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Economics Headlines for the Week: 1/31/2011

January 31, 2011

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

To see the week’s economics headlines click here:

Op-Ed: dollar$: Valuing Facebook and LinkedIn:the Pump and Dump?

Of course most of us in the investment world have heard that Goldman Sacks is conducting an IPO of sorts for facebook with exclusive access for high income clients. Goldman itself has already valued facebook at $50 billion, but how much is facebook really worth and can we trust Goldman’s pricing schemes? Of course when it comes to stock valuations this is always a tricky question. How much earnings growth can we actually expect from a company in the short and long-term, and has facebook maxed out its earnings potential or just touched on what is possible?

Writing about stock prices is hard, so its always good to not really believe what any of the experts tells you, and I don’t think I possess any information that Goldman Sacks doesn’t already know. What I do know is that the $50 billion price tag means investors expect and need very high income growth to justify the price, and that even traditionally pro-investment news organizations such as business week are raising their eyebrows. Then again, maybe these high-income clients have access to better research than the rest of us.

Op-Ed: Confessions of a Macro Contrarian: China Worlds Fastest Printing Press

The problem here is that in order for China to maintain its trade-surplus with the United States it has to keep the Renminbi tagged to the dollar. This means China is forced to match the FED’s expansionary fiscal policy, by printing more money to keep up with the U.S. As China has not suffered the same sort of economic contractions as the U.S. during the last great recession this means that their fiscal policy is more inflationary than the U.S.’s . (Give that a moment of thought, dear inflation-hawks,… China’s fiscal policy is more inflationary than the U.S.’s)  Granted China has much more stringent control over its prices and currency markets than the U.S. does; but this doesn’t mean those pressures have gone away… as this article discusses they may just be holding the lid down on a problem that is bound to boil over.

Then again, I wouldn’t underestimate the intelligence of those working at China’s Central Bank. I’m sure they’ve considered their options and risks as well.

MSNBC: FED Recovery isn’t affecting joblessness enough

The FED affirms that it will continue its Quantitative Easing 2 program in the face of continued high unemployment. Of course I already discussed why the program won’t do much to help bring down the unemployment rate.

Democrats.com: Four in Five Americans Support  a Constitutional Amendment

I can’t comment on the reliability of the source or “Hart Research Associates” who conducted the survey, but I think it does ring true that most Americans aren’t in favor of limitless corporate money in election campaigns. The whole supreme court ruling that corporations are people and should resultantly be able to limitlessly fund election campaigns strikes me as insanity, and makes me understand why Libertarians argue that Government never works for the people.

CNN Fortune: Japan downgrade the beginning of the end?

Yes Japan has an outrageous amount of sovereign debt (take note Americans, by relative comparison you’re not that bad). That being said it makes me angry that a news organization would print such trite and politically motivated headlines. Have you forgotten that the same agency responsible for rating Japan’s and Europe’s government debt gave triple A ratings to the mortgage-backed securities which collapsed the entire world banking systems, and led to the contractionary economy which is putting additional pressure on sovereign debt. Why do we listen to these agencies? And more importantly, why do we trust the news, politicians, and pundits when they have such short attention spans and spout such garbage?

Now I’m not denying Japan has a debt problem, but what makes it that much worse today than yesterday? Maybe the fact that now it can be used as an example of why the U.S. needs to put in place austerity measures.

The Wall Street Journal: The $5 Million Tax Break

The Wall Street Journal doing what it does best, advising multi-millionaires how to pay the least in taxes.

Most important for people like Mr. Maggi, the recent changes align estate, gift and generation-skipping taxes, which are imposed when givers try to avoid layers of estate tax by leaving assets to heirs two or more generations removed. That means a married couple can “spend” their combined $10 million exemption to avoid a combination of the three taxes.

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