Jack Perkowski, author of (book and blog) “Managing the Dragon” (and Mr China’s boss) has some good advice. One of the memorable quotes from the book, which highlights the very different perspectives of those visiting China and those who have grown up there, runs as follows:

“I always carry two bills with me – an RMB100 bill and a $100 bill…The point I make is that these two bills are treated in exactly the same way in their respective countries. Just as the $100 bill is the highest unit of currency that you can get in the United States, an RMB100 bill is the highest unit of currency you can get in China…

When Americans look at a RMB100 bill, I say, divide by 8 and see $12.50. But when Mainland Chinese look at the same bill – and I don’t care how wealthy they are – they see what Americans see when we look at our own $100 bill.”

Anyone who has conducted price negotiations in China will know what he is talking about.

Source: ChinaBusinessServices.com

Another day, another shattered economic myth.

The latest comes via a National Bureau of Economic Research paper written by Matthew Kotchen and Laura Grant of the University of California, Santa Barbara.

Frankin wasn’t saving any candlewax by waking up an hour earlier.

They concluded that, contrary to conventional wisdom going all the way back to the days of Benjamin Franklin, daylight savings time actually “increases residential electricity demand.”

The economists examined monthly electricity billing data for Indiana from 2004 to 2006. Indiana is unique, the authors noted, because until 2006 many counties in the state didn’t practice DST. “The initial heterogeneity of DST among Indiana counties and the policy change in 2006 provides a natural experiment — with treatment and control sets of counties — to empirically identify the relationship between DST and residential electricity demand,” they wrote.

DST, they wrote, leads to a 1% increase in electricity demand, which in Indiana translates to about $9 million per year. The greatest rise in consumption is in the fall.

In addition, the “social cost” of increased pollution in the state is $1.7 million to $5.5 million per year, they estimate.

Meanwhile, “the effect is likely to be even stronger in other regions of the United States,” they wrote.

Ben Franklin — whose little nugget that a penny saved is a penny earned is also on shaky ground amid the financial crisis — must be rolling over in his grave.

Franklin “argued that if people adjusted their schedules to earlier in the day during summer months, when day length is longest, an immense sum of tallow and wax could be saved by the ‘economy of using sunshine rather than candles,’” Kotchen and Grant wrote, noting that Franklin even “satirically proposed the firing of cannons to awaken people at dawn and a tax on window shutters that keep out sunlight.”

At least he’s still got the C-note. –Brian Blackstone

:: Source: Wall Street Journal

For years, consumers were the unflagging pillar of the U.S. economy, but all that changed in the third quarter.

The attached chart shows what GDP would look like without consumer spending. GDP would have been negative four times in that last four years if not for spending. At some 70% of GDP, consumer spending can be a major benefit, or as we’re seeing now, a major drag.

“The 3.1% decline in consumer spending for the third quarter is the sharpest quarterly drop since the second quarter of 1980 when the Volcker Fed was fighting runaway inflation,” said economists at PNC.

“The trend in spending was progressively weaker through the third quarter which points to a very poor start for fourth quarter consumer expenditures and disappointing holiday retail sales. A consumer-led recession in the U.S. is bad news for our trading partners, resulting in less demand of foreign goods from credit starved U.S. consumers.”

Declining imports could improve the U.S. trade balance. However, as the U.S. recession increasingly spreads overseas, exports are also likely to decline. It remains an open question which one will decline more rapidly. –Phil Izzo

:: Source: Wall Street Journal

The S&P/Case-Shiller home-price index, a closely watched gauge of U.S. home prices, showed accelerating price declines in August. No area experienced year-over-year price gains in July, the fifth straight month that has happened.

Just four cities managed to avoid month-to-month declines. Cleveland and Boston managed to eke out gains from the prior month, while prices were flat in Chicago and Denver. Last month, 7 of the 20 regions were able to avoid monthly price declines.

Sun Belt cities continued to post the negative numbers. Las Vegas and Phoenix slid 2.4% and 2.9%, respectively. San Francisco posted the worst monthly drop, a 3.5% decline.

Las Vegas, Phoenix and San Francisco also posted the largest year-over-year drops, all falling in excess of 27%. –Phil Izzo

See the full S&P/Case-Shiller report.

Read full story: Home Prices Post Record DeclineBelow, see data from the 20 metro areas Case-Shiller tracks, sortable by name, level, and year-over-year change — just click the column headers to re-sort.

(About the numbers: The Case Shiller indices have a base value of 100 in January 2000. So a current index value of 150 translates to a 50% appreciation rate since January 2000 for a typical home located within the metro market.)

Home Prices, by Metro Area

Metro Area	August 2008	Change from July	Year-over-year change
Atlanta	124.82	-0.2%	-8.5%
Boston	162.75	0.1%	-4.7%
Charlotte	132.10	-0.8%	-2.8%
Chicago	149.53	0.0%	-9.8%
Cleveland	110.54	1.1%	-6.6%
Dallas	122.90	-0.2%	-2.7%
Denver	132.64	0.0%	-5.1%
Detroit	92.44	-0.8%	-17.2%
Las Vegas	150.52	-2.4%	-30.6%
Los Angeles	189.18	-1.8%	-26.7%
Miami	183.48	-1.8%	-28.1%
Minneapolis	141.94	1.0%	-13.8%
New York	192.84	-0.2%	-6.9%
Phoenix	144.83	-2.9%	-30.7%
Portland	171.93	-1.3%	-7.6%
San Diego	168.23	-2.3%	-25.8%
San Francisco	151.42	-3.5%	-27.3%
Seattle	175.24	-0.7%	-8.8%
Tampa	174.30	-0.4%	-18.1%
Washington	194.86	-0.3%	-15.4%

Source: Standard & Poor’s and FiservData / Wall Street Journal

A roundup of economic news from around the Web.

Credit-Card Crisis: The New York Times reports the next crisis may be in credit cards. “Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001.”

Popping Bubbles: On the Atlantic, Megan McArdle looks at what the Fed can do to preemptively pop bubbles. “To squelch asset price bubbles you need to get in early, before the bubble takes off. But in the early stages, an asset price bubble isn’t necessarily distinguishable from actual economic growth, or real changes in the relative value of assets. The various indices have fallen since the bubble peaked in 2000–but the S&P is still about twice what it was at the start of 1995, the year the bubble is generally agreed to have taken off. Stomping down on bubbles before they get going will mean accepting higher unemployment and lower economic growth any time that any asset market starts to look the least bit frothy.”

U.S. Default?: Jesse’s Cafe Americain blog says that U.S. will have no choice but to selectively default. “Once the deleveraging of the markets subsides, the dollar and Treasuries will drop, perhaps with some momentum, as the rest of the world realizes that the U.S. has no choice but to default. This can be resolved in several ways, including continued subsidies from foreign sources in the form of virtual debt forgiveness, devaluation of the dollar, raising of taxes, and higher interest rates on debt. The problem now is that the U.S. has breached the point where it can service its debt out of real cash flows, and turning this around will require a severe devaluation of the U.S. dollar. Devaluation and selective default are the only foreseeable systemic alternatives. There are other exogenous paths of a more political nature such as consolidation and war that may color the default a slightly different color, but a selective default it remains. This is the fundamental situation. Everything else is speculation and commentary.”

Funding Layoffs: On the economist mom blog, Diane Lim Rogers points out that the U.S. aid to auto makers is paying for layoffs. “Being someone who’s constantly got the ‘fiscal responsibility’ angle on things, I’d edit that slightly to say yes, we’re using future taxpayer dollars to fund layoffs–because we’re talking about another deficit-financed rescue, after all. There’s something quite ironic and sad about ‘rescuing’ an industry by providing it the cash flow that’s needed to shrink it — for the federal government to effectively say they’ll help these companies eliminate jobs, in the name of ‘fiscal stimulus’ and for the cause of keeping the economy ‘alive.’”

Compiled by Phil Izzo

:: Source: Wall Street Journal