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Archive for November, 2009

Using jobs to lure Taliban

Posted by WARREN MOSLER on 30th November 2009

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At least they are starting to understand the power of employment.

Too bad they haven’t figured out how to do it in local currency.

Wonder how this will sell politically to unemployed voters here in the States:

Afghans Offer Jobs to Taliban Rank and File if They Defect

The meeting is part of a battlefield push to lure local fighters and commanders away from the Taliban by offering them jobs in development projects that Afghan tribal leaders help select, paid by the American military and the Afghan government.

By enlisting the tribal leaders to help choose the development projects, the Americans also hope to help strengthen both the Afghan government and the Pashtun tribal networks.

These efforts are focusing on rank-and-file Taliban; while there are some efforts under way to negotiate with the leaders of the main insurgent groups, neither American nor Afghan officials have much faith that those talks will succeed soon.

Afghanistan has a long history of fighters switching sides — sometimes more than once. Still, efforts so far to persuade large numbers of Taliban fighters to give up have been less than a complete success. To date, about 9,000 insurgents have turned in their weapons and agreed to abide by the Afghan Constitution, said Muhammad Akram Khapalwak, the chief administrator for the Peace and Reconciliation Commission in Kabul.

But in an impoverished country ruined by 30 years of war, tribal leaders said that many more insurgents would happily put down their guns if there was something more worthwhile to do.

“Most of the Taliban in my area are young men who need jobs,” said Hajji Fazul Rahim, a leader of the Abdulrahimzai tribe, which spans three eastern provinces. “We just need to make them busy. If we give them work, we can weaken the Taliban.”


Posted in Employment | 9 Comments »

Bernanke quote revisited

Posted by WARREN MOSLER on 28th November 2009

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“Under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

- Ben Bernanke

It also has to know which buttons to press.
QE and lower interest rates are not the buttons for that job.
The button is the budget deficit, and they seem categorically against pressing it due to deficit myths.

Any continuing shortage of agg demand and high unemployment is entirely self inflicted.


Posted in Government Spending, Inflation, Interest Rates | 5 Comments »

Gvt Risks Credibility By Ignoring Yen

Posted by WARREN MOSLER on 28th November 2009

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Buying $ is off balance sheet deficit spending and the easiest avenue politically.

If anything I am surprised they let it go this far. Their history of their economic model has been
to buy $ to support exports rather than cutting taxes to support domestic private sector demand.

On Thu, Nov 26, 2009 at 6:02 PM, Sean wrote:

This is the thinking that is going to really hurt Japan. The govt
fixation on freezing spending and relying on the BOJ to end deflation.
The yen is surging and according to the steelmakes lobby and automakes
“suffocating” them. The banks are bankrupts with the Nikkei below 7000
which means it will get there as everyone tries to reduce cross held
shares and hedge. In the past the govt bought prefrerred shares and BOJ
bought equities to ease the cross held share issue. The Nikkei
recovered and the banks survived. There doesn’t seem to be any
understanding of the problems or willingness to increase the deficit to
address what problems they do see.

OPINION: Government Risks Credibility By Ignoring Yen

TOKYO (Nikkei)–As the yen climbs higher, the real danger lies in
Japanese policymakers’ utter lack of readiness.

The U.S. Federal Reserve Board has signaled a continuation of its
near-zero interest rate policy, which is fostering a booming dollar
carry trade. Gold prices are breaking records almost daily. And the
yen’s ascent to a 14-year high in Tokyo trading Thursday is another
manifestation of the dollar-selling tide.

Why is the yen attracting buying when Japan’s economy is stuck in low
gear and its stock market is performing worst among its peers? There are
a few reasons. Some Japanese short-term interest rates now exceed U.S.
rates. Moreover, unchecked deflation has given Japan loftier real
interest rates than the U.S., a fact that investment funds have been
exploiting, says Nomura Holdings Inc. President Kenichi Watanabe.

Interest-rate-driven yen-buying has nothing to do with Japan’s
fundamentals. An appreciation of the yen above and beyond the strength
of the economy threatens to cripple domestic firms just starting to
recover. Such concerns are encouraging selling of Japanese stocks even
as U.S. and European shares regain strength.

The bigger problem is Japanese authorities’ indifference to this risk.
Leave aside Finance Minister Hirohisa Fujii, who has backed away from
statements early on in his tenure that suggested an opposition to
currency market interventions. Even if he did flash the intervention
card, the market would see right through his bluff.

Deputy Prime Minister Naoto Kan, who also holds the economic policy
portfolio, has owned up to Japan’s deflation but has yet to prescribe a
remedy for it.
The government’s only accomplishment has been to freeze
2.9 trillion yen in spending in the fiscal 2009 supplementary budget.
a budget-vetting frenzy, it has failed to chart a course for
macroeconomic policy.

Beating deflation requires monetary policy. The Bank of Japan has
decided to end its purchases of corporate bonds and commercial paper.
That gives the impression it is hurrying toward the exit from loose
monetary policy.

Meanwhile, companies are holding down wages, cutting jobs and relocating
not only production but R&D overseas.

A runaway yen hollowed out Japanese manufacturing in the 1990s. Now,
policymakers who refuse to face the facts are beckoning on another
hollowing that might kill the economy.

The dollar’s decline is a global phenomenon, and the yen’s appreciation
is its flip side. Nevertheless, Japan’s economy is sustaining the
heaviest damage of all. If it continues to ignore the situation, the
government will risk losing the trust of the financial markets.
–Translated from commentary by senior Nikkei staff writer Yoichi Takita
(The Nikkei Nov. 27 morning edition)


Posted in Government Spending, Japan | No Comments »

FNMA tightens lending requirements

Posted by WARREN MOSLER on 27th November 2009

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That nagging feeling that 0 rates are deflationary keeps lingering.

The following FNMA news might be even more deflationary than the Dubai news over time. I wonder if Congress was involved in this decision, as FNMA is a public/private partnership:

Fannie Mae to Tighten Lending Standards: Report

Oct. 25 (Reuters) —Fannie Mae plans to raise minimum credit score requirements next month and limit the amount of overall debt that borrowers can carry relative to their incomes, The Washington Post reported on Thursday.

Starting December 12, the automated system that the government-controlled mortgage finance company uses to approve loans will reject borrowers who have at least a 20 percent down payment but whose credit scores fall below 620 out of 850, the newspaper reported. Previously, the cut-off was 580.

Also, for borrowers with a 20 percent down payment, no more than 45 percent of their gross monthly income can go toward paying debts, the newspaper said.

A Fannie Mae spokesman told the newspaper that the limits reflect the company’s recent experience.

Loans to people with credit scores below 620 fell seriously behind at a rate approximately nine times higher than other loans purchased in the same period, Fannie Mae spokesman Brian Faith said. Loans taken out by borrowers with lots of debt also suffer higher levels of serious delinquency, he said.

“It’s not enough to help borrowers buy a home — we must also ensure that they can stay in the home over the long term,” Faith said in a statement to The Washington Post.


Posted in Credit, Housing | 3 Comments »


Posted by WARREN MOSLER on 25th November 2009

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Karim writes:

Data ‘mixed’, with durables and income weak, but claims strong.

  • New capital goods orders ex-aircraft and defense -2.9%; 3rd drop in 4mths
  • Personal income 0.2%, but wage and salary income flat and down 3.6% y/y
  • Core PCE deflator +0.2% m/m and 1.4% y/y
  • Initial claims down 35k to 466k (prior week revised down 4k)
  • Continuing claims down 190k; extended and emergency benefits down 18k
  • Some seasonals may be at play in the claims data from now thru year-end but still opens possibility of positive payrolls next week


Posted in Economic Releases, Employment | 5 Comments »

Krugman on ‘The Phantom Menace’

Posted by WARREN MOSLER on 24th November 2009

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Thanks, problem areas in yellow that tend to discredit what he’s saying.

He needs our help bad!

The Phantom Menace

By Paul Krugman

Nov 22 (NYT) — A funny thing happened on the way to a new New Deal. A year ago, the only thing we had to fear was fear itself; today, the reigning doctrine in Washington appears to be “Be afraid. Be very afraid.”

What happened? To be sure, “centrists” in the Senate have hobbled efforts to rescue the economy. But the evidence suggests that in addition to facing political opposition, President Obama and his inner circle have been intimidated by scare stories from Wall Street.

Consider the contrast between what Mr. Obama’s advisers were saying on the eve of his inauguration, and what he himself is saying now.

In December 2008 Lawrence Summers, soon to become the administration’s highest-ranking economist, called for decisive action. “Many experts,” he warned, “believe that unemployment could reach 10 percent by the end of next year.” In the face of that prospect, he continued, “doing too little poses a greater threat than doing too much.”

Ten months later unemployment reached 10.2 percent, suggesting that despite his warning the administration hadn’t done enough to create jobs. You might have expected, then, a determination to do more.

But in a recent interview with Fox News, the president sounded diffident and nervous about his economic policy. He spoke vaguely about possible tax incentives for job creation. But “it is important though to recognize,” he went on, “that if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”

What? Huh?

Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence.

Now, it’s politically difficult for the Obama administration to enact a full-scale second stimulus. Still, he should be trying to push through as much aid to the economy as possible. And remember, Mr. Obama has the bully pulpit; it’s his job to persuade America to do what needs to be done.

Instead, however, Mr. Obama is lending his voice to those who say that we can’t create more jobs. And a report on suggests that deficit reduction, not job creation, will be the centerpiece of his first State of the Union address. What happened?

It took me a while to puzzle this out. But the concerns Mr. Obama expressed become comprehensible if you suppose that he’s getting his views, directly or indirectly, from Wall Street.

Ever since the Great Recession began economic analysts at some (not all) major Wall Street firms have warned that efforts to fight the slump will produce even worse economic evils. In particular, they say, never mind the current ability of the U.S. government to borrow long term at remarkably low interest rates — any day now, budget deficits will lead to a collapse in investor confidence, and rates will soar.

And it’s this latter claim that Mr. Obama echoed in that Fox News interview. Is he right to be worried?

Well, spikes in long-term interest rates have happened in the past, most famously in 1994. But in 1994 the U.S. economy was adding 300,000 jobs a month, and the Fed was steadily raising short-term rates. It’s hard to see why anything similar should happen now, with the economy still bleeding jobs and the Fed showing no desire to raise rates anytime soon.

He’s conceding it is a risk, though small. Allows the critics that opening and it actually supports them.

A better model, I’d argue, is Japan in the 1990s, which ran persistent large budget deficits, but also had a persistently depressed economy — and saw long-term interest rates fall almost steadily. There’s a good chance that officials are being terrorized by a phantom menace — a threat that exists only in their minds.

Again, he concedes they may be right, and that all he has is a theory that with a weak economy blah blah blah.

And shouldn’t we consider the source? As far as I can tell, the analysts now warning about soaring interest rates tend to be the same people who insisted, months after the Great Recession began, that the biggest threat facing the economy was inflation. And let’s not forget that Wall Street — which somehow failed to recognize the biggest housing bubble in history — has a less than stellar record at predicting market behavior.

Same thing. These are not decisive arguments, and can’t be until he gets our of gold standard paradigm into non convertible currency paradigm.

Still, let’s grant that there is some risk that doing more about double-digit unemployment would undermine confidence in the bond markets. This risk must be set against the certainty of mass suffering if we don’t do more — and the possibility, as I said, of a collapse of confidence among ordinary workers and businesses.

Resorting to the ‘bleeding heart’ argument is a sign of desperation.

Unfortunately he’s part of the problem rather than part of the answer even though his heart may be in the right place.

And Mr. Summers was right the first time: in the face of the greatest economic catastrophe since the Great Depression, it’s much riskier to do too little than it is to do too much. It’s sad, and unfortunate, that the administration appears to have lost sight of that truth.


Posted in Government Spending, Interest Rates | 2 Comments »

Consumer Confidence

Posted by WARREN MOSLER on 24th November 2009

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Not looking good. Looks like something bad did happen back in July.

The combo of modestly rising GDP, with rising unemployment due to productivity is very unattractive politically.

Deficit myths keep them doing anything substantive.

Still wouldn’t surprise me if they announce something dramatic, like they are going to pay for healthcare by cutting back in Afghanistan and elsewhere, which, program merits aside, will not be supportive to demand.

And if gold turns south (no sign of that reversal yet)/dollar spikes whatever optimism is left vanishes with the realization that all the Fed’s horses and men are irrelevant regarding deflation.

Karim writes:

  • As expected, Q3 GDP revised down to 2.8% from 3.5%; inventories close to initial estimate, so no major implications for Q4
  • Case-Shiller home prices up 0.33% m/m; slowest monthly gain since April
  • Richmond fed survey down from 7 to 1; # of employees falls from 2 to -9

Conf Board Survey

  • Headline up from 48.7 to 49.5
  • Labor market differential makes new cycle low: -45.9 to -46.6
  • Plan to buy auto w/in 6mths down from 4.7 to 4.4 (lowest since March)
  • Plan to buy home w/in 6mths from 2.3 to 2.0 (new low for cycle, and lowest since 1982); that’s what you get for $1trn in MBS purchases?!


Posted in GDP, Government Spending, Housing | No Comments »

Orszag attending Obama Afghan meetings

Posted by WARREN MOSLER on 24th November 2009

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Yes, the deficit reduction polls are likely having a lot of influence on policy going into the 2010 elections and are a major obstacle to any kind of meaningful recovery.

And, worst of all, it was reported that Budget Director Peter Orszag was also sitting in on these discussions:

Obama to Give Afghan Strategy Decision on Dec. 1, Official Says

By Tony Capaccio and Roger Runningen

Nov. 24 (Bloomberg) — President Barack Obama will announce his decision on the next steps in the war in Afghanistan on or about Dec. 1, according to a U.S. official familiar with the issue.

Defense Secretary Robert Gates, Secretary of State Hillary Clinton and Admiral Michael Mullen, chairman of the Joint Chiefs of Staff, are expected to discuss the decision before Congress that same week, and General Stanley McChrystal, the top U.S. commander in Afghanistan, would testify the following week, the official said.

White House Budget Director Peter Orszag has estimated that each additional soldier in Afghanistan could cost $1 million, for a total that could reach $40 billion if 40,000 more troops are added.

This is clear evidence that budget myths are, indeed, influencing national security issues, and therefore posing a security risk. I’d go so far as to say the deficit terrorists are currently the greatest risk to both national security and national prosperity.

Voters Continue to See Deficit Reduction as Top Priority (Rasmussen) While official Washington has seen many twists and turns in the legislative process this year, voter priorities have remained unchanged. Deficit reduction has remained number one for voters ever since President Obama listed his four top budget priorities in a speech to Congress in February. Forty-two percent (42%) say cutting the deficit in half by the end of the president’s first term is most important, followed by 24% who say health care reform should be the top priority. Fifteen percent (15%) say the emphasis should be on the development of new energy sources, while 13% say the same about education.

1 in 4 Borrowers Under Water (WSJ) The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%. Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic. Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home’s value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American. Most U.S. homeowners still have some equity, and nearly 24 million owner-occupied homes don’t have any mortgage, according to the Census Bureau. More than 40% of borrowers who took out a mortgage in 2006 are under water. Even recent bargain hunters have been hit: 11% of borrowers who took out mortgages in 2009 already owe more than their home’s value.

AP-GfK Poll: Debt turning shoppers into Scrooges (AP) 93 percent of Americans say they’ll spend less or about the same as last year, according to an Associated Press-GfK poll. Half of all those polled say they’re suffering at least some debt-related stress, and 22 percent say they’re feeling it greatly or quite a bit. That second figure is up from 17 percent just last spring. 80 percent say they’ll use mostly cash to pay for their holiday shopping.

PC shipment forecast raised as 3Q sales pick up (AP) A rebound in purchases of personal computers worldwide will lead to a 2.8 percent increase in shipments this year. Gartner Inc. sees worldwide PC shipments topping 298.9 million in 2009, a reversal from its prior forecast of a 2 percent decline. PC shipments fell in the first half of this year. Gartner sees shipments for 2010 rising 12.6 percent to 336.6 million. But the value of computer sales is expected to drop by 10.7 percent to $217 billion this year because manufacturers are cutting prices to move product.

Businesses still cautious on borrowing (Reuters) The Equipment Leasing and Finance Association’s capex financing index fell to $4.3 billion in October, down 32.8 percent from last October and down 8.5 percent from September. The group said the percentage of borrowers delinquent 30 days or more on their capex loans, leases or lines of credit rose to 4.2 percent last month, up from 3.6 percent last year but down from 5.6 percent in September. Charge-offs as a percentage of all receivables rose to 1.7 percent in October, from 1.36 percent last year but down from 3.01 percent in September. Only 66.2 percent of applicants got the green light from lenders in October, down from 71.7 percent last year and 67.9 percent in September. More than half the money invested in plants, equipment and software in the United States in any given year is financed with loans, leases and lines of credit.


Posted in Deficit, Government Spending, Political, Uncategorized | 3 Comments »

Galbraith on what can be done

Posted by WARREN MOSLER on 24th November 2009

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Old Mistakes Die Hard

As part of the Roosevelt Institute’s 10-part series on the Jobs Crisis, running on the New Deal 2.0 blog from Nov. 12-25, I was asked to reflect on what can be done to get Americans working again. Here’s my take.

I’m tempted to say that the United States is plainly unable to cope with the economic crisis in a serious way. The barriers are philosophical, procedural, and constitutional. So long as economic thinking is mired in a world that disappeared with the collapse of the Bretton Woods system in 1971, so long as any action requires 60 Senate votes, and so long as political capital erodes from the start of a fixed four-year presidential term, we’re stuck.

Technically it would have been fairly easy, 10 months ago, to get this bus back on the road. There could have been open-ended fiscal assistance to stop the budget hemorrhage of the states and cities. There could have been a jobs program and effective foreclosure relief. There could have been a payroll tax holiday. There could have been a strategy for sustained massive effort on infrastructure, energy and climate. There could have been prompt corrective action to resolve, instead of coddle, the worst of the banks.

I mostly don’t blame President Obama; he and his team went as far as they felt they could. I blame the head-in-the-sand politicians in Congress, the over-optimistic forecasters, the half-educated press, and the power of the financial lobby. I blame the avatars of fiscal virtue, the public debt scare-mongerers, the astrologers for whom thirteen significant digits (a trillion) for the stimulus package was just too much. I blame the Senate, which hands the balance of power to small states at the expense of disaster areas like California, Florida and New York. I do blame the Bush-Obama financial policy team, who either believed that “credit would flow again” if you stuffed the banks with money, or knew that it wouldn’t.

The Bretton Woods point deserves another word. According to the system established in 1944, the U.S. current account deficit — and by extension our public budget deficit — was limited by an obligation to exchange foreign-held dollars for gold. Richard Nixon abolished that arrangement. Since the early 1980s, the world has held the Treasury bonds that the U.S. chose to issue. The system is fragile. But so long as it lasts, it doesn’t discipline our budget (and if it broke, we could replace it). Low interest rates prove this: despite all the dire predictions, there is no difficulty in placing Treasury debt. Hence, we are free to pursue high employment, if we choose to do it.

Can anything be done now? Well yes, technically: the same steps that could have been taken in January 2009 could be taken in January 2010. But they won’t be, because for the moment we are seeing the inventory bounce, a productivity surge, real GDP growth, and other “good signs.” So we’ll be told to wait, to be patient, and to make sure we don’t buy what we can’t afford. And double-digit joblessness will linger on, breeding frustration and anger — perhaps all the way through to the mid-term elections. After which, what will be possible is anyone’s guess.

Sorry to be defeatist — it’s the way I feel. Prove me wrong.


Posted in Employment, Government Spending | 1 Comment »

Existing Home Sales

Posted by WARREN MOSLER on 23rd November 2009

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Wonderful, we contrive policy to drive up unemployment and foreclose vast numbers of people out of their homes at firesale prices so others can move in with subsidized down payments to buy them.

The lower prices could be a sign of bid hitting rather than offer lifting.

U.S. Economy: Existing Home Sales Jump 10% as Prices Decline

By Shobhana Chandra

Nov. 23 (Bloomberg) — Sales of existing U.S. homes jumped 10 percent in October to the highest level since February 2007 as Americans rushed to take advantage of a tax credit, cheaper properties and lower mortgage rates.

Purchases rose more than forecast to a 6.1 million annual rate from a 5.54 million pace in September, the National Association of Realtors said today in Washington. The median sales price decreased 7.1 percent from October 2008.

Stocks extended gains on signs the industry at the center of the deepest recession since the 1930s may contribute to a recovery. The extension of a tax credit originally due to expire Nov. 30 and its expansion beyond first-time buyers may fuel further gains in home sales, helping to overcome the drag from rising foreclosures and unemployment.

Existing home sales were forecast to rise to a 5.7 million annual rate, according to the median estimate of 66 economists in a Bloomberg News survey. Estimates ranged from 5.2 million to 6 million, after an initially reported 5.57 million rate in September.

Condos, Co-ops

Sales of existing single-family homes rose 9.7 percent, the biggest gain since 1983, to an annual rate of 5.33 million. Sales of condos and co-ops increased 13.2 percent to a 770,000 rate.

The share of homes sold as foreclosures or otherwise distressed properties rose to 30 percent from 29 percent in September, NAR chief economist Lawrence Yun said in a press conference today.

A “similarly robust” sales gain may occur this month, he said. “With such a sales spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer,” Yun said.

The number of previously owned unsold homes on the market fell 3.7 percent to 3.57 million. At the current sales pace, it would take 7 months to sell those houses, compared with 8 months at the end of the prior month. The months’ supply is the lowest since February 2007.

New-Home Sales

Sales of previously owned homes, which make up more than 90 percent of the market, are compiled from contract closings and may reflect purchases agreed upon weeks or months earlier. Many economists consider new-home sales, recorded when a contract is signed, a more timely barometer.

The Commerce Department may report on Nov. 25 that new home sales rebounded to a 405,000 annual rate in October, according to the Bloomberg survey.

Home construction seized up last month as builders waited to find out if the first-time homebuyer tax credit would end, a Commerce Department report showed last week. Builders in October broke ground on the fewest houses since April’s record low annual pace.

Sales and construction may get another boost after President Barack Obama on Nov. 6 extended the incentive until April 30. Earlier, buyers had to close the transaction by Nov. 30 to be eligible. The government also expanded the program to include some current owners.

Debt Purchases

Mortgage rates held down by Federal Reserve purchases of housing debt are also spurring a recovery in the housing market. The average rate on a 30-year fixed mortgage fell last week to 4.83 percent, the lowest since May, according to Freddie Mac.

Borrowing costs may remain low as the Fed has signaled it will keep the benchmark interest rate near zero for an “extended period.”

“Activity in the housing sector has increased over recent months,” Fed policy makers said in their Nov. 4 statement. “Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”

The labor market remains a risk for housing. The unemployment rate, which rose to a 26-year high of 10.2 percent last month, will stay above 10 percent through the first half of 2010, a Bloomberg survey showed.

Foreclosure Filings

Foreclosure filings surpassed 300,000 for an eighth straight month in October as rising joblessness made it tougher for homeowners to pay bills, according to RealtyTrac Inc. data.

Some companies see a potential for stronger demand. Hovnanian Enterprises Inc., New Jersey’s largest homebuilder, has signed contracts or options to buy 4,000 land lots in preparation for a market recovery, said Chief Executive Officer Ara K. Hovnanian. The Red Bank, New Jersey-based builder had reduced its land holdings during the recession.

“Prices are ridiculously low in some markets,” he said at a conference in New York on Nov. 17. “That’s not going to stay.”

Sales of existing homes were led by a 14.4 percent jump in the Midwest, today’s report showed. Purchases rose 12.7 percent in the South, 11.6 percent in the Northeast and 1.6 percent in the West.

Sales had reached a 4.49 million pace in January, their lowest level since comparable records began in 1999.

Purchases of existing homes rose 23.5 percent in October compared with a year earlier. The median price fell 7.1 percent from a year earlier, to $173,100.


Posted in Housing | 4 Comments »

JF Kennedy 1962 speech

Posted by WARREN MOSLER on 23rd November 2009

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JFKennedy in his 1962 speech at Yale addressed these very same issues:

“For the great enemy of truth is very often not the lie–deliberate, contrived and dishonest–but the myth–persistent, persuasive, and unrealistic. Too often we hold fast to the cliches of our forebears. We subject all facts to a prefabricated set of interpretations. We enjoy the comfort of opinion without the discomfort of thought. Mythology distracts us everywhere–in government as in business, in politics as in economics, in foreign affairs as in domestic affairs. But today I want to particularly consider the myth and reality in our national economy…..”


Posted in Political | 6 Comments »

Today’s Data

Posted by WARREN MOSLER on 19th November 2009

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Karim writes:

Data on the weak side:


  • Initial claims unch at 505k (prior week revised up 3k)
  • Total ongoing benefits up 81k
  • Some saying that standard error of claims-based model as a predictor of NFP may lead to a CHANCE of positive payroll growth in November


  • Philly Fed up 5.2pts to 16.7
  • Prices paid down 6.4, orders up 8.6, inventories up 14.5, employees up 6.3
  • Going in opposite direction to Empire survey earlier in week, but converging to similar levels
  • Modest expansion in manufacturing

Latest foreclosure chart (loans in foreclosure as a % of total loans)


Posted in Employment | 3 Comments »


Posted by WARREN MOSLER on 18th November 2009

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Karim writes:

Data on the weak side:


  • Headline CPI driven by energy, up .275%
  • Core CPI driven by car (new model year) seasonals, up 0.182%; ex-vehicles, core close to unch
  • Trend sectors generally weak: OER unch, apparel -0.4%, recreation -0.4%, medical 0.2%


  • Housing starts down 10.6%, with single-family down 6.8%, lowest level since May
  • Permits down 4%


Posted in Housing, Inflation | No Comments »

Obama: Too much debt could fuel double-dip recession

Posted by WARREN MOSLER on 18th November 2009

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This is getting depressing.
I thought McCain was bad when he said he’d cut spending to help the economy:

Obama: Too much debt could fuel double-dip recession

By Deborah Solomon and Jonathan Weisman

Nov. 18 (Reuters) — President Barack Obama gave his sternest warning yet about the need to contain rising U.S. deficits, saying on Wednesday that if government debt were to pile up too much, it could lead to a double-dip recession.

With the U.S. unemployment rate at 10.2 percent, Obama told Fox News his administration faces a delicate balance of trying to boost the economy and spur job creation while putting the economy on a path toward long-term deficit reduction.

His administration was considering ways to accelerate economic growth, with tax measures among the options to give companies incentives to hire, Obama said in the interview with Fox conducted in Beijing during his nine-day trip to Asia.

“It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession,” he said.

Fox News, which released a transcript of the interview, showed that comment by Obama on Wednesday morning and said the full discussion would be broadcast later in the day. (Reporting by Caren Bohan; Editing by John O’Callaghan)


Posted in Government Spending, Obama | 9 Comments »

Housing starts and 10 year tsy rates

Posted by WARREN MOSLER on 17th November 2009

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Interesting how high housing starts were when interest rates were a lot higher than they are now.

And if you ‘population adjust’ the housing starts the ‘Greenspan super bubble’ fell far short of previous highs, even with much higher mtg rates back then. (add about 2% to the 10 year note rates to approximate mortgage rates.)

In fact, it’s hard to attribute housing performance to interest rates in general.

I saw a graph from Goldman a couple of years ago showing how housing related to the fiscal cycle and at that time it was forecasting a decline. And interest rates were nowhere to be found in that model. While I did criticize some of the policies of the Greenspan era, I never have ‘blamed’ him for the housing bubble. Ironically he’s watched this destroy his reputation and largely believes it himself.

Interest rates didn’t get us into this and they won’t get us out, as the late John Kenneth Galbraith stated in his last book, ‘The Economics of Innocent Fraud.’


Posted in Fed, Housing, Interest Rates | 6 Comments »

China’s New Missile May Create a ‘No-Go Zone’ for U.S. Fleet

Posted by WARREN MOSLER on 17th November 2009

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I suspect this is what Iran is developing as well to drive the US Navy out of the Gulf region.

China’s New Missile May Create a ‘No-Go Zone’ for U.S. Fleet

By Tony Capaccio

Nov. 17 (Bloomberg) — China’s military is close to fielding the world’s first anti-ship ballistic missile, according to U.S. Navy intelligence.

The missile, with a range of almost 900 miles (1,500 kilometers), would be fired from mobile, land-based launchers and is “specifically designed to defeat U.S. carrier strike groups,” the Office of Naval Intelligence reported.

Five of the U.S. Navy’s 11 carriers are based in the Pacific and operate freely in international waters near China. Their mission includes defending Taiwan should China seek to exercise by force its claim to the island democracy, which it considers a breakaway province.

The missile could turn this region into a “no-go zone” for U.S. carriers, saidAndrew Krepinevich, president of the Center for Strategic and Budget Assessments in Washington.


Posted in China | No Comments »


Posted by WARREN MOSLER on 16th November 2009

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Karim writes:

DOVISH-Focus largely on headwinds to growth; token paragraph (new) on the dollar; repeats the ‘2Es’ (exceptionally low for an extended period)


* Today, financial conditions are considerably better than they were then, but significant economic challenges remain. The flow of credit remains constrained, economic activity weak, and unemployment much too high. Future setbacks are possible.

* My own view is that the recent pickup reflects more than purely temporary factors and that continued growth next year is likely. However, some important headwinds–in particular, constrained bank lending and a weak job market–likely will prevent the expansion from being as robust as we would hope.

* access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses.. the fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further.

* With the job market so weak, businesses have been able to find or retain all the workers they need with minimal wage increases, or even with wage cuts. Indeed, standard measures of wages show significant slowing in wage gains over the past year. Together with the reduction in hours worked, slower wage growth has led to stagnation in labor income. Weak income growth, should it persist, will restrain household spending. The best thing we can say about the labor market right now is that it may be getting worse more slowly… a number of factors suggest that employment gains may be modest during the early stages of the expansion.

* I expect moderate economic growth to continue next year. Final demand shows signs of strengthening, supported by the broad improvement in financial conditions. Additionally, the beneficial influence of the inventory cycle on production should continue for somewhat longer. Housing faces important problems, including continuing high foreclosure rates, but residential investment should become a small positive for growth next year rather than a significant drag, as has been the case for the past several years. Prospects for nonresidential construction are poor, however, given weak fundamentals and tight financing conditions.

* The foreign exchange value of the dollar has moved over a wide range during the past year or so. When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The Federal Reserve will continue to monitor these developments closely. We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.

* The Federal Open Market Committee continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.


Posted in CBs, Currencies, Employment, Fed | 3 Comments »

Foreclosures and existing home sales data

Posted by WARREN MOSLER on 16th November 2009

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this is telling:

From a contact in Texas:

When I went to the bankruptcy / foreclosure auctions here a few weeks ago I found out that the whole thing is a charade. Bank of America (for instance) auctions off houses that have gone into foreclosure for the amount owed plus any carrying costs which usually makes the auction price higher than what was owed. A pre-bid was submitted by Bank of America Home Loan Servicing (the rename for Countrywide) in the exact amount of the auction minimum (mortgage owed plus carrying costs). No one else bids so the house is “sold” by Bank of America to Bank of America Home Loan Servicing. In essence, the property is simply transferred from one division to another so that clear title is established. But this is counted as an existing home sale which artificially inflates existing home sales numbers. This is what was happening for most of the 102 BAC mortgages and the 130 Wells Fargo mortgages. For the house I “rent” where the original mortgage was with Countrywide (and then transferred to B of A when B of A bought the property) this is simply a process for getting the house off of B of A’s books and back on Countrywide’s books (now BAC Home Loan Servicing). As I said, it is all charade or smoke-and-mirrors or a shell game.

Later Bank of America Home Loan Servicing will contact a realtor who will eventually put the house on the market for sale. Let’s say that the auction price was $200,000 but the house is now worth only $150,000. The house hopefully gets sold for $150,000 so that the “loss” is reduced from $200,000 to only $50,000 and the property is disposed of. Of course when this house is sold by the realtor it is again counted as an existing home sale.

Staggering 22 % of The State Of Florida are in Some Stage Of Forclosure

A staggering 22 percent of all mortgages in the state of Florida are non-current, according to a new report from Lender Processing Services.

By non-current, they mean loans that are either delinquent or in some stage of foreclosure; perhaps more troubling is the fact that 10.4 percent of home loans in Florida are in foreclosure.

The LPS October Mortgage Monitor also revealed that the nation’s foreclosure rate was 3.12 percent as of September 30, up 2.6 percent from a month earlier and 88.9 percent year-over-year.

And remember that’s with all the government intervention, foreclosure moratoria, loan modifications, and the like; the national mortgagedelinquency rate was 9.37 percent as of September 30.

The report also highlights the large shadow inventory of foreclosed properties that could wreak havoc on home prices and a possible housing recovery.

“The number of loans deteriorating further into delinquent status is now more than twice the number of foreclosure starts, indicating another major wave of troubled loans in an already clogged loan pipeline,” the company said.


Posted in Housing | 7 Comments »

Obama is Losing Independent Voters

Posted by WARREN MOSLER on 16th November 2009

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this is telling:

Obama is Losing Independent Voters

By Scott Rasmussen and Douglas E. Schoen

Nov. 16 (WSJ) — A look at more detailed data shows why Mr. Obama’s ratings are likely to drop even further.

A CNN poll released Nov. 6 found that 47% of Americans believe the top issue facing the country is the economy, while only 17% say its health care. However, the bulk of the president’s efforts over the past six months have been not on the economy but on health care, an issue in which he continues to draw negative ratings.

In a Rasmussen Reports poll taken after the House of Representatives passed health-care reform by the narrowest of margins last Saturday night, 54% of likely voters say they are opposed to the plan with only 45% in favor. Furthermore, in the all-important category of unaffiliated voters, 58% oppose the bill. That’s one of the reasons why so many moderate Democratic House members opposed it.

The CNN poll also shows that in addition to health care, a majority of Americans disapprove of how Mr. Obama is handling the economy, Afghanistan, Iraq, unemployment, illegal immigration and the federal budget deficit. Put simply, there isn’t a critical problem facing the country on which the president has positive ratings.

An NBC/Wall Street Journal poll conducted from Oct. 22-25 found that the president’s personal ratings have suffered a similar decline. His rating for being honest and straightforward has fallen eight points from January to 33% and his rating for being firm and decisive has fallen 10 points to 27%.

Even more fundamentally, a Washington Post/ABC News poll conducted from Oct. 15-18 shows that the president has now reached a point where less than a majority of Americans believe he will make the right decisions for the country.

Deficit reduction and reining in spending are critically important priorities for the vast majority of the electorate. Indeed, according to a Rasmussen Reports Poll conducted at the end of last month, voters say deficit reduction is most important and health care is a distant second.

Moreover, according to a poll released by the Kaufman Foundation in September, a plurality of voters (32%) think the federal government should cut tax rates on payrolls and businesses to stimulate employment, particularly at a time when unemployment is at double-digits. Mr. Obama campaigned on tax cuts for 95% of the American people, but according to a Rasmussen Reports poll released in mid-August, just 6% of likely voters expect to get a tax cut. Over 40% of respondents believe that they will get a tax increase.


Posted in Uncategorized | 11 Comments »

Paul Davidson response to more NY Fed payroll tax holiday comments

Posted by WARREN MOSLER on 16th November 2009

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On Sun, Nov 15, 2009 at 10:47 AM, Davidson, Paul wrote:

I agree with Warren on his entire argument except for one point. He calls these New Keynesians and neoclassical people “relatively intelligent”. Ha! As an academic who has been challenging their assumptions for more than 35 years, I reject the idea that they are relatively intelligent!!



Posted in Fed | No Comments »