More Evidence of Crowding-Out?

Crowding out: Government deficit runs very large, interest rates increase and the market ‘crowds out’ the private investors.

This article talks about how the UK tried to issue bonds, and apparently no one wanted it. Perhaps a surplus in the bonds market? Maybe the UK should increase the interest rates.

How to Turn Toxic Assets into Liquid Assets

For the first time I can remember there are some details disclosing how the government is going to handle the ‘toxic assets’ that are floating around out there.

As a refresher: Housing bubble leads to decreased housing prices. Decreased housing prices leads to increased foreclosures. Increased foreclosures lead to tightening up of the credit industry. Tightening up of the credit industry leads to decrease demand for houses (can’t get the loans). Decreased demand for houses leads to decreased housing prices.

This was the scenario six months ago that sparked this financial mess. Many people believe a ‘bail out’ of the financial industry is different than other industries if only for the fact that the above cycle needs to be stopped (plus there are negative externalities as some people are effected other then the home buyer and seller… think student loans). The original ‘bail out’ (TARP as it is now called) was originally 700 Billion dollars to combat this problem. One annoyance was that there was never any transparency to the program (no one knew what was going on).

Fed and the money supply

An article about the Fed pumping money into the American economy.

The Gold Standard and OZ

An interesting BBC article talking about the gold standard, and The Wizzard of OZ. (via Mankiw)

OPEC and the Prisoner’s Dilemma

OPEC has never been concerned with the “world economic woes” (as this article implies). Many of the nations are however concerned with financing their governments. All things being equal there is a direct correlation between government revenue and the price of oil for these nations. Do they make up the lost revenue by ‘cheating’ on their cartel partners when they need money?

The bottom line: It is not benevolence that drives OPEC, but the incentive to make money.

Academics and Politics

Ever wonder how the political affiliation between academic departments stacks up? Economics is left leaning, but relative to other subjects it leans right.