Wealthiest Americans Rebounding

EconomPic:

Forbes details the 400 richest Americans. Venture Beat details the "struggles":

Warren Buffett’s wealth took a dive this past year, losing $10 billion in value on his shares in Berkshire Hathaway. At least he’s not alone. More than three-quarters of Forbes’s annual list of the 400 richest Americans lost wealth in the past year.

But it hasn't been all one direction. Since the stimulus / subsidized financing induced market bounce in March (a point in time which is detailed in March's report on wealthiest individuals on the planet), we see a bounce across the board.

Labor Force Shrinkage

EconomPic:

how uncommon is a shrinking labor force? This is the first year over year decline since the early 1960's.

And why wouldn't individuals stop looking for a job. As the chart shows below, the number of people who have been unemployed longer than half a year has spiked to record levels.



And the long-term implications via Alan Greenspan.

"People who are out of work for very protracted periods of time lose their skills eventually. What makes an economy great is a combination of the capital assets of the economy and the people who run it. And if you erode the human skills that are involved there, there is a real and, in one sense, an irretrievable loss."

Source: BLS

Causes of the United States housing bubble - Wikipedia, the free encyclopedia

Causes of the United States housing bubble - Wikipedia, the free encyclopedia: "This article reviews the causes of the United States housing bubble."

Still chasing shadows?

Paul Krugman Blog - NYTimes.com:

This article on the continued troubles in credit markets was informative. ...Here’s how I think about what has happened these past 2+ years. I think in terms of a sort of flow chart, showing ways that savers can connect with borrowers:

Traditionally — i.e., before the 1980s — the public put its money in banks, and banks made loans to borrowers: thus the diagonal arrow from banks to borrowers represents traditional banking.

By 2007, however, much of this traditional channel had been supplanted by shadow banking: debt was securitized, and the securities sold to the public — the straight arrow across the bottom of the figure.

Then the crisis came. The public rushed for safety, which basically meant guaranteed deposits. One rough indicator is holdings of MZM — money of zero maturity — which is the sum of bank deposits and money-market deposits:

In effect, the public rushed back into the banks. But the banks weren’t willing to lend out these excess funds. Instead, they accumulated deposits at the Fed:

To prevent a complete collapse of credit, the Fed in effect recycled these deposits back into private credit via the TALF and other securities-purchase programs. So funds now flow all around the first figure, getting to the public via “Bernanke banking” (my term.)

Everyone agrees that this is a stopgap, and we want to get the Fed out of the business of private lending over time.

Hangover theorists - Paul Krugman Blog - NYTimes.com

Hangover theorists - Paul Krugman Blog - NYTimes.com:

Somehow I missed this: via Steve Levitt, John Cochrane explaining that recessions are good for you:

“We should have a recession,” Cochrane said in November, speaking to students and investors in a conference room that looks out on Lake Michigan. “People who spend their lives pounding nails in Nevada need something else to do.”

So the hangover theory, which I wrote about a decade ago, is still out there.

The basic idea is that a recession, even a depression, is somehow a necessary thing, part of the process of “adapting the structure of production.” We have to get those people who were pounding nails in Nevada into other places and occupation, which is why unemployment has to be high in the housing bubble states for a while.

The basic idea is that a recession, even a depression, is somehow a necessary thing, part of the process of “adapting the structure of production.” We have to get those people who were pounding nails in Nevada into other places and occupation, which is why unemployment has to be high in the housing bubble states for a while.

The trouble with this theory, as I pointed out way back when, is twofold:

1. It doesn’t explain why there isn’t mass unemployment when bubbles are growing as well as shrinking — why didn’t we need high unemployment elsewhere to get those people into the nail-pounding-in-Nevada business?

2. It doesn’t explain why recessions reduce unemployment across the board, not just in industries that were bloated by a bubble.

One striking fact, which I’ve already written about, is that the current slump is affecting some non-housing-bubble states as or more severely as the epicenters of the bubble. Here’s a convenient table from the BLS, ranking states by the rise in unemployment over the past year. Unemployment is up everywhere. And while the centers of the bubble, Florida and California, are high in the rankings, so are Georgia, Alabama, and the Carolinas.

So the liquidationists are still with us. According to Brad DeLong,

Milton Friedman would recall that at the Chicago where he went to graduate school such dangerous nonsense was not taught

But now, apparently, it is.

Update: Not to mention the idea that employment is dropping because workers don’t feel like working.

Also see Arnold Kling’s recalculation theory of business cycles.
Why doesn't a housing boom — which requires shifting resources into housing — produce the same kind of unemployment as a housing bust that shifts resources out of housing.

Interesting FRED Graphs

St. Louis Fed: Series: BOGNONBR, Non-Borrowed Reserves of Depository Institutions: "Non-Borrowed Reserves of Depository Institutions"
DFEDTAR Federal Funds Target Rate (DISCONTINUED SERIES) DFEDTARL
DTB3 3-Month Treasury Bill: Secondary Market Rate
TWEXBMTH Trade Weighted Exchange Index: Broad

Ezra Klein - A New Spin on the "Giant Pool of Money" Theory

Ezra Klein - A New Spin on the "Giant Pool of Money" Theory:
The 'giant pool of money' hypothesis:

This is the idea that the actual trigger for the financial crisis was that emerging economies were running huge trade surpluses because a series of currency crises had convinced them that they couldn't sustain trade deficits. All that money, however, needed somewhere to go. And it went to developed countries. In particular, it went to America, and more specifically than that, to treasuries.

With Treasury bond yields falling through the floor, there was considerable demand for safe assets with better yields. The financial sector, sensing a market opportunity, jumped into the breach with securitized loans and AAA tranches and all the rest. Meanwhile, the strangely low interest rates fed a housing and credit bubble. In this telling, the key culprit behind the financial crisis was not the doings on Wall Street, but the giant hose of money the rest of the world pointed at us. If this is true, then fixing the financial system is like taking medicine to cure your symptoms. The disease still exists.

That, at least, is how I've understood the argument. But I just had a conversation with Steve Pearlstein that's making me somewhat reconsider the point. The causality, he argued, isn't as clear as all that. It may be that we developed these exotic financial instruments as a response to the river of money being pumped into our system. Or it may go the opposite way: That money was pumped into our system because we concocted abnormally attractive investments that caught the eye of foreign investors.

This is a slightly different spin on the same argument: In this telling, the current account deficit was still the problem. But it grew so large not because of foreign investors but because of Wall Street's decisions. Without the development of seemingly safe, high-return assets, that money would have been left to low-yield treasuries, and because those wouldn't have delivered sufficient returns, the money would have ended up going elsewhere. If that's true, then it may be that sufficient regulation of the financial sector actually could do quite a bit to ease our current account problems.