Paul Volker's analysis of how we got where we are...

Excerpts from his Taylor Lecture:

"Now, we know all the seeming mathematic precision brought to task, epitomized by calculations of Value at Risk, complicated new structured products, the explosion of derivatives, all intended to diffuse and minimize risk, did not bear out the hopes. Instead the vaunted efficiency

helped justify exceedingly narrow credit spreads and exceedingly large compensation. By now it is pretty clear that it was faith in the techniques of modern finance, stoked in part by the apparent huge financial rewards, that enabled the extremes of leverage, the economic imbalances, and the pretenses of the credit rating agencies to persist so long. A relaxed approach of regulators and important legislative liberalization reflected the new financial Zeitgeist.

If those remarks sound critical – and they are meant to inspire caution - let me emphasize that the breakdown in financial markets and the “Great Recession” are the culmination of years of growing, and ultimately unsustainable, imbalances between and within national economies. These are matters of national policy failures and the absence of a disciplined international monetary system."

"..the build-up in leverage, the failure of credit discipline, and the opaqueness of securitization -- all the complexity implicit in the growth of so-called “shadow banking” -- helped facilitate accommodation to the underlying imbalances and to the eventual bubbles to a truly dangerous extent. In the end, the consequence was to intensify the financial crisis and to severely wound the real world economy."

For the full text of the Taylor Lecture, see: 

http://graphics8.nytimes.com/packages/pdf/business/23gret.pdf

What a difference a month can make...

How quickly or slowly the US economy grows makes a world of difference to Mexico's growth prospects. So, the results of Macroeconomic Advisers' latest weekly survey bring good news for Mexico. In mid-September, the economists surveyed projected the US would grow at a 1.7% annualized rate in the third quarter. Now, the projection is 2.7%, with some going so far as 3%. 

If you vote in the US or are interested in the US debate over tax plans

you'll want to see the summary of the analysis of Herman Cain's "9-9-9" tax proposal, done by the reputable Tax Policy Center. Here's the link:

http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=3222&DocTypeID=2

The bottom line: Tax rates would rise for the bottom 90% of taxpayers to 23.3%; 99% of taxpayers would pay a 20% rate or higher. The top 1% of taxpayers would pay a 17.9% rate and would see their tax rate cut by 13.5%; the cut for the top 0.1% would be 17.2%.

Why it still feels like a recession to so many Americans...

If you sell to the US, know the changes in your market.

The conclusions from a study by former, long-term employees of the Census Bureau  on median household income in the US, pre- and post Great Recession include the following:

After the "Great Recession" ended, US household income continued to fall. Between June 2009 and June 2011, median annual household income in the US fell 6.7% to $49,909. During the recession -- between December 2007 and June 2009 -- the decline was 3.2%.

The impact differed by race, by age, marital status, type of employer, and education.

Race: In 2011, the median annual household income for non-Hispanic whites was $56,320, 7.8% less than in June 2007. For Hispanics, median annual household income was $39,901, a 6.8% decline. Blacks' household income declined 9.2%, to $31,784.

Age: Inflation-adjusted income declined for households headed by people under 62. It rose 4.7% for households headed by people 65-74. There was no significant change for household headed by people 62-64.

Employer: Median annual income dropped 12.3% (adjusted for inflation) for households headed by the self-employed. The decline was 4.3% for private sector workers and 3.7% for government workers.

Marital Status: Income declined more for men living alone than for women living alone. The decline was largest for family households.

Education:  Median annual income for households headed by people who have:
not completed high school:     $25,157    - 7.9%
Associate’s degree:                $53,195    -14%
BA or more:                          $82,846    - 8.6% 

The unemployed stay that way...

A study by Princeton University Professor Henry Farber reports that people in the US who lost jobs in the recession and found new ones made an average of 17.5% LESS. The average length of time people are unemployed in the US has steadily risen. In December 2007, the average length of unemployment was 16.6 weeks. In June 2009, it was 24.1 weeks. In September 2011, it was 40.5 weeks, the longest in more than 60 years.