Jerks!

As highlighted in this article, the Chinese government is expressing its concern that some countries might exit their stimulus programs sooner rather than later. As most loyal BBFiles readers can probably surmise, this posturing by Chinese officials is based less off of economic theory and based more off of self preservation.



There are two primary ways to stimulate an economy: fiscal and monetary. The Chinese will say anything and everything they can to keep other governments from stimulating the economy via monetary policies and the will say anything and everything to keep them stimulating the economy via fiscal stimulus.



This is a blatant self preservation tactic. The Chinese own a lot of our bonds, which depreciate in value when the economy is stimulated via monetary policies. Conversly, if the economy is stimulated through fiscal deficit spending than the bonds may appreciate in value. Moreover, the Chinese know that stimulus funds will reach Chinese companies through purchases of manufactured goods coming from China. Therefore, there are three reasons for why the Chinese will automatically say the USA should not reduce fiscal stimulus and none of them should be heeded by any reasonable economist!

The Fed's Independance

According to Bloomberg, the Federal Reserve is in a struggle with Congress to maintain its independence. Kansas City Federal Reserve President Thomas Hoenig is releasing a book that outlines the Fed's politcal fight to maintain autonomy. Hoenig is reacting to proposed legislation by two members of Congress, Barney Frank (D) and Chris Dodd (D), that would force every Regional Bank President to be appointed by Congress. Currently, the entire Board of Governors is appointed or approved by Congress and the Presidents are picked internally by Fed officials. This is in essence a checks and balances system so that Congress cannot overpower the monetary system while at the same they have oversight of the Fed. According to Hoenig, and the BBFiles wholeheartedly agrees, if Congress gains too much influence in the Federal Reserve monetary policy may begin to follow the political whims of whatever economic policies would help Congressmen be re-elected. This would retard growth and ensure a very inefficient and volatile monetary policy. The BBFiles would reccommend to Frank and Dodd to drop this proposed legislation immediately.

Krugman's Blog

Today, the always partisan Paul Krugman discussed the current attitudes of Federal Reserve Regional Presidents. He disagrees with them that interest rates should be hiked sooner rather than later. In response to Plosser's argument of early rate hikes, he says the following:

I don’t know what analysis lies behind these itchy trigger fingers. But it probably isn’t about analysis, anyway — it’s about mentality, the sense that central banks are supposed to act tough, not provide easy credit.

So the person who blames almost the entire recession of Greenspan's policy of easy credit is all of a sudden arguing that easy credit should be available for the next several years? It is interesting to note that Krugman's economic attitude changed on January 20, 2009. Why is that day significant again?

BBFiles to Tarullo: Quit Talking!

As most of our most dedicated BBFile subscribers noticed today, there have been several headlines made concerning Feinberg's limitations on banker pay. Even more headlines were made today when Bernanke announced that the Fed would look into banker compensation. Readers, do not take these statements at face-value. The Federal Reserve's independence from Washington is of utmost importance. Bernanke knows this and wisely chooses his battles, knowing that Congress needs to stay away from monetary decisions. Unfortunetly there is a rabble-rouser in the midst. Daniel Tarullo has been fueling the fire in support of Feinberg's plan. Actually, out of the six articles The BBFiles has found concerning this topic, the ONLY Board of Governor to talk about the pay restrictions has been Tarullo! What is disconcerting about this is that Tarullo is also the only Board of Governor appointed by President Obama! Clearly Tarullo is jeopardizing the Fed's independance and Obama is undoubetedly influencing this behavior.

If Tarullo doesn't quit talking, The BBFiles will have no choice but to add him to the dreaded Bernanke Arch-Nemesis List!

three journals energy

http://profesores.utdt.edu/~economia/summer/Papers%20XI%20workshop/16%20diciembre/Carrera.pdf

http://www.cii.org/UserFiles/file/resource%20center/investment%20issues/commodities%20brief%209-11-08%20updated.pdf

http://www.vermontfuel.com/Vermont_Fuel_Dealers_Association/News_files/Index%20Speculators%20Have%20Been%20a%20Major%20Cause%20of%20the%20Recent%20Drop%20in%20Oil%20Prices%20%20.pdf

An Economics Riddle: Dutch Disease

Here is an economics forecasting riddle:

In 2007 Ghana discovered massive amounts of crude oil about 20 miles off of the coast. It is estimated that it will bring over $1 Billion of revenue to the Ghana government. The crude oil will be primarily exported. Also, Ghana will own the entire field, except for a 25% stake sold to ExxonMobil so that the mining process goes efficiently and smoothly.

Here is the question: First, if Ghana EXPORTS a lot of crude oil what will happen to Ghana's currency? Will it increase or decrease?

Second, what ramifications will the change in Ghana's currency have on the rest of Ghana's economy?

More specifically, think about the different sectors of an economy (Government expenditure, investment, consumption, and export/import). Which sectors are affected more than the others? Could the rise in Ghana's currency have dangerous implications for any one sector in general?

For more information, research Dutch Disease... which is neither Dutch nor a disease!