Monthly Archives: January 2010

ISM/ADP

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We’ll see if the zero rate policy keeps giving that feeling that the economy is dragging an anchor chain, and requires lower taxes for a given amount of govt. spending to sustain a lower output gap.


Karim writes:

  • ADP, claims and employment component of ISM survey consistent with payroll gwth of 0 to -50k on Friday.
  • ISM (non-mfg) moves back above 50


Dec Nov
Composite 50.1 48.7
Activity 53.7 49.6
Prices paid 58.7 57.8
New Orders 52.1 55.1
Employment 44.0 41.6

  • “Economy seems to have leveled off with expectation of an upswing in our business in Q1 2010.” (Professional, Scientific & Technical Services)
  • “There has been a slight upturn in our business activities; however, it is not entirely attributable to any one particular source.” (Public Administration)
  • “The environment seems to be improving, but we will continue to be cautious as we look forward.” (Retail Trade)
  • “The current economic conditions are continuing to have a flat or negative effect on our business.” (Wholesale Trade)
  • “No items in short supply; suppliers looking to set up agreements for 2010 with quarterly or semiannual price reviews.” (Arts, Entertainment & Recreation)


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Evans-Pritchard Telegraph article

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There is no operational support for this scenario. Comments below:

Global bear rally will deflate as Japan leads world in sovereign bond crisis

By Ambrose Evans-Pritchard

Jan. 5 (Telegraph) —

Weak sovereigns will buckle. The shocker will be Japan, our Weimar-in-waiting. This is the year when Tokyo finds it can no longer borrow at 1pc from a captive bond market, and when it must foot the bill for all those fiscal packages that seemed such a good idea at the time. Every auction of JGBs will be a news event as the public debt punches above 225pc of GDP. Finance Minister Hirohisa Fujii will become as familiar as a rock star.

With non convertible currency this makes no sense. If deficit spending does generate excess demand and inflation short rates will rise if markets anticipate BOJ rate hikes as a BOJ reaction function to inflation.

Once the dam breaks, debt service costs will tear the budget to pieces.

That statement has no operational meaning. All payments in yen, dollars, sterling, etc. Are met in one way only- changing numbers upward in member bank reserve accounts. Operationally there is no ‘financial stress’ associated with this process.

Yes, excess deficit spending can cause the currency to fall and inflation, but to get out of a hole first you have to stop digging, and right now the currency is strong and deflation continues as the main concern.

The Bank of Japan will pull the emergency lever on QE.

A non event, apart from somewhat lower term rates.

The country will flip from deflation to incipient hyperinflation.

Not from QE. There is no channel from QE to the real economy, lending, or anything of consequence apart from (modestly) lower term rates.

The yen will fall out of bed, outdoing China’s yuan in the beggar-thy-neighbour race to the bottom.

Yes, excess deficit spending can cause the yen to fall and inflation to increase via the import/export channels.

By then China too will be in a quandary. Wild credit growth can mask the weakness of its mercantilist export model for a while, but only at the price of an asset bubble. Beijing must hit the brakes this year, or store up serious trouble. It will make as big a hash of this as Western central banks did in 2007-2008.

China will also reach political limits only when inflation becomes a political problem.


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Support mounts for reducing debt

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Sums it up for 2009:

>   
>   Well, at least Obama is mobilizing support for something! As The Specials
>   once sang, “Enjoy yourself. It’s later than you think.”
>   

And notice how they are going to cut it:

Support grows for tackling nation’s debt

By Elaine S. Povich and Eric Pianin

Dec. 31 (Fiscal Times)

The most vocal advocates of the idea are Senate Budget Committee Chairman Kent Conrad (D-N.D.) and Sen. Judd Gregg (R-N.H.), who this month jointly unveiled legislation to create an 18-member task force consisting of 16 members of Congress and two administration officials. Under the proposal, if at least 14 of the panel members reached agreement on how to rein in skyrocketing spending on Medicare, Medicaid and Social Security and reform the tax code, Congress would have to consider it immediately and give it an up or down vote, without amendment.

Obama and Democratic and Republican leaders agree that unsustainable entitlement spending and a massive accumulated public debt are threatening to undermine the nation’s economy and the U.S. credit rating abroad. Over the past year alone, public debt rose sharply from 41 percent to 53 percent of the economy, according to a study by the Peterson-Pew Commission on Budget Reform. But there is widespread disagreement on how best to respond.

Happy New Year to you all!


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