the lead indicator

Shock Therapy, Japanese Style

chandan silo for web

The Bank of Japan’s campaign of shock and awe is approaching its half-year anniversary. Early results are mostly according to plan. The economy expanded at a relatively brisk pace in the first quarter. Though it’s purportedly not the goal, the yen has fallen 20 percent against the dollar. The Nikkei’s broad stock indices are up sharply, even after last Thursday’s 7 percent dive. Retail sales data due this week could get a lift from a modest wealth effect. Read More

the lead indicator

Power, This Time for the Keynesians

Sam Chandan

Speaking of power, the Austerians have lost one of their most powerful corroborations. At least for political purposes, the oft-cited and rather particular relationship between sovereign debt and growth has been sundered by a graduate student’s homework assignment. Never has so much of consequence turned on a spreadsheet error. Read More

the lead indicator

Employment Remains the Weakest Link of the Recovery

chandan silo for web

It’s been clear since long before the Great Recession that something is amiss in the labor market. Unbeknownst to the most recent crop of college graduates, this is not our first “jobless recovery.” That term was introduced to the popular lexicon in the early 1990s. It was revived in 2003; more than a year into that recovery, the turnaround in employment had never been weaker. In retrospect, those were halcyon days when compared with our current run.

What’s gone wrong? Read More

the lead indicator

Girding for Growth in Midtown

chandan silo for web

There are good reasons to envisage a refresh of Midtown Manhattan’s office inventory.

A prolonged lull in construction has left us with an abundance of heirlooms but few modish buildings. As a global center of finance, Midtown East’s built environment compares especially poorly with its peer markets. Average rents are much higher in London, but the premium over Midtown is less pronounced when comparing our small basket of best apples with theirs. Rezoning with an eye to new construction has its winners and losers. As new properties come online over the next decade, incumbents saddled with older buildings may find their highest and best use takes them outside the office sector altogether. Read More

the lead indicator

How to Have a Banking Crisis

chandan silo for web

A run on the banking system is one of the surest paths to a credit crisis. The mechanics are simple: worried that their banks might fail or otherwise endanger their savings, consumers shift to their mattresses as preferred storehouses for cash. The expectation fulfills itself. In a fractional-reserve banking system, mass withdrawals drive institutions to insolvency. A failure of one bank raises the possibility that others could also fail. And so the process cascades. Read More

the lead indicator

Can the Apartment Market Manage Without Fannie and Freddie?

chandan silo for web

The debate over housing finance reform has taken place largely behind closed doors, with public discourse limited to speculation. Since the collapse of Fannie Mae and Freddie Mac into effective insolvency in September 2008, the public has been shielded from serious discussion about their future. At least for the time being, weakness in the housing market has encouraged the status quo; policymakers have sidestepped the question of the government’s long-term role in shepherding homeownership outcomes. Read More

the lead indicator

Should We Raise the Minimum Wage?

chandan silo for web

Among the various proposals put on the table during his State of the Union earlier this month, the president called for a higher federal minimum wage. That was guaranteed to push the ideological buttons. Along the absurdly one-dimensional political spectrum that now defines the norm of policy debate, each side has its arguments for or against such a move. The minimum wage has been around since the Great Depression, when it was set at a quarter.

For all its longevity, divided interests have not succeed in settling the minimum wage debate conclusively, in part because distributional considerations are an important part of the evaluation that clouds clear thinking on both sides. Read More

the lead indicator

America’s Infrastructure Crises

chandan silo for web

During his State of the Union address last week, President Obama pushed for renewed investment in the country’s weakening infrastructure.

In the ranking of proposals making the rounds in Washington, this one falls low on the scales of partisanship. Party ideologies aside, the quiet majority in Congress stands to benefit from a program that would see new spending reach virtually every district in the nation. If there is one arena in which policy makers’ individual incentives might trump doctrine, this could be it. Read More

the lead indicator

Investment In NYC Begets More Investment, Until It Doesn’t.

chandan silo for web

Buy American.

It is generally required if you are the government, and simply an admonition if you are not. The jurisdiction of President Hoover’s 1933 legislation may end at the border, but investors around the world are responding to the call in any case. They are not acting without cause. The global instability exemplified by Europe’s existential crisis has fueled a disconcertingly insatiable appetite for riskless assets that has long outlived the technical recession.

Treasury and agency debt markets are flush with eager buyers, even at negative real returns. But the appeal of buying American extends well beyond our favorite export. Read More

the lead indicator

The Year in Economics: Presidential Politics, Job Creation and the Fiscal Cliff

chandan silo for web

If a new president or rebounding economy was on your holiday wish list last year, 2012 left you empty-handed. On the political and economic fronts, remarkably little has changed.

November’s election confirmed the status quo in the House, Senate and White House. That augurs slow progress on the central questions of spending and tax reform but also safeguards the administration’s chief accomplishments, including the expansion of health care coverage.

Facing headwinds from policy gridlock, middling consumer activity and developments abroad, businesses approached hiring and other investments cautiously over the last year. Weak job creation proved a remarkably consistent source of frustration. The unemployment rate fell by 100 basis points over the last year, but the tally of net new jobs showed no improvement from 2011. Ever a deceptive measure, the falling unemployment rate captured that Americans opting out of the workforce matched Americans finding work nearly one-for-one. For too many American families, the recovery is too long in coming. Read More

Lead Indicator

Monetary Policy Takes a Dangerous Turn

Sam Chandan.

If you believe the economy has found its legs, you might know something the Federal Reserve does not. Emerging from a two-day meeting the week before last, monetary policy makers expressed new concerns about the downside risks to growth and hardened the language of their press release to reflect this.

They also questioned whether the employment situation could improve materially absent further policy accommodation, signaling a dim view of the private sector’s inherent potential. The new language hints that the Federal Open Market Committee is prepared to improvise until well after the outlook has improved. Read More

the lead indicator

Managing the Risks of a Changing Lower Manhattan, Post 9/11

Sam Chandan.

However long in coming, the Lower Manhattan that is emerging in the distant wake of that terrible day, September 11, 2001, speaks to our capacity for hard-fought renewal. Next to the rising icons of stubborn resolve, Downtown shines with new streetscapes, new hubs of transportation and a burgeoning residential population that is slowly lifting its environs from its erstwhile commitment to Brutalism.

Even with a tower at its heart, the Sidewalk Ballet is re-entering the downtown ethos, albeit under conditions that are more structured and punctilious than organic and spontaneous.

Lower Manhattan is decidedly a market in transition. The “purposeless giantism and technological exhibitionism” that Lewis Mumford called to account for “eviscerating the living tissue of every great city” is increasingly less apropos as a characterization of Downtown’s neighborhoods. The demographic shift facilitated by Liberty Bonds’s repurposing of under-tenanted office properties receives due credit. By all accounts, the last decade’s introduction of new residential space will support a markedly more livable community as office, retail and hotel inventory comes online. Read More

the lead indicator

Operation Twist: Fed Continues Maturity Extension in Face of Weak Growth

Chandan for web

Facing the prospect of weaker growth and higher unemployment, the Federal Reserve’s Open Market Committee (FOMC) announced last week that it will continue its maturity extension program through at least the end of 2012 rather than allow it to expire. The program—more commonly known as Operation Twist—will see the New York Fed sell or redeem Treasury securities with maturities of less than three years, redeploying the proceeds in the acquisition of long-date securities. As opposed to an expansion of the Fed’s holdings, maturity extension relates to their composition and is balance-sheet neutral. Read More

Lead Indicator

Doom, Gloom, Dread Threaten Eurozone.

Sam Chandan.

In a concession to the continent’s increasingly unmanageable state of crisis, Spain over the weekend announced that it would seek €100 billion ($125 billion) in financing through the European Financial Stabilization Mechanism and an anticipated permanent rescue fund. Faced with the prospect of dissolution should Spain’s banking woes overtake its remaining islands of stability, the European Union signaled a robust 11th-hour response. In a Saturday press release, the Eurogroup offered that “the loan will be scaled to provide an effective backstop covering for all possible capital requirements …” Read More