Why The (Obvious) Discomfort Ben?
by ilene - July 25th, 2010 3:20 pm
Why The (Obvious) Discomfort Ben?
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Courtesy of Karl Denninger at The Market Ticker
Snippets this time, since I’m on vacation….
The economic expansion that began in the middle of last year is proceeding at a moderate pace, supported by stimulative monetary and fiscal policies. Although fiscal policy and inventory restocking will likely be providing less impetus to the recovery than they have in recent quarters, rising demand from households and businesses should help sustain growth. In particular, real consumer spending appears to have expanded at about a 2-1/2 percent annual rate in the first half of this year, with purchases of durable goods increasing especially rapidly. However, the housing market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction.
Uh huh. Note the word appears. In political circles this is known as a "weasel word", and gives the speaker an out if the claim turns out to be pure nonsense down the road (and it will.)
The most-important part of this paragraph, however, is the fact that it recognizes that the government has stepped in and replaced 11% of final demand with borrowed money.
Inflation has remained low. The price index for personal consumption expenditures appears to have risen at an annual rate of less than 1 percent in the first half of the year. Although overall inflation has fluctuated, partly reflecting changes in energy prices, by a number of measures underlying inflation has trended down over the past two years. The slack in labor and product markets has damped wage and price pressures, and rapid increases in productivity have further reduced producers’ unit labor costs.
Note the direct contradiction with the above paragraph (does Ben really think we’re dumb enough not to notice?)
Specifically, slack labor markets and increased output demands per unit of compensated labor means consumer income, that which should be driving spending, is trending downward.…
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DiggThree Mish Segments on Tech Ticker, on Stimulus, Retail Sales, the Markets, Alternatives
by ilene - July 9th, 2010 3:03 pm
Three Mish Segments on Tech Ticker, on Stimulus, Retail Sales, the Markets, Alternatives
Courtesy of Mish
Yesterday I recorded three segments on Tech Ticker from downtown Chicago, hooking up with Joe Weisenthal at Nasdaq.
From Yahoo!Finance Michael "MISH" Shedock: Stimulus Will Fail Like It Always Does
There’s no hotter debate right now than stimulus vs. austerity, as folks like Paul Krugman and even Barack Obama call for more spending to fix the economy.
Michael "MISH" Shedlock is not having any of it, arguing that the financial pump has failed, and that the only way to get the economy back on track is to pursue a policy of less government, and less spending, with a special focus on reforming pensions, public sector unions, and other institutions that drain the government of its resources.
As evidence: Japan. The country has now seen multiple decades of recession despite massive pumping on both the fiscal and the monetary side.
But at least Japan hasn’t had a debt crisis yet, right? The key word there, says Mish is "YET." The fiscal situation in Japan is getting more and more tenuous, and it’s no sure thing that the market will retain its confidence in the Japanese government’s ability to finance its debt. And of course the same thing could happen here.
But for now in the US the big risk is deflation, which you can see in housing and other economic categories. Spending won’t solve this problem; actual economic adjustment is what’s needed to start growing again.
There are two more short segments that play back-to-back if you click on the top link.
Thanks Joe, that was a lot of fun.
As a followup to the discussion on retail sales, please consider Did Retail Sales Rise or Did Tax Rates Go Up?
Hussman Blasts Geithner, Bernanke, Keynes; Why Keynesian Stimulus Always Fails
by ilene - July 7th, 2010 2:55 am
Hussman Blasts Geithner, Bernanke, Keynes; Why Keynesian Stimulus Always Fails
In his latest post, John Hussman takes a well deserved swipe at illegal Fed operations, Geithner, Bernanke, and Keynesian stimulus.
Please consider a few snips from Implications of a Likely Economic Downturn.
…. With regard to "stimulus" plans, my difficulty with last year’s policies is not so much an aversion to government spending as it is a rebuke of the notion that government spending is by its nature stimulative or beneficial to the economy. The issue is how this real value is used. Is it used to advance socially useful outcomes which private individuals, through some failure of coordination, could not achieve? Or is it used to defend bondholders, industries, and institutions with which the policymakers are most closely aligned?
The Keynesian view is that government spending is simply a monolithic letter "G." Keynes cared little about the productivity or lack thereof to which public resources were devoted, even writing " If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again… there need be no more unemployment." The only difference between Keynes and Tim Geithner is evidently that Geithner prefers to place the bottles a bit closer to Wall Street.
…Meanwhile, I continue to believe that both Bernanke and Geithner’s hands should be tied quickly. If we have learned anything over the past 18 months, it is clear that these bureaucrats can misallocate an enormous quantity of public resources with mind-numbing speed. The diversion of public resources to the bondholders of failing financials – to precisely the worst stewards of capital in society – is not stimulative, but ruthless. A second economic downturn should encourage the repudiation of the policies that Bernanke and Geithner pursued during the first.
Basic ethical principle dictates that policy makers should not burden ordinary Americans to pay the losses that well-informed bondholders voluntarily took when they lent money to failing institutions. From my perspective, it is urgent to recognize that Fannie Mae and Freddie Mac obligations are not legally obligations of the U.S. government, that its backing was always at best implicit, and that even the Treasury’s distressingly generous 3-year promise
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THE END OF KEYNESIANISM?
by ilene - July 3rd, 2010 3:59 pm
THE END OF KEYNESIANISM?
Courtesy of The Pragmatic Capitalist
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Richard Russell certainly thinks so:
The end of Keynesianism? Yes, I think we’re seeing it now. Fed Chief Bernanke in his writing blamed the Great Depression on the Fed for shrinking the money supply. In fact, Bernanke even apologized on the part of the Fed for “causing the Great Depression.” Bernanke, wrote a famous piece explaining to “us know-nothings” that the Fed has a magic instrument, it was the ability to print money, and, if necessary, to drop this Fed-created money to the American people from helicopters. With his magic power, concluded Ben, there was no way the US could slide into another Great Depression.
It was great and comforting concept, but it didn’t work. After leaving rates at zero, printing over two trillion “dollars” and backing billions of dollars in stimulus plans, unemployment remains high, housing stays in the dumps and the national debt has sky-rocketed beyond all reckoning.
The spending plans of the Obama administration and the expansion of money by the Fed has left the US in worse shape than ever. Unemployment is still high, and the US has taken its place along with Greece and Portugal as another “half-broke banana republic.”
How did this horror story befall the once “greatest nation on earth” and the one-time “Arsenal of Democracy?” If a house is built on sandstone and with rotten timber it’s not a question of whether that house will fall apart — it’s a question of WHEN. Ever since the end of World War II, Americans have been enjoying the greatest standard of living the world has ever seen. How did we do it? Was it hard work, sweat, original thinking, risk-taking or pure luck? Hardly any of those, it was through borrowing and creating a gigantic house-of-cards. The cards were the newly-created bits of paper that we call dollars (actually, they are Federal Reserve notes backed by nothing).
Without its abilities to create fiat money, the US could never have built its “house-of-cards economy.” Without the insidious Fed, the US would never have had the ability to create trillions of unbacked Fed notes.
I’ve insisted all along that the US should have allowed the primary bear forces to fully express themselves, as they inevitably will do anyway. But in its arrogance and ignorance, the administration decided that they could halt or sidestep a
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The Risk of Recession
by ilene - June 26th, 2010 4:53 pm
The Risk of Recession
Courtesy of John Mauldin at Thoughts From The Frontline
We are halfway through the year (where did the time go?) and it is time to make some predictions about the last half of the year. This week we look at what the leading indicators are telling us, size up a new indicator, drop in on banking data, and do a whole lot more.
Quickly, I will be on Larry Kudlow’s show next Tuesday, which is at 7 pm Eastern. Larry has promised that we will spend some quality time on some of the current issues facing us. See you there! And now, let’s jump in.
The Risk of Recession
I am on record as saying I think there is a 50-50 chance we slip back into recession in 2011, as I think the economy will soften in the latter half of the year and a large tax increase in 2011 (from the expiring Bush tax cuts) will tip us into recession.
This was not based on data, but rather on research which shows that tax
If the economy is growing at less than 2% by the end of the year, then a tax increase of more than 1% of GDP could and probably would be the tipping point. Add in an almost equal amount of state and local tax increases (and spending cuts) and you have the recipe for a full-blown recession – at least the way I see it.
I was asked at my recent speech in Milan, what sorts of things could make me wrong? There are a few. First, it could be that tax increases and cuts don’t matter. Some very smart people (like Paul McCulley) feel that tax increases on the wealthy don’t really figure into Romer’s analysis.
Or maybe bank lending starts to pick up and the economy is actually growing at 3-4% by the end of the year – although the chart below…
OMG! Begging is Unbecoming of a President of the United States, Obama!
by ilene - June 13th, 2010 1:53 am
OMG! Begging is Unbecoming of a President of the United States, Obama!
Courtesy of Jr. Deputy Accountant
This is sad. REAL sad. You know it’s bad when Obama has to plead to his OWN party to please spend more money. See, what Mr OMG! doesn’t realize is that much of Congress is scared of losing their jobs this year, unlike our dear president who has two more years of job security unless he really bumbles the gig and gets impeached. So he can spend like this knowing he probably won’t get to a second term anyway; meanwhile, the guys he’s crying to might lose their jobs this fall.
WaPo:
President Obama urged reluctant lawmakers Saturday to quickly approve nearly $50 billion in emergency aid to state and local governments, saying the money is needed to avoid "massive layoffs of teachers, police and firefighters" and to support the still-fragile economic recovery.
In a letter to congressional leaders, Obama defended last year’s huge economic stimulus package, saying it helped break the economy’s freefall, but argued that more spending is urgent and unavoidable. "We must take these emergency measures," he wrote in an appeal aimed primarily at members of his own party.
And where is that stimulus that totally fixed the economy?! What happened to the awesome recovery we’re supposedly in the midst of? What about that 10,000 DOW that seemed to have cojones made from airplane-grade steel?
The Great Recession
by ilene - June 7th, 2010 1:29 pm
"WE STAND TODAY AT A CROSSROADS: ONE PATH LEADS TO DESPAIR AND UTTER HOPELESSNESS. THE OTHER LEADS TO TOTAL EXTINCTION. LET US HOPE WE HAVE THE WISDOM TO MAKE THE RIGHT CHOICE." WOODY ALLEN
The Great Recession
Courtesy of JESSE’S CAFÉ AMÉRICAIN
Employment figures clearly show that this is much more than a cyclical recession. It is the breaking of an historic credit bubble, made worse by the Fed’s policy responses and recommendations on banking regulation since 1994.
If you look closely at the chart below, you will see that if you subtract the temporary government hiring for the Census, there is no recovery in employment. It is flat. With all the trillions spent so far, why is there such a weak response?
You cannot kick start something with a quick blast of stimulus if it is still broken. So any stimulus to the economy or subsidies to the banks that are being applied are essentially wasted, until the system is significantly reformed and restructured. That is the problem.
Worse than wasted really, because it robs future governments of the ability to engage in constructive action. Like a third world country, the pigmen were the first to the trucks, with the help of corrupt politicians, and are stealing the aid intended for the public and have been hoarding it.
Stimulus. Reform. What we have seen so far from the Congress, the Fed, and Wall Street is simply white collar looting, and ironically in a crisis which they created.
And when the investigations and trials come later, which they will, watch how the pigmen claim complete ignorance of any wrongdoing even in their own companies or at most a few sincere errors in judgement, just like the CEO’s and bankers and the financiers have been doing already in front of the Congress and the FCIC.
Hyprocrites and liars playing the public, whom they secretly despise as their inferiors, for fools. This is the prevailing attitude in Washington, the mainstream media, and on Wall Street.
This excellent chart is from Calculated Risk.
Biting the hand that beats you dept:
“Many people believe Goldman Sachs, which goes around the Chinese market slurping gold and sucking silver, may have, using all kinds of deals, created even bigger losses for Chinese companies and investors than it did with its fraudulent actions in the US.” China Youth Daily
US money supply plunges at 1930s pace as Obama eyes fresh stimulus
by ilene - May 27th, 2010 1:38 pm
US money supply plunges at 1930s pace as Obama eyes fresh stimulus
The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.
By Ambrose Evans-Pritchard, Telegraph
The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.
"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to "grit its teeth" and approve a fresh fiscal boost of $200bn to keep growth on track. "We are nearly 8m jobs short of normal employment. For millions of Americans the economic emergency grinds on," he said.
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Jr. Deputy Accountant notes:
That’s THIRD Stimulus, Not Second
nope, you’re not getting a check this time either…
Remember standing by the mailbox waiting for Bushy Jr’s stimulus? So let’s keep that in perspective when discussing an additional stimulus measure – proposed by cheeseburger addict and serial maniac Larry Summers. Don’t credit Obama with making this statement, he was busy here in my home base of San Francisco this week trying to whore himself out for the sake of Barbara Boxer’s reelection campaign. Sexy.
THREE THINGS I THINK I THINK
by ilene - May 20th, 2010 4:48 am
THREE THINGS I THINK I THINK
Courtesy of The Pragmatic Capitalist
- Just a few brief comments on the market at the current levels. I was relatively optimistic about the equity markets coming into the beginning of the year. The themes that had dominated much of 2009 (better than expected earnings, accommodative Fed, continuing stimulus, etc) appeared to be largely intact. To my surprise, the rally ran a bit farther than I expected, but Greece and the downturn in China were game changers in my opinion. I was a few weeks early to lay my short positions, but the market ultimately came around to my thinking (better to be lucky than good). Where are we now? In my opinion, we have a global economy that ispre-Greece and a global economy that is post-Greece. The dominoes appear to be lining up in an eerie fashion at this point in time – there are now dozens of negative catalysts in the coming 12 months (which I will detail in a soon to be released report). Although the markets are once again oversold and at risk of a bounce the fundamentals are quickly deteriorating and my expectation of a weak second half appears to be right on cue. I would continue to approach this market with a great deal of caution despite the current oversold conditions.
- What do the Germans know? This short selling ban is very desperate looking. I hate to speculate, but my gut tells me that they are beginning to realize how bad the situation is over there. They now understand that the problems in the Euro cannot be solved through intra-country debt issuance and bailouts. The short ban looks like one more act of desperation from a group of nations that have severely underestimated the problems they confront. Unfortunately, I still don’t think they’ve realized that this is a currency crisis and not a solvency crisis. That means they’ll continue to kick the can down the road and markets will battle with the turbulence. This truly does have a very Bear Stearns feel to it.
- Will we scare ourselves into a double dip or even a second great depression? Everyone and their mother appears to be in the same camp regarding all the very scary “money printing”. I’ve never in my life heard the drumbeat so loud for fiscal austerity. In fact,
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Canaries in Coalmine: China, Asia, not Participating in Euro Bailout Lovefest; Beginnings of China Credit, Real Estate Bust
by ilene - May 11th, 2010 5:16 pm
Canaries in Coalmine: China, Asia, not Participating in Euro Bailout Lovefest; Beginnings of China Credit, Real Estate Bust
Courtesy of Mish
Is China a canary in the coalmine of an impending global slowdown, or is China simply overloved as a beacon of growth as it was in 2008? I think it’s both.
China’s property and infrastructure bubbles are massive; that is for certain. Moreover, China’s biggest export trading partner is Europe, just as Europe is headed for numerous austerity programs.
While it’s doubtful the European austerity programs bring deficits down to where they are supposed to be, those programs will for a while cause a decline in European spending along with much social unrest.
Can China take a double whammy like this without overheating? I think not. And China will have to show things down, whether it wants to or not.
China Overheating, Tightening Coming
Please consider Hong Kong Stocks Fall as China Prices Prompt Tightening Concern
Hong Kong stocks fell as rising consumer inflation and housing prices in China stoked concern the country will act further to rein in its economy. The city’s developers pared losses after a government land sale.
“Domestic concerns are more important in terms of the policy measures coming out in China to cool things down,” said Binay Chandgothia, who oversees about $2.2 billion as chief investment officer at Principal Global Investors (Hong Kong). For Europe, “the question is the credibility of the billions of dollars of government debt that resides with European banks.”
“Domestic concerns are more important in terms of the policy measures coming out in China to cool things down,” said Binay Chandgothia, who oversees about $2.2 billion as chief investment officer at Principal Global Investors (Hong Kong). For Europe, “the question is the credibility of the billions of dollars of government debt that resides with European banks.”
“Price pressures have been building throughout the economy, strengthening the case for higher interest rates and a stronger yuan,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “China is at risk of overheating, with spot fires breaking out in various parts of the economy.”
Chinese policy makers should focus on preventing excessive gains in asset prices and liquidity as Europe’s rescue package makes another global slump less likely, central bank adviser Li Daokui said in an interview yesterday. The increase in property prices across
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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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