Explaining Southern California's economy

Paul Krugman says Ben Bernanke has become Locutus of Borg

Locutus of Fed

Resistance to Fed policy is futile, Professor Krugman.

Over the weekend, we got a preview of Paul Krugman's new book, which has the not-very-subtle title "End this Depression Now!" Yep, that's an exclamation point, perhaps the first ever in the title of a book by a Nobel Prize winner. And yep, Krugman doesn't think we're in a recession. He's calling it a Depression, and yes, I've dutifully capitalized that scary word. 

The excerpt appeared in the New York Times Magazine, the pages of which Krugman has taken to from time to time when he wants to lay out a more involved argument than the column inches he's allotted on the NYT's op-ed page will allow. It also appeared just a few days before the Federal Reserve's Open Market Committee met to decide on the direction of U.S. monetary policy. 

Bernanke effectively hired Krugman, when Bernanke ran the economics department at Princeton. And Krugman clearly thinks that Princeton Bernanke was a much different economics guy than Chairman Ben. And when I say "much different," what I mean is that Krugman has no qualms about going out on a very long limb here. Like far enough to bring out the "Star Trek" comparisons.

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March jobs report: The bad news and the good news

A jobs sign hangs above the entrance to

KAREN BLEIER/AFP/Getty Images

A jobs sign hangs above the entrance to the US Chamber of Commerce building in Washington, DC.

Well, I wasn't even close. Yesterday, I predicted that we'd see another decent if not spectacular jobs report from the Bureau of Labor Statistics. My number was 225,000 jobs added. But the actual number, released by the BLS this morning, is miles lower then that: 120,000.

That's the bad news. The good news, if you can call it that, is that the national unemployment rate fell to 8.2 percent from 8.3 percent. But that's just because more than 120,000 Americans quit looking for work. (Did I say this was the good news part?)

There was some truly good news. The trend of the BLS revising up the previous month's result continues: a gain of 227,000 jobs was originally reported for February, but that number has been adjusted to 240,000.

It's a good thing the markets are closed today for Good Friday, as this "surprise to the downside" — given that most economists who follow the labor market expected another month of 200,000-plus new jobs in March — may very well not have been priced in (basically, already accounted for), given that the major stock indexes shed some gains this week.

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Get ready for tomorrow's jobs report

A jobs sign hangs above the entrance to

KAREN BLEIER/AFP/Getty Images

A jobs sign hangs above the entrance to the US Chamber of Commerce building in Washington, DC.

Time to take a crack at handicapping tomorrow's official March jobs report from the Bureau of Labor Statistics (BLS). If you'll recall, February came in at 227,000 and the national unemployment rate remained at 8.3 percent. That was good but not great; the economy really needs to add close to 400,000 jobs each month to reduce the rate to a pre-crisis level. But for the moment, adding 200,000-plus jobs each month shows that the economy is slowly recovering and expanding, even if GDP growth is only running at 2-2.5 percent.

There's a wrinkle to the March numbers — the data is usually released in the first Friday of the month, and this time around Friday is a holiday for the stock market (Good Friday). This basically gives traders a long weekend to digest the news.

Anyway, to the handicapping! The ADP report came out yesterday and said the economy added 209,000 in March. The Bloomberg consensus — a survey of 77 economists — says the number will be 205,000. Business Insider has been crunching various datasets of late and comes up with 193,000, a somewhat alarming figure given that we want to see 200,000 at least to support the idea that GDP is puttering along at around 2-2.5 percent, down from the 3 percent we saw in the fourth quarter of last year, but not the discouraging sub-2-percent pace we witnessed in much of 2011.

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Best take on the Fed's meeting is from the Huffington Post

Mercer 11751

AP Photo / J. Scott Applewhite

The Federal Reserve Building in Washington, DC.

The Federal Reserve released the minutes from its most recent Open Market Committee meeting today. Bottom line: There will be no additional round of "quantitative easing," or QE3. This means the Fed won't print more money to buy bonds and drive down long-term interest rates. 

At the Huffington Post, Mark Gongloff had the best take:

This affront to humanity sent the stock market tumbling immediately, making it seem almost as if the market's rally to multi-year highs had less to do with actual economic growth than with an addiction to Fed stimulus.

At the worst moment for the market this afternoon, the Dow Jones Industrial Average was down about 130 points, or about one percent, while the S&P 500 stock index was also down about one percent. Both markets were on track for one of their worst days of the year.

Gold, silver and platinum, which have thrived under a free and easy Fed, fell even harder. Gold at last check was down nearly 2 percent to $1650.40 an ounce.

U.S. Treasury bonds fell, too, as the Fed's minutes disappointed market hopes that Bernanke & Co. would soon launch another program to print money and buy bonds. The 10-year Treasury note recently yielded 2.25 percent, which is still ridiculously low, thanks in part to the Fed still keeping its promise to hold short-term interest rates near zero until sometime around the Second Coming.

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Small banks v. too-big-to-fail banks

Scott Olson/Getty Images

Bank of America, a big U.S. bank that's a symbol of "Too Big to Fail."

In a very aggressively argued essay by Harvey Rosenblum in the annual report of the Federal Reserve Bank of Dallas, the difference between Very Very Big Banks and small banks is blamed for the Federal Reserve's general inability to use monetary policy to "fix" the financial crisis:

The machinery of monetary policy hasn’t worked well in the current recovery. The primary reason: TBTF financial institutions. Many of the biggest banks have sputtered, their balance sheets still clogged with toxic assets accumulated in the boom years. 

In contrast, the nation’s smaller banks are in somewhat better shape by some measures. Before the financial crisis, most didn’t make big bets on mortgage-backed securities, derivatives and other highly risky assets whose value imploded. Those that did were closed by the Federal Deposit Insurance Corp. (FDIC), a government agency. 

Coming out of the crisis, the surviving small banks had healthier balance sheets. However, smaller banks comprise only one sixth of the banking system’s capacity and can’t provide the financial clout needed for a strong economic rebound.

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