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Economics Headlines for the Week: 1/3/2011

January 3, 2011

Economics headlines from this week’s news, blogs, and op-eds.

To see the week’s economics headlines click here:

Social Europe, citing The Economist: Happiness, middle age, and 2011

According to a study sited in The Economist, we get happier as we get older, good news for everyone facing the new year… the problem is we have to wait until we’re 46 to get on the upswing of what is a u-shaped curve.

The Economist: The American Economy, Proceed with Caution

The Economist discusses what we have to look forward to in 2011. The analysis provided in the article seems reasonable. The economy is recovering but still weak. Corporate profits from ventures abroad will likely drive gains in stocks, while a weak domestic economy faces big risks of Japan 1990’s style stagnation and unemployment. I’m a bit skeptical regarding The Economist’s calls for urgent reform of Social Security and Tax Rates (the U.S. bond market remains strong and a bigger threat to it is not current spending, but low long-term growth), but I do think that it is an issue which cannot be put off indefinitely and certainly one which our current political approach  to bi-partisanship has proven unable to deal with. However, I think the bigger question for the next year remains whether the private domestic economy is strong enough to create jobs. Something I’m personally not confident in given these charts.

Retronomics: Japanese Bankruptcy

If you’re wondering what I’m referring to when I mention Japan, this is a nice article on the subject. It shows how the Japanese government has been able to maintain a much higher debt to GDP ration then the U.S. (the U.S. bond market will be fine in the short-term). There are lots of parallels to the current situation in the U.S., and while this article doesn’t discuss the Japanese economy in general, it gives you an idea about how Japan’s monetary policy has failed over the past 20 years to be successful in stimulating economic growth and recovery (which is really the threat faced in the United States).

The New York Times: Regulate Today’s Rockefellers

Why we need to demand that congress prevent the monopolistic practices of mobile internet service providers, to ensure the innovation of tomorrow.

The Washington Post: 2010 the Worst Year for Bank Failures since 1992
These failures have been relegated to smaller banks, but it is still a bad sign that these failures are due to failing commercial ventures (not home loans); because this is an indicator the recovery remains shaky in many regions of the country.

Bloomberg: Dodging Repatriation Tax Lets U.S. Companies Bring Cash Home

Companies are lobbying the government to let them bring back money they’ve hidden in tax shelters in the Bahamas with no fees and very minimal taxation.

“The current U.S. international tax system is the best of all worlds for U.S. multinationals,” said David S. Miller, a partner at Cadwalader, Wickersham & Taft LLP in New York. That’s because the companies can defer federal income taxes by shifting profits into low-tax jurisdictions abroad, and then use foreign tax credits to shelter those earnings from U.S. tax when they repatriate them, he said.”

And even companies’ spokespersons basically say the proposal is a sham, calling it a “short-term fix”.

The Wall Street Journal: Home Prices are Still Too High

Pretty self explanatory.

“From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.”

If you’re interested in this line of argument, here is a blog post echoing the same theme about house prices. I don’t know how convinced I am that housing will double dip in a similar fashion to its initial collapse, but I do think that given all these downward pressures the housing market is likely to remain weak for a long time.

Reuters: Stocks, commodities shine in 2010 as euro suffers

A retrospective on 2010’s asset prices.

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