The euro zone: choose your own adventure

Forecasts about the future for the euro zone economy are starting to resemble a multiple-choice novel. Are you an economist working for an Anglo-Saxon institution? Then turn to p.65 — “Recession for the euro zone”. A German bank? Go to p.80 — “Happy days are here again!”

That simplifies the case slightly, but there’s more than a grain of truth in it. We’ve noted repeatedly that predictions about the euro zone are coloured heavily by whether someone works for an employer based inside the currency union or not.

In the past, analysts have been reluctant to forecast outright contraction for major economies.

In the latest Reuters poll, 12 out of 71 economists stuck their neck on the line to say the euro zone economy will shrink next year, rather than grow, and it’s interesting to see who they were.

Ten of them were all from institutions based outside the euro zone — mainly in Britain and North America. The remaining two were French.

Who expects euro bonds? Look outside the euro zone

It’s already been established that economists’ predictions about the euro zone’s future hinge largely on where their employer is based. Euro zone optimists tend to work for euro zone banks and research houses, and euro zone sceptics for companies based outside the currency union.

It somewhat undermined the idea their analyses are based purely on hard-headed economics, and less on national factors.

There was an echo of that in this week’s of economists and fixed income strategists, who were asked whether they expect euro zone leaders will agree to the issuance of a common euro zone bond, as backed by new French President Francois Hollande.

from Environment Forum:

Fold sustainability into economies, G20 urged


Consensus among sustainability experts at a Toronto conference this week was that world leaders in the Group of  20 nations face a fecund opportunity to make gains integrating environmental concerns with all other levels of economic development.

"Finance ministers are the real environment ministers. Environment ministers have weak, minor voices at the table at which economic decisions are made," said chair Maurice Strong, President of the Council of the United Nations University for Peace, former Secretary-General of the United Nations Conference on the Human Environment, and former president of Power Corporation, head of Petro Canada and Ontario Hydro.

"Environmentalists cannot run the economy," Strong said.

Economist Sylvia Ostry, former Chief Statistician at Statistics Canada and a member of the influential Washington-based financial advisory body the Group of Thirty says the best contribution the G20 could make to sustainable development is to strike a new institution with experts from a variety of backgrounds.

Chicago and the toddlin’ recovery

It may not get as much attention as the monthly employment report or GDP figures, but the U.S. Federal Reserve Bank of Chicago’s gauge of the national economy has a good track record of distinguishing economic expansions from recessions. And it’s suggesting that the U.S. recovery may be wobbling.

Over at the econbrowser blog, economist James Hamilton points us to a recent research paper that examines how accurate the various economic indicators are at telling us when the economy is growing or contracting. The Chicago Fed’s national index was one of the best. And Monday’s report shows it faded in October.

Not only that, but its three-month moving average fell to -0.91 in October from -0.67 in September, declining for the first time in 2009. That drop was especially significant because the Chicago Fed says a move below -0.70 in the three-month moving average following a period of economic expansion indicates an increasing likelihood that a recession has begun.

Fed all talk, no action?


BofA Merrill Lynch Global Research economist Ethan Harris thinks all the talk of a Federal Reserve rate hike is just that — talk. Harris, a former Federal Reserve Bank of New York economist, said much of the recent hawkish commentary has come from presidents of the regional Fed banks, and that may not be indicative of the thinking on the Fed’s board.

“The signals don’t  come from Reserve Bank Presidents or advisers,” Harris wrote in a note to clients. “They come from either the overall committee — in the form of the official statements — or from the core of the committee — that means (Chairman Ben) Bernanke, (Vice Chairman Donald) Kohn, and to a lesser extend, New York President (William) Dudley.”

The Fed starts its two-day policy-setting meeting on Tuesday, and Harris is certainly not alone in thinking they’ll stay the course, keeping benchmark interest rates near zero. In fact, BofA Merrill thinks it will be the European Central Bank that hikes before the Fed.

Separate checks, please



    Jack Ablin, the chief investment officer at Harris Private Bank, has come up with an interesting way of looking at the U.S. healthcare debate – in particular, why does health care cost so much. His idea? Think of it like going out for dinner and splitting the bill with hundreds of thousands of other diners versus paying for your own meal. Would you order the steak and champagne or the chicken and a glass of water? Ablin enlisted the help of the owner of Aqua Grill in Ponte Vedra Beach, Florida, to help him find out.

It involved sifting through three years of guest checks and comparing the average spent per patron when a bill was split evenly versus the average when separate checks were tabulated.

“The results were dramatic, but not surprising,” Ablin wrote in a note to clients. “On average, splitting the bill costs diners about 20 percent more than paying their own check. The difference would be undoubtedly wider with large parties. Given that we spend about $2.5 trillion on health care annually, imagine the cost savings if we migrated to high-deductable policies and health savings accounts. Congress needs to look at shifting health care payments away from third-party payers and to individuals, using a combination of high-deductible health insurance policies and privately-directed health savings accounts.”

The long, long slog back to full U.S. employment

In case you weren’t depressed enough about the state of the U.S. labor market and the 7.2 million jobs lost since the start of the recession, check out this factoid from JPMorgan economist Michael Feroli:

“We would need payroll gains of 200,000 per month every month for three straight years just to get back to late 2007 levels of employment, and even that calculation ignores the labor force growth over the intervening years.”

Take your pick of bad September job news: the average workweek declined; average hourly earnings increased a paltry 0.1 percent; the broadest measure of unemployment and underemployment rose to 17 percent; and the average duration of unemployment hit an all-time high of 26.2 weeks.

Another kind of death panels

U.S. Representative Barney Frank has never been shy about expressing his opinions. His opening remarks at a hearing he chaired with Treasury Secretary Timothy Geithner on Wednesday was no exception. Frank poked fun at a political squabble over healthcare reform as he detailed his position on what to do about non-bank financial firms considered “too big to fail.”

    “There will be death panels enacted by this Congress, but they will be for non-bank financial institutions that will not be considered too big to die.
    I say that because we have this euphemism that we are going to be ‘resolving’ these institutions. It has not been my experience that when someone says they are going to resolve something, they kill it. We are talking about dissolution, not resolution. We are talking about making it unpleasant for the entities. This is not a fate people will want.”

Congratulations or condolences for Bernanke?

Congratulations, Ben Bernanke. It looks like a second term as Federal Reserve chairman is in your future. But considering the tasks before him, is this a blessing or a curse?

Greg Mankiw, the Harvard University economics professor and former adviser to President George W. Bush, summed it up nicely on his blog:

“I extend my congratulations to the President for a fine decision and my condolences to Ben for having the spend the next four years overworked and underpaid.”

Jackson Hole policy elite met by large stuffed bear

 Bernanke’s tone may have been slightly more optimistic today — but the first thing policy-makers from around the world see as they enter the conference room for the Fed’s annual Jackson Hole symposium is a large stuffed bear.

Bernanke told the conference on Friday morning that the prospects for return to global growth appear “good” in the near-term — his clearest signal yet that he thinks the global recovery is at hand.

The ECB’s Trichet, on the other hand, expressed uneasiness at what he saw as premature talk of a return to normal from a financial crisis.