Dean Baker's Blog, page 510

Non-Payment of Credit Default Swaps on Greek Debt

Gretchen Morgenson noted the fact that credit default swaps (CDS) on Greek debt are not being paid off despite the fact that many investors are only getting 50 cents for each dollar of debt. This issue is a bit more complicated than presented in the column.

Major European banks essentially had their arms twisted to "voluntarily" accept a partial write-down on Greek debt. The ruling on the swaps hinged on the fact that no one who held Greek debt did not actually get a payment that they were...

There Was No Bowles-Simpson Commission Report #4567

For some reason many people in the policy community feel the need to assert that the deficit commission chaired by Morgan Stanley director Erskine Bowles and former Senator Alan Simpson produced a report. It did not. The two co-chairs produced a report, which was never submitted for a formal vote since it did not have the support of the necessary majority.

Therefore Christine Romer, the former head of President Obama's Council of Economic Advisers (CEA), was mistaken when she referred to the...

Robert Samuelson, Wrong Again

To his credit, in his column today Robert Samuelson apologized for a mistake in an earlier column. In the prior column he claimed that if Keynes saw the level of indebtedness of countries today, he would not be arguing that governments should be running deficits to stimulate the economy. The problem is that the level of indebtedness in the UK, where Keynes was writing, was far larger in the 30s than the level of indebtedness currently faced by the United States and every other wealthy...

Social Security Is NOT Selling Government Bonds

In an article discussing the implications of the extension of the payroll tax cut, the Washington Post told readers:

"This year, the Social Security system projects that it will pay out $46 billion more in benefits than it will collect in cash. It made up for the shortfall by redeeming Treasury bonds bought in years when there were cash surpluses."

This is not true. The Social Security trust fund is projected to earn $114.9 billion in interest on the bonds it holds. It will use a portion of t...

When Companies Write Off Stock Options Is It an Unfair Tax Break?

The NYT had an interesting piece on a provision in the tax code that allows companies to write off the value of exercised options as employee compensation. This is deducted from profits and reduces their taxes accordingly.

It is not clear that this treatment is improper. In principle, the value that the company is paying the executives getting options is the value of the option at the time it is issued. For example, if a company's stock is current valued at $10, an option to buy the stock at ...

The Over-Valued Dollar as Class War

This piece reports on a growing trend among major manufacturers to bring factory jobs back to the United States, but at much lower wages than what they had formerly paid. The article shows clearly how the over-valued dollar that was deliberately engineered by Robert Rubin in the late 90s has put downward pressure on wages of large segments of the U.S. workforce. With the dollar having reversed most of its gains from the 90s, U.S. manufacturing wages can again be competitive with wages in...

Spain Did Not Run Up High Public Debt

In an article discussing the current budget situation in Italy the NYT told readers:

"Germany has adamantly opposed what it sees as rewarding the bad behavior of southern rim countries like Italy, Greece, Spain and Portugal, which amassed high public debts and where tax evasion is rampant."

Actually, of this group only Greece was consistently experiencing a rise in its debt to GDP ratio. In Portugal there was some increase in the debt to GDP ratio in the years prior to the recession, but...

The Daily Beast Acts Up on the Economy

Sometimes a little kid will deliberately be bad just to get attention from her teacher or parents. This seems to be the philosophy of a Daily Beast column by Zachary Karabell, which uses what seems to be some deliberately bad economic analysis to tell us things are really pretty good.

The piece begins with the incredible assertion:

"years from now, when we look back at 2011, it may be remembered as one of the best worst years of the early 21st century. You'd be hard-pressed to come up with...

Washington Post Runs Another Front Page Editorial About the Deficit

The Washington Post used a front page, above the fold article, to complain that Congress and President Obama had not done as much as it would have liked to reduce the deficit. Every person interviewed for the piece shared the complaint. The piece did not present the views of a single person pointing out that more progress on deficit reduction could have led to even more unemployment than what the country is already experiencing.

Nor did the Post present the views of anyone pointing out the...

David Brooks Is Projecting His Self Indulgence Again

Undoubtedly projecting from the fact that he can draw a nice 6-figure income for little obvious work, David Brooks complained in his column:

" Today, the country is middle-aged but self-indulgent. Bad habits have accumulated."

For the most part the column is a confused diatribe against the Obama administration's economic policies with a lecture on moral rectitude thrown in for good measure. He starts by condemning the efforts to stimulate the economy by telling readers:

"Today, Americans are ...