Economics 28/12/2009: Few articles worth reading

Few loose ends:

Casey Mulligan's excellent defense of Chicago School is now in print in Berkeley's Economic Press (here) - a must read.


Another interesting read is on Bloomberg (here) - hat tip to Patrick. My personal view - 3-3.5% growth for 2010 is possible for the US. Major risk factors to these figures are -

1. unemployment - rampant and stubborn;
2. interest rates reversion upward; and
3. resets of Alt-A mortgages - peaking in 2010...
   

Two major plus factors (pushing from 2.75-3% upward to 3.5%) are:

1. Mortgage defaults continuing - these put families off the track of paying 2-2.5K monthly in mortgage costs for negative equity dwellings and into renting same properties for 1-1.2K per month, generating disposable income increases of up to 1,050 per month (once interest relief is counted); and
2. The Federales are yet to inject some 50% of the allocated economic stimulus.

Related to Alt-A's and ARMs is another article in Berkeley's Economic Press latest issue of the Economists' Voice (here) - few charts from it tell the story of the rising tide of ARMs hitting the fan:
The above are going strong and are not contributing to the 'disposable income events' I mentioned above. But the next chart shows the problem of defaults in ARMs and Alt-As still being there:
So the charts above show US middle class freeing itself from the shackles of negative equity via foreclosures - and in the process regaining back financial safety and confidence. This is exactly what is missing in Ireland, where a debt jail awaits anyone who dares to default on negative equity home mortgage. While this approach reduces moral hazard, it destroys any chance for a households-led recovery in Ireland.