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The Economics of High-End Prostitutes

Among the many things we are left to consider in the wake of the Eliot Spitzer scandal, there is one I still can’t quite get over: the staggering price of a high-end call girl. What service can anyone provide to justify up to $5,500 an hour?

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Keynes and Hayek: Adventures in Wonderland

Yet, if you read about the tussle between the two great economists, you are struck by two things. First, how pragmatic a man John Maynard Keynes was. And second, how utopian the ideals of Friedrich Hayek are. This is odd, as each man attached himself to a polar opposite political philosophy: Keynes’s ideas were adopted by idealistic lefties, while Hayek’s thoughts were lapped up by conservatism, a philosophy that by definition rejects dogma. It is as if we have gone through the looking glass.

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The Green War on the Poor

Divided evenly among 300 million Americans, the green tax works out to a burden of $9,270 imposed on every man, woman, and child. While this would be a pittance for the most affluent Americans, it would take away 40 percent of the total income of a family of four supported by two wage earners making the average U.S. salary of $45,000 each, and it would be a virtually fatal burden for the poor.

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National Bureau of Economic Research’s Gordon: U.S. Economy May “Sputter Out”

“The U.S.’s best 250 years are behind it, Northwestern University professor Robert Gordonwrites in a paper published by the National Bureau of Economic Research, saying economic growth may gradually “sputter out.”

Gordon outlines how there was virtually no expansion before 1750 — before the American Revolution led to the creation of the U.S. The entire period since then “could well turn out to be a unique episode in human history,” he wrote in the paper published this week.

That questions the “nearly universal” view promoted by Nobel Laureate Robert Solow and others since the 1950s that “economic growth is a continuous process that will persist forever,” said Gordon, who is based in Evanston, Illinois, and turns 72 next week.”

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Old Man Buffet’s Railroads See a Slowdown in Pre-Holiday Shipping

“North American railroads from Warren Buffett’s Burlington Northern Santa Fe to CSX Corp. (CSX) are bracing for limited increases in pre-holiday shipments as weak consumer sentiment exacerbates shrinking corn and coal loads.

BNSF, which moves imported Asian consumer goods from West Coast ports, hasn’t seen a measurable gain in holiday-related volumes, Chief Marketing Officer John Lanigan said this week. CSX, the biggest carrier in the eastern U.S., and Canadian Pacific Railway Ltd. (CP) both forecast a “modest” advance.”

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Copper Demand in China is Expected to Fall Back to 1997 Levels

“Copper consumption in China, the world’s biggest user, is expected to expand this year at the slowest rate since 1997 as economic growth cools, according to Beijing Antaike Information Development Co.

Usage may increase 5 percent to about 7.7 million metric tons supported by demand from the power industry, Yang Changhua, who’s studied the market for more than a decade, said in a phone interview from Beijing. “It could turn out to be even lower, and we’re not optimistic about next year,” Yang said yesterday.”

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Spain Falls Deeper into Recession in Q2

Spain’s recession worsened in the second quarter as the government’s austerity push to reduce the euro area’s third-biggest budget deficit and a slump in consumer spending offset growth in exports.

Gross domestic product fell 0.4 percent from the previous quarter, when it declined 0.3 percent, the Madrid-based National Statistics Institute said today. That’s in line with an estimate published July 30. Separately, Spain’s borrowing costs fell to the lowest in three months at an auction today after the nation’s bonds rallied this month on optimism the European Central Bankwill agree on a plan to help peripheral nations.”

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Global Markets Fall on Japan’s Downgrade of Economy and Expectations The Clam Will Do Nothing

“Japan stocks slid, with the Topix (TPX) Index falling the most in more than three weeks, after the government downgraded its assessment of the economy amid slowing growth in China, and on speculation Federal Reserve Chairman Ben S. Bernanke will refrain from announcing stimulus this week.”

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BoA: U.S. Economy “is in the eye of the storm”

“Yesterday, BofA’s top North America economist Ethan Harris penned a bearish note on the the U.S. economy, writing that it “is in the eye of the storm” and that a number of troubling headwinds loom on the horizon.

BofA strategists Arjun Mehra and Cheryl Rowan have a warning more precisely aimed at the stock market. In a note to clients entitled Code Red, Mehra and Rowan claim there is “limited upside from here” and the “risk of a sell-off is high.”

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Chinese Manufacturing Is Crashing

“The HSBC Flash Purchasing Managers’ Index for August crashed, falling to 47.8, well under the final July reading of 49.3.  The dismal result, the first indication of China’s economy for this month, was far below 50, which divides expansion from contraction.  The final PMI will be released September 3, but it is now clear that August will be the 10th-straight month of decline for the vitally important manufacturing sector in China.”

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Sentier Research: US Incomes Fell More in Recovery Than During Crisis

“Americans’ incomes declined more in the three-year expansion that started in June 2009 than during the longest recession since the Great Depression, according an analysis of U.S. Census Bureau data by Sentier Research LLC.

Median household income fell 4.8 percent on an inflation-adjusted basis since the recession ended in June 2009, more than the 2.6 percent drop during the 18-month contraction, the research firm’s Gordon Green and John Coder wrote in a report today. Household income is 7.2 percent below the December 2007 level, the former Census Bureau economic statisticians wrote.

“Almost every group is worse off than it was three years ago, and some groups had very large declines in income,” Green, who previously directed work on the Census Bureau’s income and poverty statistics program, said in a phone interview Thursday. “We’re in an unprecedented period of economic stagnation.”

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U.K. GDP Shrinks Less Than Expected

“The U.K. economy shrank less than initially estimated in the second quarter after construction and production output were revised to show a smaller slump.

Gross domestic product fell 0.5 percent, compared with an initial estimate of a 0.7 percent decline on July 25, the Office for National Statistics said today in London. The report also showed the impact of cooling export demand, with net trade cutting 1 percentage point from GDP, the most since 1998.”

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Is a U.S. Recession Indisputable ?

“There have been a few calls as of late (Hussman, ECRI, Shilling) stating that we are currently in the next recession.  Then there is everyone else.  While the “optimistic” outlook is always more enjoyable to listen to – the problem is that the current “no recession” view is primarily predicated on current quarter growth rates looked at in isolation.  These data points are then extrapolated into continuous future economic expansion.  For example, in the 2013 CBO Budget the average economic growth rate used is 5.28% which is substantially higher than the 2% growth rate currently projected by the Federal Reserve.  More importantly, neither the Fed, or the CBO, have forecasted a recession in future years.  All assumptions are based on the expectations that somehow recessions have been repealed.  This is hardly the case.

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CBOE Sees More of a Fiscal Cliff Than Others

 

“WASHINGTON (Reuters) – Massive spending cuts and tax hikesdue next year will cause even worse economic damage than previously thought if Washington fails to come up with a solution, Congress’ budget referee said on Wednesday.

The Congressional Budget Office said failure to avoid the so-called “fiscal cliff” of expiring tax cuts and automatic spending reductions would cause U.S. gross domestic product to shrink 0.5 percent in 2013. Previously, the non-partisan CBO forecast full-year GDP growth of 0.5 percent.

The first half of 2013 will be particularly difficult, the CBO said in its mid-year forecast update. Tax hikes and spending cuts will cause GDP to shrink 2.9 percent in the first half, compared with a prediction in May for a 1.9 percent contraction.”

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Chart Porn on the Global Business Cycle

  • “Recent Merrill Lynch Fund Managers Survey showed that 8 out of 10 fund managers expect ECB to engage into QE by the end of the year, while 5 out of 10 expect Fed to re-start QE. Also to note was that managers increased equity exposure to overweight, increased exposure to commodities from underweight to neutral and finally decreased exposure in both cash and bonds.
  • Treasury Inflation Protection securities (TIPs) have done amazingly well in recent years. We have seen a very strong correlation with the overall business cycle since early 2009. TIPs have tracked the improvement in equity prices, industrial production and weekly jobless claims perfectly. Fast forward to today and we see TIPs breaking down. What is the message for other risk assets?
  • Global risk appetite is usually best represented by the Aussie Yen exchange rate cross. Australian central bank is seen as a super hawkish inflation fighter during economic upturns, while capital naturally finds its way into Japanese Yen during downturns as a safe haven – a perfect risk on / risk off barometer. Aussie Yen cross continues to send a warning signal for other risk assets. “

 

Full article and charts

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