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Archive for February 3rd, 2011

Bernanke text

Posted by WARREN MOSLER on 3rd February 2011

Just when you think he’s making progress:

>   (email exchange)
>   On Thu, Feb 3, 2011 at 1:41 PM, Cullen wrote:
>   After a glimpse of hope from some of Bernanke’s speeches late last year
>   he appears to have suffered some sort of memory loss as he is once again
>   talking about the dangers of the govt debt:


By definition, the unsustainable trajectories of deficits and debt that the CBO outlines cannot actually happen, because creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit.

Link to text

Posted in Deficit, Fed, Government Spending | 134 Comments »

Comments on Non-Mfg ISM

Posted by WARREN MOSLER on 3rd February 2011

Looks from the chart we’re getting close to the post Bush tax cut, coming out of that recession highs, so we’re on track for our 3-5% read gdp growth guestimates.

And the high productivity reported today reinforces our thoughts on unemployment coming down only slowly as well.

Last time around the expansion phase of what became the sub prime crisis was a substantial contributor to private sector credit growth. Without that kind of contribution from somewhere else, this recovery could be more modest than the last.

For exports to be sustained, the govt would have to keep the dollar down with fx purchases and reserve building, which in my humble opinion isn’t going to happen. That means the adjustment takes place via a climbing US dollar that continues until it dampens exports. Much like what the euro zone has experienced for the last decade or so.

Karim writes:

Multi-year highs for overall index, new orders (3rd highest on record-chart attached), and employment.
Anecdotes also very positive.

  • “New initiatives creating increase in spending.” (Finance & Insurance)
  • “Indications are that business is picking up and that 2011 could see positive growth across many industries. We are seeing an increase in orders at the beginning of the year.” (Professional, Scientific & Technical Services)
  • “Starting to see higher prices in many areas. Low inventory levels are leading to longer delivery time frames.” (Public Administration)
  • “Business uncertainty seems to be subsiding.” (Management of Companies & Support Services)
  • “Business activity is picking up. The challenges in the textile market (cotton/polyester) are significantly impacting price along with the inability to secure pricing for a period longer than two months.” (Accommodation & Food Services)
  • “2011 looking better than 2010.” (Information)

Jan Dec
Composite 59.4 57.1
Business activity 64.6 62.9
Prices Paid 72.1 69.5
New Orders 64.9 61.4
Backlog of Orders 50.5 48.5
Supplier Deliveries 53.5 51.5
Inventory Change 49.0 52.5
Inventory Sentiment 60.0 61.5
Employment 54.5 52.6
Export orders 53.5 56.0
Imports 53.5 51.0

Posted in Deficit, Employment, Government Spending, trade | 3 Comments »

Refining Concerns Overshadow Higher Shell Profit

Posted by WARREN MOSLER on 3rd February 2011

It’s an agonizingly slow process, but it is starting to feel like the world is turning away from crude oil consumption.

The Saudis are the swing producer, and can set price at any level they wish.
But if they set the price ‘too high’ over time demand shifts away from them due to both conservation and substitution.
(And if they set the price too low, consumption rises to eventually use up their excess capacity.)

It’s feeling to me like they have the price high enough to both cool consumption through both conservation and substitution, as evidenced by the demand for refined products discussed below and charts I’ve posted previously.

And slowly but surely the price of crude- as well as the unattractiveness of being dependent on it and the negative connotations of burning fossil fuels in general- is driving the investment and technology for both better fuel economy and a long term switch to electric power for transportation, as well as for a shift away from fossil fuels in general.

In theory a monopolist like the Saudis might respond by dropping the price to a level that discourages/crushes the investments associated with the switch out of crude- maybe $40 per barrel. But there’s no sign of that yet, and they may not want to dip into their cash reserves to the extent needed to support a move like that.

Nor, alternatively, with what’s going on in the region, might they believe then can afford politically to apply that much austerity to their population.

Also, this is all fundamentally $US friendly, and works to offset the negative impact on the dollar from higher crude prices per se.

Refining Concerns Overshadow Higher Shell Profit

By Sarah Young

February 3 (Bloomberg) — Shell disappointed investors on Thursday with below-forecast fourth-quarter profit, with concerns over its refining business overshadowing a sharp rise driven by higher oil prices.

The results followed strong earnings from Chevron and Exxon Mobil, although BP, struggling to put the Gulf of Mexico oil spill behind it, fared less well.

Shell shares fell 3 percent, with analysts saying they had expected more and expressing concern over continued weakness in the Anglo-Dutch oil major’s refining business, with oil product sales rising just 5 percent year-on-year.

“Our earnings were impacted by weak refining margins, pressure on certain regional natural gas prices, and volatility in downstream marketing margins as a result of rising oil prices,” Shell said.

Arbuthnot analyst Dougie Youngson said margins would be under increased pressure if oil prices remained at around $100 a barrel for long.

Benchmark U.S. crude prices averaged about $85 per barrel in the fourth quarter, up from $76 in the fourth quarter of 2009, but have since risen to above the $100 mark.

“The global market continues to see weak demand and pricing for oil products,” Youngson said in a note.

Shell said that despite a year-on-year improvement its refining results were lower compared with the third quarter because of “increased downtime at major refining facilities.”

Shell’s earnings on a current cost of supplies (CCS) basis, jumped to $5.7 billion from $1.2 billion a year ago when it suffered heavy refining losses. But Jos Versteeg, an analyst at Theodoor Glissen, said this was still less than anticipated.
Excluding non-operating and one-off items the fourth quarter result was $4.1 billion, short of a forecast for $4.85 billion, according to a Reuters poll.

Analysts welcomed Shell’s announcement of a $0.42 dividend for the quarter and the fact it expected to maintain that level for the first quarter of 2011.

Shell’s planned capital investment of $25-$27 billion for 2011 was also well received, with Sanford Bernstein’s Oswald Clint saying capex appeared under control.

However, Arbuthnot’s Youngson said he was concerned about Shell’s focus on gas, given continued price weakness and oversupply forecasts.

Posted in Comodities | No Comments »

U.K. Service Industries Return to ‘Pre-Snow’ Growth

Posted by WARREN MOSLER on 3rd February 2011

Still looks to me like the govt deficit is plenty high enough to support at least modest gdp growth until the pro active austerity measures actually reduce it.

UK Headlines:

U.K. Service Industries Return to ‘Pre-Snow’ Growth

Inflation Could Force Bank of England to Raise Interest Rates, Says Deputy Governor Charlie Bean

UK Faces US-style Jobless Recovery, Says Institute for Fiscal Studies

Wealthy Britons Planning to Increase Spending in 2011, HSBC Says

Posted in UK | No Comments »