Paul Krugman and Other Mainstream Trade “Experts” Admit They Were Wrong About Globalization (It Hurt American Workers And MZM Money Velocity)

Paul Krugman, Nobel Laureate in international trade and New York Times op-ed snarker, has finally admitted what many of his already knew: globalization hurt middle class workers more than they thought it would.

Globalization has been a hot topic in business schools since the 1980s, particularly since Bill Clinton favored the North American Free Trade Agreement. NAFTA was opposed by Presidential candidate Ross Perot who argued:

We have got to stop sending jobs overseas. It’s pretty simple: If you’re paying $12, $13, $14 an hour for factory workers and you can move your factory south of the border, pay a dollar an hour for labor, … have no health care—that’s the most expensive single element in making a car—have no environmental controls, no pollution controls and no retirement, and you don’t care about anything but making money, there will be a giant sucking sound going south. … when [Mexico’s] jobs come up from a dollar an hour to six dollars an hour, and ours go down to six dollars an hour, and then it’s leveled again. But in the meantime, you’ve wrecked the country with these kinds of deal

In addition to losing middle-class jobs to Mexico and subsequent outsourcing of jobs to China, we have seen a perpetual decline in Money Velocity (GDP/Money Stock) since 1995.

The GINI ratio of US income inequality took a jump-up under Clinton and NAFTA. Although financialization contributed to income inequality as well.

Yes, globalization has helped suck jobs and wage growth out of the USA contributing to a decline in money velocity. So when snarky NY Times op-ed writer Paul Krugman admits that globalization is harmful to American workers (and money velocity), we better rethink what we are teaching in business schools.

Including over-reliance on The Federal Reserve to bail-out flawed Federal policies.

Existing Home Sales SOAR In Sept (6.54M Beats Expectation of 6.30M) As 30Y Mortgage Rates Hit All-time Low (2.80%)

More good news for the economy! And housing markets!

Existing home sales in September soared to 6.54 Million units (SAAR), higher than the expectation of 6.30 million units.

Existing home sales are exhibiting a V-shaped recovery.

As Freddie Mac’s 30Y commitment rate hits an all-time low.

Existing home sales hit a 14-year high! Thanks in part to tight inventories.

Median EHS prices hit an all-time high with near all-time low in inventory available for sale.

A Farewell To ARMs: The Adjustable-Rate Mortgage Share Dwindles To 2% In Latest Mortgage Bankers Association Report)

Back in 2011, former HUD and Freddie Mac Chief Economist Michael Lea wrote an article entitled “Do We Need the 30-Year Fixed-Rate Mortgage?” We argued that plain vanilla ARMs (without teaser rates and other tricked-up products during the housing bubble) offered consumers advantages over fixed-rate mortgages (FRMs).

The answer to that question has just been answered: adjustable rate mortgages as a percentage of all mortgages has fallen to its lowest level since financial crisis and The Great Recession.

The reason? First, consumers flock towards FRMs when mortgage rates decline. In part, thanks to The Federal Reserve’s interest rate policies (as shown below).

Lea and I argued that there are certain advantages to ARMs for consumers (see paper at link), such as a lower mortgage rate on average.

Also, empirically mortgage rates on average fall negating the “fear factor” of mortgage rates rising on an ARM reset.

The latest mortgage applications volumes from the Mortgage Bankers Association shows that the ARM% has dwindled to 2%.

5/1 ARM rates (purple) are currently higher than fixed mortgages rates. The 15-year mortgage rate is the lowest.

Yes, it is A Farewell To ARMs, but not as Ernest Hemingway envisioned.