and not selling,” he said. Still, Mr. Napier acknowledged that stocks, while cheap, could fall further. Measured by their 10-year price-to-earnings ratio, stocks were a lot less expensive in the early 1980s, when the ratio fell to less than seven, and in the 1930s, when it was below six.

Nouriel Roubini, the economics professor from New York University who predicted much of the current crisis, has warned that corporate earnings and stock prices could continue to fall, perhaps precipitously.

HOME PRICES

To determine whether home prices are still inflated, economist use ratios that compare the cost of buying a home to renting or to median family income. If the ratios move sharply higher, as they did in recent years, it suggests home prices might be inflated. When they are falling, as they are across the country and particularly in places like San Diego, Phoenix and Tampa, owning a home becomes more affordable.

Barry Ritholtz, a professional investor who writes the popular economics blog The Big Picture, has a simpler, more subjective, approach: Assume a young couple earning two modest incomes is looking to buy a two- or three-bedroom starter home in a middle-income neighborhood in your city. Can they qualify for a mortgage and afford to buy it?

“If the answer is no, then you are not at a bottom in housing,” said Mr. Ritholtz, who estimates that the decline in national home prices is only half-complete.

Just as prices in the bubble did not go up uniformly in all parts of the country, they will not reach bottom together, said Ronald J. Peltier, chief executive of Home Services of America, a real estate brokerage firm.

In places like Riverside, Calif., and Miami, where homes are selling for half or less than what they sold for three or four years ago, real estate may be close to the bottom. One telling sign is that first-time home buyers and investors are snapping up homes, though they are mostly buying from banks selling foreclosed properties at deep discounts. Sales of existing homes in California jumped by more than 50 percent in January from a year earlier. But the median price was down more than 40 percent, to $224,000.

At the same time, prices have come down a lot less in urban areas like Manhattan and, not surprisingly, the number of homes being sold is down by as much as 50 percent from a year ago. Prices in these urban areas will have to fall much more before many young couples can afford starter homes.

Of course, those who bought at the peak of the market will suffer the greatest pain if they are forced to sell. But Mr. Peltier and other specialists say the current dismal market will only be resolved by lower prices, easier lending and an improving economy.

CONSUMER SPENDING

Americans like to buy things, and for at least the last decade, many economists assumed they would continue to spend on cars, clothes and the latest digital toy, good times or not. Consumer spending has rarely declined in the post-World-War-II era and when it has, it bounced back quickly.

The current recession is severely testing that article of faith. Personal consumption fell by about 1 percent in the second half of last year — the first sustained decline since 1980. Economists say consumption will be slow to recover because debt-saddled Americans are saving more or paying down debt. The savings rate — the amount of money consumers did not spend — jumped to about 3 percent late last year, from practically zero, still far below its postwar average of 7 percent.

A sign that consumption has hit bottom may come when the savings rate begins to flatten. Spending should then rebound as pent-up demand gives way. Car sales, for instance, have fallen to levels last seen in 1981, when the population of the United States was about three-quarters of what it is today. Many families are deferring car purchases and making do with what they have. Eventually, however, they will have to replace their aging vehicles.

In a study of economic cycles, Edward E. Leamer, an economist at the Anderson School of Management at the University of California at Los Angeles, found that auto sales and home building tended to lead recoveries.

An increase in international trade would be another early indicator that consumer spending here and abroad has hit the floor and begun to rebound.

After growing at an average of 7 percent a year for most of this decade, global trade was little changed from March to September last year, according to the Organization for Economic Co-operation and Development. Many large economies including the United States, Japan and China have reported a sharp drop in exports and imports in recent months. There was more bad news on Friday, when the Commerce Department reported that exports from and imports to the United States fell by about 12 percent in January.

“Seeing global trade pick up would be a very positive sign,” said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard.

Tobias Levkovich, chief United States equity strategist at Citigroup, has another indicator for spotting when we have hit bottom: When we stop behaving like children in the backseat of the car asking their parents, “Are we there yet?”

Party-Line President : A Post-Partisan Dawn Quickly Turns False

By Michael Gerson Friday, March 13 2009 ; Page A17

In Mark Strand's pleasingly odd poem "The Tunnel," the author is tormented by a persistent, moaning man in front of his house. The narrator vainly orders him to leave, makes obscene gestures through the window and destroys the living room furniture "to prove I own nothing of value." Finally, the author takes refuge in his basement and digs a tunnel to escape -- only to emerge moaning outside a house, where "I have been waiting for days."

Against all my expectations, President Obama is having this effect on me.

Following Obama during the New Hampshire primary, I saw a candidate who -- though I disagreed with him on many issues -- defended idealism and rhetoric against the supremely cynical Clinton machine, who brought a religious sensibility to matters of social justice, who took care to understand and accommodate the arguments of others, who provided a temperamental contrast to culture-war politics.

After just weeks of governing, that image seems like a brittle, yellowed photograph, buried at the back of a drawer.

Obama's proposed budget shows all the vision, restraint and grace of a grasping committee chairman, using the cover of a still-unresolved banking crisis to push through a broad liberal wish list before anyone notices its costs and complications. The pledge of "responsibility" has become the massive expansion of debt, the constant allocation of blame to others and the childish cultivation of controversy with conservative media figures to favorably polarize the electorate. The pledge of "honesty" and "sacrifice" has become the deceptive guarantee of apparently limitless public benefits at the expense of a very few. The pledge of "bipartisan" cooperation has become an attempt to shove Republicans until their backs reach some wall of outrage and humiliation.

None of this is new or exceptional -- which is the point. It is exactly the way things have always been done.

Obama's stem cell decision was worse, because it is a thing that has never been done before. "Obama," explains Yuval Levin of the Ethics and Public Policy Center, "is willfully ignoring the moral complexity of the subject. He says he understands the views of his opponents, but he never addresses or answers them. He seems to have adopted the premise that the stem cell debate presents a choice between science and ignorance, when in fact the debate requires the kind of weighing of competing goods which we elect presidents to contend with."

Obama's approach is ethically simplistic -- the kind of argument that gets nods at a fashionable cocktail party instead of engaging and respecting serious disagreement.

One tragedy of these polarizing moves is that they obscure elements of Obama's agenda that deserve praise and support. It makes perfect moral and economic sense to expand child nutrition programs, ensuring that low-income children get breakfast and lunch during a time of economic stress. Also, to expand rental assistance to low-income families. To fully fund the Second Chance Act, which helps ex-prisoners reintegrate into society. To increase funding for domestic AIDS treatment, especially in African American and Latino communities. To make the child tax credit at least partially refundable. To limit farm subsidies that distort global food markets and hurt the poor. To provide additional support to strained food banks. To make the saver's credit refundable, encouraging low-income Americans to build assets. To maintain lifesaving commitments promoting global health and development.

These should be common-ground issues in our politics -- havens on the ideological battlefield and sources of genuine consensus. But these issues have been roundly ignored during the ideological death match Obama has encouraged -- a partisan struggle that has made congressional Republicans less likely to support his best initiatives. Obama's overall budget is praised by economist Robert Reich as driving "a nail in the coffin of Reaganomics." Republicans attack the budget for the same reason. And both are correct in their analysis. It is not a sign of post-partisanship when liberals swoon and conservatives seethe for exactly the same reason. It is a sign that our differences have been exploited and deepened.

Some relish this kind of politics. But the false dawn of post-partisanship is no reason for celebration. Ideological war creates an atmosphere in which the angry predominate -- and it can cause anger to rise unbidden within all of us. While in government, I saw the persistent, moaning critics outside the window. Now I have dug my tunnel and joined them. It is not where I want to be -- or where American politics might have been.

michaelgerson@cfr.org

FASB Pledges Mark-to-Market Guidance Soon

By SARAH N. LYNCH

WASHINGTON -- After facing a barrage of criticism Thursday, the chairman of the Financial Accounting Standards Board told a U.S. House panel that he will work to expedite issuing guidance to companies on the application of mark-to-market rules.

Lawmakers from both parties took turns criticizing FASB, as well as the Securities and Exchange Commission and the Office of the Comptroller of the Currency, for not moving fast enough to offer guidance amid the market turmoil. Some of the lawmakers, including the panel's chairman, threatened to intervene with legislation if progress wasn't made soon.

"If the regulators and standard setters do not act now to improve the standards, then the Congress will have no other option than to act itself," said House Financial Services Capital Markets Subcommittee Chairman Paul Kanjorski (D., Pa.).

Mark-to-market rules, which require companies to mark their assets to current value, have forced many of the banks to write down billions of dollars on their books and have made it hard for some of them to meet capital regulatory requirements. While the SEC and FASB have said they don't support suspending the rule, both have agreed guidance on the rules are warranted and FASB is currently in the process of drafting it.

On Thursday, Bank of America Corp. Chief Executive Ken Lewis said that he is optimistic that potential changes to the mark-to-market accounting rule could help companies struggling with massive write-downs.

After a speech in Boston, Mr. Lewis said, "I actually think we will get some relief," referring to the potential for changes.

Initially in his testimony before the House Financial Services, FASB Chairman Robert Herz told Rep. Gary Ackerman (D., N.Y.) that the board hoped to have a proposal out for comment by early April.

Unsatisfied with that response, Reps. Ackerman and Kanjorski said that was far too late, with Mr. Kanjorski noting that at least one of several bills pending on this issue "will become law before early April" if the board doesn't act first.

Mr. Herz then said he would have the final guidance on determining fair value in three weeks, although later in the hearing he backtracked a bit, saying he would have to consult with the other members of his board first.

FASB is an independent board that sets accounting standards for the U.S. Although the SEC has broad authority over financial reporting, the SEC's acting chief accountant, James Kroeker, reiterated Thursday that, as it usually does, the SEC is looking to FASB to offer the guidance in this area. If the SEC chooses to implement some of the recommendations it made in a recent study on mark-to-market accounting, however, Mr. Kroeker said his department stands ready to assist.

Meanwhile, the Office of the Comptroller of the Currency was also under pressure Thursday as lawmakers questioned if the bank regulator is being too harsh in enforcing regulatory capital rules.

"This is important for all regulators," said House Financial Services Chairman Barney Frank (D., Ma.). "We need to give you some discretion in how you react to these things. I am asking everyone -- the Office of the Comptroller of the Currency and others -- if anything in the existing legislation deprives you of discretion in how you react ... I insist that you tell us."

Kevin Bailey, the deputy comptroller for regulatory policy at the OCC, indicated he believes the OCC does have the flexibility it needs.

"Generally what we have tried to do is neutralize temporary fluctuations in value from regulatory capital," Mr. Bailey said. "But I think it is important to reflect permanent changes from a bank's valuation in capital."

As a potential solution to some of the problems stemming from mark-to-market accounting, both the SEC and OCC said one possibility to consider is allowing companies to list separately an asset's losses due to credit risk from losses due to liquidity risk.

Mr. Herz said that FASB and the International Accounting Standards Board are looking at that option as part of a longer-term study on the issue.

Rep. Kanjorski said he intends to hold a follow-up hearing on mark-to-market accounting in April to make sure FASB and the regulators got the message.

"I'm assuming from what we heard today, in three weeks we're not going to have to worry about anything," Rep. Kanjorski said. "We want them to get off their duff and move and get this resolved."

—Jon Kamp and Aparajita Saha-Bubna contributed to this article. Write to Sarah N. Lynch at sarah.lynch@dowjones.com

La recette du succès

Nathalie Elgrably-Lévy
Le Journal de Montréal, p. 29
12 mars 2009


De plans de relance en plans de sauvetage, les gouvernements proposent des politiques concoctées par une poignée d’individus convaincus d’être capables de tirer les ficelles de l’économie. Ils dépensent des milliers de milliards de dollars dont ils ne disposent pas, ils s’endettent, impriment de l’argent, taxent, subventionnent, réglementent et contrôlent dans l’espoir de stimuler l’économie.

Toutefois, penser qu’il suffit de quelques mesures «anti-crise» pour relancer une économie moribonde revient à croire que l’État est omniscient et omnipotent, et que la planification centrale pave la voie vers la prospérité.

Or, une telle affirmation relève de la pensée magique. Pour le prouver, on pourrait citer la multitude d’études qui démontrent l’inefficacité de l’interventionnisme ou l’échec essuyé par les pays qui ont cru en l’État-providence. Mais dans ce domaine rien ne vaut l’éloquence, la pédagogie et l’humour d’un petit essai publié en 1958 sous la plume de Leonard Read et intitulé «I, Pencil» (Moi, le crayon).

L’auteur parvient à démontrer que personne au monde ne sait comment fabriquer le crayon à mine le plus ordinaire, soit le célèbre crayon au plomb enjolivé d’une peinture jaune et couronné d’une efface rose. Cela semble invraisemblable? C’est pourtant vrai! D’abord, il a fallu couper du bois. Or, pour cela il faut une scie. Pour fabriquer une scie, il faut du métal, qui nécessite à son tour l’extraction de minerai. Une fois le bois coupé, il faut l’acheminer vers une usine, d’où la nécessité de disposer de camions, de trains, etc. Ensuite, pour produire la mine, il faut extraire du graphite et le mélanger à de l’argile. L’efface, elle, est produite en faisant réagir de l’huile de colza avec du chlorure de souffre, en y ajoutant du caoutchouc et du sulfure de cadmium pour la couleur. Quant à la peinture jaune, au bout de métal, ou à l’inscription de la marque, leur production exige également les savoir-faire de plus de personnes que l’on n’en pourrait énumérer.

Pour produire un crayon, il faut colliger les connaissances et les habiletés de milliers de personnes disséminés à travers le monde. Ce qui est extraordinaire, c’est que cette symbiose apparait de manière naturelle et spontanée en réponse aux besoins humains. Surtout, ceci est possible en l’absence de planificateur central.

Si nos fonctionnaires sont incapables, par eux-mêmes, de fabriquer un simple crayon, pourquoi seraient-ils en mesure de gérer toute une économie? Comment peuvent-ils prétendre posséder suffisamment d’informations pour manipuler les millions de marchés alors qu’ils ignorent tout de la fabrication du plus banal des crayons? L’État se prend souvent pour un dieu, mais il n’est ni omniscient ni omnipotent. D’ailleurs, si l’être humain est passé de l’âge de pierre à civilisation moderne, c’est uniquement grâce à ses efforts, et non grâce à un planificateur central.

Cela signifie que pour sortir de la crise, nous ne devons compter que sur nous-mêmes. En chinois, le terme «crise» se dit weiji. «Wei» signifie danger, et «ji» indique une opportunité. Ainsi, une crise est une opportunité. Or, pour saisir les occasions qui se présentent, il ne faut ni être accroché aux mamelles de l’État ni s’en remettre à lui pour nous sauver d’une conjoncture difficile, ni se victimiser. Notre savoir-faire, notre ingénuité, notre talent, notre créativité et notre énergie contribuent davantage à la prospérité économique que le plus ambitieux des plans de relance. Si le Québec veut rapidement sortir de la crise, il doit cesser d’attendre que l’argent tombe du ciel. Il doit faire preuve d’imagination et d’esprit d’entreprise et, surtout, travailler fort!

Nathalie Elgrably-Lévy est économiste senior à l'Institut économique de Montréal.

* Cette chronique a aussi été publiée dans Le Journal de Québec.

Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis

New U.Va. Study Sheds Light on Foreclosures in States and Metropolitan Areas

February 25, 2009 — National housing price declines and foreclosures have not been as severe as some analyses have indicated, and they are not as important as financial manipulations in bringing on the global recession, according to a new analysis of foreclosures in 50 states, 35 metropolitan areas and 236 counties by University of Virginia professor William Lucy and graduate student Jeff Herlitz.

Their analysis shows that most foreclosures have been concentrated in California, Florida, Nevada, Arizona and a modest number of metropolitan counties in other states. In fact, they claim that "66 percent of potential housing value losses in 2008 and subsequent years may be in California, with another 21 percent in Florida, Nevada and Arizona, for a total of 87 percent of national declines."

"California had only 10 percent of the nation's housing units, but it had 34 percent of foreclosures in 2008," Lucy and Herlitz reported.

California was vulnerable to foreclosures because the median value of owner-occupied housing in 2007 was 8.3 times the median family income, while the 2007 national average was only 3.2 times higher than median family income (and in 2000, it was lower still at 2.4).

Another vulnerability to foreclosures was seen in the Los Angeles metropolitan area, where more than 20 percent of mortgage-holders in each county were paying at least 50 percent of their income in housing-related costs.

"But even in California, enormous variations existed among jurisdictions, such as in the San Francisco area, where Solano County had 3.69 percent of housing units in foreclosure in November 2008, while only 0.24 percent of housing units were in foreclosure in the City of San Francisco — a 15 to 1 difference," according to Lucy and Herlitz.

Across the country, the run-up in housing prices from 2000 to the national peak in 2006 has contributed to a 10-months' supply of houses for sale, nearly six months more than the norm from 1998 through 2005, they concluded. But most of the excess supply is either foreclosed properties for sale in declining areas — which constituted 45 percent of total sales in some months of 2008 — or "opportunity" sale offerings by owners seeking to take profits on the price escalation of previous years, which often happens when the price of existing homes rise appreciably. Only a small portion of the excess supply is from current construction of new houses, they said.

Potential losses in housing values from 2008 foreclosures in all 50 states — if values decline to 2000 levels — were less than one-third of the $350 billion provided to banks and insurance companies to cope with losses in mortgage-backed securities, Lucy and Herlitz estimated.

"Damage to the balance sheets of large banks and AIG occurred not mainly from losses on foreclosed residential mortgages, but because of borrowing short-range to buy long-range derivatives and from selling credit default swaps insuring derivatives backed by mortgage payments," Lucy and Herlitz said.

"These financial manipulations had high-speed forward gears, but when the housing bubble burst, the banks and AIG discovered they had neglected to create a reverse gear with which they could separate foreclosed properties from some forms of mortgage-backed securities."

Although there are pockets of substantial declines, claims that overall housing values have tanked nationwide are exaggerated, they said. "In the Washington, D.C. metropolitan area, for example, prices have barely changed in the District of Columbia, Alexandria and Arlington County, and parts of Fairfax County in Virginia. The largest price declines (more than 30 percent in 2008) have been in Prince William County, Va., but even there, the range of price declines in its six zip codes ranged from 49 percent to only 6 percent."

The number of foreclosures usually were lower in central cities than in some suburban counties, probably due to less demand in those suburbs, according to Lucy and Herlitz.

Part of this loss of demand can be accounted for by shifts in the age distribution in the population. The population segment from age 30 to 44, when the biggest increase in home ownership occurs, has been declining in recent years. Those are prime child-rearing years for families, so demand for houses with four or more bedrooms has declined and led to an excess of large houses in some counties.

The Obama administration's proposed foreclosure prevention program sets a target of households spending between 31 percent and 38 percent of their income on housing-related expenses. The program will try to prevent foreclosures in residences where Fannie Mae and Freddie Mac have purchased the mortgages by permitting downward adjustments to mortgage rates, to where the value of mortgages is not more than 105 percent of the houses' value, they said.

"This policy will help homeowners where price declines have been modest, as they have been in most states, most metropolitan areas and most counties," Lucy and Herlitz said.

This study includes foreclosure, house value and income data for 2007 or 2008 for 50 states, the 35 largest metropolitan areas and 236 counties in the 35 metropolitan areas.

Lucy is Lawrence Lewis Jr. Professor of Urban and Environmental Planning in U.Va.'s School of Architecture. Herlitz is a graduate student in the Department of Urban and Environmental Planning.

For information, contact William Lucy at 434-295-4453 or whl@virginia.edu.

— By Jane Ford

The real ‘deniers’

LORNE GUNTER

National Post
9 mars 2009

William Happer is hardly a climate change “denier.” A physics professor at Princeton, he is a former director of energy research for the U.S. Department of Energy, where he supervised work on climate change between 1990 and 1993. He is also one of the world’s leading experts on “the interactions of visible and infrared radiation with gases,” and on carbon dioxide and the greenhouse effect. Two weeks ago, he told the U.S. Congress, “I believe the increase of CO2 (in the atmosphere) is not a cause for alarm.”

Claims that an increase of atmospheric CO2 will lead to catastrophic warming “are wildly exaggerated,” according to Prof. Happer. While a doubling (we have seen about a 35% rise since the beginning of the Industrial Revolution) might lead to a 0.6C rise in global temperature, he told Congress, “additional increments of CO2 will cause relatively less direct warming because we already have so much CO2 ... that it has blocked most of the infrared radiation that it can.”

Prof. Happer added that while CO2 concentrations have risen steadily for more than 100 years, warming began before that — 200 years ago — and even during the time when temperatures and carbon concentrations have risen together, the link has hardly been consistent. For instance, while CO2 was rising rapidly from 1950 to 1970, temperatures were going through an especially cold period.

Over the past decade, while carbon dioxide concentrations have continued to grow, there has been “a slight cooling,” according to the Princeton physicist. Any warming in recent decades, then, “seems to be due mostly to natural causes, not to increasing levels of carbon dioxide.”

Why then do organizations such as the UN’s Intergovernmental Panel on Climate Change (IPCC) continue to put faith in climate supercomputer models that show disastrous warming in the coming century? Because, as Prof. Happer explained, the IPCC believes in what is called a “positive feedback loop.”

In short, water vapour and clouds account for about 98% of the greenhouse effect versus less than 2% for CO2. The IPCC believes, though, that a doubling of CO2, while not significant on its own, will trigger a huge increase in the greenhouse impact of water vapour. But so far, in the real world, “the feedback is close to zero and may even be negative.” Prof. Happer testified.

The significance of Prof. Happer’s statement is not that it proves global warming is false, but rather that it shows there is no consensus among respected scientists. The notion that the “science is settled,” as claimed by global warming advocates, is not true.

Also, two weeks ago, three of five independent scientists asked by Japan’s Society of Energy and Resources to assess the current state of climate science concluded that global warming, to the extent it is still occurring, is a natural phenomenon, not manmade.

In his official contribution, Kanya Kusano, program director at the Earth Simulator at the Japan Agency for Marine-Earth Science and Technology, called the IPCC’s warming theories “an unprovable hypothesis” and likened the current supercomputer models to ancient astrology.

Even the Discovery Channel, never a fan of scientists who dissent from climate orthodoxy, reported last week on a University of Wisconsin study that shows global temperatures have at least flatlined during the past decade and that that trend could continue for another 30 years. The authors of that report — Kyle Swanson and Anastasios Tsonis — think rapid warming could resume after that. But for now, warming has ceased.

Against this legitimate scientific doubt, recent statements by environmentalists and alarmist scientists sounds positively hysterical.

Robert Kennedy, Jr. called coal companies “criminal enterprises” and demanded their CEOs be jailed “for all eternity.” Michael Tobis, a climate modeller at the University of Texas labelled as “palpably evil” anyone who questioned the wisdom of former U.S. vice-president Al Gore and suggested that doubting Mr. Gore was “morally comparable to killing 1,000 people.”

U.S. Energy Secretary Stephen Chu claimed warming will lead to “no more agriculture in California.” Meanwhile Susan Solomon, of the U.S. National Oceanic and Atmospheric Administration and lead scientist with the IPCC, said even if carbon emissions are stopped, temperatures around the globe will remain high until at least the year 3000 and within 10 years “the oceans will be toxic, and all life in them will die.”

Ironic, isn’t it, that those who doubt the warming theories are the ones called the “deniers.”

Le retour de McCain

Guy Sorman
04 mars 2009 à 17:55

Pas impressioné par la popularité d'Obama et sceptique sur l'effet de la relance par le déficit public , le vieux challenger a égrené au Sénat des Etats Unis quelques unes des dépenses supposées ranimer l'économie : 1 million pour la recheche des odeurs chez le cochon en Iowa , 200 000 pour un programme d 'éffaçage des tatouages chez les gangsters repentis , 80 000 pour la recherche sur le génome du poisson chat en Louisiane, 2 millions pour la promotion de l'astronomie à Hawai , etc...Le vice président , Joe Biden , est chargé de veiller au bon emploi de la relance : il faudra interroger les poissons chats et les cohons. Chez nous , Biden, c'est Devedjian : aura-t-il autant d'imagination que ses collégues américains?

Au Japon , il est aussi question de relance ; mais , instruits par l'expérience , les Japonais sont sceptiques : les travaux publics sont le prétexte , chez eux , pas chez nous , de fabuleux détournements de fonds au profit des partis politiques.

Donc , les relances , ne servent à rien de documenté en économie globale mais rendent bien des services à quelques uns et aux poissons chats . C'est toujours ça de pris.

L'esprit de Milton Friedman : New York, February 15, a day with Anna Schwartz

Guy Sorman
15 février 2009 à 22:22


Anna Schwartz must be the oldest active revolutionary on earth. Born in 1915 in New York , she can still be found nearly every day at her office in the National Bureau of Economic Research on Fifth Avenue , where she has been relentlessly gathering data since 1941. And as her experience proves, data can transform the world. During the 1960s, with Milton Friedman, she researched and wrote A Monetary History of the United States, a book that changed forever our knowledge of economics and the way governments operate. Schwartz spent ten years of detective work on the project, which helped found the monetarist theory of economics. “Not only by gathering new data, but by coming up with new ways to measure information, we were able to demonstrate the link between the quantity of money generated by the banks, inflation, and the business cycle,” she explains.

Before the monetarist revolution, most economists believed that the quantity of money circulating in the economy had no influence on prices or on growth. History, Friedman and Schwartz argued, showed otherwise. Every time the Federal Reserve (and the central banks before it) created an excess of money, either by keeping interest rates too low or by injecting liquidity into banks, prices inflated. At first, the easy money might seem to increase consumers’ purchasing power. But the increase would be only apparent, since sellers tended to raise the prices of their goods to absorb the extra funds. Investors would then start speculating on short-term bets--whether tulips in the seventeenth century or subprime mortgages more recently--seeking to beat the expected inflation. Eventually, such “manias,” as Schwartz calls them, would begin replacing long-term investment, thus destroying entrepreneurship and harming economic growth.

By contrast, when the central bank fails to provide enough money to ensure liquidity, the market collapses. There is now a near-consensus among professional economists that lack of liquidity caused the Great Depression. During the severe economic downturn of 1930, the Fed did nothing as a first group of banks failed. Other depositors became alarmed that they would lose their money if their banks failed, too, leading to further bank runs, propelling a frightening downward economic spiral.

To encourage steady growth while avoiding the pitfalls of inflation, speculation, and recession, the monetarists recommend establishing predictability in the value of currency--steadily expanding or contracting the money supply to answer the needs of the economy. “At first, central bankers and governments did not accept our theory,” says Schwartz. Margaret Thatcher was the first to understand that the monetarists were right, following the new monetarist rules when she came to power in 1979, taming inflation and reinvigorating the British economy. The U.S. soon followed during the early 1980s, led by Paul Volker, a Friedmanite then at the head of the Federal Reserve, who, with Ronald Reagan’s tough-minded support, ended raging inflation, though not without considerable short-term pain. “It was a strenuous experience,” Schwartz remembers. As Volker tightened the money supply, thus making credit harder to come by, unemployment spiked to around 10 percent; many businesses failed. But starting in 1983, the inflation beast defeated, a new era of vigorous growth got under way, based on innovation and long-term investment.

This lesson of the recent past seems all but forgotten, Schwartz says. Instead of staying the monetarist course, Volker’s successor as Fed chairman, Alan Greenspan, too often preferred to manage the economy--a fatal conceit, a monetarist would say. Greenspan wanted to avoid recessions at all costs. By keeping interest rates at historic lows, his easy money fueled manias: first the Internet bubble and then, even more catastrophically, the recently burst mortgage bubble. “A too-easy monetary policy induces people to acquire whatever is the object of desire in a mania period,” Schwartz notes.

Greenspan’s successor as Fed chairman, Ben Bernanke, has followed the same path in confronting the current economic crisis, Schwartz charges. Instead of the steady course that the monetarists recommend, the Federal Bank and the Treasury “try to break news on a daily basis and they look for immediate gratification,” she says. “Bernanke is looking for sensations, with new developments every day. But the market isn’t interested.”

Yet isn’t Bernanke a disciple of Friedman and Schwartz? He publicly refers to them as his mentors, and thanks to their scientific breakthrough, he has famously declared, “the Great Depression will not happen again.” Bernanke is right about the past, Schwartz says, “but he is fighting the wrong war today--the present crisis has nothing to do with a lack of liquidity.” President Obama’s economic stimulus is similarly irrelevant, she believes, since the crisis also has nothing to do with either a lack of demand or a lack of investment. The credit crunch, which is the actual cause of the recession, comes only from a lack of trust, argues Schwartz. Lenders aren’t lending because they don’t know who is solvent, and they can’t know who is solvent because portfolios remain full of mortgage-backed securities and other toxic assets.

In order to rekindle the credit market, the banks must get rid of those toxic assets. That’s why Schwartz supported, in principle, the Bush administration’s first proposal for responding to the crisis--to buy bad assets from banks--though not, she emphasizes, while pricing those assets so generously as to prop up failed institutions. The administration abandoned its plan when it appeared too complicated to price the assets. Bernanke and then-treasury secretary Henry Paulson subsequently shifted to recapitalizing the banks directly. “Doing so is shifting from trying to save the banking system to trying to save bankers, which is not the same thing,” Schwartz says. “Ultimately, though, firms that made wrong decisions should fail. The market works better when wrong decisions are punished and good decisions make you rich.”

What about “systemic risk”--much heard about these days to justify the government’s massive intervention in the economy in recent months? Schwartz considers this an excuse for bankers to save their skins after making so many disastrously bad decisions. “The worst thing for a government to do, though, is to act without principles, to make ad hoc decisions, to do something one day and another thing tomorrow,” she says. The market will respond positively only after the government begins to follow a steady and predictable course. To prove her point, Schwartz points out that nothing the government has done to date has really thawed credit.

Schwartz indicts Bernanke for fighting the wrong war. Could one turn the same accusation against her? Should we worry about inflation when some believe deflation to be the real enemy? “The risk of deflation is very much exaggerated,” she answers. Inflation seems to her “unavoidable”: the Federal Reserve is creating money with little restraint, while Treasury expenditures remain far in excess of revenue. The inflation spigot is thus wide open. To beat the coming inflation, a “new Paul Volker will be needed at the head of the Federal Reserve.”

Who listens to her these days? “I’m not a media person,” she tells me. She rarely grants interviews, which distract her from her current research: a survey of government intervention in setting foreign exchange rates between 1962 and 1985. Never before have these data been put together to show what works and what doesn’t. In her mid-nineties, she remains a trendsetter.