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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Archive for January, 2009

Obama plan

Posted by WARREN MOSLER on 30th January 2009


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A rising criticism is that the Obama proposal has no exit strategy.

The Obama proposal IS the exit strategy from falling output and rising employment.

The target is the economy.

Fiscal policy is the tool to hit the target.

The mainstream notion of an exit strategy from budget deficits demonstrates a profound misconception about fiscal policy.

The right size for the Federal budget deficit is any size that supports output and employment.

Only government deficit spending can provide the equity/savings of financial assets needed to sustain aggregate demand.

Government finance has no solvency issue, and no sustainability issue.

All government spending is nothing more than data entry on the government’s own spread sheet.

Government spending does not ‘have to come from’ somewhere-

  • Government borrowing does not take away savings.
  • Treasury securities ARE savings that are added to total savings by government deficits.

Government spending is not operationally constrained by revenues.

Government policy that restricts our available savings by keeping the deficit too small depresses output and employment.

Increasing the deficit when the output gap is too large removes the fiscal drag that is depressing output.

The Obama plan is best thought of as removing fiscal restriction, not ‘adding stimulus’.

It is a step in the right direction, but probably insufficient to restore output and employment to even moderate levels.

If the President or any of his immediate advisors understood monetary operations and reserve accounting we would have seen a very different proposal, and seen it much sooner.


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Posted in Obama | 9 Comments »

Japan Data/Outlook

Posted by WARREN MOSLER on 30th January 2009


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Karim writes:

In my years of following G7 economies, I have never seen weaker data than we have had in Japan in recent months.

Today’s data:

  • Industrial production -9.6% in December (record monthly fall), following up on -8.5% m/m in November and industry projecting -9.1% in January.
  • Moreover, the ratio of inventories to shipments rose 6.5% for the month and is now up 33.5% yr/yr.
  • Tokyo Core CPI also went back into negative territory in January (-0.3% yr/yr).

  • The weakness in manufacturing thus far reflects the collapse in demand from China and the U.S. (exports down 35% yr/yr).
  • As production cuts lead to higher layoffs, the next leg down will be in private consumption.
  • Most dealers are now forecasting back to back -10% quarters for real GDP in Q4 and Q1.
  • With the current government on the ropes and April legislation that may lead the yen even stronger, the prognosis past Q1 doesn’t appear very good.


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Posted in Japan, Karim | No Comments »

Bank Bailouts have it upside down

Posted by WARREN MOSLER on 30th January 2009


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>   
>   On Thu, Jan 29, 2009 at 8:52 PM, Russell wrote:
>   

Bank Bailout Could Cost Up to $4 Trillion: Economists

Jan 29 (Reuters) — Goldman Sachs estimated that it would take on the order of $4 trillion to buy troubled mortgage and consumer debt. That number could shrink if the program were limited to only certain loans or banks, but it could also grow if other asset classes such as commercial real estate loans were included.

That would also shrink if there was a payroll tax holiday and the states were given $300 billion on a per capita basis as delinquencies would subside and asset quality restored.

This problem is best addressed from the bottom up by enhancing the income of borrowers, not from the top down by assisting the lenders.

The Wall Street Journal said government officials had discussed spending $1 trillion to $2 trillion to help restore banks to health, citing people familiar with the matter….

The government would not necessarily have to spend the full $4 trillion to buy the assets. If it follows the model used in a Federal Reserve program to support consumer and small business loans, the government could potentially put up just 10 percent of the total.


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Posted in Articles | 3 Comments »

2009-01-30 USER

Posted by WARREN MOSLER on 30th January 2009


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GDP QoQ Annualized (4Q A)

Survey -5.5%
Actual -3.8%
Prior -0.5%
Revised n/a

 
Karim writes:

Better than expected at -3.8% due to inventory build.

Here is the GDP math:

Private consumption (-2.5%) + Business Fixed Investment (-3.1%) + Government (+0.4%) + Net Exports (+0.1%) + Chg in Inventories (+1.3%)

  • Real final sales of -5.1% were consistent with estimates.
  • Business sector overestimated domestic demand, thereby accounting for the inventory build (should reverse in Q1).
  • Core PCE deflator slowed from 2.4% to 0.6%.
  • Within investment, both housing (-23.6%) and equipment/software (-27.8%) were very weak.

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GDP YoY Annualized Real (4Q A)

Survey n/a
Actual -0.2%
Prior -0.7%
Revised n/a

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GDP YoY Annualized Nominal (4Q A)

Survey n/a
Actual 1.7%
Prior 3.3%
Revised n/a

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GDP Price Index (4Q)

Survey 0.4%
Actual -0.1%
Prior 3.9%
Revised n/a

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Core PCE QoQ (4Q)

Survey 1.0%
Actual 0.6%
Prior 2.4%
Revised n/a

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GDP ALLX 1 (4Q)

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GDP ALLX 2 (4Q)

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Personal Consumption (4Q)

Survey -3.5%
Actual -3.5%
Prior -3.8%
Revised n/a

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Employment Cost Index (4Q)

Survey 0.7%
Actual 0.5%
Prior 0.7%
Revised n/a

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Employment Cost Index ALLX (4Q)

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RPX Composite 28dy YoY (Nov)

Survey n/a
Actual -21.59%
Prior -20.14%
Revised n/a

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RPX Composite 28dy Index (Nov)

Survey n/a
Actual 199.39
Prior 206.73
Revised n/a

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Chicago Purchasing Manager (Jan)

Survey 34.9
Actual 33.3
Prior 34.1
Revised 35.1

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NAPM Milwaukee (Jan)

Survey n/a
Actual 33.0
Prior 30.0
Revised n/a

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U of Michigan Confidence (Jan F)

Survey 61.9
Actual 61.2
Prior 61.9
Revised n/a

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U of Michigan TABLE Inflation Expectations (Jan F)


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Posted in Daily | No Comments »

FOMC

Posted by WARREN MOSLER on 29th January 2009


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Karim writes:

Surprise dissent from Lacker who would rather buy Treasuries than utilize the current slew of credit programs (didn’t realize there could be dissents as it related to type of non-traditional easing).

Other notes:

  1. Economy has gotten worse since December
  2. Risk of inflation falling and persisting to unfavorably low levels has increased
  3. Significant downside risks to growth remain

JANUARY MEETING

The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.

In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. The focus of the Committee’s policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve’s balance sheet at a high level. The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets. The Federal Reserve will be implementing the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Committee will continue to monitor carefully the size and composition of the Federal Reserve’s balance sheet in light of evolving financial market developments and to assess whether expansions of or modifications to lending facilities would serve to further support credit markets and economic activity and help to preserve price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Dennis P. Lockhart; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred to expand the monetary base at this time by purchasing U.S. Treasury securities rather than through targeted credit programs.

DECEMBER MEETING

Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.


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Posted in Fed, Karim | 21 Comments »

Brown Says Monetary Policy Is Having Reduced Impact in U.K.

Posted by WARREN MOSLER on 29th January 2009


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In fact, lower rates are slowing things down by cutting government interest payments, and thereby requiring a higher fiscal adjustment.

Brown Says Monetary Policy Is Having Reduced Impact in UK

Jan 27 (Bloomberg) — Prime Minister Gordon Brown said the Bank of England’s ability to influence the economy with lower interest rates is being hurt by the impact of the financial crisis in the U.K. “Our financial system remains under such strain that this will reduce the impact of lower interest rates,” Brown said in a speech in London today. “We have to do more. We took the decision in the pre budget report to launch a major fiscal stimulus. Rather than cutting back on public investment, we have decided to stick to our spending plans.”


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Posted in Articles, UK | 4 Comments »

China- crude consumption

Posted by WARREN MOSLER on 29th January 2009


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China’s policy stimulus to spur car sales in year of ox

Jan 28 (Xinhua) — Due to bigger-than expected cut in fuel prices at the end of 2008 and halved car purchase taxes in effect just before the Lunar New Year, China’s auto industry can expect the year of the ox to be a bullish one for sales growth, which was in a ten-year low in 2008.

“With the recent policy changes on fuel price, car purchase tax and fees, I can save more than 8,000 yuan ($1,170) to have a car,” said Wang Yong, who just bought a new POLO sedan produced by Shanghai Volkswagen Co Ltd.

Like many other auto makers, the company offered discounts of 5,000 yuan for POLO and LAVIDA models during China’s Lunar New Year to woo the young working class. The prices for the cars are a little higher than 100,000 yuan, which is generally considered affordable for wage earners in China.

More than 3.1 million small-sized cars were sold in China last year, accounting for 61.54 percent of the total 9.35 million units of vehicles sold in the period, when the year-on-year growth slowed to 6.7 percent, the lowest in ten years, according to statistics from the China Auto Industry Association.

Ye Sheng, an auto industry analyst said that China’s auto market is far from saturated — especially for private vehicles.

He expected the government’s stimulus to boost the market sentiment this year.

Ye said despite that the global financial pinch eroded the demand for business cars and drove up the cost for auto production, China’s auto demand would continue to grow with the increase of personal wealth.


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Posted in Articles, China, Oil | No Comments »

Goodhart, Crockett on UK mortgage rules

Posted by WARREN MOSLER on 29th January 2009


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First a brief discussion of what the public purpose might be for the banking sector:

In early American non monetary farming communities the community would come together to build one home at a time until each member had a house. Working together like this was more efficient than building the homes at the same time with only the owner’s family doing the work on his own house.

Individuals had to be willing to defer construction of their home and wait their turn while building a neighbor’s home.

Bank lending serves much the same function- to facilitate deferred consumption and investment across an indefinite period of time. By taking out a mortgage and paying workers to build your house, your getting to use more than your own output while the other workers don’t get to use any of their outputs.

Instead, the workers are satisfied to get paid in funds that they believe they can use in the future to hire you to enact the reverse- they get to then use more than their output of that period of time, and you don’t get to use any of your output in that future period.

Bank lending also serves to facilitate deferred use of output within a given period of time. In non monetary society, workers would work together to produce output in return for a share of that output.

With today’s monetary society, business borrow from banks to pay workers who can not consume the output until it is produced and offered for sale, at which time they can buy their share as represented by the amount they get paid.

That is the essence of the public purpose behind bank lending- to allow for sellers of real goods and services to forgo current use of their outputs in return for future use of other’s outputs.

Additionally, and also as a matter of public purpose, banks serve to facilitate payment in general. This entails safety and accuracy of reporting.

On the basis of public purpose, therefore, I would judge the success or failure of the of banking along the following lines:

Assuming the public purpose of mortgage lending was to promote housing construction and allowing people to move from one house to another, up until 2006 it was a success.

Assuming the public purpose regarding distribution was to grant housing to those who could afford it, this was not the case, as many homes wound up in the hands of owners who could not afford their monthly payments.

After 2006 these results reversed, and public purpose was no longer being served.

While there were several reasons for the sudden fall in the promotion of presumed public purpose, including the discovery of lender fraud and a budget deficit that was too small to sustain aggregate demand, the greatest attention as fallen on the issues and remedies raised by Goodhart, Crockett, and their co authors who recommend the following modifications for the banking system:

  1. Larger down payments
  2. Removal of credit ratings from the ratings agencies
  3. Capital ratios and enforcement

Clearly these measures will not restore new home construction or aggregate demand in general.

Restoring housing construction, output, and employment requires a fiscal adjustment.

So the question is what public purpose is served by these three recommendations.

Larger down payments addresses the distribution issue, and serves to direct housing to those with available funds for down payments.

Removal of credit ratings obtained from the ratings agencies also addresses the distribution issue, as presumably better credit analysis can be obtained by internal analysis and therefore some of those less able statistically to afford housing will be excluded.

Higher capital ratios are a real cost and require banks to raise rates for borrowers to make sufficient returns on equity to attract shareholders. So this is also a distributional issue, as the higher rates again exclude lower income individuals. The same question arises- is this the intended public purpose?

The additional public purpose, and undoubtedly the one given the highest weight by the authors, is the sustainability of the banking system when things go wrong.

These measures do address the sustainability issue of banking, and allow banks to perhaps survive as solvent institutions should aggregate demand again fall. And while they do not prevent the fall of real output when aggregate demand falls, including the rate of construction of new homes, these measures presumably could be instrumental in not allowing a fall of aggregate demand to accelerate as it can do when banks fail to stay open for business.

However, as banks are necessarily pro cyclical as a matter of good business practice, it may matter little whether a bank ceases to stay open for business to fund mortgages and businesses because it is afraid of loss, or whether it ceases to function due to insolvency. This is evident today where even the most solvent banks are acting pro cyclically and have greatly tightened lending standards.

Again, it takes a fiscal adjustment to restore output and employment under current circumstances. And with each passing day the automatic stabilizers grow as transfer payments rise and tax revenue falls, as more jobs and incomes are lost. The federal deficit keeps going up that ugly way until it gets to where it’s large enough to add the net financial assets the private sector needs to again support output and employment.

Any proactive deficit spending will cut this process short. Hopefully we get a fiscal adjustment soon and of sufficient magnitude to reverse the slide.

The more conservative banking practices as outlined by the authors would likely result in fewer bank failures for a given size downturn, and most would agree that less of that type of disruption does serve public purpose.

The question that arises, however is whether requiring more conservative banking practices that result in higher interest rates for borrowers also supports the return of the disintermediation that funds non bank lenders. For example, we are already seeing the return of the wholesale markets including the commercial paper markets, that connect borrowers with lenders who have investors and shareholders that are willing to price risk lower than banks are legally allowed to do and still earn a high risk adjusted rate of return.

So while the authors can surely create a ‘safe and sound’ banking system by legislating a higher price of risk, if they price risk too high, lending will again flow outside the banking system and reintroduce the instability of the business cycle.

To conclude, while I support the measures recommended by Goodhart/Crockett, they do not eliminate the business cycle, but by stabilizing banking and reducing disruptive banking insolvencies they do facilitate the fiscal adjustments needed to continuously sustain output and employment.

Goodhart, Crockett Say Central Banks Should Set Mortgage Rules

by Svenja O’Donnell

Jan 27 (Bloomberg) — Central banks should require mortgage lenders to set a minimum size for loan deposits as part of a package of measures to contain asset bubbles and prevent future financial crises, former policy makers said.

“The epicenter of the financial crisis occurred in the housing market,” economists including former Bank of England policy maker Charles Goodhart and former Bank for International Settlements General Manager Andrew Crockett said in a report. “We advocate the central bank setting maximum loan-to-value ratios for residential mortgages.’

British Prime Minister Gordon Brown says he’s angry at the role banks played in triggering the crisis by writing risky loans, which included mortgages requiring little or no down payment. The suggestions today aim to influence global debate among policy makers about how to rewrite the regulation of banks in areas from lending to capital requirements and pay policies.

“We propose that supervisors should formulate a set of remuneration guidelines,” the economists said. Banking regulators should “adjust capital ratios according to the degree of compliance.”

Other measures suggested include the removal of credit ratings as a formal factor in banking regulation.

“The greater problem is that the ratings provided by (fallible) credit ratings agencies, using fallible models, have been placed at the centre of the regulatory process itself,” the report said.

Capital Ratios

The economists said there’s a need to reform the way regulators set minimum capital ratio requirements for banks, and called for capital level targets which trigger sanctions set by law if they aren’t met.

The report suggests a maximum loan-to-value ratio on mortgages of 90 percent which can be decreased, “should house- price increases appear to be getting out of hand.”

“The boom/bust cycle was exacerbated by the conditions for mortgage lending becoming ever easier in the boom and tightening in the bust,” the authors said. “This was particularly so for loan-to-value ratios.”

Markus Brunnermeier and Hyun Shin at Princeton University and Avinash Persaud of Intelligence Capital also co-authored the report on the reform of financial regulation, published by the Centre for Economics and Policy Research.


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Posted in Articles, UK | No Comments »

2009-01-29 USER

Posted by WARREN MOSLER on 29th January 2009


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Durable Goods Orders (Dec)

Survey -2.0%
Actual -2.6%
Prior -1.0%
Revised -3.7%

 
Karim writes:

The drumbeat continues:

  • Durable good orders down 2.6% in December
  • Ex-aircraft and defense, down 2.8% (and down 32.5% at an annualized rate in Q4)
  • Consensus for Q4 GDP tomorrow is -5.5%; today’s durables data adds downside risk to that estimate and the claims/confidence data indicate that Q1 may well be as weak as Q4.

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Durable Goods Orders YoY (Dec)

Survey n/a
Actual -19.7%
Prior -19.1%
Revised n/a

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Durables Ex Defense MoM (Dec)

Survey n/a
Actual -4.9%
Prior -3.9%
Revised n/a

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Durables Ex Transportation MoM (Dec)

Survey -2.7%
Actual -3.6%
Prior 1.2%
Revised -1.7%

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Durable Goods ALLX (Dec)

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Initial Jobless Claims (Jan 24)

Survey 575K
Actual 588K
Prior 589K
Revised 585K

 
Karim writes:

  • Initial claims rise 3k to 588k (4wk avg up to 542k from 518k)

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Continuing Claims (Jan 17)

Survey 4620K
Actual 4776K
Prior 4607K
Revised 4617K

 
Karim writes:

  • Continuing claims rise 159k to 4776k, all-time high in the 41yrs of the claims series
  • Despite the decline in energy prices and publicity surrounding stimulus plan, both ABC and Conference Board surveys made new lows in the past week- reflecting that the labor market is now the key driver of sentiment

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Jobless Claims ALLX (Jan 24)

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New Home Sales (Dec)

Survey 397K
Actual 331K
Prior 407K
Revised 388K

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New Home Sales Total for Sale (Dec)

Survey n/a
Actual 357.00
Prior 397.00
Revised n/a

 
This continues to fall rapidly as new construction rates falls way below sales.

In fact, the lack of new home inventory is probably restricting sales.

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New Home Sales MoM (Dec)

Survey -2.5%
Actual -14.7%
Prior -2.9%
Revised -4.4%

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New Home Sales YoY (Dec)

Survey n/a
Actual -44.8%
Prior -38.3%
Revised n/a

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New Home Sales Median Price (Dec)

Survey n/a
Actual 206.50
Prior 219.70
Revised n/a

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New Home Sales TABLE 1 (Dec)

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New Home Sales TABLE 2 (Dec)


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Posted in Daily | No Comments »

Fed balance sheet

Posted by WARREN MOSLER on 28th January 2009


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With the Fed balance sheet at just over $2 trillion and an average coupon of maybe 3% that means they are removing about $60 billion a year of interest income from the non government sectors.

So while I do think lower long term rates serves public purpose, I also recognize the need to cut taxes and/or increase other government spending to reverse the restrictive nature of that policy.

This applies to all Fed rate cuts that remove income from the non government sectors.


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Posted in Fed | 24 Comments »

2009-01-28 USER

Posted by WARREN MOSLER on 28th January 2009


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MBA Mortgage Applications (Jan 23)

Survey n/a
Actual -38.8%
Prior -9.8%
Revised n/a

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MBA Purchasing Applications (Jan 23)

Survey n/a
Actual 294.30
Prior 303.10
Revised n/a

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MBA Refinancing Applications (Jan 23)

Survey n/a
Actual 3373.90
Prior 6491.90
Revised n/a


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Posted in Daily | No Comments »

WSJ.com- Opinion: Animal spirits depend on trust

Posted by WARREN MOSLER on 27th January 2009


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Just sent this as a response:

The problem with banking is the rising delinquency rate as the economy falters. Top down measures such as capital injections and asset purchases do not address this issue. Instead, bottom up fiscal measures are in order to restore income, output, and employment.

As Professor Shiller suggests, banks (as well as most of the rest of the private sector agents) are pro cyclical and not counter cyclical entities, and ‘forcing’ them to lend makes no sense. Only the Federal Government, which has no solvency issue, can safely act counter cyclically with proactive deficit spending.

A drop in ‘animal spirits’ is also known as an increase in ‘savings desires’ which reduces aggregate demand as private borrowing wanes.

Any drop in demand, however, can be readily addressed with some combination of lower Federal taxes or spending increases, and the longer ‘animal spirits’ remained subdued the longer our taxes can be kept down. This is well worth considering before we jump to the conclusion that we want to restore the financial sector and lending in general.

There is more than one way to skin this cat, and the option to sustain output and employment with lower taxes (and/or higher Federal spending) rather then with accelerating private sector debt has gotten no media attention whatsoever.

Warren Mosler

Animal Spirits Depend on Trust

by Robert J. Shiller

Jan 27 (Wall Street Journal) —President Obama is urging Congress to pass an $825 billion stimulus package as soon as possible. But even that may not be enough to stabilize the economy, since it fails to take into account the downward spiral of animal spirits that is underway and may continue to worsen….


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Posted in Articles | 21 Comments »

Contango shrinks- Shell sells by the sea shore

Posted by WARREN MOSLER on 27th January 2009


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OPEC cuts starting to bite.

Saudis back in control of price as excess inventory dissipates.

Shell Sells Oil Cargoes, Phibro Tanker Leaves Orkney

by Alexander Kwiatowski

Jan 27 (Bloomberg) — Royal Dutch Shell Plc sold a cargo of crude stored off the U.K. and a vessel hired by Citigroup Inc.’s Phibro LLC left its anchorage in Scotland for the U.S. as the incentive to keep oil in tankers disappears.

Shell sold 600,000 barrels of North Sea Forties crude for delivery in mid-February at Scapa Flow near Scotland’s Orkney Islands to oil trader Vitol Group yesterday, the companies said. The cargo, already on board the supertanker Oliva, has been anchored off the U.K. coast since at least December, according to Bloomberg vessel tracking data.

Oil companies and traders have stored as much as 80 million barrels of crude on tankers

That’s not quite one day’s world consumption of crude.

as the so-called contango, a market where buyers pay more for supplies later in the year than now, allowed them to profit from storing crude. The incentive to store oil on vessels is shrinking as the spread between first- and 12th month crude narrows to about $10 a barrel from $17 in early December.


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Posted in Articles | 2 Comments »

2009-01-27 USER

Posted by WARREN MOSLER on 27th January 2009


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ICSC UBS Store Sales YoY (Jan 27)

Survey n/a
Actual -2.40%
Prior -1.80%
Revised n/a

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ICSC UBS Store Sales WoW (Jan 27)

Survey n/a
Actual -1.80%
Prior 1.10%
Revised n/a

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Redbook Store Sales Weekly YoY (Jan 27)

Survey n/a
Actual -2.30%
Prior -2.30%
Revised n/a

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Redbook Store Sales MoM (Jan 27)

Survey n/a
Actual -2.60%
Prior -2.50%
Revised n/a

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ICSC UBS Redbook Comparison TABLE (Jan 27)

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S&P Case Shiller Home Price Index (Nov)

Survey n/a
Actual 154.59
Prior 158.16
Revised 158.12

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S&P CS Composite 20 YoY (Nov)

Survey -18.40%
Actual -18.18%
Prior -18.04%
Revised -18.06%

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S&P Case Shiller US Home Price Index (Nov)

Survey n/a
Actual 150.04
Prior 155.45
Revised n/a

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S&P Case Shiller US Home Price Index YoY (Nov)

Survey n/a
Actual -16.55%
Prior -15.40%
Revised n/a

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Consumer Confidence (Jan)

Survey 39.0
Actual 37.7
Prior 38.0
Revised 38.6

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Consumer Confidence ALLX 1 (Jan)

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Consumer Confidence ALLX 2 (Jan)

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Richmond Fed Manufacturing Index (Jan)

Survey -50
Actual -49
Prior -55
Revised n/a

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Richmond Fed Manufacturing Index ALLX (Jan)


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Posted in Daily | No Comments »

Re: WSJ- States of Distress

Posted by WARREN MOSLER on 26th January 2009


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(email exchange)

I’d just give a total of $300 billion to all the states on a per capita basis in which case fiscal responsibility isn’t applicable.

>   
>   Morris wrote:
>   
>   Why didn’t I think of this???
>   
>   Subject states to the same rules as corporations.
>   
>   Why isn’t there moral hazard to this upcoming bailout??? Why should fiscally
>   responsible states pay for this??? Is this any worse than John Thain???
>   


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Posted in Articles, Email | 1 Comment »

Re: Crude oil inventories update

Posted by WARREN MOSLER on 26th January 2009


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(email exchange)

Thanks, should be more than enough given the small drop in actual demand.

>   
>   On Mon, Jan 26, 2009 at 9:59 AM, David wrote:
>   
>   Tanker tracking suggests an OPEC11 production of 26.1 mbpd in January,
>   compared to the target of 24.85 mbpd, with Saudi Arabia, Venezuela and
>   Nigeria leading the cutbacks. However, this represents a cut of only
>   2.9 mbpd from the agreed cut of 4.2 mbpd (a compliance of 69%), which is
>   somewhat under the estimated 3.5 mbpd cut needed to balance the market in
>   the near term. But it should easily balance the tightening market further out,
>   especially if compliance improves.
>   

The contango in the futures market continues to come in, as does the spread between WTI and Brent.

The RBOB contango also coming in, indicating gasoline supplies are also tightening.

This indicates spot supplies are tightening- the OPEC cuts are ‘working’.

Most consumption indicators show crude consumption to be about flat or only down slightly year over year.

The great Mike Masters inventory liquidation that began in July may finally have run its course.

And the Saudis are back to being price setter.

I would strongly recommend any fiscal adjustment that increases aggregate demand be accompanied by policy that immediately and substantially reduces crude oil and gasoline consumption.


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Posted in Email | 3 Comments »

Something went wrong in July

Posted by WARREN MOSLER on 26th January 2009


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Something went wrong in July. Most of the charts look like this:

2009-01-26 Capacity Utilization, ISM Manufacturing

It might have been the fall off of the q2 fiscal adjustment, the Olympics, the Lehman collapse, and/or, of course, the GMIL (Great Masters Inventory Liquidation).

2009-01-26 Capacity Utilization, ISM Manufacturing

And inventories also took a dive, from not all that high levels, adding to the slowdown.
Low inventories also mean the slow down need not last long when demand picks up with the coming fiscal adjustments.

2009-01-26 Capacity Utilization, ISM Manufacturing

What the car companies need is higher sales. Capital injections won’t go far with demand looking like this.

2009-01-26 Capacity Utilization, ISM Manufacturing

Notice personal income turning south with the Fed rate cuts, as interest income takes its toll. Yes, I know correlation doesn’t prove anything, but that’s my story and I’m sticking to it! Households are net savers and rate cuts eliminate income. Also, rates for savings have fallen a lot more than rates for borrowing this time around.

2009-01-26 Capacity Utilization, ISM Manufacturing

It’s been a long, slow dive, recently accelerating, since q2 06 when we pointed out the federal deficit was too small to sustain output and employment growth, due to the financial burdens ratios getting too high:

2009-01-26 Capacity Utilization, ISM Manufacturing

Looks like batteries have finally been recharged some over the last few years, even with personal income sagging.

2009-01-26 Capacity Utilization, ISM Manufacturing

All these look like household ‘balance sheets’ are improving.
And with rising federal budget deficits providing additional net financial assets this should continue.

Yes, the housing graphs, not shown look terrible, there are some signs it could all turn quickly:

2009-01-26 Capacity Utilization, ISM Manufacturing

2009-01-26 Capacity Utilization, ISM Manufacturing

Actual new home inventories are very low and probably picked over, as affordability continues to pick up.

2009-01-26 Capacity Utilization, ISM Manufacturing

Also, home ownership is low, and rental vacancies under control.

All indicating the coming fiscal adjustment could act more quickly than expected.

2009-01-26 Capacity Utilization, ISM Manufacturing

No let up here, however.

Unfortunately some of the latest Congressional incentives reward delinquency, anecdotally causing some otherwise good paying borrowers to not make payments to qualify for assistance.

2009-01-26 Capacity Utilization, ISM Manufacturing

It’s government to the rescue, as the automatic stabilizers do their thing to increase federal deficit spending and add income and savings of financial assets to the non govt. sectors.

2009-01-26 Capacity Utilization, ISM Manufacturing

Might be the output gap cutting down the rise in prices, and might be the GMIL (great Masters inventory liquidation). It’s too soon to tell- probably some of both.

2009-01-26 Capacity Utilization, ISM Manufacturing

Opec cuts seem to have stemmed the tide, and pave the way for the Saudis resuming their role of price setter. Demand has dropped very little. This is not the 80’s when demand dropped by over 15 million barrels per day after natural gas was deregulated in 1978 and it and coal replaced crude oil for most power generation.

2009-01-26 Capacity Utilization, ISM Manufacturing

Talk is cheap- supporting their exporters is a priority!

2009-01-26 Capacity Utilization, ISM Manufacturing

Cautions about the coming Obamaboom.

2009-01-26 Capacity Utilization, ISM Manufacturing

Hints of credit spreads stabilizing.

2009-01-26 Capacity Utilization, ISM Manufacturing

The eurozone is fading quickly, and it could all go bad here again if (when?) their financial structure melts down.


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Posted in Articles, Valance | 16 Comments »

Geithner quote

Posted by WARREN MOSLER on 26th January 2009


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Doesn’t get much more counterproductive than this:

Geithner’s testimony to Senate Finance panel

Jan 21 (Reuters) — GEITHNER ON U.S. DEFICIT, ENTITLEMENT PROGRAMS: “It is absolutely critical to the efforts to get the economy back on track that we give the American people and investors around the world confidence that we’re going to have the ability and the will, working with the Congress, to get our fiscal position back down over the next five years to a sustainable position, but also that we’re willing to start to take on and find a consensus on a bipartisan basis for putting Social Security and Medicare on a more sustainable financial position longer term.

“I think we have to do both of those things together.”


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Posted in Articles | 7 Comments »

Re: fixing the banks and the economy

Posted by WARREN MOSLER on 26th January 2009


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(email exchange)

Comes down to the fundamentals of banking and public purpose.

Presumably it serves public purpose for banks to have private equity capital as a ‘first loss’ piece to ‘protect’ government from loss due to deposit insurance.

Either it does or it doesn’t suit public purpose to do that at any give point in time.

‘Injecting’ government capital to act as a first loss piece to protect government from loss due to deposit insurance is nonsensical as government is in a first loss position either way.

Nationalizing means government is in a first loss position all the time.

So functionally, if a bank is insolvent due to insufficient (private) capital, and the government wants it to continue as a going concern, all it has to do is continue to insure the liabilities as it currently does, and permit the institution to continue operations desired by government without sufficient private capital ratios.

Government can also set a ‘cost’ for doing this if it’s concerned about private shareholders and uninsured creditors ‘profiting’ for these measures.

Etc.

But at the macro level banking is not viable without government doing job one of sustaining aggregate demand via getting the fiscal balance right. Or at least sufficient to muddle through.

Lending makes no economic sense to a for profit institution with falling asset prices and falling incomes.

So a full payroll tax holiday and a $300 billion no strings attached transfer to the states restores aggregate demand and stabilizes asset prices.

Delinquencies fall and the ‘toxic waste’ turns AAA, as everyone wonders what all the fuss was all about.

And a national service job for anyone willing and able to work that includes health care elevates life to a new level of prosperity which should have been considered normal all along.

>   
>   On Fri, Jan 23, 2009 at 11:39 PM, Russell wrote:
>   
>   George Soros, in a comment in today’s Financial Times, “The right and wrong
>   way to bail out the banks,” takes issue with the idea of reviving TARP 1.0 in
>   new dress and suggests another approach for dealing with the banking crisis:
>   
>   According to reports in Washington, the Obama administration may be close to
>   devoting as much as $100bn of the second tranche of the troubled asset relief
>   programme funds to creating an “aggregator bank” that would remove toxic
>   securities from the balance sheets of banks. The plan would be to leverage
>   this amount up 10-fold, using the Federal Reserve’s balance sheet, so that
>   the banking system could be relieved of up to $1,000bn (€770bn, £726bn)
>   worth of bad assets…..
>   
>   [T]his approach harks back to the approach originally taken – but eventually
>   abandoned – by Hank Paulson, the former US Treasury secretary. The
>   proposal suffers from the same shortcomings: the toxic securities are, by
>   definition, hard to value. The introduction of a significant buyer will result, not
>   in price discovery, but in price distortion.
>   
>   Moreover, the securities are not homogeneous, which means that even an
>   auction process would leave the aggregator bank with inferior assets through
>   adverse selection…..
>   
>   These measures – if enacted – would provide artificial life support for the
>   banks at considerable expense to the taxpayer, but would not put the banks
>   in a position to resume lending at competitive rates….
>   
>   In my view, an equity injection scheme based on realistic valuations, followed
>   by a cut in minimum capital requirements for banks, would be much more
>   effective in restarting the economy. The downside is that it would require
>   significantly more than $1,000bn of new capital. It would involve a good
>   bank/bad bank solution, where appropriate. That would heavily dilute existing
>   shareholders and risk putting the majority of bank equity into government
>   hands.
>   


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Posted in Email | 1 Comment »

2009-01-26 USER

Posted by WARREN MOSLER on 26th January 2009


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Existing Home Sales (Dec )

Survey 4.40M
Actual 4.74M
Prior 4.49M
Revised 4.45M

 
Existing home inventories now being worked off rapidly as foreclosure sales move through the pipeline.

Inventories in general are all very low in absolute terms.

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Existing Home Sales MoM (Dec)

Survey -2.0%
Actual 6.5%
Prior -8.6%
Revised 9.4%

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Existing Home Sales YoY (Dec)

Survey n/a
Actual -3.5%
Prior -11.4%
Revised n/a

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Existing Home Sales Inventory (Dec)

Survey n/a
Actual 3.676
Prior 4.163
Revised n/a

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Existing Home Sales ALLX 1 (Dec)

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Existing Home Sales ALLX 2 (Dec)

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Leading Indicators (Dec)

Survey -0.2%
Actual 0.3%
Prior -0.4%
Revised n/a

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Leading Indicators ALLX (Dec)


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