| Survey | n/a |
| Actual | -38.8% |
| Prior | -9.8% |
| Revised | n/a |
| Survey | n/a |
| Actual | 294.30 |
| Prior | 303.10 |
| Revised | n/a |
| Survey | n/a |
| Actual | 3373.90 |
| Prior | 6491.90 |
| Revised | n/a |
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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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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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| Survey | n/a |
| Actual | -2.40% |
| Prior | -1.80% |
| Revised | n/a |
| Survey | n/a |
| Actual | -1.80% |
| Prior | 1.10% |
| Revised | n/a |
| Survey | n/a |
| Actual | -2.30% |
| Prior | -2.30% |
| Revised | n/a |
| Survey | n/a |
| Actual | -2.60% |
| Prior | -2.50% |
| Revised | n/a |
| Survey | n/a |
| Actual | 154.59 |
| Prior | 158.16 |
| Revised | 158.12 |
| Survey | -18.40% |
| Actual | -18.18% |
| Prior | -18.04% |
| Revised | -18.06% |
| Survey | n/a |
| Actual | 150.04 |
| Prior | 155.45 |
| Revised | n/a |
| Survey | n/a |
| Actual | -16.55% |
| Prior | -15.40% |
| Revised | n/a |
| Survey | 39.0 |
| Actual | 37.7 |
| Prior | 38.0 |
| Revised | 38.6 |
| Survey | -50 |
| Actual | -49 |
| Prior | -55 |
| Revised | n/a |
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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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(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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Something went wrong in July. Most of the charts look like this:
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).
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.
What the car companies need is higher sales. Capital injections won’t go far with demand looking like this.
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.
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:
Looks like batteries have finally been recharged some over the last few years, even with personal income sagging.
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:
Actual new home inventories are very low and probably picked over, as affordability continues to pick up.
Also, home ownership is low, and rental vacancies under control.
All indicating the coming fiscal adjustment could act more quickly than expected.
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.
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.
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.
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.
Talk is cheap- supporting their exporters is a priority!
Cautions about the coming Obamaboom.
Hints of credit spreads stabilizing.
The eurozone is fading quickly, and it could all go bad here again if (when?) their financial structure melts down.
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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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(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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| 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.
| Survey | -2.0% |
| Actual | 6.5% |
| Prior | -8.6% |
| Revised | 9.4% |
| Survey | n/a |
| Actual | -3.5% |
| Prior | -11.4% |
| Revised | n/a |
| Survey | n/a |
| Actual | 3.676 |
| Prior | 4.163 |
| Revised | n/a |
| Survey | -0.2% |
| Actual | 0.3% |
| Prior | -0.4% |
| Revised | n/a |
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