China Opens the Taps

The easy money in China will continue to flow. The Chinese central bank issued a policy statement on Saturday reiterated a “relatively loose” monetary policy, which had led to new loans increasing six times in March, according to Bloomberg. The news agency cites a number of statistics indicating that stimulus programs are already having an effect—but some of it may be going to speculative increases in stocks, and some worry that the economy and banking system may be once again taking on too many bad loans. (The bad-loan ratio is now 2.45 percent but was as high as 20 percent six years ago.) Japanese stimulus efforts may come at a greater cost, however. Bloomberg also reports on a new investment cooperation fund and new lines of credit, totalling $25 billion, that China will be offering to 10 Asian neighbors. The motivation is simple: “China is going to take the opportunity of this crisis to further establish itself in Asia,” according to one publicpolicy professor.

A New York Times cover story says that “[t]here is an air of exodus on Wall Street—and not just among those being fired.” Yes, 400,000 financial-services jobs have been lost in the United States in the last two years. But large Wall Street banks are losing employees elsewhere: to boutique firms, foreign banks, or start-ups, all of which are less likely to face government regulations. Other employees are retiring early. Broadpoint, one Manhattan investment firm, has hired 240 employees since the fall of 2007. One economist thinks this all of this is a good thing: “If the risk-taking spreads out to these smaller institutions, it is no longer a systemic threat.” Another Times cover story looks at the state of state social safety nets. Programs for vulnerable groups—from home care to child welfare—are being cut in at least 34 states, and that could create downstream costs later on as the needy end up in hospitals or the criminal justice system.

The New York Times also looks at the clash between technology firm recruitment and visa rules. With more than half of Silicon Valley companies founded between the mid-'90s and the mid-2000s being born abroad (including the Google, Yahoo, Intel, and Sun co-founders), it’s a large concern. The Times piece focuses on Indian-born 28-year old engineer Sanjay Mavinkurve, a Google employee (who worked on the early code for the software that ended up driving Facebook) who is forced to work out of Toronto because his wife can’t get an American work visa until he gets a green card. Until this year, the pool of H-1B applications, the visa companies use to sponsor skilled foreign workers in the United States, greatly exceeded the supply allowed by the U.S. government. The Times also looks at which careers for the highly skilled will replace finance as the most alluring. An early canvass says “a new pattern of occupational choice seems to be emerging. Public service, government, the sciences and even teaching look to be winners, while fewer shiny, young minds are embarking on careers in finance and business consulting.” Grad school applications in these fields are already up, with 82 percent of policy and public-administration schools reporting more applications this year.

Bloomberg follows up on Japan’s stimulus announcement by assessing the future impact. Yes, there might be short-term benefit, but the indebtedness caused by the $153 billion package could make the country's debt rise to twice its GDP. One of the main concerns? Locked-in savings and distrust from an aging population. Fewer people will be required to keep spending in future years while servicing more debt. Japanese manufacturing concerns are faring no better. Reuters summarizes an unsourced Nikkei business daily report, which has automaker Toyota slated to lose $5 billion for the year starting this March. Meanwhile, Turkey and the IMF have agreed to a set of principles to guide a three-year loan agreement, reports the Wall Street Journal. The country will probably have to reform its tax system and cut spending to qualify for the loan.

Princeton economist Alan Blinder presents one economic prescription in the New York Times. He describes a “two-front war” with the economy battered by a shortage of demand and a more complex restriction of credit. Demand shortages react fairly well to stimulus measures, but the latter requires a number of pieces working together at once: “limiting foreclosures, rescuing (most of) the banks, and rehabilitating the shadow banking system”. Blinder thinks that if Treasury Secretary Timothy Geithner’s bank-rescue plan includes “good-bank/bad-bank” provisions, it will be effective. He advises us to “focus single-mindedly on winning the war” and worry about the “collateral damage,” like the fact that people who got us into this mess will be enriched, later.

Looking to maximize your return on investment? Have an effective lobbyist. That’s the conclusion of a University of Kansas study featured by the Washington Post. Those overseas profits that President Obama is now trying to tax back were part of a one-time tax break Congress passed in 2004 to reduce the corporate tax rate from 35 percent to 5.25 percent. Eight hundred companies took advantage, saving them around $100 billion. (Pfizer alone repatriated $37 billion worth of profits.) Eli Lilly eventually gained tax savings of $2 billion; it spent around $8.5 million lobbying for it. The average rate of return for the benefitting companies was a whopping 22,000 percent, according to the study. Meanwhile, the Congressional Research Service found separately that the most of the benefit went to stock buyback and dividends, not job creation as mandated by the legislation.