Roundup: January 5

Markets

Obama's team has said he is planning about $300bn in tax cuts, to constitute about 40% of his planned fiscal stimulus, including about $150bn of tax credits for workers. The full package is likely not to be ready at inauguration. Willem Buiter says the US shouldn't venture too far down the road of fiscal stimulus: very soon "the US will have to start to pay a normal market price for the net resources it borrows from abroad" and to start dealing with its unfunded future obligations.

The Russian restriction on gas supplies to the Ukraine is affecting seven EU countries; an EU mission will meet with Gazprom on Tuesday. But is blaming Gazprom just cover for the EU's lack of a coherent energy policy?

Calculated Risk says that as commercial real estate lending begins to be hit by the financial crisis we are likely to see more failures of regional banks. The BOE's Q4 credit conditions survey indicates that despite substantial capital injections UK banks are not likely to restart lending. Chinese manufacturing output fell in December for the third month in a row. US December auto sales were dismal. The WSJ has the full breakdown on auto sales.

Dean Baker has an excellent article in the Boston Review making the hugely important point that there is little real debate over the extent of regulation of the US economy -- the real battle is over the distributive effects of regulation.

A craven and shameless article in the FT argues that Germany was wrong to cap bank managers' salaries as part of its rescue package.

The Fed has begun a $500bn purchase program for agency MBS.


World

Israeli ground troops invaded the Gaza Strip yesterday and more than 500 Palestinians have been killed in the fighting. Obama has yet to make a substantial comment but says he has been in contact with the current administration. Sewage is flooding the streets of Gaza, 70% of residents are without tap water, and hospitals are using generators to provide electricity in what Israel says is not a humanitarian crisis. Speculation is mounting that the aim of the assault is simply to destroy Hamas; but Bush continues to give credence to the Qassam rockets, saying that any ceasefire must include conditions to preclude further rocket launches into Israel.

China is cracking down on "vulgar" internet content and targeting websites including Google and Baidu. Danwei says it's nothing special -- just the yearly reminder from the Net Nanny that it's in charge. Meanwhile, topless pictures of Zhang Ziyi are the big news on the Chinese Internet today.

Bill Richardson has withdrawn his nomination for commerce secretary over a pay-to-play scandal. Al Franken is the junior senator from Minnesota. Ghana has peacefully elected John Atta Mills its president.

Pressure on Iranian reformers is growing, reports the NYT, as it appears more likely Mohammad Khatami may declare his candidacy for the presidency. An Iranian military official called today for oil exporters to cut supplies to the West in protest over the war in Gaza.

Walter Pincus writes in the Washington Post on Secretary of Defense Robert Gates's relatively doveish views on Russia. Meanwhile, Russia is saying it intends to station warships abroad.

The NYT is selling display advertisement on its front page for the first time.


Science

Citgo, the Venezuelan-owned oil company, has ended its low-income heating oil assistance program, in which it provided free heating oil to poor individuals in the U.S. Falling oil prices are not all gravy, and the tightening of margins will curtail philanthropy by the major oil companies, which supports programs such as these as well as many of the major art institutions in the world.

RGGI (the Regional Greenhouse Gas Inititative; for a primer, see our earlier post) will move toward founding a market-based low-carbon fuel standard for its ten member states.

The U.S. is resuming purchases of oil for the SPR (Strategic Petroleum Reserve) as the price continues to remain low, and China is adding to her reserves as well.

Readings: Greenspan

"Why did corporate governance checks and balances that served us reasonably well in the past break down? At root was the rapid enlargement of stock market capitalizations in the latter part of the 1990s that arguably engendered an outsized increase in opportunities for avarice. An infectious greed seemed to grip much of our business community. Our historical guardians of financial information were overwhelmed. Too many corporate executives sought ways to "harvest" some of those stock market gains. As a result, the highly desirable spread of shareholding and options among business managers perversely created incentives to artificially inflate reported earnings in order to keep stock prices high and rising. This outcome suggests that the options were poorly structured, and, consequently, they failed to properly align the long-term interests of shareholders and managers, the paradigm so essential for effective corporate governance. The incentives they created overcame the good judgment of too many corporate managers. It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously."
Alan Greenspan, before the Senate Committee on Banking, Housing, and Urban Affairs, July 16, 2002

Charts: Socialism? (2)

Federal budget surplus (deficit) as a percentage of GDP, 1947-2006, omitting the Transition Quarter of calendar year 1976. No Republican administration has run a budget surplus since Eisenhower; Republican administrations have run an average budget deficit of 2.5% of GDP, vs. 0.5% of GDP for Democratic administrations.

Readings: After Horace

O Postumus, alas! I hear the bells go tinkle-tinkle!
Zip! goes another flitting year! here comes another wrinkle!
And though I hate to hang the crape -- no skill and no endurance
Can keep your folks from putting in a claim for your insurance.

If daily you endow a school and forty-two Foundations,
Would that put off a single day your last disintegrations?
No! What though you be prince, or prune, a slacker or a hero,
The sum of all your wealth and woes is ultimately zero.

Some day you'll bid your wife good-bye, and -- this no prognosis --
That afternoon they'll say it was arterio-sclerosis;
And in a year, or maybe less, a man of greater merit
Shall spill upon your marble floors the wine he will inherit.
Franklin P. Adams, "As The New Year (18 BC) Dawned" (1917), after Horace 2.14