Obamacare Career Ending Votes; Republican Chance to Win Senate; Expect House Blowout; Stimulus Appetite Greatly Diminished
by ilene - October 22nd, 2010 1:20 am
Obamacare Career Ending Votes; Republican Chance to Win Senate; Expect House Blowout; Stimulus Appetite Greatly Diminished
Courtesy of Mish
The public is still angered over Obamacare so much so that Dems Find Careers Threatened by Obamacare Votes
Seven months ago, Speaker Nancy Pelosi spent a busy week rounding up votes to pass the Senate version of the Democrats’ health care legislation.
It wasn’t easy. She had to get Democrats who had voted no in November to switch to yes in March. And she had to get Democrats who had refused to vote for the bill in November without an anti-abortion amendment to vote for a bill in March that lacked that language.
What about the districts of the House Democrats who cast the key votes that made Obamacare law? So how are they doing?
Take Betsy Markey of Colorado 4, who in 2008 beat a Republican who seemed fixated on the same-sex marriage issue. Markey cast a late-in-the-roll-call no in November, then publicly switched to yes in the week before the March 21 roll call. She’s currently trailing Republican Cory Gardiner by an average of 44 to 39 percent in three polls.
Consider John Boccieri of Ohio 16, who switched from no to yes in a TV press conference in which he said the bill would do great things for his constituents. Boccieri’s district was represented by Republicans for 58 years until he was elected in 2008. It looks like it will be again next year. In three polls, Republican Jim Renacci leads Boccieri by an average of 46 percent to 36 percent.
Then there is Suzanne Kosmas, a longtime real estate agent who beat a Republican with an ethics issue in 2008. She announced her switch from no to yes late in the week before the roll call. She’s now running behind Republican Sandy Adams by an average of 47 percent to 40 percent in three recent polls.
To put these numbers in perspective, it’s highly unusual for an incumbent House member to trail a challenger in any poll or to run significantly below 50 percent. But these three Democrats are running 5 to 10 points behind Republican challengers, and none tops 40 percent.
The article notes that Bart Stupak of Michigan 1 opposed the original bill over an abortion clause along with 5 others known as the "Stupak Five".
Bart switched his vote when…
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DiggHow to Kickstart the Economy
by ilene - October 21st, 2010 4:18 am
How to Kickstart the Economy
By MIKE WHITNEY, originally published at CounterPunch
On Friday, Fed chairman Ben Bernanke made the case for a second round of quantitative easing (QE) claiming that inflation is presently "too low" to achieve the Fed’s dual mandate of price stability and full employment. By purchasing long-term Treasuries, Bernanke hopes to lower bond yields and force investors into riskier assets. That, in turn, will push stocks higher, making investors feel wealthier and more apt to boost spending. (Re: "trickle down", when investors increase spending, it reduces the slack in the economy and lowers unemployment.) Thus, QE is intended to divert investment to where it is needed and to lift the economy out of the doldrums.
That’s the theory, at least. In practice, it doesn’t work so well. Over a trillion dollars in reserves are still sitting on banks balance sheets from QE1. The anticipated credit expansion never got off the ground; the banks loan books are still shrinking. Bernanke fails to say why more-of-the-same will produce a different result. QE is also risky; in fact, it could make matters worse. Unconventional methods of pumping liquidity into the economy can undermine confidence in the dollar and trigger turmoil in the currency markets. Trading partners like Brazil and South Korea are already complaining that the Fed is flooding the markets with money pushing up their currencies and igniting inflation.
The threat of more cheap capital is causing widespread concern and talk of a currency war. If Bernanke goes ahead with his plan, more countries will implement capital controls and trade barriers. The Fed is clearing the way for a wave of protectionism. Quantitative easing, which is essentially an asset swap--reserves for securities--will not lower unemployment or revive the economy. Low bond yields won’t spark another credit expansion any more than low interest rates have increased home sales. The way to tackle flagging demand is with fiscal stimulus; food stamps, state aid, unemployment benefits, work programs etc. The focus should be on putting money in the hands of the people who will spend it immediately giving the economy the jolt that policymakers seek. QE doesn’t do that. It depends on asset inflation to generate more spending, which means that we’ve returned to the Fed’s preferred growth formula--bubblenomics.
Quantitative easing is also extremely costly for, what amounts to, modest gains. Consider this, from the Wall Street Journal:
"The…
WHAT IF THE MARKET ISN’T A “WIN WIN”?
by ilene - September 28th, 2010 12:43 pm
WHAT IF THE MARKET ISN’T A “WIN WIN”?
Courtesy of The Pragmatic Capitalist
Apparently I am not the only one who took issue with David Tepper’s comments that the
“Too bad we weren’t invited as a guest on CNBC last Friday to engage in a friendly debate with this portfolio manager because he didn’t outline the third scenario, either because he doesn’t believe it or he just plain didn’t contemplate it or he’s simply not positioned for it. That third scenario is that the economy weakens to such an extent that the Fed does indeed re-engage in QE, but that it does not work. So the “E” goes down and the P/E multiple does not expand. Maybe it even contracts since it already has spent the past number of years reverting to the mean as are so many other market and macro variables (for example, the dividend yield, savings rate, homeownership rate and debt ratios). In this scenario, the stock market does not go up; it goes down.
Is it possible that QE2 won’t work? The answer is yes. How do we know? Well, because the first round of QE didn’t work. After all, if it had worked, the Fed obviously would not be openly contemplating the second round of balance sheet expansion. If the objective was narrow in terms of bringing mortgage spreads in from sky-high levels, well, on that basis, it did help.”
I don’t entirely agree here. QE1 worked because we were in a different environment. The problem Bernanke was targeting in 2009 was one of bank balance sheets. Bank balance sheets were loaded with toxic assets so replacing these assets with cash was most certainly beneficial. It eliminated much of the risk associated with the banking system. As Bernanke said at the time, the point of QE was to alleviate pressures in the credit markets. As we can see from credit spreads he certainly succeeded in this regard. But this is no longer the environment we are in. As I said last week there are no bank balance sheets to fix. There is no…
Monday at the Treasury: an overlong exegesis
by ilene - September 21st, 2010 4:20 pm
Monday at the Treasury: an overlong exegesis
Courtesy of Steve Randy Waldman at Interfluidity
Last Monday, I had the privilege to meet up with a bunch of bloggers and Treasury officials for what might be described as a “rap session”. The meeting was less formal than a previous meeting. There were no presentations, and no obvious agenda. Refugees from the blogosphere included Tyler Cowen, Phil Davis, John Lounsbury, Mike Konczal, Yves Smith, Alex Tabarrok, and myself. Our hosts at Treasury were Lewis Alexander, Michael Barr, Timothy Geithner, Matthew Kabaker, Mary John Miller, and Jake Siewart. You will find better write-ups of the affair elsewhere [Konczal, Lounsbury (also here), Smith, Tabarrok]. Treasury held another meeting, with a different set of bloggers, on Wednesday.
It is bizarro world for me to go to these things. First, let me confess right from the start, I had a great time. I pose as an outsider and a crank. But when summoned to the court, this jester puts on his bells. I am very, very angry at Treasury, and the administration it serves. But put me at a table with smart, articulate people who are willing to argue but who are otherwise pleasant towards me, and I will like them. One or two of the “senior Treasury officials” had the grace to be a bit creepy in their demeanor. But, cruelly, the rest were lively, thoughtful, and willing to engage as though we were equals. Occasionally, under attack, they expressed hints of frustration in their body language — the indignation of hardworking people unjustly accused. But they kept on in good spirits until their time was up. I like these people, and that renders me untrustworthy. Abstractly, I think some of them should be replaced and perhaps disgraced. But having chatted so cordially, I’m far less likely to take up pitchforks against them. Drawn to the Secretary’s conference room by curiosity, vanity, ambition, and conceit, I’ve been neutered a bit. There’s an irony to that, because some of the people I met with may have been neutered, in precisely the same way and to disastrous effect, by their own meetings and mentorings with the Robert Rubins and Jamie Dimons of the world.
Obviously the headline act was Timothy Geithner. Off the record (or “on deep background”), Geithner is entirely different from the sometimes stiff character who appears on television. He…
Debating the Flat Earth Society about Hyperinflation
by ilene - September 13th, 2010 5:05 pm
Debating the Flat Earth Society about Hyperinflation
Courtesy of Mish
Over the past few weeks, many people have asked me to comment on John Hussman’s August 23, 2010 post Why Quantitative Easing is Likely to Trigger a Collapse of the U.S. Dollar.
Most wanted to know how that article changed my view regarding deflation. It didn’t.
Several others went so far as to tell me that Hussman was calling for hyperinflation. They were point blank wrong.
Here is the pertinent section from Hussman’s September 6, 2010 post The Recognition Window.
A note on quantitative easing
One of the things I’m increasingly dismayed to learn is that no matter how much detail, data, and qualification I might include in these commentaries, my conclusions will often be summed up by writers or bloggers in a single sentence that often bears no relation to my point. For instance, my view that quantitative easing will trigger a "jump depreciation" in the dollar has evidently placed me among analysts warning of hyperinflation and Treasury default (a club whose card is nowhere in my wallet).
To clarify once again – I emphatically do not anticipate inflationary pressures until the second half of this decade. As I’ve repeatedly emphasized, the primary driver of inflation – historically and across countries – has been growth in government spending for purposes that do not expand the productive capacity of the economy.
Quantitative easing does not pressure the dollar by fueling inflation. It has a much more subtle effect (but one that can be expected to be amplified if fiscal policy is long-run inflationary as it is at present). Normally, equilibrium in capital flows between countries is achieved through changes in interest rates. As a result, countries with greater capital needs or higher long-run inflation tendencies also have higher interest rates. If interest rates can adjust, exchange rates don’t have to. But notice what quantitative easing does: by sitting on long-term bond yields (and creating a negative real interest rate differential versus other countries), quantitative easing prevents bond prices from acting as an adjustment factor, and forces the burden of adjustment on the exchange rate.
While some observers have noted that the value of the Japanese yen did not deteriorate dramatically over the full course of quantitative easing by the Bank of Japan – from its beginning until it was finally wound down
…
New Job Opportunity – Spitting at the Moon
by ilene - September 5th, 2010 3:00 pm
New Job Opportunity – Spitting at the Moon
Courtesy of Mish
In multiple posts Paul Krugman is saying "I told you so". For example, please consider Nobody Could Have Predicted
Pictures support the view that stimulus worked as long as it lasted, boosting the economy — which is the same conclusion Adam Posen drew from Japan’s experience in the 1990s: Fiscal policy works when it is tried.
But the stimulus wasn’t nearly big enough to restore full employment — as I warned from the beginning. And it was set up to fade out in the second half of 2010.
So what was supposed to happen? The invisible cavalry were supposed to ride to the rescue.
I never understood why the Obama administration thought this would happen so soon; history tells us that the effects of a financial crisis on private spending are normally protracted. And sure enough, the cavalry has not arrived.
Stimulus and Full Employment
The idea we can stimulate the economy to full employment is about as silly as silly gets. Krugman wanted double the stimulus we got. Well, we got zero benefit unemployment-wise from the stimulus and in my book infinity times zero is still zero.
Yes, unemployment fell from 10.1% to 9.5% but all of that decrease, if not more than all of that decrease, was a result of a falling participation rate. The bottom line is neither the Fed increasing its balance sheet by $trillions nor a $1.4 trillion deficit did a thing to lower unemployment.
Of course the Keynesian clowns will holler things would have been worse in the absence of stimulus. Really?! Would banks be lending more? Would small businesses be hiring?
Full Employment Made Easy
Krugman wants full employment. I suppose the government could easily employ everyone who does not have a job. Then again, didn’t we effectively do just that?
Here is a snip from "Contained Depression" that suggests we did.
We are certainly in a depression. However, 40 million people on food stamps as of August 2010, masks that depression. The cost of the food stamp program is on schedule to exceed $60 billion in fiscal 2010. For comparison purposes, there was just over 11 million on food stamps in 2005.
Please note there are 14.6 million unemployed, but of them 4.5 million of them are receiving regular unemployment
…
Reflections on the “Recovery”
by ilene - September 4th, 2010 1:52 am
Reflections on the "Recovery"
Courtesy of Mish
One year ago the official unemployment rate was 9.7%. Today it is 9.6%.
One year ago U-6 unemployment was 16.8%. Today U-6 is 16.7%
click on chart for sharper image
For more details on the jobs report, please see Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface
For all the trillions of dollars in stimulus and additional trillions of dollars in bank bailouts and trillions of dollars of expansion of the Fed’s balance sheet, this is all we have to show for it.
Moreover, the economy is clearly slowing already by many economic reports including new home sales, existing home sales, the regional Fed manufacturing surveys, sentiment measures, and consumer spending trends. The only major discrepancy is ISM.
This week, none of that matters. However, I would like to point out that bear market rallies end, not on bad news, but on good news. It will be interesting to see how much more good news there is, and the market’s reaction to it.
The Ghosts of Lapsed Stimuli
by ilene - August 14th, 2010 1:15 am
The Ghosts of Lapsed Stimuli
Courtesy of Rick Davis at Consumer Metrics Institute
We have mentioned before that our year-over-year indexes are effected by both the current level of consumer activities and the year-ago levels of that same activity. Even if current levels remain dead flat, changing levels from the prior year can impact the year-over-year numbers. The bottom line, however, is that almost all economic measures ultimately use prior levels as reference points, and it is the annualized growth rates that we actually remember from the GDP reports.
Nothing demonstrates this phenomenon more clearly than our Automotive Index, which experienced a tremendous upward spike at this time last year from the ‘cash for clunkers’ stimulus package. Looking back at the chart for that index from a couple of months ago the spike is glaringly obvious:
Now fast forward to the current chart, where the upward ‘blip’ from the consumer oriented stimulus has inexorably shifted to the left and is half off the chart:
There are several conclusions that can be drawn from the above chart:
- Some portion of the recent drop in our Domestic Autos Sub-Index is the result of current consumer demand comparing poorly year-over-year to the level of stimulated demand during the year-ago period.
- The historical portions of the chart clearly show that a consumer oriented stimulus can have a measurable effect on select sectors of the economy.
But, at least for domestic autos during this recovery:
Without stimulus, significantly increased consumer demand has not been sustained. We see no signs of ‘organic’ or structural recovery yet in the either of two key durable goods sectors: Automotive and Housing:
The above chart is for the demand for new loans for newly acquired residential property (i.e., it excludes refinancing activities — which have remained strong). Again the impact of consumer oriented stimuli can be seen in the historical left side of the chart, but the right side tells us a great deal about whether the stimuli actually primed the Housing pump, or merely moved sales forward several quarters. If Housing is to become a real engine of economic growth again, this chart would have to move back into substantially positive territory and stay there without benefit of congressional give-aways.
Our year-over-year ‘Daily Growth Index’ continues…
Economists Cut Growth Estimates
by ilene - August 11th, 2010 3:40 pm
Economists Cut Growth Estimates
Courtesy of Mish
Now that it’s perfectly obvious to everyone on the planet that the recovery is not much more than burnt toast, Economists Cut U.S. Growth Forecasts
A lack of jobs will shackle consumer spending and restrain the U.S. recovery more than previously estimated, according to economists polled by Bloomberg News.
Gross domestic product will expand at an average 2.55 percent annual rate in the last six months of 2010, according to the median of 67 estimates in a survey taken July 31 to Aug. 9, down from the 2.8 percent pace projected last month. Household purchases will climb at a 2.25 percent rate, compared with a 2.6 percent gain previously forecast.
“Simply put, job growth in the private sector hasn’t improved as we would’ve expected,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The consumer continues to contribute to growth but at a subpar pace.”
“Unemployment is high, income growth has been pretty slow,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, who lowered estimates for growth and spending. “Household wealth is a lot lower than it was three years ago.”
“The pace of economic recovery is likely to be more modest in the near term than had been anticipated,” the Federal Open Market Committee said in a statement after meeting yesterday.
Revised Estimates Still Too Optimistic
Why was everyone so optimistic in the first place? There was no real reason for it. The answer of course is Fooled by Stimulus.
However, the economists still don’t get it. Second half GDP is likely to be closer to 0% than 2.55%. Negative GDP is plausible.
Did the Recovery Stall?
Not really. Caroline Baum explains in Economy Lost Momentum While I Was Pulling Weeds
The post-mortems on the July employment report made me realize I’d missed the recovery.
While I was watching my garden grow, the U.S. economy “lost momentum,” according to every news report I read or heard over the weekend. Somewhere between the budding of the peonies and the blooming of the rudbeckia, private-sector job growth downshifted.
Which brings me to the point: In order to lose momentum, the U.S. economy has to have momentum to begin with. If it had any, I missed it.
What we had was a government-prescribed course of
…
We’re Even Deeper in the Hole
by ilene - August 6th, 2010 11:32 pm
We’re Even Deeper in the Hole
Courtesy of Robert Reich
The economy is still in a deep hole, and we’re not climbing out.
Remember, we need 125,000 new jobs per month simply to keep up with the growth of the American population seeking jobs. But according to this morning’s job’s report, private-sector employers added just 71,000 jobs in July. (According to the Bureau of Labor Statistics’ revised report for June, private employers added only 31,000 jobs in June.)
In other words, the hole keeps getting deeper.
(Government Census workers who had been hired in the spring have been let go over the last two months, and shouldn’t really be included in the trend-line calculation. But for the record, 143,000 lost their jobs in July. That leaves about 200,000 Census workers still knocking on doors. Most of them will lose their jobs in August and September.)
The only slightly bright news is that manufacturing payrolls increased by 36,000 in July, but those gains are almost surely going to evaporate in August. Manufacturing expanded in July at the slowest pace of the year as orders and production decelerated.
All this blur of numbers means two things: An extraordinary number of Americans are still hurting. And it’s more important than ever for the US government to step in with a larger stimulus that puts more people to work (a WPA, for example), and tax cuts for people who will spend them (a two-year payroll tax holiday on the first $20K of income).
We cannot get out of this hole without major federal action.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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