Hoping to get it done before the "audit the fed" bill decends on them. Meanwhile certain politicians are sitting on the audit the fed bill at the behest of feds and/or banks.The US establishment is heavily, and I mean heavily*, pushing for the FED to become super-regulator of the financial sector.
http://www.cnbc.com/id/323000971. David Dreman is buying stocks and avoiding corporate bonds and U.S Treasuries due to concerns about inflation.
2. He thinks we are going to have some of the worst inflation. 12%
3. He thinks real estate may be a good investment.
4. "Probably the two worst investments over the past two, three years have been stocks and real estate," Dreman said. "They could be the best investments two or three years out."
5. But he himself is does not invest in real estate, and he is also avoiding bonds, including corporate debt, Treasuries and TIPS, or Treasury Inflation-Protected Securities.
6. Dreman thinks the U.S. recession that has lasted about 18 months is nearly over, but problems in the banking sector are likely to linger, he said.
The worst buys of the past few years, such as real estate and stocks, may prove to be the best investments a few years from now, said David Dreman, chairman and CIO of Dreman Value Management.
“I think we’re factoring in some pretty major inflation,” Dreman told CNBC.
“There’s been a report that there has been $21 trillion of new debt that was recently put out. The Treasury has been printing money 24-7 and that’s got to have its toll.”
Dreman predicted that this will lead interest rates to reach 10 to 12 percent in 2 to 4 years, which will be good news for stocks and real estate over time.
“We will see markets go down some and we’ll have volatility,” he said. “But all in all, we’re in a market that will go up much higher over the next 3 to 5 years.”
Dreman advised investors to look into oil, natural resources and exploration developer stocks; and to buy real estate.
If that doesn't describe the symptoms to a dot of a debt-deflationary spiral, then what will? These are indeed dangerous times. The inflation predictors are off-mark on this one, IMHO. Japan didn't have significant inflation despite yrs of ZIRP, public debt-pileup and furiously printing banknotes.“Consumers have started to change their behavior and they are going to save more,” said Richard Berner, co-head of global economics at Morgan Stanley in New York and a former researcher at the Fed. “You have pressure on wages, you have employment still declining.”
{Nothing new so far. This has been discussed to death already on this thread.}
Wages and salaries, which drive recoveries in spending, fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960, according to Commerce Department figures released yesterday.
{The biggest drop since record keeping began in 1960. That is saying something. Most likely make it the biggest drop since the great depression because WWII and the 50s were great for the US economy - booming demand, women in the workforce, rising incomes - the works of the virtuous cycle}
The Obama administration’s tax cuts, extended jobless benefits and a one-time Social Security bonus have helped mask the damage done by the worst employment slump since the Great Depression.
{Critical to understand just how important unempl benefits have become in this downturn. Elsewhere there's news that Alabama's Jefferson county is considering callinig in the national guard after derivatives play destroyed the county's budget and forced the sacking of 2/3rds of county employees.}
Personal incomes, which include interest income, dividends, rents and other payments as well as wages, tumbled 1.3 percent in June, more than forecast and the biggest drop in four years, yesterday’s Commerce report showed. Excluding the effects of the stimulus plan, June incomes would have dropped 0.1 percent after no change in May, according to the report. In May, one-time additional payments to Social Security recipients boosted incomes 1.3 percent.
One of every 10 American workers will be without a job by early 2010, economists project, shaking the confidence of those still on payrolls and discouraging spending. It may take as long as 15 years for consumers to fully repair finances battered by the decline in home values, stocks and employment, said Edmund Phelps, winner of the Nobel prize in economics in 2006.
{15 yrs? lost decade and a half, anybody? And this is the optimistic scenario, I surmise. I sincerely hope the extended downturn doesn't kickstart military adventurism by the big powers anywhere near India's backyard}
Decreasing pay is not the only hurdle for consumers. Plunging home prices and stocks reduced household net worth by a record $13.9 trillion from the third quarter of 2007 through this year’s first quarter, according to figures from the Fed.
“Households are going to have to do an awful lot of rebuilding of their wealth,” Phelps, a professor at Columbia University in New York, said this week in an interview on Bloomberg Television. “Even if that rebuilding goes on at a pretty good clip, it will take 12 or 15 years for households to get to the wealth level that they had several years ago. Consumer demand is going to take a long time to rebuild to normal levels.”
As for unemployment, I think we see 10% by September or October at the latest. Right now I am sticking with my forecast of 9.8% by August.
In regards to balance sheet repair, 15 years has ominous implications for jobs and the stock market.
In regards to rebuilding wealth, "never" may be a better estimate than 12-15 years for boomers now retiring. Those boomers need to draw down savings during retirement while stock market gains will likely be hard to come by.
Of course most of that "wealth" was all imaginary in the first place, especially in regards to home prices.
BIRMINGHAM, Ala. – The sheriff in Alabama’s most populous county may call for the National Guard to help maintain order, a spokesman said Tuesday, after a judge cleared the way for cuts in the sheriff’s budget and hopes dimmed for a quick end to a budget crisis.
Yup, right. Always trust the big banks to do the right things for their clients, eh? And these same bigboy banks - GS, JPM and the like are issuing 'country reports' pouring flattery on India's growth rate that is lamentably still below potential, then funding think tank studies to show that yindia must 'open up its financial sector' to take advantage of said growth potential only.The county relied on advice from a bank, JPMorgan Chase & Co., to arrange its funding, rather than use competitive bidding.
The county paid banks $120 million in fees — six times the prevailing rate — for $5.8 billion in interest-rate swaps. That was supposed to protect the county from rising rates for their bonds. Lending rates went the wrong way, putting the county $277 million deeper into debt.
That means local officials now have to pay to banks money that otherwise might have been used to build schools, hospitals or public housing.
It is often said that California is a window onto America's future. Well, with a heavy tax and regulatory burden, a new greenhouse gas emissions law, and rapidly growing welfare rolls, perhaps America should pay close attention to the Golden State's mistakes. This email details the extent of California's burgeoning welfare rolls.
California accounts for 12% of the U.S. Population but 32% of the welfare caseload.
About half of U.S. mortgages seen underwater by 2011
Wed Aug 5, 2009 5:12pm EDT
By Al Yoon
NEW YORK (Reuters) - The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.
Home price declines will have their biggest impact on prime "conforming" loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.
"We project the next phase of the housing decline will have a far greater impact on prime borrowers," Deutsche analysts Karen Weaver and Ying Shen said in the report.
Of prime conforming loans, 41 percent will be "underwater" by the first quarter of 2011, up from 16 percent at the end of the first quarter 2009, it said. Forty-six percent of prime jumbo loans will be larger than their properties' value, up from 29 percent, it said.
"The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding," the analysts said. Prime jumbo loans make up 13 percent of the total market.
Deutsche's dire assessment comes amid a bolt of evidence in recent months that point to stabilization in the U.S. housing market after three years of price drops. This week, the National Association of Realtors said pending home sales rose for a fifth straight month in June. A widely watched index released in July showed home prices in May rose for the first time since 2006.
Covering 100 U.S. metropolitan areas, Deutsche Bank in June forecast home prices would fall 14 percent through the first quarter of 2011, for a total drop of 41.7 percent.
The drop in home prices is fueling a vicious cycle of foreclosures as it eliminates homeowner equity and gives borrowers an incentive to walk away from their mortgages. The more severe the negative equity, the more likely are defaults, since many borrowers believe prices will not recover enough.
Homeowners with the riskiest mortgages taken out during the housing boom have seen the greatest erosion in equity, in part because they were "affordability products" originated at the housing peak, Deutsche said. They include subprime loans, of which 69 percent will be underwater in 2011, up from 50 percent in March, Deutsche said,
Of option adjustable-rate mortgages -- which cut payments by allowing principal balances to rise -- 89 percent will be underwater in 2011, up from 77 percent, the report said.
Regions suffering the worst negative equity are areas in California, Florida, Arizona, Nevada, Ohio, Michigan, Illinois, Wisconsin, Massachusetts and West Virginia. Las Vegas and parts of Florida and California will see 90 percent or more of their loans underwater by 2011, it added.
"For many, the home has morphed from piggy bank to albatross," the analysts said.
Sorry for OT: posted in J&K thread. X-postedHari Seldon wrote:What California`s terrible numbers mean for America
Nice set of charts and graphs that pictorially depict a 1000 words each.
It is often said that California is a window onto America's future. Well, with a heavy tax and regulatory burden, a new greenhouse gas emissions law, and rapidly growing welfare rolls, perhaps America should pay close attention to the Golden State's mistakes. This email details the extent of California's burgeoning welfare rolls.
California accounts for 12% of the U.S. Population but 32% of the welfare caseload.
well, usually, the second half years has less vacation and more orders. the GDP in the second half year is always more than that in the first half year in china./Hari Seldon wrote:China’s growth figures fail to add up
Wow. So first half GDP is some $2.25T -> annual GDP is $4.5T? Its already bigger than japan then. No?China’s gross domestic product figures are among the world’s most closely watched since they can move markets or boost hopes of an imminent recovery.
But the latest set of first-half numbers provided by provincial-level authorities are far higher than the central government’s national figure, raising fresh questions about the accuracy of statistics in the world’s most populous nation.
GDP totalled Rmb15,376bn ($2,251bn) in the first half, according to data released individually by China’s 31 provinces and municipalities, 10 per cent higher than the official first-half GDP figure of Rmb13,986bn published by the National Bureau of Statistics.
Anyway, am kinda pleasantly surprised that the discrepancy between the national and provincial figures is "only 10%". PRC can always trump an accusing hand at America that front-loaded its GDP some 20% on debt driven consumption alone. That is why folks now warn the US will take yrs to return to its 2007 output.
More from the story:In a lighter veinAn editorial on Tuesday in the China Daily, the government’s English-language mouthpiece, quoted another survey that found 91 per cent of respondents sceptical of official data, up from 79 per cent in 2007.
Economists abroad have also questioned the reliability of the data in recent months.
“Despite starkly limited resources and a dynamic, complex economy, the state statistical bureau again needed only 15 days to survey the economic progress of 1.3bn people,” said Derek Scissors, of the Washington-based Heritage Foundation, referring to the time it took for the bureau to produce the figures after the end of the first half this year. “At worst, results are manufactured to suit the Communist party.”The criticism has prompted the NBS to launch a campaign last week, entitled “Statistical Feelings: We have walked together – Celebrating the 60th anniversary of the founding of New China,” to boost confidence among statisticians.
The campaign has already produced works such as: “I’m proud to be a brick in the statistical building of the republic.” In another poem, a contributor writes: “I can rearrange the stars in the sky because I have statistics.”
Hmmm, so despite cheery official numbers, PRC's mineral imports are down? I think this is wicked western propaganda only, to hide its own dismal showing in the face of glittering numbers emerging from china's musharraf! How can the great PRC's juggernaut even slow down? Tauba tauba. PRC should not care for western loss of face! march ahead, o mighty revolutionary china! pretty soon, every country in the world will be clamoring to be invaded and occupied by china onlee...The Baltic Dry Index, a measure of shipping costs for commodities, had its worst week since October as Chinese demand for shipments of coal and iron ore slowed.
The index tracking transportation costs on international trade routes today slid 135 points, or 4.6 percent, to 2,772 points, according to the Baltic Exchange. That took its weekly drop to 17 percent, the most since the end of October.
“The Chinese have backed off and it’s starting to show in the number of shipments this month,” Gavin Durrell, a Cape Town-based official at Island View Shipping SA, Africa’s biggest commodities shipping line, said by phone today. “Iron ore and coal seem to be slowing down.”
China’s record coal and iron ore imports in the first half helped the index to advance as much as fivefold this year, reversing some of the record 92 percent collapse in 2008. Demand rose after the country’s government announced a 4 trillion yuan ($586 billion) stimulus package....
Rates are declining as Chinese steelmakers delay imports while they negotiate annual iron ore prices with producers such as Rio Tinto Group, BHP Billiton Ltd. and Vale SA, Durrell said. “I don’t think they will come back until they agree,” he said.
The drop reflects a wider slide in demand for raw materials that will likely push prices for metals, commodities and energy lower, Eugen Weinberg, a senior commodity analyst at Commerzbank AG in Frankfurt, said
well, guy, chinese are negotiating hard with west guys about the price of iron ores....Hari Seldon wrote:Baltic Dry Index Down 17% for the Week, Worst Fall Since October
Hmmm, so despite cheery official numbers, PRC's mineral imports are down? I think this is wicked western propaganda only, to hide its own dismal showing in the face of glittering numbers emerging from china's musharraf! How can the great PRC's juggernaut even slow down? Tauba tauba. PRC should not care for western loss of face! march ahead, o mighty revolutionary china! pretty soon, every country in the world will be clamoring to be invaded and occupied by china onlee...The Baltic Dry Index, a measure of shipping costs for commodities, had its worst week since October as Chinese demand for shipments of coal and iron ore slowed.
The index tracking transportation costs on international trade routes today slid 135 points, or 4.6 percent, to 2,772 points, according to the Baltic Exchange. That took its weekly drop to 17 percent, the most since the end of October.
“The Chinese have backed off and it’s starting to show in the number of shipments this month,” Gavin Durrell, a Cape Town-based official at Island View Shipping SA, Africa’s biggest commodities shipping line, said by phone today. “Iron ore and coal seem to be slowing down.”
China’s record coal and iron ore imports in the first half helped the index to advance as much as fivefold this year, reversing some of the record 92 percent collapse in 2008. Demand rose after the country’s government announced a 4 trillion yuan ($586 billion) stimulus package....
Rates are declining as Chinese steelmakers delay imports while they negotiate annual iron ore prices with producers such as Rio Tinto Group, BHP Billiton Ltd. and Vale SA, Durrell said. “I don’t think they will come back until they agree,” he said.
The drop reflects a wider slide in demand for raw materials that will likely push prices for metals, commodities and energy lower, Eugen Weinberg, a senior commodity analyst at Commerzbank AG in Frankfurt, said
congratulations!Well, it took me six months to find a new gig. Just got the offer, will start work in a week or two.
I second that. In this khanomy, finding employment is no mean feat.Neshant wrote:congratulations!Well, it took me six months to find a new gig. Just got the offer, will start work in a week or two.
We are in the process of deleveraging the most leveraged economy in history....this deleveraging as a major negative that will weigh on the economy for years to come and we could wind up with a lost couple of decades just as Japan experienced over the past 20 years. It is true that Japan didn't act as quickly as we did but our debt ratio presently is much worse than Japan's debt ratios throughout their deleveraging process...
This seems to us to be a "mini bubble" of stocks reacting to an abundance of "money printing" by governments all over the world since stocks are rising worldwide. Of course, if the U.S. doesn't recover there will be no worldwide recovery since the rest of the world is still dependent upon the U.S. consumers' appetite for their goods and services (despite the so called growth of domestic consumption in China and India). We, however, don't believe that the U.S. massive stimulus programs and money printing can solve a problem of excess debt generation that resulted from greed and living way beyond our means. If this were the answer Argentina would be one of the most prosperous countries in the world....
{The equity mkt bubble looked fishy frm day 1. The fundamentals, the P/E ratios, nothing justified them.}
Most investors believe the bailouts, stimulus plans, and quantitative easing will lead to inflation. In fact, almost all of the bearish prognosticators are negative because of the fear that interest rates will rise once the inflation starts to work its way into the economy. They point to the doubling of the monetary base which they believe will soon lead to rising prices as more dollars are created chasing the same amount of goods. We, on the other hand, are not as concerned about the doubling of the monetary base because we believe the excess money will need the money multiplier and increases in velocity in order to increase aggregate demand and eventually inflation. As long as velocity (turnover of money) is stagnant we expect the increases in the monetary base and all the quantitative easing will lead to a stagnant economy and deflation until the consumer goes into the same borrowing and spending patterns that was characteristic of the 1990s through 2007.
{critical point. the inflationists forget the velocity of money is ~ zero now since banks are busy accumulating reserves and are in no mood to lend anyway}
There were debates on this thread a few days ago on whether or not 'internal debt' (i.e. debt denominated in local currency) is dangerous. Suffice it is to say that though internal debt offers more leeway and flexibility, it too has its definite limits.Remember, over the past decade (when we believe the secular bear market started) the total debt in the U.S. doubled from $26 trillion in 2000 to just over $52 trillion presently (peaking a few months ago at $54 trillion). This consists of $14 trillion of gross Federal, State and Local Government debt and $38 trillion of private debt. We expect the private debt to continue declining in the future as the deleveraging of America unfolds, while the government debt will very likely explode to the upside as the government tries to slow down the private deleveraging by helping out the entities and individuals in the most trouble with debt (such as over-extended homeowners).
We wrote a special report in January of this year titled "Substituting Debt for Savings and Productive Investment" in which we explained why the U.S. economy historically prospered because of hard working Americans saving a substantial amount of their income which was used for productive investment. Unfortunately, all of this changed over the past few decades and got worse over the past decade. In fact, we stated in the report that it took $1.50 of debt to generate $1 of GDP in the 1960s, $1.70 to generate $1 of GDP in the '70s, $2.90 in the '80s, $3.20 in the '90s, and an unbelievable $5.40 of debt to generate $1 of GDP in the latest decade. Over the past two decades, while most investors thought this trend could continue indefinitely, we have been warning them of the catastrophic problems associated with this ballooning debt....
linkThe Fed study charted the peak of the debt related bubble of the stock and real estate assets in Japan in 1991 (1989 for stocks and 1991 for real estate) and overlaid it with the peak of U.S. debt associated with the same assets in 2008. They concluded that if we are able to liquidate our debt at the same rate as Japan we would have to increase our savings rate from the present 6% (artificially high due to the recent stimulus paid to households) today to around 10% in 2018. If U.S. households were to undertake a similar deleveraging, the collective debt-to-income ratio which peaked in 2008 at 133% (H/H debt vs. Disposable Personal Income) would need to drop to around 100% by 2018, returning to the level that prevailed in 2002.
If the savings rate in the U.S. were to rise to the 10% level by 2018 (following the Japanese experience), the SF Fed economists calculate that it would subtract ¾ of 1% from annual consumption growth each year. We did a weekly comment about this very subject on June 25 of this year and came to a similar conclusion. In that same report we showed that from 1955 to 1985 that consumption accounted for around 62% of GDP. Because of the debt driven consumption over the past few years at the end of March 2009 consumption accounted for over 70% of GDP. If the percentage dropped to the normal low 60% area of GDP it would subtract about $1 trillion off of consumption (or from $10 trillion to $9 trillion)....
We expect that the U.S. deleveraging will follow along the path of Japan for years as real estate continues to decline and the deleveraging extracts a significant toll from any growth the economy might experience. We also expect that, just like Japan, the stock market will also be sluggish to down during the next few years as the most leveraged economy in history unwinds the debt.
Congratulations and good luck in your new job!Nandu wrote:One anecdotal data point.
I posted here back at the end of Feb that I had been laid off.
Well, it took me six months to find a new gig. Just got the offer, will start work in a week or two.
SF Bay area tech job. When I went to the outplacement talk after the lay off, there were 15 other people thre. AFAIK, only one other person from that group has landed a new job so far.
No, I was never in Germany.Singha wrote:good luck brother. I assume you are relocating from germany to khanate?
maybe I am confusing with another member...
‘Lost Couple of Decades’ Looming for U.S. Economy: Chart of Day
By David Wilson
Aug. 7 (Bloomberg) -- The U.S. economy may be just as sluggish during the next 20 years as Japan’s economy was in the last 20, according to Comstock Partners, a money manager founded and run by Charles Minter.
Stimulus programs and a surging money supply aren’t likely to “solve a problem of excess debt generation that resulted from greed and living way beyond our means,” the firm wrote yesterday in an unsigned report on its Web site. “We could wind up with a lost couple of decades.”
The CHART OF THE DAY shows U.S. total debt and gross domestic product since 1952, along with the ratio between them, based on data compiled by Bloomberg. The ratio rose in the first quarter to 372 percent even as household borrowing dropped for a second straight quarter, an unprecedented streak.
The U.S. is headed for “a deleveraging period” in which the amount of so-called private debt, including consumer borrowing, collapses as government borrowing explodes, Comstock wrote.
Assuming that private borrowers pay down debt at the same pace as they did in Japan after its 1980s economic bubble burst, the savings rate will climb to about 10 percent in 2018, the report said. The estimate was made in a study by the Federal Reserve Bank of San Francisco that Comstock cited. It’s more than double the 4.6 percent rate for June.
Citing the study in addition to its own research, Comstock wrote that reduced borrowing may curtail growth in U.S. consumer spending by 0.75 percentage point annually on average during the next nine years.
Jobs were lost in July too. Truth about reduction of unemployment was listed belowJuly Unemployment Rate Slips Unexpectedly to 9.4% as the Pace of Layoffs Slows.
...
The jobless rate slipped to 9.4% from 9.5% a month earlier -- the first decline since April 2008.
But the decline in the jobless rate was primarily caused by people dropping out of the labor force, and the rate is likely to rise again.
Based on past linkages between earnings trends and the pace of economic activity, believe it or not, the S&P 500 is now de facto discounting a 4¼% real GDP growth rate for the coming year. That is what we would call a V-shaped recovery. While it is possible, though in our opinion a low-odds event, it is doubtful that the economy is going to be better than that. So we have a market that is more than fully priced for a post-recession world — any further gains would suggest that we are moving further into the “greed” trade.
We realize that the market has to climb a wall of worry and that it will often price in a lot of bad news, but for the first time ever, it has rallied nearly 50% amidst a two-million job slide since March. That is either whistling past the graveyard or at the lows the market was indeed pricing in a full-fledged depression.
Think about that last comment. Whatever the market was pricing in at the March lows was obviously a pretty bad outcome, but isn’t that what we saw in the end? To be sure, the government established a floor under the financials, but when you go back and think about the fresh lows posted in late 2002, it was about earnings and the economy, not about financials.
In the four months after the recent lows in March, employment plunged by two million, which is as much carnage as we saw in the entire 2001 recession — and we are talking about the entire cycle including the jobless recovery that spanned from March 2001 to June 2003! We will guarantee you one thing — it is doubtful that the two million folks who lost their jobs are going to be heading to the malls, dealerships or restaurants anytime soon. And while that is only a sliver of the 130 million U.S. workforce, change does occur at the margin.
Usually, government plays a small role, but this time around, it may be the only actor in the play, and what multiple does that deserve is a very good question, especially now that Uncle Sam’s generosity is supporting a record of nearly 20% of personal income. The fact that we have now resorted to ‘Cash for Clunkers’ to support consumption is a very sorry state of affairs.
While that might be true in the US and UK and Oireope, in India the dynamic is totally different. Here we never had a credit crisis (but imported slow down due to exports getting hit and slow down of inflows, primarily hot money), but a macro economic scene that is totally out of whack.{critical point. the inflationists forget the velocity of money is ~ zero now since banks are busy accumulating reserves and are in no mood to lend anyway}
Point to ponder only. From Rosenberg's report above. More gems tumble out.While the hosts on the CNBC show we were on yesterday afternoon claimed that the bounce in July auto sales was evidence of pent-up demand, we would simply have to disagree. If there was pent-up demand we wouldn’t need the subsidy to begin with — it just goes to show that there will always be people who will be willing to accept free money. What we think is important is how low the level of auto sales were in July, at barely more than 11 million units at an annual rate. It was only nine-years ago that auto-related stimulus (“0% financing”) brought us 21 million units; and just four-years ago another gimmick (“Employee discount for everyone”) brought us 20 million units. The ‘new normal’, we would have to assume after the response to ‘Cash for Clunkers’, is 11 million units. That’s supposed to get us excited over the consumer spending outlook? Keep in mind that we never saw 21 or 20 million units again after those prior programs were unveiled — could it be that we just saw 11 million for the last time too?
Wealth shift from West to East? More like the gradual recovery of several centuries worth of wealth looted from the East by the West.
Aha. More corroboration from Denninger:Over at Zero Hedge, Tyler Durden did the math and figured that the recent 45% surge in the S&P 500 had nothing to do with the fictional economic "recovery", but was just more of the Fed's hanky panky. Durden noticed that the money that's been sluicing into stocks hasn't (correspondingly) depleted the money markets. That's the clue that led him to the truth about Bernanke's 6 month stock rally.
Zero Hedge: "Most interesting is the correlation between Money Market totals and the listed stock value since the March lows: a $2.7 trillion move in equities was accompanied by a less than $400 billion reduction in Money Market accounts!
The Stock Market has been on a tear, powered by printed money. Bernanke and his clowns have been monetizing debt - only $400 billion of the more than $2 trillion in market increase came out of money markets - the rest of the "firepower" - more than $1.5 trillion - came from "new bank reserves" used to buy mortgage-backed securities (Fannie and Freddie) and Treasuries - a figure that incidentally is close to the market's rise in terms of capitalization.
Annualized, the $181 billion deficit increase in July alone is approaching one half of the full year 2008 deficit - in one month - and Treasury has announced it is going to sell almost half that much again this week in new Treasury issuance - that is, yet more deficit (or addition to debt.)
Conclusion? Denninger says it best.The truth of this policy is found in the S&P 500's P/E - it was over 100 for the first quarter (a level never before reached in the index's history) and is over 140 today. There are those who claim that we must use "operating earnings", disregarding credit losses.
We have a long way to go folks, and further attempts out of the government to "pump" the economy and markets, while certainly making the stock market feel good in the short term, are unlikely to be able to turn around the credit demand picture, which is in fact the backbone of our economic engine.
Absent that turn-around the only paths forward are to either dramatically increase taxes (which will hammer consumption and thus stocks) or force repatriation of labor so we produce more (which will lead to nasty tariff wars ala The Great Depression.) Attempting more and more fiscal stimulus to prop up a consumer with no more true borrowing or production capacity is a path that will produce "feel good" response only for the duration of the spending, the ability of the government to continue down that path is not indefinite in duration.
Excerpting:
That was from Chuck Prince, Sandy Weill's Protege![Q:]Would you say that global banks somewhere are a little disappointed with the pace of financial reforms they have seen come out of a market such as India?
[A:]I think that, obviously, foreign participants would love to have broader access to a growing, thriving and healthy economy like India. I think that the Reserve Bank of India (RBI) has been quite consistent and thoughtful about how it has approached that.
And one way of looking at it is that the Indian economy would be largely protected in a banking sense, largely protected from the difficulties of the financial crisis, and apart from banking, the economy has obviously been affected by the slowdown, but you haven’t seen a banking crisis in India as you have seen in other countries. And I think that no matter how frustrating it is, as you described, about how foreign banks may feel about access, the benefit as seen in the protection from the crisis is something that has to be given some credit for.
"I have repeatedly said that the worst of the financial crisis could have been avoided if we had a central banker of the caliber of India's YV Reddy"
linkWhen the Treasury secretary reached his office the next day, on Sept. 18, his first call, at 6:55 a.m., went to Mr. Blankfein. That was followed by a call from Mr. Blankfein. All told, from Sept. 16 to Sept. 21, 2008, Mr. Paulson and Mr. Blankfein spoke 24 times.
At the height of the financial crisis, Mr. Paulson spoke far more often with Mr. Blankfein than any other executive, according to entries in his calendars.
The calls between Mr. Paulson and Mr. Blankfein, especially those surrounding the AIG bailout, are disturbing to Samuel L. Hayes, a professor emeritus at Harvard Business School and a consultant in the past for government agencies, including the Treasury Department.
"We don't know what they talked about," Mr. Hayes said. "Obviously there was an enormous amount at stake for Goldman in whether or not the AIG contracts would be made whole. So I think the burden is now on Mr. Paulson to demonstrate that there was no exchange of information one way or the other that influenced the ultimate decision of the government to essentially provide a blank check for AIG's contracts."
Japan "...really does need some inflation..."
(On Bernanke) "I'm biased, right...he was my department chairman at Princeton....he hired me." {No kiddin'!}
"...I just, in general, like the idea of bearded professors from Princeton running the world."
(Bernanke) turned the Fed into the financial intermediary of last resort." {Also, the fin intermed of first resort, actually. AND a vacation resort for bankers and their cronies}
From the brink of catastrophe to the brink of recovery in <1 year (it started last sept). No mean feat. The D&G aspects of the thread can then safely be put away. Too soon to bring out the party hats, let us wait and watch the next few months.The U.S. economy may be on the cusp of a recovery and the impact of the nation’s stimulus plan should increase this quarter, said Laura Tyson, an adviser to President Barack Obama.
“We may have hit stability, we may be in the beginning of an upturn” based on the latest economic data, Tyson, a member of the White House’s Economic Recovery Advisory Board, said yesterday during an interview in Kuala Lumpur. Nobel Prize- winning economist Paul Krugman said the deepest slump since the Great Depression may be ending.
“It’s quite possible, though not certain, that retrospectively, we’ll say that the recession ended in July or August, maybe September,” Krugman said in a separate interview in the Malaysian capital. “My guess is that we’ve bottomed out now, that August was probably the trough month.”
There’s no reason for a second stimulus package now, Tyson said in the interview. She suggested on July 7 the U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small.” She told CNBC three days later that it’s premature to plan for a second stimulus package.
“We know that relative to plan, the stimulus package in place is performing along expectations,” Tyson said yesterday. “Right now, based on the evidence that the economy has put forward and the stimulus spend out relative to plan, there isn’t any reason to think about a next round.”
