Banking, broadly defined, from yesterday's FT

California: The turkey in the coal mine?

California has among the highest taxes in the US, plus it has the biggest budget deficit in the land. Despite the state's large scale consumption of resources the state ranks 47th of the 50 states in the support for education. Why? It's because the state, which has 12% of the nation's population, supports 30% of the nation's welfare recipients, so there is little money left for anything else, like schools. A great many of the the constitutionally idle prefer the California lifestyle, it appears, to places like, for example, Nebraska, and there is the appeal to those from south of the border many of whom lack the skills needed to participate in the non-welfare economy. California dreaming is turning into a nightmare as the social deterioration wrought by its policies continues. (See Financial Times, May 30, 2012: "California democracy fetters drive to balance books" by Matt Garrahan.)

Is the Irish mortgage problem intractable?

Ten percent of Ireland's 760,000 home mortgage are more than 90 days in arrears. Already over ten percent have been restructured. Of the restructured mortgages, 50% are more than 90 days in arrears, so a total of 15% have been restructured or are in arrears. The number of restructured mortgages was up 10% in the first quarter. Getting into arrears even if you can pay is a way of getting a mortgage reduction. What are the implications for the US and the UK?

Is the smart Irish money leaving the euro for the dollar?

In this morning's FT, there is an interesting article entitled "Wary Irish reluctant to jeopardise recovery." In it, one Bernard O'Reilly, a retired civil servant, is said to believe that many Irish citizens are voting for the fiscal discipline treaty out of fear. This fear has other implications: "If Greece goes down," Mr. O'Reilly said, "we are next in the firing line. I know people who are trying to put their money into US dollars. We just don't know what is going to happen here." Is "smart money" going into the dollar? Does this explain the weakness of gold? The money is going into the dollar, but it's not smart. It's a trap for investors based in other currencies.

St. Louis Fed's Bullard says 1970's-type inflation is main risk to outlook

The St. Louis Fed is supposedly a bastion of monetarism. Thus, President Bullard is fearing inflation. We should take his concerns seriously. Here are his slides: http://research.stlouisfed.org/econ/bullard/pdf/BullardDialogueWithTheFedLouisvilleKYMay16_2012_Final.pdf

Best Greece option: Stay in euro and default

It puzzles me that people assume that Greece should leave the euro if it defaults. Default is the only action that will allow it to stay in the euro. When GM defaulted, did it leave the US dollar?

Inflation or Deflation?

There is a great deal of concern among policy makers that we will fall into deflation. And yet, aside from houses and natural gas, I can't think of many things that have decreased in price over the past five years. Last night we had some neighbors over in an impromptu manner and I went out for a large cheese pizza at Bertucci's. It was $18 plus tax, up from $14 the last time I bought one. (several years ago) Shoe polish (i.e. Kiwi shoe wax) has doubled in price since the recession's onset, perhaps because of the surge in job applications; pencils are way up, as are gasoline and electricity, and, here in Hingham, water rates. Yesterday the Bank of England announced that its growth expectations have been reduced from 1.3% in 2012 and 2.8% in 2013 to 0.6% and 2.0% respectively, while at the same time it raised its outlook for inflation, which is now running at 3.5%. What gives? These prices are definitely more reminiscent of the Great Inflation of the 1970's than the Great Depression of the 1930's.