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Archive for July 31st, 2009

cash for clunkers may cost govt. up to $45,354 per vehicle

Posted by WARREN MOSLER on 31st July 2009


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(short version)

“Cash for Clunkers” Program May Cost $45,354 per vehicle

By Avery Goodman

(Seeking Alpha) — The “Cash for Clunkers” program has been a “great success”, at least according to the government, and the auto industry. Within days of its kickoff, all $1 billion allocated to the program has been used up by Americans who have eagerly lined up to trade their clunkers for new vehicles.

Some refreshingly honest reporting has come from Edmunds.com, a car buying site that is telling the truth, in spite of benefiting from an increase in business and site traffic, due to the program. According to Edmunds, about 200,000 old low mileage cars would normally traded in, every 3 months, in exchange for more efficient higher mileage cars, without this program.

The highest rebate is $4,500, and the lowest is $3,500. If everyone qualified for $4,500 per vehicle, about 222,000 vehicles would have just taken advantage of the government’s money. At $3,500, 286,000 vehicles will have been sold.

I assume that, given all the raving, the government will eventually get around to assigning more money. It will take at least 2 or 3 months for the legislation to work its way through Congress. Meanwhile, if all buyers have qualified for the higher $4,500 rebate, the “cash for clunkers” program will mean a marginal increase in car sales of 22,000 this quarter. $1 billion divided by 22,000 means a net cost to the government of $45,354 per car.

If all buyers only qualify for the $3,500 rebate, it means a marginal increase in sales of about 86,000, or a net cost to the taxpayers of $11,628 per vehicle. In all likelihood, however, there will probably be a mix of vehicles qualifying for various rebates between $3,500 and $4,500. Based upon that assumption, Edmunds.com estimates that the average cost to the taxpayer will be about $20,000 per vehicle.

Even most of the marginally extra sales really represent people who were going to buy a new car eventually anyway. They are just buying a bit sooner than they expected. Old clunkers don’t last forever, and they are almost all eventually replaced. The government is shifting tomorrow’s demand to today, stealing from tomorrow to pay for today, but at great cost to the taxpayer.


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Posted in Government Spending | 8 Comments »

GDP/ECI

Posted by WARREN MOSLER on 31st July 2009


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Karim writes:

Most important info in the report is the benchmark revisions: The first year of the recession (Q4 2007-Q3 2008) was revised from -0.8% to -1.9%. This adds a full percentage point to the Fed’s output gap measure. Also, Q2 2009 negative print marks first time U.S. economy has had four consecutive quarters of negative growth since 1947.

Q4 2008 was revised from -6.4% to -5.5%; Q1 2009 from -5.4% to -6.3%

The weaker Q1 number (especially inventories) led to the Q2 inventory drag being less than expected (-0.8%) and hence Q2 being less negative than expected at -1%.

The other components of GDP were either in line or weaker than expected. All numbers below are annualized rate of change:

  • Private consumption: -1.2% vs 0.6%
  • Non-residential fixed investment: -8.9% vs -43.6%
  • Residential fixed-investment (housing): -29.3% vs -38.2%
  • Exports: -7% vs -29.9%
  • Govt: 5.6% vs -2.6%

ECI posts second lowest advance on record at 0.4% (after 0.3% prior quarter).


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Posted in GDP | No Comments »

SZ News: Leading Indicators Rise, Signaling Slump Is Abating

Posted by WARREN MOSLER on 31st July 2009


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Yes, seems to be world wide.

The combined global fiscal measures both pro active and ‘automatic’ seemed to have halted the slide.

Depressions are highly improbable with non convertible currency and floating fx policies.

Swiss Leading Indicators Rise, Signaling Slump Is Abating

By Klaus Wille
July 31 (Bloomberg) — Switzerland’s leading economic
indicators rose more than economists forecast in July, adding to
signs the worst economic slump in three decades is bottoming
out.

The KOF’s monthly aggregate of indicators that aims to
predict the economy’s direction about six months ahead increased
to minus 0.99 points from a revised minus 1.49 in June, the
Zurich-based research institute said today. Economists had
forecast that the index would rise to minus 1.45 from an
initially reported minus 1.65, based on the median of 13
estimates in a Bloomberg News survey.

Switzerland’s economy is moving toward a recovery after a
0.8 percent contraction in the first quarter, reports this month
showed. The UBS consumption indicator increased for the first
time in three months in June and the slump in manufacturing
eased. In the euro area, the biggest buyer of Swiss exports,
confidence in the economic outlook rose to an eight-month high.

“This figure is still low, meaning that Swiss gross
domestic product is likely to continue declining significantly
over the coming months relative to the previous year,” KOF said
in the statement. “However, the current barometer trend
indicates that the GDP growth rate should bottom out soon.”

The Swiss National Bank forecasts that the Alpine country’s
economy will shrink as much as 3 percent this year, which would
be the steepest decline since 1975.


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Posted in Deficit, Government Spending | No Comments »

NY FED – Shadow Financial Market

Posted by WARREN MOSLER on 31st July 2009


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The findings add support to my proposal to ban banks from all secondary markets

Federal Reserve Bank of New York
Staff Reports
The Shadow Banking System:
Implications for Financial Regulation
Tobias Adrian
Hyun Song Shin
Staff Report no. 382
July 2009

This paper presents preliminary findings and is being distributed to economists and other interested readers solely to stimulate discussion and elicit comments. The views expressed in the paper are those of the authors and are not necessarily reflective of views at the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

The Shadow Banking System: Implications for Financial Regulation
Tobias Adrian and Hyun Song Shin
Federal Reserve Bank of New York Staff Reports, no. 382
July 2009
JEL classification: G28, G18, K20

Abstract
The current financial crisis has highlighted the growing importance of the “shadow banking system,” which grew out of the securitization of assets and the integration of banking with capital market developments. This trend has been most pronounced in the United States, but it has had a profound influence on the global financial system. In a market-based financial system, banking and capital market developments are inseparable: Funding conditions are closely tied to fluctuations in the leverage of market-based financial intermediaries. Growth in the balance sheets of these intermediaries provides a sense of the availability of credit, while contractions of their balance sheets have tended to precede the onset of financial crises. Securitization was intended as a way to transfer credit risk to those better able to absorb losses, but instead it increased the fragility of the entire financial system by allowing banks and other intermediaries to “leverage up” by buying one another’s securities. In the new, post-crisis financial system, the role of securitization will likely be held in check by more stringent financial regulation and by the recognition that it is important to prevent excessive leverage and maturity mismatch, both of which can undermine financial stability.


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Posted in Banking, Fed | 11 Comments »

TIPS 5 year 5 years fwd

Posted by WARREN MOSLER on 31st July 2009

This used to be one of the Fed’s major concerns as they are steeped in inflation expectations theory.

It could still signal a need to keep a modestly positive ‘real rate’ though the large ‘output gap’ is telling them otherwise.

History says they’ll put most of the weight on the output gap, though a negative real rate is problematic for most FOMC members.

Should core inflation measures go negative, they will be a lot more comfortable with the current zero rate policy.

Interesting that the employment cost was just reported up 1.8% which shows how little it went down even in the face of
a massive rise in unemployment.

Posted in Fed, Trading, TREASURY | No Comments »

JN Daily | Jobless Rate Moves Higher, CPI drops, HHold Spending Misses Expectations

Posted by WARREN MOSLER on 31st July 2009


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Looks like China is starting to stabilize Japan, which means it is probably helping the eurozone some as well.

  • Shipments Up Across Industries In June As Production Recovers
  • Cost Cuts Help Electronics Firms Reduce Losses In April-June
  • Jobless Rate Hits 6-Year High Of 5.4% In June
  • Household Spending Rises 0.2% In June
  • June CPI Falls At Record Pace
  • Housing Starts Fall 32.4% In June
  • June Const Orders Fall 8th Straight Month
  • LDP Aims For Steady Growth, Hints At Sales Tax Hike In Platform
  • Forex: Dollar Trades In Y95 Range Ahead Of U.S. GDP Data
  • Stocks: End Up, Set New ’09 High As Earnings Shine
  • Bonds: End Lower On Nikkei Rise, Pre-Tender Hedge


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Posted in China, Japan | No Comments »