TheTradingReport

It would be better if we were not proven correct on this one, but when the US imposed stiff tariffs on imported tires from China late on Friday, we noted, “This could get interesting in a bad way.” It is if nothing else getting interesting fast, and it certainly does not look good. The Chinese move to retaliate this weekend, open up investigations on US auto parts and chicken exports that total slightly less than the tires at issue ($1.3 billion in Chinese tire imports versus a tad under $1.2 billion for the auto parts/poultry return salvo).

There is only one argument for doing something; the rest are arguments for doing nothing. The argument for doing something is that it is the right thing to do. But then, of course, comes the difficulty making sure that it is right….

Here, on a sleepy stretch of shoreline at the far end of Asia, is surely the biggest and most secretive gathering of ships in maritime history. Their numbers are equivalent to the entire British and American navies combined; their tonnage is far greater. Container ships, bulk carriers, oil tankers – all should be steaming fully laden between China, Britain, Europe and the US, stocking camera shops, PC Worlds and Argos depots ahead of the retail pandemonium of 2009. But their water has been stolen.

The piece follows the curious look at the fortunes of the rich published August 20 by The New York Times, which examined the anomalous case of one man who blew his fortune and, like the Journal, speculated on data that does not yet exist to conclude that “over the last two years, they have become poorer…. Just how much poorer the rich will become remains unclear.” These reports display a puzzling sympathy for the best-off in America, part of a trend that I believe has helped cost newspapers readers—identifying with the concerns of the comfortable, often without context about the woes of the afflicted. Both papers left out significant news about how much the incomes of a very few soared and how tens of millions have been getting by for decades with virtually no increase in their incomes. The bottom 90 percent of Americans, for example, earned incomes in 2007 that were 1.7 percent less than in 2000, the equivalent of working fifty-two weeks but getting paid for only fifty-one, facts no..

But the return to “normality” is still not universal. In the interest rate market prices remain dislocated. The relationship between the price of corporate bonds and credit default swaps continues to display unusual patterns. Funding remains scarce for loans backed by commercial mortgages, with the market for bonds backed by such loans – commercial mortgage backed securities – still dysfunctional. “Significant fundamental risks still exist in that market place,” says James Sarni, managing principal at Payden & Rygel, who notes $150bn in commercial mortgage loans have to be refinanced in the US by 2012.

I was somewhat distressed this morning when I realized that, with the absence of Brad Setser, I would have to do my own analysis of the trade data – data Brad taught me how to analyze over a decade ago.  I may be a little rusty. The good news in the data was the widely touted revival of global trade, an indication of economic healing.  The bad news in the data was the return of an old enemy, a pattern of unbalanced trade.  To be sure, I would not focus too intently on a single data point, but the July numbers raise the possibility that the external sector will weigh on US GDP growth in the third quarter.  That, of course, is the price to be paid for attempting to revive growth via household spending as a portion of that spending flows overseas in the form of increased imports.

Evaluating the impact of countercyclical macroeconomic policy is inherently difficult because we do not observe what would have happened to the economy in the absence of policy. And the sooner the evaluation is done after passage, the less data one has…. Any estimates of the impact… [are] preliminary and understood to be subject to considerable uncertainty…. Because of the inherent difficulties in the analysis, we approach the task of estimating the impact of the Recovery Act from a number of different directions. Our multi-faceted analysis suggests that the ARRA has had a substantial positive impact on the growth of real gross domestic product (GDP) and on employment in the second and third quarters of 2009. That various approaches yield similar estimates increases the confidence one can have in the results…

Free Exchange: “I believe the balance of risks suggest a compelling case for a significant fiscal stimulus program that increases the deficit in the short run” but not over the medium to longer term, he said. The program may be most beneficial if it includes new measures for food stamps, unemployment insurance and other policies aimed at supporting low-income families, said Summers. He also argued in favor of new infrastructure investment as well as changes in Medicaid reimbursement rules and new funding to help low-income residents pay their heating bills.