In the rare instance where you actually end up talking to someone about bank capital requirements, you might hear someone say that higher requirements reduce a bank’s ability to lend:  The bank has to keep more capital ‘idle’ and thus there’s less funds to lend.  

From an article at nakedcapitalism, written by David Miles that originally appeared at VoxEU.  Miles is a Monetary Policy Committee member at the Bank of England.

“Were banks, over time, to come to use substantially more equity and correspondingly less debt, they would not have to dramatically alter their stock of assets or cut their lending. The change that is needed is on the funding side of banks’ balance sheets – on their liabilities – and not their assets. The idea that banks must shrink lending to satisfy higher requirements on equity funding is a non-sequitur. But there is a widely used vocabulary on the impact of capital requirements that encourages people to think this will happen. Capital requirements are often described as if extra equity financing means that money is drained from the economy – that more capital means less money for lending.

Consider this from the Wall St. Journal, in a report on the Basel negotiations on new rules over bank capital:

The proposed rules would have driven capital requirements up for all banks, forcing the quality and quantity of these capital cushions to grow …… That would be expensive for banks, because the money sits on banks’ balance sheets and essentially can’t be invested to bring in more profits. (Paletta 2010)

This is pretty much the opposite of the truth. At the risk of stating the obvious, equity is a form of financing; other things equal a bank that raises more equity has more money to lend – not less.”

Beezer here.  Banks lend less because the demand for loans declines.  And if the demand for loans declines due to a financial banking crisis, banks lend a lot, lot less.  As we have found out the hard way.  Raising equity to meet higher capital requirements, as opposed to taking on more borrowing to meet the requirments, increases the amount of money available for bank lending.  Odd that the Wall Street Journal, or at least one of its reporters, doesn’t understand this.

There’s been a lot of ink used to point out that the US isn’t keeping up, education-wise, with the global competition.

From Matt Yglesias:

“There’s an image of the United States out there as the land of free market capitalism. And certainly there’s something to that. But it’s also the case that throughout our history, America has traditionally been the best educated country in the world. That goes all the way back to New England’s settlement by Bible-obsessed Puritans who through up schools everywhere so kids could learn to read the word of God. It continues through Justin Smith Morrill’s Land Grant Colleges Act, through an emphasis on being an attractive destination for high-skill workers, through to the GI Bill, and public school desegregation in the twenty years after 1955. But we’ve really slowed down. Our fancy colleges are getting more expensive rather than getting bigger or better. The downscale for-profit college sector is dynamic and innovative, but it’s basically a scam where barely anyone graduates. We’re not investing in high-quality preschool, we’re shutting the door on skilled migrants, and we’re not investing in effective job training programs. On top of that, we’ve created housing policies that generally make it too expensive for low-income families to move to school districts whose public school perform well!’

Beezer here.  Since 1980 the cost of higher education went up 1,000% while enrollments rose only 50%!!!  From Noahpinion.

To sum up: a National University System would boost human capital, would boost research and development, and would probably reduce tuition costs. The U.S. has the world’s best universities, and we should capitalize on this advantage. Until a rigorous cost-benefit analysis is performed, of course, I can’t say with certainty that the benefits would justify the expense of building the universities. But it is an idea worth thinking about, and I don’t really see anyone suggesting it. So here, I’ve suggested it.”

Beezer again.  Another head scratcher.  Economics indicates money would flood into this market as prices soar.  But outside of internet based colleges, which many feel are inept to the point of being scams, there’s little growth.  Noahpinion says national universities could be one answer.
Who knows.

Daniel Little is chancellor of the University of Michigan-Dearborn and a philosophy professor.  He publishes a fascinating blog called Understanding Society, where he recently posted the following article.

“The playing field seems to keep tilting further against ordinary people in this country — poor people, hourly workers, low-paid service workers, middle-class people with family incomes in the $60-80K range, uninsured people, ….  75% of American households have household incomes below $80,000; the national median was $44,389 in 2005.  Meanwhile the top one percent of Americans receive 17% of total after-tax income.  And the rationale offered by the right to justify these increasing inequalities keeps shifting over time: free enterprise ideology, trickle-down economics, divisive racial politics, and irrelevant social issues, for example.

Here is the trajectory of US income by quintile since 1965 (link); essentially no change in the bottom three quintiles over that 40-year period. Plainly the benefits of growth and productivity change in the national economy have benefited the top 40% of the population, and disproportionately have flowed to the top 5%.

Just consider what has happened to income to the “middle” class versus the top 1% in the US economy. The 40-60% segment of earners have declined from 16.5% to 14.1% of after-tax income, while the top 1% has more than doubled its share, to 17.1%.

And here’s a very graphic demonstration of the rapid increase in the percent of income flowing to the top percent of US income earners since the Reagan revolution (thanks to benmuse):

Meanwhile, the power of extreme wealth in the country seems more or less unlimited and unchallenged.  Corporations can spend as much as they want to further candidates — as “persons” with freedom of speech rights following Citizens’ United v. Federal Election Commission (link). Billionaires like the Koch brothers fund the anti-labor agendas of conservative governors. Right-wing media empires dominate the airwaves. Well-financed conservative politicians use the language of “budget crisis” as a pretext for harshly reducing programs that benefit ordinary people (like Pell grants). Lobbyists for corporations and major economic interests can influence agencies and regulations in the interest of their clients, more or less invisibly.  And billionaire lightweights like Donald Trump continue to make ridiculous statements about President Obama’s birth status.

The political voice of the right, and the economic elite they serve, has never been louder.  And it is becoming more reckless in its attacks on the rest of society.  Immigrants come in for repressive legislation in Arizona and other states.  Racist voices that would never have been tolerated a generation ago are edging towards mainstream acceptability on the right. Self-righteous attempts to reverse health care reform are being trumpeted — threatening one of the few gains that poor and uninsured people have made in decades.  And the now-systematic attack on public sector unions is visibly aimed at silencing one of the very few powerful voices that stand in the political sphere on behalf of ordinary working people.

The big mystery is — why do the majority of Americans accept this shifting equation without protest? And how can progressive political organizations and movements do a better job of communicating the basic social realities of our economy and our democracy to a mass audience?  Social justice isn’t a “special interest” — it is a commitment to the fundamental interests and dignity of the majority of Americans. 

The playing field seems to keep tilting further against ordinary people in this country — poor people, hourly workers, low-paid service workers, middle-class people with family incomes in the $60-80K range, uninsured people, ….  75% of American households have household incomes below $80,000; the national median was $44,389 in 2005.  Meanwhile the top one percent of Americans receive 17% of total after-tax income.  And the rationale offered by the right to justify these increasing inequalities keeps shifting over time: free enterprise ideology, trickle-down economics, divisive racial politics, and irrelevant social issues, for example.

Here is the trajectory of US income by quintile since 1965 (link); essentially no change in the bottom three quintiles over that 40-year period. Plainly the benefits of growth and productivity change in the national economy have benefited the top 40% of the population, and disproportionately have flowed to the top 5%.

Just consider what has happened to income to the “middle” class versus the top 1% in the US economy. The 40-60% segment of earners have declined from 16.5% to 14.1% of after-tax income, while the top 1% has more than doubled its share, to 17.1%.

And here’s a very graphic demonstration of the rapid increase in the percent of income flowing to the top percent of US income earners since the Reagan revolution (thanks to benmuse):

Meanwhile, the power of extreme wealth in the country seems more or less unlimited and unchallenged.  Corporations can spend as much as they want to further candidates — as “persons” with freedom of speech rights following Citizens’ United v. Federal Election Commission (link). Billionaires like the Koch brothers fund the anti-labor agendas of conservative governors. Right-wing media empires dominate the airwaves. Well-financed conservative politicians use the language of “budget crisis” as a pretext for harshly reducing programs that benefit ordinary people (like Pell grants). Lobbyists for corporations and major economic interests can influence agencies and regulations in the interest of their clients, more or less invisibly.  And billionaire lightweights like Donald Trump continue to make ridiculous statements about President Obama’s birth status.

The political voice of the right, and the economic elite they serve, has never been louder.  And it is becoming more reckless in its attacks on the rest of society.  Immigrants come in for repressive legislation in Arizona and other states.  Racist voices that would never have been tolerated a generation ago are edging towards mainstream acceptability on the right. Self-righteous attempts to reverse health care reform are being trumpeted — threatening one of the few gains that poor and uninsured people have made in decades.  And the now-systematic attack on public sector unions is visibly aimed at silencing one of the very few powerful voices that stand in the political sphere on behalf of ordinary working people.

The big mystery is — why do the majority of Americans accept this shifting equation without protest? And how can progressive political organizations and movements do a better job of communicating the basic social realities of our economy and our democracy to a mass audience?  Social justice isn’t a “special interest” — it is a commitment to the fundamental interests and dignity of the majority of Americans.”

Beezer here.  A concise understanding of what constitutes fairness in society would prohibit the current move to unravel societal gains that took the better part of the last century to achieve.  We definitely have a problem here.  Call it an Oligarchy, call it a plutocracy, call it whatever you want it doesn’t alter the fact that this ascendant political movement is basically mean and unfair.   As is so often the case, thanks to Mark Thoma’s economist’s view blogsite for spotting Little’s essay.

Economist Paul Krugman offers a chart that compares the cumulative tax take, as a percentage of GDP, of the top developed countries dubbed the G7.

Our Low, Low Taxes

I thought it might be useful to have a cleaner comparison of the major advanced countries. So here are taxes by all levels of government as a % of GDP, removing the clutter by only looking at the G7, and using data from 2007 so that things aren’t confused by the effects of the Great Recession:

Source.

Beezer here.  One conclusion could be that we’re not unduly burdened at our current levels.  The other countries are developed countries too.  Maybe the higher tax take they have pays for universal health care and college tuitions?  You think.

Investment advisor, popular blogger and regular contributor to CNBC, Barry Ritholtz points out an inconvenient fact  to all those gnashing their teeth about today’s weak dollar.

“The hand-wringing about the US dollar is rather late to the party.

Where were all you concerned dollar bulls earlier in the decade? It strikes me that like the late-to-discover inflation, you folks cannot spot a trend until it bites you in your collective asses.

While the WSJ is upset that the dollar has been range bound between 72-87 the past 3 years, I strongly urge them to look at the 7 years before that.

Consider the following charts: The one at right was in today’s WSJ, and shows the US currency off by less than 20% over the past few years.

That’s not a dollar collapse; A fall from 121.02 in July 2001 to 70.69 in March 2008 — Now THATS a dollar collapse:

Source: Barchart.com

Beezer here.  Facts are just so yesterday.  Who are these people that keep reminding us of the truth and provide some perspective?

Former Secretary of Labor under Clinton and economics professor, Robert Reich,  argues that the majority of Americans hold opinions that are to the left of both President Obama and Republicans.  Based on opinion polls, he’s correct.  His article is entitled ‘Beware the Middle Ground of the Great Budget Debate.’

“How debates are framed is critical because the “center” or “middle ground” is supposedly halfway between the two extremes.

We continue to hear that the Great Budget Debate has two sides: The President and the Democrats want to cut the budget deficit mainly by increasing taxes on the rich and reducing military spending, but not by privatizing Medicare. On the other side are Paul Ryan, Republicans, and the right, who want cut the deficit by privatizing Medicare and slicing programs that benefit poorer Americans, while lowering taxes on the rich.

By this logic, the center lies just between.

Baloney.

According to the most recent Washington Post-ABC poll, 78 percent of Americans oppose cutting spending on Medicare as a way to reduce the debt, and 72 percent support raising taxes on the rich – including 68 percent of Independents and 54 percent of Republicans.

In other words, the center of America isn’t near halfway between the two sides. It’s overwhelmingly on the side of the President and the Democrats.

I’d wager if Americans also knew two-thirds of Ryan’s budget cuts come from programs serving lower and moderate-income Americans and over 70 percent of the savings fund tax cuts for the rich – meaning it’s really just a giant transfer from the less advantaged to the super advantaged without much deficit reduction at all – far more would be against it.

And if people knew that the Ryan plan would channel hundreds of billions of their Medicare dollars into the pockets of private for-profit heath insurers, almost everyone would be against it.

The Republican plan shouldn’t be considered one side of a great debate. It shouldn’t be considered at all. Americans don’t want it.

Which is why I get worried when I hear about so-called “bipartisan” groups on Capitol Hill seeking a grand compromise, such as the Senate’s so-called “Gang of Six.”

Senator Dick Durbin, Democrat of Illinois, a member of that Gang, says they’re near agreement on a plan that will chart a “middle ground” between the House Republican budget and the plan outlined last week by the President.

Watch your wallets.

In my view, even the President doesn’t go nearly far enough in the direction most Americans would approve. All he wants to do, essentially, is end the Bush tax windfalls for the wealthy – which were designed to be ended in 2010 in any event – and close a few loopholes.

But why shouldn’t we go back to the tax rates we had thirty years ago, which required the rich to pay much higher shares of their incomes? One of the great scandals of our age is how concentrated income and wealth have become. The top 1 percent now gets twice the share of national income it took home thirty years ago.

If the super rich paid taxes at the same rates they did three decades ago, they’d contribute $350 billion more per year than they are now – amounting to trillions more over the next decade. That’s enough to ensure every young American is healthy and well-educated and that the nation’s infrastructure is up to world-class standards.

Nor does the President’s proposal go nearly far enough in cutting military spending, which is not only out of control but completely unrelated to our nation’s defense needs – fancy weapons systems designed for an age of conventional warfare; hundreds of billions of dollars for the Navy and Air Force, when most of the action is with the Army, Marines, and Special Forces; and billions more for programs no one can justify and few can understand.

If Americans understood how much they’re paying for defense and how little they’re getting, they’d demand a defense budget at least 25 percent smaller than it is today.

Finally, the President’s proposed budget doesn’t deal with the scandal of the nation’s schools in poor and middle-class communities – schools whose teachers are paid under $50,000 a year, whose classrooms are crammed, that can’t afford textbooks or science labs, that have abandoned after-school programs and courses like history and art. Most school budgets depend manly on local property taxes that continue to drop in lower-income communities. The federal government should come to their rescue.

To think of the “center” as roughly halfway between the President’s and Paul Ryan’s proposals is to ignore what Americans need and want. For our political representatives to find a ”middle ground” between the two would be a travesty.”

Beezer here.  Right now the Republicans are discovering some unpleasant facts:  Most Americans reject the notion Social Security and Medicare need slashing, and they also overwhelmingly believe the rich don’t pay enough taxes.  Rep. Paul Ryan was roundly booed at a recent town meeting in his own district when he asserted that the rich produced all the jobs and therefore they should receive tax cuts.  It appears the successful con job conducted by Republicans for the past mid-terms is beginning to unravel.  Finally.  As per usual a visit to economist’s view directed one to Reich’s article.