Daily Archives: November 16, 2009 @ 1:45 pm (Monday)

bernanke

Posted on by


[Skip to the end]


Karim writes:

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

Excerpts

* 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.


[top]

Share

Foreclosures and existing home sales data

Posted on by


[Skip to the end]

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.


[top]

Share

Obama is Losing Independent Voters

Posted on by


[Skip to the end]

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.


[top]

Share

Paul Davidson response to more NY Fed payroll tax holiday comments

Posted on by


[Skip to the end]

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!!


Paul


[top]

Share

more NY Fed payroll tax holiday comments

Posted on by


[Skip to the end]

>   
>   (email exchange)
>   
>   On Sun, Nov 15, 2009 at 12:12 AM, Roger > wrote:
>   
>   One can almost imagine the Rubin camp is trying to head off a
>   possible move to follow logic – by baffling people with bull.
>   Coming from the NYFed, this paper makes little sense. Could they really have a
>   manipulative agenda?
>   

No, not at all. This just somehow slipped through. They rejected full Ricardian equivalence years ago.

Ricardian equivalence states that a tax cut won’t get spent because people will ‘know’ it just means higher taxes later as they ‘know’ the federal budget ultimately has to be balanced, and therefore they will simply set aside any payroll tax holiday money in a savings account and not spend it.

This means, for example, that if you are behind on your mtg payment and your take home pay goes up due to a tax cut you will put that extra pay in a savings account and not bring your mtg up to date.

As I said, the Fed rejected all this many years ago.

I do agree the first take home pay increases received from a payroll tax holiday would largely be used to make mtg payments to avoid foreclosures, etc., and pay off other outstanding obligations, all of which is called ‘adding to savings’ which is what we need to happen in many cases before consumption can resume. And it also ‘fixes’ the banking system by stemming delinquencies and defaults.

And the longer we wait the deeper the hole we need to get out of.

>   
>   How does one call the Fed economists on such bull?
>   

It would take a letter from a recognized scholar precisely pointing out the errors.

Meanwhile, unfortunately, it’s delaying consideration of what’s needed to restore output and employment.

One last thing-

In the neo classic (math) model, which doesn’t recognize the currency itself as a public monopoly, prices and wages instantly adjust such that there is never any unemployment.

The ‘New Keynesian’ school of thought pretty much agrees, except that they believe we get unemployment like what we have now because prices (and wages) are slow to adjust. So even they believe that we will gradually ‘automatically’ return to full employment.

Keynes, however, argued that if elevated ‘savings desires’ persist low aggregate demand and high levels high unemployment can persist even if prices and wages continue to fall, and it all can only be reversed by deficit spending to restore demand.

In this administration the ‘New Keynesians’ and neo classics are clearly winning, as they are seeing forecasts of slow, gradual, long term improvement in output and employment which fit with their understanding that this is a how the adjustment works, and that prices and wages will slowly adjust and automatically return us to full employment. The reason it takes so long is that prices and wages are ‘sticky’ and slow to adjust.

They are not willing to use the likes of a payroll tax holiday to restore aggregate demand because the believe that would be ‘borrowing from china and leaving our children that debt to pay’ and all that gold standard nonsense. Further to that point, they believe we’ve already done too much of that, though probably a necessary evil due to the circumstances, and we are rising falling into the ‘debt trap’ and all the rest of that type of fiscal nonsense.

Hence the recent pronouncements from the Obama administration proposing 5% across the board cuts in federal spending for next year.

As well as pronouncements that he wants less consumption, more savings, and more exports, which means lower standards of living in the face of the greatest and rapidly growing abundance of real goods and services in history.

>   
>   Assume, assume, assume – they obviously assume too much, which is no
>   way to direct national policy.
>   

They are relatively intelligent people who happen to be wrong in their basic assumptions, and they have near universal academic support. The few academics who do understand the monetary system (less then 30) are called ‘heterodox’ vs ‘orthodox’ and not taken seriously.

I call it a massive case of what Galbraith called ‘innocent fraud.’


[top]

Share