CERF Blog

Almost everybody pontificating about financial regulation seems to be recommending increased capital ratios, increasing the ratio of firm’s capital to assets. It is also true that financial regulation around the world includes minimum capital ratios. The reasoning seems to be that if you increase a financial institution’s capital, it is less likely to fail, but… Read more

This is a question that I’ve never seen asked, at least not in the popular press, but it seems important to me, and I’ve been thinking a lot about it lately. For one thing, how can you possibly write good regulation if you don’t know what you are trying to do? It could be that… Read more

New durables-manufactured goods orders fell 1.3 percent in March, but excluding transportation, orders rose 2.8 percent. The overall drop was driven by a large decline in aircraft orders. The aircraft orders are volatile and not driven as much by overall economic trends. These results are consistent with our March forecast where we projected relatively strong… Read more

I was in Peoria yesterday to give a talk to the City Council. Peoria is a suburb of Phoenix, but it is intent on having its own identity and economy. The City has a population pushing 150,000 spread over an amazing 180 square miles. They like their open space in Peoria. It’s a great looking… Read more

Dan Hamilton and Kjersti Framnes The California March unemployment rate increased to 12.6 percent from 12.5 percent in February. Since August of 2009 the unemployment rate has climbed 60 basis points, and there has not been any interim month of recovery. The unemployment rate would likely be even greater if not for net domestic out-migration.… Read more

Ventura California’s City Manager, Rick Cole, has had two recent pieces at newgeography.com, here and here, titled “The War for Jobs.” In these pieces, he outlines some important changes in California cities’ environment, and what Ventura is doing to attract or grow jobs, because, as he says, governments don’t create jobs. Rick’s right. Governments don’t… Read more

The Wall Street Journal (WSJ) and Larry Summers are having a heated exchange over the impacts of unemployment insurance on jobs, and they are both being stupid. The WSJ claims that extending unemployment insurance is causing unemployment, and that their opinion is consistent with Summers’ past statements. Unemployment insurance can exacerbate unemployment in times of… Read more

United States retail sales data through February show that while the last three months have been positive they have not in fact been inspiring at all. We see that the volatility in total sales was driven by the motor vehicle and motor vehicle parts market during August, September, and October of 2009. I attribute this… Read more

I recently gave a talk and itemized my principals for bank regulation. They are: • Keep it simple • Preserve correct incentives • Minimize political influence • Maximize market feedback • Minimize moral hazard issues • Regulation is not protection Our friends at KERN Economics have come up with a plan that meets all of… Read more

Corporate bond spreads are returning to normal levels. The first chart below shows that the monthly spread between Baa bonds and Aaa bonds are close to what they were back in 2007 before the 2008 crisis. This is good because the rate on Baa bonds is declining. This indicates that the perceived risk in lower… Read more

Two articles today give us an idea of how hard it is for governments to cut back. The first one, in the Los Angeles Times, reports that the city’s Mayor, Antonio Villaraigosa, is recommending that the city “Slash city services.” In the second article, Dan Walters discusses the politics of California’s Governor’s proposal to cut… Read more

Below are two quotes from this article: “We’ve actually walked through this horrible recession with our economic base unscathed,” said Stephen Levy of the Center for Continuing Study of the California Economy. “The core of the California economy is still in place,” said Chris Thornberg of Beacon Economics in Los Angeles. With all due respect,… Read more

We released our new United States and California forecasts today. As we note in our publication, available online HERE, we are pessimistic relative to consensus, particularly for 2010 quarters 2, 3, and 4. It appears that we see the negatives continuing longer than our forecasting colleagues at UCLA and across the nation. These negatives include… Read more

Some countries do not follow Milton Friedman’s freely floating exchange rate advice (see my recent blog). Instead, they peg their currency to the U.S. dollar. Sometimes they have logical reasons for doing so.  Usually, this is because their financial markets and banking systems are not yet developed enough to allow the hedging needed by enterprises… Read more

It has been 57 years since Milton Friedman wrote his paper “The Case for Flexible Exchange Rates” where he argued that the benefits from a market economy and a free trade system would be enhanced by flexible exchange rates. This implied a freely floating dollar, whose value was to be determined by the buying and… Read more