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“Capitals are increased by parsimony, and diminished by prodigality and misconduct.” Adam Smith, Wealth of Nations, p. 367
Although any governmental report that presumes to put a number on total American wealth is bound to be riddled with inaccuracies, a Federal Reserve study last week revealed that American household wealth had risen to a record high of $81.5 trillion. Assuming the figures within are even passably accurate, they expose as false a lot of popular myths promoted by politicians, economists and the pundits who enable them.
First and foremost, $81.5 trillion in household wealth…

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Children can be a great source of satisfaction but also stressful. As Jennifer Senior puts it in the title of her excellent book on the topic, being a parent is “all joy and no fun.” Quite apart from the daily aggravations from arguing with a belligerent toddler or cleaning up after a messy teenager, I wonder how many people think ahead about what it’s going to cost in both time and money. According to the Department of Agriculture, raising one child from birth to college age cost an average of 1,080 in 2012. That doesn’t even include the two really big ticket items. The first is the…

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The European Central Bank (ECB) believes that Europe’s economy would improve if there were just more money floating around Europe, especially in the form of bank loans made to companies. In an attempt to boost the European money supply and increase bank credit the ECB is now offering four-year loans to European banks at an interest rate of only 0.15 percent provided that the money is lent to European companies. The first such sales were last Thursday and proved disappointing as banks took only 83 billion euros (7 billion) in such loans, even at those fire sale rates. The problem is that…

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Maybe the U.S. economy, a weakling for the last six years, is finally starting to flex some muscle. We’re referring to the return of King Dollar.
For those who haven’t been paying attention, the greenback is in the midst of a rally not seen since the 1990s. It’s racing past the euro, the yen and other currencies. Investors worldwide are buying the equivalent of stock in America, Inc.
If the rise in the dollar’s valuation is sustainable, it’s welcome news for the stock market, for fighting inflation and for U.S. growth prospects.
Ronald Reagan said it best: A strong dollar is a sign of a…

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The spread of negative bond rates throughout Europe brings to a close the “crisis is over” period. On Wednesday, Germany auctioned off 2-year bunds at a record low -0.07%. That followed Tuesday’s negative rate tender in Denmark, that country’s first since the euro crisis “ended” in 2012. Anyone who pays even the slightest attention to the fate of the euro has seen the same spread of negative rates once more throughout Switzerland, the euro’s foil through much of that period. Not only have Swiss rates turned markedly lower, interest rate swap spreads have compressed back to similar levels…

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Monetary Policy: The Federal Reserve said Wednesday the economy isn’t as strong as it believed just two months ago, and that it’s not likely to raise interest rates soon. It’s as close to an admission of failure as you’ll ever get.
Fed Chairwoman Janet Yellen was admirably blunt in assessing the economy’s weakness: “There are still too many people who want jobs but cannot find them, too many who are working part time but would prefer full-time work, and too many who are not searching for a job but would be if the labor market were stronger,” she said.
Yep. That pretty much sums it up.
As the…

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While many economists and market watchers have failed to notice, we have entered a new chapter in the short and checkered history of central banking. This paradigm shift, as yet unaddressed in the textbooks, changes the basic policy tools that have traditionally defined the sphere of macroeconomic decision-making.
The job of a central banker is supposed to be the calibration of interest rates to achieve the optimal rate of growth for any particular economic environment. It is hoped that successful decisions, which involve perfectly timed moves to raise rates when the economy overheats and…

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Tuesday the Senate Finance Committee held a hearing, “Retirement Savings 2.0-Updating Savings Policy for the Modern Economy.” The hearing comes on the heels of a recent Federal Reserve report, “2013 Survey of Consumer Finances,” which detailed the current state of retirement-account balances.The average balance in an American retirement account has risen 10 percent in the last three years. The median balance actually rose even more, up 25 percent, to ,000.However, those with retirement accounts have dropped below 50 percent. Only about 40 percent of Americans in the bottom half income…

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The Wealth Building Home Loan (WBHL), a new approach to home finance, was unveiled at the American Mortgage Conference on September 8. In developing the WBHL, my colleague Stephen Oliner and I were informed by long-forgotten standards set by a federal agency that is now celebrating its 80th anniversary. In 1934 the Federal Housing Administration (FHA) created what it called “a straight, broad, highway to debt-free home ownership” which protected home buyers with such features as 20 percent down payments, fully amortizing loan terms of 15-25 years, a full review of a borrower’s household…

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Everyone knows that inequality in the United States has risen in recent decades. And anyone who has looked at any data - or an earlier post from my Brookings colleague Gary Burtless - also knows that most of this rise is explained by the pulling away of the rich from everyone else.
The implications of this particular kind of inequality are quite profound. In recent history, concerns about equality have been, at heart, concerns about the poor. Egalitarian political philosophers have tended to adopt a version of John Rawls’ ‘difference principle’ - that inequalities are acceptable to the…

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Bipartisanship in Washington is not quite dead. Republicans and Democrats both praised the Department of Energy’s approval of two new liquid natural gas export projects. With Russian gas exports to Europe slowing, and Russia solidifying its hold on eastern Ukraine, more approvals should be in the pipeline. But bureaucratic red tape from the Federal Energy Regulatory Commission and the Environmental Protection Agency result in two dozen pending applications for natural gas exports, some from 2011.
America has enough gas for itself and for export. About a third of natural gas in North Dakota…

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Hard as it may be to believe, in 1700 India accounted for 24 percent of the world’s ouput, versus 3 percent for England. According to Niall Ferguson’s 2002 book Empire, England also had an economy that was half the size of France’s.
But thanks to the Glorious Revolution that led to the Dutch royal family taking control of England, the once sagging country was lucky enough to “import” Dutch monetary policy; specifically its gold standard. And with the pound suddenly credible to investors thanks to its gold definition, the economic situation in England changed for the better in very rapid…

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Tax inversions, something ninety-nine percent of people had never heard of before this year, are suddenly Washington’s favorite bogeyman. A tax inversion occurs when an American company buys a foreign company but assumes the corporate identity of the foreign company so as to avoid some U.S. taxes. To hear Democrats talk about it, such behavior is pure evil and must be stopped. After all, if corporations do not pay taxes, who will have to take up the slack?Before pointing out the ridiculousness of complaining about tax inversions, a moment’s digression is worthwhile here. Corporations do not…

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When historians look back on this specific period of time searching for a unifying moniker to create a justifiable shorthand and generalization it will more likely than not become known as an age of convolutions. That will apply more broadly than just economic description, but it is there it will be most appropriate. Since nothing has gone as planned, advertised and intended, the global economic regime of mainstream orthodoxy has bent itself into entertaining contortions about exactly why that is.
The current fad is secular stagnation, a reproachful attempt to let monetary policy off the…

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Last weekend several polls emerged that shockingly forecast Scottish independence from Great Britain is within the realm of political possibilities. Although the September 18th vote had worried a number of people, the evenly split polling results burst upon the world like a thunderbolt, perhaps shattering the image of a steady, genial and conservative Britain. But the ramifications of Scottish independence go far beyond national pride and historical score settling. Watchers of the global economy should be aware of the potentially serious follow-on results.With some 5.3 million people,…

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