The mid-90's and the housing/banking crisis befuddles me. Help me understand, please...Do these graphs make sense??

The first graph is from my post yesterday.  It shows the growth in home ownership and the huge spike starting about 1993-94.  It started the trend towards recovering previous losses in home ownership starting in 1977 (notice the decline, then leveling off) and quickly surpassed the previous high established in 1977.

The time period 1993-94 in terms of the dramatic increase in home ownership intrigues me.  In order for this to occur it seems reasonable that the Federal Reserve would have to increase the money supply in order to decrease interest rates to incentivize people to take out loans to buy houses, right?

The graph below shows the growth, in billions, of the "cash" money supply (aka "M1 Money Stock") in the banking systems that banks presumably lend out to borrowers.  Notice that towards the end of 1993 the M1 Money Stock actually DECREASES then levels off until 2001.  In your mind, isolate the time period 1993 to 2001 on both these graphs and ask yourself: "How can the money supply decrease but the "money" to buy houses increases?  There seems to be an inverse relationship! What is up with that???

The graph below from The New Arthurian Economics is important to understanding how this happened. It shows the  "Debt per Dollar" in circulation (M1 Money).  Isolate the Debt per Dollar change during the time period discussed above.  Notice the steep slope indicating a rapid rise in Debt per Dollar, going from a ratio of 15-1 to 25. That is an increase of 66% in under 7-8 years.

Source: The New Arthurian Economics

Another way to look at it is each dollar in circulation is loaned out (leveraged)  multiple times.  We know this better as "credit". 

What happened in 1993 (that did not happen to a significant level prior to this date) to create the conditions for the rapid formation and use of credit in the US?

Am I just too narrowly focused on the mid-90's and missing something?  Help me, please.

Great....Now we going to have to import our rain from China...

Sounds like they have not let go of their totalitarian roots by claiming they can do pretty much anything...

Chinese Government Plans to Cause Ten Percent More Rain By 2015

""China is starting four regional programs to artificially increase precipitation across the country by 10 percent before 2015, under a newly released 12th Five-Year Plan (2011-2015), according to the state-run China Daily. “Weather intervention” could bring an additional 230 billion cubic meters of precipitation per year — that’s on top of the 50 billion China already artificially creates annually, China Daily says.

 I LOVE this highlighted quote:

“Because clouds are boundless, weather control is boundless. The five regional weather control programs will coordinate the ground resources, such as the cloud seeding rockets and planes, across provinces to increase potential rain or snow,” said Zheng Jiangping, deputy director of the China Meteorological Administration’s department of emergency response.""

The Price of Orange Juice is set to increase dramatically...I think comedian Eddie Murphy has something to do with it! See video (and related real-life article) HERE...

See video below as to how the "marketplace" responded to this news... :)

Orange juice at 34-year high on fungicide fears

""The price of orange juice futures contracts hit a 34-year high on Tuesday after the main US food safety regulator said it would block imports containing a fungicide commonly used in Brazil, the leading producer of the citrus fruit.

The Food and Drug Administration’s announcement sent traders scrambling to prepare for the possibility of lower inventories in the middle of the US winter, when the New York futures market is most at risk of a harsh freeze in Florida’s orange groves. ""

Who is responsible for the Housing Crisis that lead to the banking crisis (or vice versa)? This graph shows me it was a massive group effort. What do you think?

Source: Cafe Hayek

Look at the time span 1993-94.  SOMETHING happened to cause the vertical trajectory of homeownership.  This might be a rare example of "correlation IS causation".  Wall Street greed? Politicians gone wild for votes?  Entitled Baby-Boomers? The Federal Reserve catering to ALL these constituencies? 

I kinda think it was a group effort.  If you are a Occupier then you think it was 100% Wall Street. If you are a Tea-Partier you think it was 100% Federal Government.  As always, the relative truth lies somewhere in between. 

However, policy (political and Federal Reserve) DID play a role, both explicitly and, perhaps more influencially, implicitly.

Below are a couple of statements from the Clinton and Bush era Presidencies that illustrates this point. As I said, a group effort...

From President Clinton (1994):

""Our nation’s greatest promise has always been the chance to build a better life. For millions of America’s working families throughout our history, owning a home has come to symbolize the realization of the American Dream. Yet sadly, in the 1980s, it became much harder for many young families to buy their first home, and our national homeownership rate declined for the first time in forty-six years. Our Administration is determined to reverse this trend, and we are committed to ensuring that working families can once again discover the joys of owning a home.

This past year, I directed HUD Secretary Henry G. Cisneros to work with leaders in the housing industry, with nonprofit organizations, and with leaders at every level of government to develop a plan to boost homeownership in America to an all-time high by the end of this century. The National Homeownership Strategy: Partners in the American Dream outlines a substantive, detailed plan to reach this goal. This report identifies specific actions that the federal government, its partners in state and local government, the private, nonprofit community, and private industry will take to lower barriers that prevent American families from becoming homeowners. Working together, we can add as many as eight million new families to America’s homeownership rolls by the year 2000.

From President Bush (2007):

""The Administration supports legislation to modernize and reform the National Housing Act (NHA) and to ensure that the Federal Housing Administration (FHA) continues to play a key role in serving low-and moderate-income homebuyers. The President has called on Congress to expeditiously pass the Administration's FHA Modernization bill to assist more homeowners during this period of stress in the mortgage markets. H.R. 1852, as reported by the House Financial Services Committee, includes provisions that are essential to maintaining FHA's core mission of expanding homeownership opportunities for borrowers who are underserved, or not served, by the existing conventional mortgage marketplace....""

If you buy Fair Trade products you need to read this. Not to change your mind but to point out its limitations. Information is power...

A fundamental problem (or issue, to be more politically correct) with traditional, agrarian-based economies when it comes to "Fair-Trade" is that they are, well, traditional, agrarian-based economies.

The Fair Trade franchise has admirable goals---getting farmers a higher price for their commodity and making sure children are not used/abused as laborers.  The latter is a requirement for a farmer to get the Fair Trade designation and the requisite benefits.  The idea is to get children out of the fields and into school, hopefully. 

So, while a farmer may not have his (or other children) work in, say, the Fair Trade designated cotton field, the children will LIKELY work in another part of the agrarian society not engaged in Fair Trade practices. By definition, in an agrarian society food MUST be grown by someone. If adults are working the Fair Trade designated fields in order to get a higher price for one commodity, then the children are likely to be working in another non-Fair Trade field producing another food commodity.  The problem of child labor may not be any better, and could be worse!  It may have just shifted from one place to another...

I post this to informed and to ask you to think about the issue in more complex terms.  I often see it portrayed as a panacea for problems in poor countries.   Feel good about what you do, but be realistic about the results it can actually produce.

The source of this post is this one from Matthew Yglesias at Moneybox.  If you don't read him on a regular basis, you should!

""Back in December I flagged Cam Simpson's story about allegedly fair trade cotton being grown by child slaves in Burkina Faso. Given that, it's only fair to note that last week Fair Trade International published a report on their own inquiry into this and they say Simpson has it all wrong:

Most significantly, according to our information, the “girl” who featured prominently in the article is not 13 years old as reported. We have seen her birth certificate and corroborated her age with school records. She cannot accurately be described as a child as defined by the UN Convention on the Rights of the Child (i.e., under 18 years old).

In addition, she is not involved in cotton growing and therefore is not participating in Fairtrade certified cotton production. Instead she works on a family-owned vegetable farm, growing locally consumed products for which there are no Fairtrade Standards nor Fairtrade certified producers in this region.

I find it, frankly, difficult to believe that Bloomberg made the error being alleged here but I think I'm going to have to let Simpson and Fairtrade fight that it.

The point about the vegetable farm is, however, very interesting and highlights some of the limits of piecemeal efforts to improve labor standards. If you think about an agricultural economy centered around a cash crop for export—it could be cotton, coffee, or whatever else you like—then realistically locally focused food production is also going to be part of the picture. The cotton farmers need food after all. So you could easily have a situation in which a bunch of farmers are clustered in a village, partially growing vegetables for basically their own consumption and partially growing cotton. In the unfair trade paradigm, children and adults alike grow both cotton and vegetables. Then when you switch to a fair trade paradigm, what you get is labor market segmentation. Maybe children stop working in the export-oriented cotton fields, but now children are doing all the vegetable farming. The household- and village-level economies, however, are still dependent on child labor...."

Important graph for teachers and students...There are many reasons for income inequality. However, I believe THIS graph illustrates a MAJOR underlying reason for it...Think about it...

It may be more helpful to just look at the numbers below the graph to see what is going on. 

There is lots of talk about income inequality and where it stems from...I think most reasons cited are way off base.  I believe THIS ONE is a major source of it but the least talked about. 

Education (college/community college/trade school, etc) is the key to (1) a better standard of living (materially and intellectually), and (2) the likely-hood of staying gainfully employed  thoughout your life. 

Nothing is guaranteed, but education is becoming like insurance in many ways.  We hate to pay for it but it sure comes in handy when you need it...or something like that.

Source: Matthew Iglesias

Nice graphic showing 50% of the worlds 1%'ers are Americans. What may surprise you is the amount of income needed to make it into this exclusive club.

Source: CNN Money

It is amazing how little income (from an Americans perspective) it takes to be a part of the vaunted 1% world-wide--this is a teachers salary! (keep in mind it notes income AFTER taxes):

""It only takes $34,000 a year, after taxes, to be among the richest 1% in the world. That's for each person living under the same roof, including children. (So a family of four, for example, needs to make $136,000.)""

Source: CNN Money

Today is National Buffet Day AND Kim Jong-un has called for the people of NK to form a "human shield "around him. I think these 2 events are related...

"" North Korea called on its people to rally behind new leader Kim Jong-un and protect him as "human shields" while working to solve the "burning issue" of food shortages by upholding the policies of his late father, Kim Jong-il.""North Korea calls for "human shields" to protect new leader

Is the "Human Sheild" idea just a clever way for him to keep others out of the Buffet line?  Just askin'...

From the photos below, I would suggest he start by eating less so the people can eat more...Just sayin'.

I have planted many a golf ball in a corn field but have not planted much corn on a golf course. See here WHY Iowa farmers are doing just that. How do you say "FORE!" in corn lingo??

A nice article in the NYTIMES today about farmers in Iowa  using every bit of land they can to grow crops, even land that previously had been deemed not worthy of cultivation.  This is an excellent example of increasing opportunity costs as it related to the Production Possibilities Frontier:

"Across much of the Midwest the sharp increase in farm earnings has driven the price of farmland to previously unimaginable — and, some say, unsustainable — levels. But in the process, to much less fanfare, the financial rewards have also encouraged farmers to put ever more land into production, including parcels that until recently were too small or too poor in quality to warrant a second glance."     

Most of the land they currently grow crops on could be labeled "low hanging fruit" which means that relatively little, other than the basics to cultivate, plant, maintain, has to be done to harvest the crop.  It is the most suitable land for growing crops.  However, this fertile land is not unlimited and "at the margins" of the acreage land is going to become less suitable, hence more expensive to convert to growing crops. 

The "opportunity cost" (explicit and implicit costs) of converting this land to grow food is too high relative to (1) the price they might receive for any food grown on it, or (2) an alternative use this land might have may be more suitable for the production of some other good:

A splash of green on a solid beige horizon, the golf course at the edge of this tiny town promised residents nine modest holes of refuge from corn country. Decades earlier the spot had been farmed, too, but the rocky soil was so poor, the saying went, that you couldn’t raise hell there with a fifth of whiskey.         

“The rottenest piece of land there is,” said Mick Elbert, a local car dealer who served on the golf association board. “All it is good for is a golf course. That’s why we built it there.” As Crop Prices Soar, Iowa Farms Add Acreage

Now that there appears to be sustained higher prices for various agricultural commodities, farmers and the communities they live in,  are willing and able to spend additional money and resources (equipment, time, etc) to cultivate this less suitable land because the opportunity cost of NOT doing so (foregone profit for farming relative to the profit, or lack there of, for the golf course) is now greater. 

""But this year, over a chorus of objections, the greens and fairways were plowed under. The course had been losing money, and crop prices had been breaking records, so the new owner did the type of quick calculation that is quietly reshaping the region and determined that it was more valuable as farmland. The first harvest took place this fall..."

For extra credit, draw a Production Possibilities Frontier showing the production of only two goods, Food and Golf Courses.  Show on the graph the result of the landowners decision about what to do with his land ("resource").  Explain why you drew your PPF curve the way you did (straight line or bowed). 


Read the whole article below the fold:

The Dow is up 6% for the year!..Wow, great!...What is "The Dow"?

At the daily close of the US stock market the media reports how the stock market has done overall for the day by announcing how "The Dow", or "Dow Jones" has performed.  I don't think most people know exactly what this means.  The offical name is "Dow Jones Industrrial Average (DJIA)". 

Below are the 30 "Blue Chip" companies that comprise the Dow. Each of these companies are supposed to be representative of the industry they compete in. In theory, how goes the price of the stock of the major company in the sector so goes the entire sector.

Go HERE for a more detailed explanation how DJIA index is created and the math behind it.

The Dow itself is up 6% for the year which means if you invested $1,000 at the begining of the year in the components of the Dow, you would have earned an additional $60.00. Don't spend it all in one place...

My modest proposal to help low income people save 10% today on a necessity for their children...This policy is DOABLE! Why do Dems and Reps hate poor people?

Now that the Spiderman and the X-Men, along with their trade lawyers, have defeated (sort of) tariffs on their action figures (see previous post HERE) they can turn their attention to helping poor/low income people.

Tariffs (taxes) on imported shoes are VERY regressive--the lower the price of the shoe the higher the tariff.

""Footwear tariffs are simply a hidden, regressive tax on a household necessity. Their sole effect is to reduce the amount of income families have to spend on all other goods and services. This expense is most onerous for low-income families with children who spend the largest share of their income on the necessities of life..."

""The consequences for families—especially those with low incomes—are dramatic. Tariffs inflate the cost of the cheapest shoes by about a third. A $2.28 pair of sneakers arriving at the border is assessed a 48 percent excise tax, adding $1.09 to the price, which is passed along to shoppers...." (Source: Cut Shoe Tariffs to Help Low-Income Families)

Asume that the $2.28 shoes retails at a store for $10.00, the tariff represents about 10% of the total price of the shoe.

Tariffs, in general (not exclusively, though), are imposed to protect domestic producers from less expensive foreign competition.  But there are NO domestic producers of inexpensive (ok, cheap) shoes to protect anymore. 

So, WHY are these tariffs left in place by Congress?  Want to do something EASY that will benefit low income/poor people?  Repeal these tariffs!!

How many OTHER tariffs are imposed on basic goods that low income people purchase everyday and are NOT produced in the US anymore, so NO domestic production jobs are threatened?

How about it, Wolverine/Spidey or.... CONGRESS...Are y'all up to banishing these anti-poor policies?

Note: Read he two page summary of the research cited above  HERE.

Also, listen to a short NPR podcast on this topic:

Spiderman and the X-Men have met their match: International Trade Lawyers have stripped them of their Humanity...Why is Marvel Inc NOT upset with this development? Two words "$$"

Radiolab

In their quest to be accepted for their humanity in light of their super-natural powers, the likes of Spiderman and the X-men have been foiled by mighty International Trade Lawyers.  In this case, the Marvel brand is VERY happy for this outcome.

Imported "Dolls" have a much higher import tariff than items classified as "Toys".  Marvel action figures imported from China are  classified as "Dolls".  What is the Big Deal??

 Read the following from Matthew Yglesisias at MoneyBox to find out why this is significant:

""Marvel-licensed action figures are generally made abroad and imported into the United States. But "dolls" (which are representations of people) face a higher import duty than "toys" (which are representations of non-humans), so it's in the interests of Marvel to argue that X-Men action figures should be taxed at the low non-tarrif rate. Here's a sample of litigation:

Plaintiff Toy Biz, Inc. ("Toy Biz") brings this action to challenge the tariff classification by the United States Customs Service ("Customs" or "Defendant") of various items imported from China and entered at the ports of Seattle and Los Angeles in 1994. The items are action figures from various Marvel Comics series, including the "X-Men," "Spider-Man," and the "Fantastic Four," and an additional item called "Jumpsie," which is not an action figure. The items are packaged in boxes or blister packs attached to colorful cardboard backing covered with printed illustrations and writing. The packaging of a number of items includes small accessories, such as weapons and other equipment. Customs classified the items as "Dolls representing only human beings and parts and accessories thereof: Dolls whether or not dressed: Other: Not over 33 cm in height," under subheading 9502.10.40 of the HTSUS (1994), dutiable at 12% ad valorem. Toy Biz contends that the action figures at issue are properly classifiable as "Toys representing animals or other non-human creatures (for example, robots and monsters) and parts and accessories thereof: Other," under subheading 9503.49.00, HTSUS (1994), dutiable at 6.8% ad valorem. Toy Biz further contends that "Jumpsie" should be classified as a "toy set," under HTSUS (1994) subheading 9503.70.80, dutiable at 6.8% ad valorem.

It's remarkable, incidentally, the extent to which the politics of "trade deals" have gotten away from the fundamental issues of free trade as seen in an economics textbook. What we have here is a federal 12% sales tax on dolls, but only if the dolls are made in foreign countries, and a different -- arbitrarily lower -- 6.8% federal sales tax on toys, but again only if the toys are made in foreign countries. There's no good reason to have special higher sales taxes on toys made in foreign countries, and there's certainly no good reason to tax dolls and non-doll toys at different rates. It's nuts and it could and should be addressed by a unilateral acts of congress. The amount of revenue that would be lost to the federal government by repealing these taxes would be tiny, and it's trivial to think of better ways to raise the money. And yet this core -- and quite simple -- trade policy issue is a world away from the incredible complexity of the trade deals of the past decade.""

Tariffs on imported goods are levied for a variety of reasons, but the main one is to protect domestic producers from low-price foreign competition.  I am not aware of a significant domestic producer of action figure toys/dolls that needs protecting. Perhaps there was one in the past, but not now.

 Listen to a very interesting Podcast about this issue (starts at 3:00 minute mark).

So...Why is the tariff still in place to protect a non-existent industry? Just askin'...

Why young women are better than young men during these economic hard times...

Here is what (some/many) young men are doing during economic hard times...

This from the WSJ regarding Nike's release of the new Jordan sneaker:

"Sneakerheads," as they are referred to in the industry, tend to be young, male and live from paycheck to paycheck, Mr. Hicks said. As a result, he said, many launches are scheduled for the second Friday of the month or the end of the month, when they tend to have the most cash..."

Here is what (many, not some) young women are doing during economic hard times (NYTIMES):

"Workers are dropping out of the labor force in droves, and they are mostly women. In fact, many are young women. But they are not dropping out forever; instead, these young women seem to be postponing their working lives to get more education. There are now — for the first time in three decades — more young women in school than in the work force....

"Now, as was the case then, one sex is the primary beneficiary. Though young women in their late teens and early 20’s view today’s economic lull as an opportunity to upgrade their skills, their male counterparts are more likely to take whatever job they can find. The longer-term consequences, economists say, are that the next generation of women may have a significant advantage over their male counterparts, whose career options are already becoming constrained....""    

Interested in a programming or computer/ software engineering as a career? Want to work for a Start-Up firm? Nice Infographic and links here that might be helpful to you...

Go HERE for the Source and perhaps a better view...For those of you already aware of this type of info, does it provide good advice?  Are the suggested links legit? Thanks!

"Who's on First?"---See why Big Sugar is Suing Big Corn over naming rights to Corn Syrup. How much do we subsidize these 2 industries EVERY year??

I hope in the opening arguement one of the lawyers uses is a modified "Who's on First" routine...The Sugar industry is suing the Corn industry because the Corn industry wants to change the name of corn syrup to "Corn Sugar" which the Sugar s industry believes will confuse consumers into thinking Corn Sugar is comparable to "real" sugar.  Got that??? Sweet....

Big Corn, Big Sugar in bitter US row on sweetener

Big Corn and Big Sugar are locked in a legal and public relations fight in the US over a plan to change the name of a corn-based sweetener that has gotten a bad name.

The fight began last year when Corn Refiners Association, a trade association, proposed changing the name of high-fructose corn syrup to merely "corn sugar."

The group said the new name "more accurately describes this sweetener and helps clarify food products labeling for manufacturers and consumers alike."

But the sugar industry argued this change would be a bitter pill for US consumers and would only add to the confusion about a sweetener that has drawn criticism by some health advocates.

Sugar producers have filed suit alleging the corn industry has spent $50 million in "a mass media rebranding campaign that misleads the consuming public by asserting falsely that HFCS is natural and is indistinguishable from the sugar extracted from sugar cane and sugar beets."