Finance / the Economy

• Invest In The USA? Why Bother?

  Capital will flow to where there's money to be made. It's just that simple. America's "accomodative" monetary policy has spurred a new wave of corporate borrowing. And where are these multinational entities deploying these new investments? Not in the United States. That money is flowing into emerging economies. Bloomberg reported on the trend in Bernanke's 'Cheap Money' Stimulus Spurs Corporate Investment Outside U.S— “You’re seeing leakage from quantitative easing,” said Stephen Wood, chief market strategist for Russell Investments in New York, which has $140 billion under management. “That leakage is going into emerging markets, commodity-based economies, commodities themselves and non-U.S.…

• Ireland’s Financial Meltdown: Down But Not Out

  Ireland’s acceptance of international financial aid to its stricken finance sector is widely seen in the country as a shameful loss of sovereignty and the prelude to years of austerity. But there is too much hyperbole amid the gloom: Ireland is down, but most definitely not out. The Republic of Ireland’s financial meltdown is an epic of institutional and policy failure. For more than two years, since the implosion of its leading banks in September 2008 required massive government intervention, the precipitous fallout from a cycle of boom-to-bust has convulsed Ireland’s political system. In a climate defined by the absence…

• The Importance of Sovereign Wealth Funds to the World Economy

  An Interview with Dr. Alexander Mirtchev on the Global Economic Security Significance of Sovereign Wealth Funds. DC: What role do sovereign wealth funds (SWFs) play in the modern global economy? Dr. Mirtchev: To begin with, SWFs are a modern iteration of economic power projection by states on the international scene. In one form or another, vehicles resembling SWFs have been around for a long time. Similar entities investing state funds, generated from reserves or trade surpluses (such as from natural resources), or utilizing substantial state support or privilege, could very well include conglomerates such as VOC (the Dutch East India…

• The Greatest of All Ponzi Schemes

  Have we been duped?  As a layman and relative Wall Street outsider, the more I read about the opaque financial world in New York City and in other major international financial centers, the less convinced I am that much of what Wall Street does today has any real meaningful macroeconomic purpose.  A bird’s eye view from Main Street might lead an outside observer to call some of what made Wall Street titans fabulously wealthy over the past decade a “Ponzi scheme”: the majority of Americans have been robbed blind, with the United States and the rest of the world hardly…

• Recession, Recovery and the Wealth Pyramid

  The top 20% are prospering and spending money; the bottom 80% are not, but thanks to vast wealth disparity, the top slice of households can keep consumer spending aloft. This provides an illusion of "recovery" that masks the insecurity and decline of the bottom 80%. There is statistical and anecdotal evidence supporting both a "we never left recession" and "the economy is recovering" interpretation. The key to making sense of the conflicting data is to understand that there are Two Americas. Roughly speaking, we can divide the U.S. economy into "Wall Street"--the financialized part of the economy which encompasses the…

• Is China Betting Against a U.S. Housing Recovery

  This just might be chart of the year. Chinese buying of U.S. government agency bonds. Data released last week show buying fell off a cliff in September. In fact, China sold a net $26.3 billion in agency bonds during the month. This is China's largest monthly net sale ever (by far). And could be a sign China is betting against any kind of U.S. housing recovery. Agency bonds are issued by government entities mainly in the housing finance sector. Such as Freddie Mac and Fannie Mae, both controversial entities during the financial crisis that were eventually bailed out by the…

• Year End Risk Analysis: The Economy

  I am not of the “V” or “W” persuasion, but see a “square root” shaped economic recovery, a “V” followed by a long, bumpy, but very modest rise. After a gut churning plunge in 2008 and 2009, we have seen a bungee cord bounce back. GDP growth saw a rollicking great 5.5% annualized growth rate in Q1 2010. After that, you needed a triple shot espresso to stay awake, with growth plunging to a more somnolecent 1.7% annualized rate. You can’t have robust growth without credit or consumers, both of which are still missing in action in our last conflagration.…

• What the Election Means for US Economic Policy

  Let’s put the economic policies the voters chose under the microscope and see what we got. It is not a pretty picture. The bottom line is that my scenario of a lethargic 2-2.5% GDP growth rate continues for the foreseeable future. Here are the reasons why: 1) The party with the worst job creation record in a century is now in charge of job creation. There were 23 million jobs created from 1992-2000. There were only 1 million created during 2000-2008 when the population grew by 22 million. 2) The party that presided over the biggest increase in the deficit…

• Where Will the Cash End Up

  We're a few hours away from the Federal Reserve's expected announcement of more quantitative easing for America. The general expectation is the Fed will buy hundreds of billions worth of Treasury securities and mortgage-backed securities over the coming months. Flooding the world with new dollars, setting the stage for rampant inflation. But keep this in mind: it's not only how much money is printed, but also where this cash ends up. And there's many data points suggesting money is not going anywhere inflationary. In order to create inflation, cash has to get spent on food, gasoline, gold and other goods.…

• How Would a Corporate Government Perform

  In the 1948 Frank Capra film State of the Union aircraft tycoon Grant Matthews is drafted as a candidate for president of the United States. Matthews has never sought office and his popularity stems solely from his business successes and his charismatic and plain-talking speeches. As it becomes clear to Matthews that his self-funded campaign might win him the nomination, he gives in to the corrupting influence of the politicians and party fixers who have recruited him and who now manage his campaign. Today, the notion that tycoons are corrupted by politicians and not the other way around seems quaint.…