Monthly Archives: February 2010

Private vs Govt Sources of Personal Income

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Good chart.

Note how the deficit as a % of GDP began trailing off midway through 06 and brought income from private sources (which for the most part are driven by private sector debt increases) down with it. And how the latest increase in deficit spending has begun to restore it.

As always, taxes function to regulate agg demand and, in fact, don’t actually raise revenue for the federal govt that never has nor doesn’t have any dollars.

It taxes by changing numbers down in our accounts and doesn’t actually get anything, and spends by changing numbers up in our accounts and doesn’t use up anything.

On Tue, Feb 23, 2010 at 9:59 AM, wrote:

Interesting chart from Citi Econ. 6mth rate of change in Income via Govt Support (essentially unemployment benefits, social security, medicare, etc) and Income from Private Sources (mostly wage and salary income, but also corp pension contributions, rental income, interest income, etc).

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EU Says There Is No Plan to Bail Out Greece

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The markets are likely to force some entity to write a check:

EU Headlines:

EU Says There Is No Plan to Bail Out Greece

Provopoulos Confident Greece Will Meet ‘Very Ambitious’ Goals

Euro Worst to Come as Greece Hammerlocks ECB on Rates

German Recovery ‘Prone to Setbacks,’ Finance Ministry Says

French Lawmaker Warns Sarkozy Against Hasty Support for Greece

Five Percent of German Taxpayers Generate 42% of Income Tax

Debt Deals Haunt Europe

Greece Said to Have Arranged Swaps With 15 Banks

Greece looks at tougher budget cuts

Greek PM rules out bailout but urges EU solidarity

EU Says There Is No Plan to Bail Out Greece

Feb. 22 (Bloomberg) — The European Union said there is no plan to bail out Greece.

“There is no such a plan,” EU spokesman Amadeu Altafaj told reporters in Brussels today. “This is a speculative scenario at this point in time.”

“I was reading the papers when I also realized that in fact that there is no such a plan,” Altafaj said. “I think that the extraordinary summit and the Ecofin said all that had to be said on this and there has never been such a request from the Greek authorities and that remains the case.”

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to say Rogoff is weak on monetary operations is a gross understatement

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He clearly doesn’t distinguish the difference between Germany and the US with regards to interest rate determination and solvency risk:

Harvard’s Rogoff Sees ‘Bunch’ of Sovereign Defaults

“It’s very, very hard to call the timing, but it will happen,” Rogoff, co-author of a history on financial calamities, said in the speech. “In rich countries — Germany, the United States and maybe Japan — we are going to see slow growth. They will tighten their belts when the problem hits with interest rates. They will deal with it.”

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FDIC – Lets save

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In case you thought Shiela Bair understands banking and the monetary system.

All this can do is further reduce aggregate demand.

The entire administration including the Fed and Tsy seems hopelessly mired in gold standard economics.

FOR IMMEDIATE RELEASE
February 22, 2010 Media Contact:
Greg Hernandez (202) 898-6984
Cell: (202) 340-4922
Email: ghernandez@fdic.gov

The Federal Deposit Insurance Corporation (FDIC) is calling upon consumers across the nation during America Saves Week to consider establishing a basic savings account or boosting existing savings. FDIC Chairman Sheila Bair said, “One fundamental lesson of the financial crisis is that savings can help families withstand sudden changes in their economic well being. Establishing a savings account in a federally insured institution is a great first step to build wealth and begin a savings habit that will last a lifetime.”

The personal savings rate rose to 4.6 percent in 2009 from 2.7 percent in 2008, according to the U.S. Department of Commerce. “I am pleased to see that people are saving more of their hard-earned money and building wealth. Having personal savings for an emergency fund or saving for a future expenditure, such as a college education, can make a big difference in avoiding other costly alternatives. I’ve always been a big advocate of a back-to-basics approach to financial services; it’s my hope that Americans’ increase in savings is the beginning of a long-term trend,” Bair said.

“Money saved by consumers also provides a stable source of funding for investments in the economy that benefit all Americans,” said Bair. “In fact, a country with robust savings generally has more capital to fund investments and support economic growth over the long-term. As demonstrated recently, it is harmful to an economy when consumers spend beyond their means, financed by debt that they cannot afford to repay.”

To learn more about America Saves Week and about savings-related resources from the FDIC, please visit http://www.fdic.gov/deposit/deposits/savings.html.

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Fed’s Lockhard on Reuters

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Latest tsy tips results indicate ‘contained inflation expectations’ as well.

I still have that nagging feeling that the 0 rate policy is highly deflationary and without some supply shock, like a spike in crude prices, prices in general will remain weak.

The weak core CPI and high unemployment rate continues to keep a lot of daylight between current conditions and the Fed’s dual mandate.

And the discount rate hike shows an ongoing lack of understanding of their own monetary arrangements.

Up until a few years ago the discount rate was kept a bit below the fed funds rate, which facilitated easier control of the fed funds rate.

This policy changed in a misguided effort to make the discount rate a ‘penalty’ rate which is a throwback to a fixed fx/gold standard paradigm and is entirely inapplicable with our current non convertible currency and floating fx.

All they’ve done by raising the discount rate is make it a bit more problematic to control the fed funds rate should technicals cause a system wide reserve deficiency.

Putting a penalty rate in for solvent banks (the FDIC is charged with removing insolvent banks) having funding difficulties is a throwback to the long discredited and illogical notion of using the liability side of banking for market discipline.

for more detail click here

Subject: Fed’s Lockhard on Reuters

Front end USTs getting very well bid on the back of these comments…

10:11 19Feb10 RTRS-FED’S LOCKHART –

FED PAYING CLOSE ATTENTION TO INFLATION EXPECATIONS

10:13 19Feb10 RTRS-

FED’S LOCKHART – MARKET BELIEF IN HIGH PROBABILITY OF RATE RISE THIS YEAR “OVERBLOWN”

10:14 19Feb10 RTRS-

FED’S LOCKHART – CURRENT POLICY STANCE MORE LIKELY TO EXTEND INTO NEXT YEAR

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medicare tax hike

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Same macro result as a tax hike.


Premiums Jump 14% on Medicare Private Plans

By Ricardo Alonso-Zaldivar

Feb. 19 (AP) —Millions of seniors who signed up for popular private health plans through Medicare are facing sharp premium increases this year — another sign that spiraling costs are a problem even for those with solid insurance.

A study to be released Friday by a major consulting firm found that premiums for Medicare Advantage plans offering medical and prescription drug coverage jumped 14.2 percent on average in 2010, after an increase of only 5.2 percent the previous year. Some 8.5 million elderly and disabled Americans are in the plans, which provide more comprehensive coverage than traditional Medicare.

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quick thought on the euro

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The 100 day moving average of the dollar index has started moving up, and the 200 day isn’t far behind.

This means futures based and other trend followers will start piling in, depending on their
system parameters. With the dollar index 57.6% euro this will but serious downward pressure on the euro for purely technical reasons.

questions:

Where do euribor swaps get priced if euribor settings cease?
Are there default provisions to deal with this possibility?

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Eurozone downward spiral continues

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Looks to me to be getting more desperate with increasing rhetorical nonsense.

Higher deficits due to falling revenues and rising transfer payments simultaneously weaken both the euro and national govt credit worthiness in a race against time.

And any budget cuts will only further cut aggregate demand and output, cut already falling tax revenues,
and increase unemployment and transfer payments, adding to deficits and further eroding creditworthiness.

The only hope is for a quick enough recovery that brings down deficits through exports, or, evern more unlikely, through domestic credit expansion, before the rapidly deteriorating national govt credit worthiness results in systemic failure of the payments system.

The ramifications of a banking sytem where deposits are guaranteed only by the national govts as yet
to make front page discussion, but nonetheless this structural flaw remains an ongoing source of system
risk capable of shutting down the entire euro payments system.

My proposal for an immediate and annual distribution of 1 trillion euro from the ECB to the national govts on a per capita basis will end the crisis and provide the framework for the national govt credit worthiness needed to reverse current downward spiral.

And not only does it not introduce moral hazard risk, it does the reverse by allowing
for withholding of future payments for non compliance of EU mandates.

Germany’s IG Metall, Employers Agree on Pay, Job Security

German States’ Budget Deficit Increases, Handelsblatt Reports

France’s Lagarde Sees ‘Fragile, Painstaking’ Economic Recovery

Isae Raises Italy’s 2010 Growth Forecast to 1% on Exports

Premier Insists Spain’s Economic Recovery Is Near but Offers Few Details

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Minneapolis Fed President Kocherlakota Warns Massive Debt Load Can Only Be Paid By Tax Collections Or Debt Monetization

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Maybe someday we will get an FOMC that actually understands reserve accounting and monetary operations, and maybe even recognizes the currency for the simple public monopoly that it is and moves away from ‘expectations theory’ as the reason for ‘inflation.’

But for now that seems to be only a very remote possibility.

“Why might households expect an increase in inflation? The amount of federal government debt held by the private sector has gone up by over 30 percent since the beginning of 2008. This debt can only be paid by tax collections or by the Federal Reserve’s debt monetization (that is, by printing dollars to pay off the obligations incurred by Congress). If households begin to expect that the latter will be true—even if it is not—their inflationary expectations will rise as well.”

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