next week….

Getting really bad feelings for the next week or so:

QE believed to be inflationary money printing but doesn’t actually do anything

Gridlock presumed good but is actually bad as it could mean taxes rise at year end

Republican fiscal conservatives deemed ‘good’ but in fact bad with their spending cuts and budget balancing bias.

So three big ‘buy the rumor sell the news’ things coming together?

Could be a reversal of risk on, or even a confused reshuffle of what’s risk on and what isn’t.

For example, could be lower 10 year tsy yields as it will all be perceived to keep the Fed on hold that much longer, as well as gold and commodities and commodity currencies selling off due to the realization that the fed can’t reflate even if it wants to.

That means crude could be selling off and the dollar getting stronger, even with rates lower.

Not a good time to have any risk on, in my humble opinion.

Contest Ending Midnight on Sunday!

Warren has announced new prizes!

First and Second Place: An all inclusive (hotel, food, airfare) to St. Croix, USVI

Third – Tenth Place: Hotel room on the beach AND some meals included

 

Not only do you get to spend time with Warren on a beautiful Caribbean island, you get to escape from the winter!

 

Check out the page: https://moslereconomics.com/action/ for more details about the contest.

 

It’s NOT TOO LATE!!

 

CURRENT SCORES

1. Art Patten 69
2. Jim Baird 61
3. Stormy 18
4. Charles Yaker 12
5. Tschäff 8
5. Ralph Musgrave 8
7. Jack 5
8. TLGunman / Gunman 4
8. Digger 4
9. Matt Franko 2
9. Mr. E 2
9. Bradshaw 2

claims


Karim writes:

Initial claims fell 21k to a 3mth low of 434k, but the Labor Dept attributed this to a missed seasonal adjustment factor due to the Columbus Day holiday

Unadjusted claims rose by 3%, or 11k; the seasonal adjustment factor was looking for a 7.8% rise. Thus, the seasonally adjusted number fell by 21k.

The spike to 475k the week before the holiday likely reflects the flipside of this.

After also adjusting for the spike that followed benefit extension in late July, claims have really been very stable in the 440-460k range for the past 6mths.

Living with a deficit terrorist majority

>   
>   (email exchange)
>   
>   On Wed, Oct 27, 2010 at 8:11 PM, wrote
>   
>   This kind of talk is not bullish.
>   
>   If they try to do things too quickly all bets are off.
>   

Right. That’s what I see as our biggest risk, though 100 billion isn’t all that much, and it likely be out of future spending.

All these republicans you’ve been cheering on are heck bent on total destruction of our economy via deficit reduction as they’ll have enough votes for a balanced budget amendment. And a lot of democrats as well.

Tea Party leaders Michael Johns and Michael Patrick Leahy do know how it works, and to their credit haven’t been cheer leading balancing the budget, just lower taxes. But now seems they need to take a much more active role in working to keep taxes a lot lower than spending, which means opposing the balanced budget amendment move.

The mess we are in now can be traced to the tax hikes in the early Clinton years that were allowed to persist and drive the budget into surplus in the late 90’s, which reduced the financial equity that supports the credit structure by maybe a trillion, back when that was a lot of money. And, of course, when it collapsed the next year no one understood the obvious move was the likes of a payroll tax holiday to sustain demand from income, rather than wait for private sector credit expansion.

Bush finally did that in 03 shortly after Elizabeth and I met with Andrew Card at the white house pointing this out. His then famous statement when asked about the deficit ‘i don’t look at numbers on a piece of paper, i look at jobs’ followed shortly after our meeting. But that’s another story…

Republicans Plan Budget Cuts as Early Act If They Take Power

By Patrick O’Connor

October 27 (Bloomberg) — U.S. House Republicans plan to try to slash $100 billion from the federal budget as early as January if they wrest power from Democrats in this year’s midterm elections, setting up possible early showdowns with President Barack Obama on taxes and spending.

A Republican House takeover would thrust new committee heads, such as Representative Dave Camp on the Ways and Means panel, into the spotlight within weeks — or days — of seizing their gavels in early January. They would confront quick political tests that could alienate independent voters and Tea Party activists alike, analysts said.

“The major issues are going to be fiscal, and fiscal issues are always contentious,” said Jack Pitney, a political science professor at Claremont McKenna College in Claremont, California.

Carrying out spending cuts that Republicans have pledged to seek — which would amount to 21 percent of the government’s so-called discretionary money pot — could prove politically difficult. Reducing funds for programs such as college loans for low-income students or medical research at the National Institutes of Health is harder than promising to do that on the campaign trail.

‘Political Repercussions’

Republicans “will quickly find out that across-the-board cuts have political repercussions,” Pitney said.

A lame-duck session of Congress convening two weeks after the Nov. 2 elections will try to fund the government next year and deal with Bush-era tax cuts expiring Dec. 31. Prospective Republican House control could be an obstacle to Democrats in finishing that work before adjourning. Camp and other Republicans would then need to grapple with those tasks as they take over, even as they push their promised budget cuts.

The backdrop is a federal deficit that the Congressional Budget Office said totaled $1.29 trillion in the fiscal year that ended Sept. 30. At 8.9 percent of the nation’s gross domestic product, it was the second-biggest shortfall since 1945.

The following reviews the battle lines likely to be drawn in top House committees under Republican rule, and looks at the potential panel leaders who would preside over the fights:

Appropriations

If Democrats fail to fund the government through September 2011, the end of the federal fiscal year, this committee would be the stage for that fight in the new Congress. And settling on the panel’s chairman would be one of the initial tasks facing Republicans.

House Republican leader John Boehner of Ohio, his party’s speaker-in-waiting, called for the $100 billion budget cut on Sept. 23 as part of a governing agenda aimed at wooing voters. The cuts, which weren’t specified, would come from the $477 billion Congress allocated in 2010 for non-defense domestic discretionary programs. Social Security and Medicare are among the programs excluded from the proposed 21 percent reductions in discretionary spending.

Obama’s request for $73.4 billion for the Department of Education in the 2011 budget, including $23 billion for Pell Grants to help low-income students afford college, offers one example of the tough choices the Republicans would face. A 21 percent cut across-the-board would take about $15 billion from education. A 21 percent cut in Pell Grants would subtract almost $5 billion from the program.

HHS Budget

Obama asked Congress for $76.4 billion for the Department of Health and Human Services. Almost half that — $32 billion – -is for NIH, which includes the National Cancer Institute and other research facilities. A 21 percent cut would slash NIH funding by more $6 billion.

The question of which Republican would lead the Appropriations panel is complicated by the six-year limit the party placed on how long a lawmaker could serve as its leading member on a committee.

Representative Jerry Lewis, a California Republican, reaches that limit at year’s end. He has said he will seek a waiver to allow him to take the committee’s helm.

Lewis, 76, initially balked when Boehner pushed House Republicans to embrace a moratorium on lawmaker-sponsored projects, known as earmarks. Lewis reversed his position last year, gaining favor with Boehner.

Representative Hal Rogers, a Kentucky Republican, would be the likely committee head if Lewis fails in his bid. Rogers, 72, is known for steering funding for road improvements and other projects to his state and district. The Lexington, Kentucky, Herald Leader once dubbed him the “Prince of Pork.”

Japan looking to weaken yen with fiscal stimulus!!!???

The only place with ‘stimulus’ proposals???

And, they recognize that ‘stimulus’ fights the weak yen???
Maybe been reading my blog???
This could be a game changer for Japan?
Stimulus the new ‘currency war’ weapon of choice?

Cabinet OKs Extra Budget To Cover Y5tln Stimulus


TOKYO (Kyodo)–The Cabinet approved Tuesday a draft supplementary budget for fiscal 2010 to partly finance an additional stimulus package worth some 5 trillion yen that aims to fight the impact of the recent strength of the yen and kick-start the deflation-plagued economy.
 

The budget plan, which will be submitted to the Diet on Friday for deliberations, includes expenditure of 4,429.2 billion yen. Prime Minister Naoto Kan, who has championed the restoration of the country’s fiscal health, the worst among major industrialized nations, has refused to issue any new government bonds for the extra budget.
 

The government instead plans to finance the budget with surpluses carried over from the fiscal 2009 budget, funds available due to lower-than-expected interest payments on its debt as well as greater-than-projected tax revenues for fiscal 2010. It would be the first time in 11 years for Japan not to issue any new debt for the creation of an extra budget to finance a stimulus package.
 

”We drafted the budget after listening to opposition parties. I think there is enough possibility that they will agree with us,” Finance Minister Yoshihiko Noda told reporters after the Cabinet meeting.
 

Kan has been forced into careful maneuvering in the Diet after the ruling alliance lost a majority in the House of Councillors in an election in the summer.
 

The latest stimulus is the second in a series following a 918 billion yen package approved last month, and highlights Kan’s strong resolve to prevent the Japanese economy from falling into a recession amid high unemployment, falling prices, weakening exports and sliding industrial output.
 

The yen has risen to its highest level against the U.S. dollar in more than 15 years despite the government intervening in the market last month for the first time in over six years. The strength of the Japanese currency has negatively affected the country’s export-oriented economy.
 

The new stimulus package, revealed earlier this month, focuses on boosting domestic demand while improving the business environment. The extra budget would cover 3,070.6 billion yen in spending to revitalize regional economies, develop infrastructure and offer financial support to small and medium-sized companies.
 

The 1,123.9 billion yen portion would go to upgrading medical and social welfare services. The government is also earmarking 336.9 billion yen to accelerate economic growth through such measures as securing overseas energy and mineral resources, as well as 319.9 billion yen to help young people find jobs by giving incentives to employers.

Japan- Govt Seeking Y340bn For Extra Budget

The only nation going in this direction?

Probably too early to short the yen, but keep an eye on it…

Govt Seeking Y340bn For Extra Budget

TOKYO (Nikkei)–The government is looking to secure 336.9 billion yen in a supplementary budget for fiscal 2010 to implement its new growth strategy, The Nikkei learned Monday.

The draft budget, to be approved at a cabinet meeting Tuesday, aims to ensure a stable supply of rare earths and to fund the eco-point program for housing, among other priorities.

About 319.9 billion yen is expected to be spent on job creation, including 51.1 billion yen for employment and training of new graduates and other young people.

(The Nikkei Oct. 25 evening edition)

Pound Set for Pain as Cuts Push King to Print Money

The UK is tightening fiscal policy while the CB is enacting QE. The market thinks that this will substantially weaken the pound, is that the correct logic

no. but drives short term portfolio shifting and specs

or is QE not real money printing and the tight fiscal is the real force to be reckoned with?

yes. but takes longer to bite.

I’m just wondering if the mkt is getting positioned the wrong way based on faulty logic. Any thoughts?

totally agreed! the trick is timing and vs what currency.

the euro has it’s own set of deflationary forces already in place.

the dollar looks over sold against something based on wrong way qe betting.

the pound selling has to be against something.

the only currency left is the yen, which may be where the flight to safety is going. Shorting the yen has also been the widow maker- more reason to believe it’s over bought.

And their trade flows aren’t so positive any more, and they have been sporadically selling it probably vs the dollar, adding to supply. And the prospects of meaningful fiscal tightening in Japan seem less than the UK, euro zone, or even the US.

so the home run may be the yen against the pound.

the other flight to quality currencies have been the commodity currencies which could correct substantially. The $A looks particularly over valued based on anecdotal purchasing power parity. a diet coke is $3 for example, but they are China’s coal mine.

again, it will be about timing.

if the pound does start firming against the yen fundamentally, which it should, it can go for a long time, so it’s probably not worth trying to call the exact bottom.

Old Greenspan Quote

The following is from an interview with Chairman Greenspan:

RYAN: “Do you believe that personal retirement accounts can help us achieve solvency for the system and make those future retiree benefits more secure?”

GREENSPAN: “Well, I wouldn’t say that the pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.”

Posted in Fed

Fed Financial Obligations Ratio

This includes home owners and renters, and includes rent as a financial obligation.

And it’s gone down further since the June data point as the Federal budget deficit remains at around 9% of gdp.

The general drift higher over time is probably due fewer ‘no debt’ people rather than people with debt getting over extended, so I expect this to turn up well before it gets to the 16% level.

So looks to me like consumer batteries are very close to recharged which will be evidenced by this ratio moving sideways for a while before again turning up in the later stage of what will someday be later called the Obama boom, if they don’t do something stupid like a major deficit reduction program or a trade war. And just as interesting is what they then attribute the boom to. In the Clinton years it was the surplus (which actually ended the boom) and, of, course the Fed always gets most of the credit. But never the deficit that preceded all of our expansions.
graph

Posted in Fed