Daily Archives: May 4, 2010 @ 4:40 pm (Tuesday)

US total payroll employees haven’t grown since 1999

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>   
>   (email exchange)
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>   On Tue, May 4, 2010 at 10:24 AM, Scott wrote:
>   
>   Ugly chart.
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>   US total payroll employees haven’t grown since 1999
>   

Yes, hangover from the surplus years.

Deficits never have gotten high enough to restore demand/employment/output

In the 1990’s private sector deficits (increasing private sector borrowings) did the heavy lifting.

That proved unsustainable and govt has yet to make the necessary fiscal adjustment to remove the drag of over taxation/under spending.

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Goodhart Says Greek Deal May Collapse as Crisis Tests Euro

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I like the way he puts it below:

“…if they actually cut back the deficit as fast as is being required they’re just going to go into appalling deflation.”

Goodhart Says Greek Deal May Collapse as Crisis Tests Euro

By Svenja O’Donnell and Andrea Catherwood

May 4 (Bloomberg) — Greece’s bailout “might collapse” and the nation’s debt crisis makes it “hard to see” how the euro will survive in its current form, former Bank of England policy makerCharles Goodhart said.

“If this financing deal should collapse, and it might for one reason or another, then there would be a question of what the Greeks could possibly do,” Goodhart said in an interview with Bloomberg Television in London today. “Default would be totally disastrous for them and leaving the euro would equally be disastrous.”

Euro-region ministers on May 2 agreed to a 110 billion-euro ($145 billion) bailout with the International Monetary Fund to prevent a Greek default, after investor concern sparked a rout in Portuguese and Spanish bonds last week and sent stock markets tumbling. The Greek crisis shows the need for more integration within the euro as a common currency, Goodhart said.

“It’s very hard to see how this is going survive this particular test,” he said. “The euro system has either got to have much more integration or parts of it will fall by the wayside.”

Standard & Poor’s last week cut Greece’s credit rating to the junk level of BB+, lowered Spain’s grade by one level to AA and downgraded Portugal by two steps to A-. Greece has now agreed to budget-cutting measures worth 13 percent of gross domestic product.

‘Appalling Deflation’

“If the current bailout is put in place, it will be enough to meet their immediate financing problems not only this year but for the next year or two,” Goodhart said. “The problem is that it doesn’t meet their adjustment problems. It doesn’t deal with the problem the Greeks, in part from having too large a deficit and too large a debt ratio, are very uncompetitive and if they actually cut back the deficit as fast as is being required they’re just going to go into appalling deflation.”

Greek 10-year bonds yielded 8.7 percent, about 566 basis points more than German bunds, as of 11:32 a.m. in London. That spread is down from as high as 800 basis points last week, the biggest gap since the euro’s introduction 11 years ago.

Should the deal fail, Greece “might do a kind of dual currency in which they use their scarce euros to meet their external commitments and in the meantime use an internal IOU, rather as Californian and some of the Argentinian states did, in order to meet their internal commitments” Goodhart said. “It would be a dual currency and the internal currency would fluctuate compared to the euro.”

Such an exercise would be “very messy,’ he added.

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Merkel’s Coalition Steps Up Calls for EU ‘Orderly Insolvencies’

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It doesn’t get any more ominous than this.

This would insure an orderly default of the entire currency union.
Which is already in progress.

Germany is concerned that the Greek situation resulted in larger deficits for the other members, and wants something in place so defaults don’t result in this type of fiscal expansion for the rescuers.

If they are in fact looking seriously at this new proposal for a default friendly institutional structure its all coming to an end in a deflationary debt implosion, accelerated by their desire for the pro cyclical fiscal policy of smaller national government deficits.

The next event should be the bank runs that force a shut down of the payments system.

It’s a human tragedy that doesn’t have to happen. I’ve proposed two obvious and constructive fixes that are not even being considered. It’s almost like ‘they’ want this to happen, but I now have no idea who ‘they’ are or what ‘their’ motives are.

As always, feel free to distribute.

Merkel’s Coalition Steps Up Calls for EU ‘Orderly Insolvencies’

By Tony Czuczka

May 4 (Bloomberg) — German Chancellor Angela Merkel’s coalition stepped up calls for allowing the “orderly” default of euro-region member states to avoid any repeat of the Greek fiscal crisis.

The parliamentary leaders of the three coalition parties agreed in Berlin today to put a resolution to parliament alongside the bill on Greek aid calling for the European Union to revise rules for the euro to put pressure on countries that run deficits.

Merkel said in an interview with ARD television late yesterday that it’s time to learn lessons from the Greek bailout and raised the option of “an orderly insolvency” as a way to make sure creditors participate in any future rescue.

“We want to move from crisis management to crisis prevention,” Birgit Homburger, the parliamentary head of Merkel’s Free Democratic coalition partner, told reporters in Berlin after the coalition leaders meeting. “We have to do everything we can to ensure we never get into such a situation again.”

Volker Kauder, the floor leader of Merkel’s Christian Democrats, said that the European Commission, the EU’s executive body, must be able to better examine the finances of member states to avert any rerun of what happened in Greece.

“We quite urgently need something for the members of European Monetary Union that we also didn’t have during the banking crisis two years ago,” Finance Minister Wolfgang Schaeuble told reporters yesterday. “Namely the possibility of a restructuring procedure in the event of looming insolvency that helps prevent systemic contagion risks.”

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in case there is any doubt about how the price of oil is set

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OPEC (and mainly the Saudis) is the only entity with excess capacity, so it is necessarily price setter. Specifically, they post prices to their refiners and who order all they want at that price. They don’t sell in the spot markets. See highlighted text below. ‘Balancing supply and demand’ is price setting.

The higher prices, particularly in euro, are functioning as a drag on the oil importing economies and also starting to show up in their inflation reports, complicating the decision process of the world’s central bankers. The combination of low aggregate demand and cost push price pressures is always problematic with regards to interest rate policy.

Urals Discount Widens as Russia Boosts Output: Energy Markets

By Christian Schmollinger

May 4 (Bloomberg) — Russian and Mexican oil is trading at growing discounts to U.S. and U.K. crude benchmarks as production by nations outside OPEC reaches a record.

Russia’s Urals for loading in the Mediterranean trades at $2.22 a barrel less than Britain’s Brent crude, compared with a premium of 3 cents a barrel on July 24. The discount between Mexico’s Maya grade and West Texas Intermediate was at $10.82 a barrel on April 30, near the widest in 17 months.

Rising output from Russia and Mexico will push non-OPEC supplies up 1 percent this year to an average 52 million barrels a day, according to the International Energy Agency. At the same time, quota violations among members of the Organization of Petroleum Exporting Countries means global production will increase at a time when the need for oil is diminishing.

“Inventories are growing and non-OPEC supply is expanding and OPEC continues to leak,” said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. “Market bulls should be concerned about the supply overhang.”

The U.S., Mexico, China and Russia have been responsible for most of the growth, boosting output for the past five consecutive quarters, according to an April 27 research note by Barclays Capital. Non-OPEC production reached a record high 49.6 million barrels a day in March, according to data from Energy Intelligence Group.
OPEC Less Needed

The IEA lowered its demand estimate for OPEC, which produces 40 percent of the world’s oil, by 200,000 barrels day to an average of 28.8 million barrels a day to balance supply and demand. The group currently pumps 29.2 million a day, according to Bloomberg data.

OPEC’s spare capacity levels have ballooned to 5.645 million barrels a day in April after falling as low as 2 million in July 2008, when crude hit a record $147.27. The group can produce a total of 34.84 million a day and may add 12 million barrels by 2015 by opening 140 new projects, Secretary- General Abdalla El-Badri said in February.

Russia, the world’s largest oil producer, pumped 10.14 million barrels a day in March, a post-Soviet Union high, according to official data. Mexico exported 1.33 million a day in March, the highest since January 2009, according to data from Petroleos Mexicanos.

U.S. production surged during 2009 and into this year as output returned from post-Hurricane Ike shut-ins in September 2008. The country has pumped an average of 4.482 million barrels a day in the first four months of 2010, up 6.6 percent from the average in 2006 and 2007.

Price Pressure

“If the positive momentum carries into the rest of 2010 and starts filtering through non-OPEC output views for 2011, this could result in a more significant source of downward price pressure along the curve,” said Barclays Capital analyst Costanza Jacazio in the note.

Crude oil for June delivery was at $85.94 a barrel at 10:28 a.m. Singapore time in after-hours electronic trading on the New York Mercantile Exchange, retreating from yesterday’s intraday peak of $87.15, the highest since Oct. 9, 2008.

“The pricing has been driven by the expectations of a tighter market over the long-term and the market has put aside the near-term supply overhang,” said Purvin & Gertz’s Shum.
The non-OPEC “momentum raises the crucial question of whether or not it is sustainable,” said Barclays. “If it fades quickly, as we expect, this will likely have limited implications for oil balances and prices, as OPEC stands in a position to handle a short-term rise in non-OPEC output by simply postponing any further increase in volumes.”

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fed-interview with randall wray

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On Tue, May 4, 2010 at 4:53 AM, lars wrote:

friends, romans, countrymen!

attached you’ll find an interview with the economist randall wray on the following topic:

Truths and myths of the Federal Reserve
Is the Federal Reserve an almighty-like “creature” or rather extremely limited in its essential operations? L. Randall Wray, an expert on monetary policy, answers questions with regard to the Fed and central banks in general.

Truths and myths of the Federal Reserve

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