Right, and still looks to me that with an 8%+ US federal budget there won’t be a major collapse in aggregate demand.

Karim writes:

Main story is in the revisons

  • July durables -1.5% ex-aircraft and defense (up 4% headline)
  • But the core measure was revised from -.4% to +.6% for June and from 1.7% to 1.9% for May
  • Shipments (matters more for current quarter GDP) up 0.2% ex-aircraft and defense (2.5% headline)
  • Core shipments for June revised from 1% to 1.9%
  • 3mth annualized rate for core shipments up from 11.1% to 13.6%
  • Big caveat is this is July data

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22 Responses to DGO

  1. F. says:

    8%+ US federal budget would be sufficient assuming savings desires don’t uptick. Psychological impact of recent market vol in addition to continued layoffs in headlines and upcoming election uncertainty leads me to believe otherwise. The market feels heavy, not bullish in the least, see sub-1000 shortly.



    True, but not as much downside when savings desire are a lot lower (lots of borrowing to spend going on). Credit numbers are already pretty close to 0 for all practical purposes.


  2. roger erickson says:

    off topic, but interesting;
    spreading recognition for Mosler’s insights

    they claim “exclusive access” to his thoughts :)
    thus showing that they like what they hear


  3. Should we not also be looking at the recent slowdown in Europe — which appears to be getting worse by the week?

    We’re talking what? Around $300bn worth of import demand coming from Euroland every year. (Of course, that’s more than balanced $370bn-ish worth of exports flowing in, but still we can only imagine that a shock to these balances would be cumulative).

    The tech bubble that Adam mentions above seems very real to me too and the stock markets, as we all know, has gone to the dogs.


  4. Mario says:

    guys….you’re going to want to read this article if you haven’t already.


    It’s about how the big O admin and every attorney general EXCEPT for the NY attorney general want to lock up and settle on a sweet-deal “price” for the crimes the banks did with mortgage securitization.

    You’ll love this quote from Kathryn Wylde, a Fed board member, as to where the Fed’s “heart” really lies regarding this one renegade NY attorney general whose refusing to settle on this cushy little deal and the state of our great union:

    It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.

    it’s stuff like this that makes me say, “destroy the Fed.”


    beowulf Reply:

    Great article thanks. Matt Taibbi is such a gifted writer and is given so much leeway by his bosses (its not like Vampire Squid can screw up a Lady GaGa promotional deal, so Jann Wenner doesn’t care what they think), that no reporter comes close in in how damn entertaining/aggravating his articles are. This sentence is perfect:
    “The idea behind this federally-guided “settlement” is to concentrate and centralize all the legal exposure accrued by this generation of grotesque banker corruption in one place, put one single price tag on it that everyone can live with, and then stuff the details into a titanium canister before shooting it into deep space”.


    ESM Reply:


    Pretty stupid and misleading article. Sometimes Matt Taibbi hits the nail on the head. Sometimes he pulls crap out of his ass.

    I love this quote: “in 2008 alone, the state pension fund of Florida, all by itself, lost more than three times that amount ($62 billion) thanks in significant part to investments in these deadly MBS.”

    Turns out, if you follow the link, the $62B is a reduction of total assets under management, which not only means a global portfolio of which only a small percentage were so-called toxic assets, but the reduction includes withdrawals.

    Anyway, it’s important to the housing market and the wider economy to clean up the legal uncertainty surrounding foreclosures as soon as possible. The legal and operational obstacles to foreclosure are the main things keeping the housing market in a depression.

    The NY attorney general is just doing some political grandstanding for personal benefit. Hardly a hero in my book. Seems like being a ruthless narcissist is something of a job requirement for NY attorney general.


    Mario Reply:


    you are quite the contrarian it seems eh? Good on you for that one. I respect that.

    But in this case, don’t you think people deserve the right to a fair trial and to due justice for obvious crimes that have been done to them? I mean who cares how the markets “will respond” to this (they’ll always respond to something anyway–tomorrow it will be something else…the news is like the head of medusa with endless tentacles and snakes to fret over and when one dies another sprouts in its vacancy)…we need to focus on the people here that were clearly financially slaughtered by white collar criminals.

    Imagine if some dude went on a killing spree against hundreds of people and we catch the guy. Do we just “estimate” the losses and get a “nice round number” to quantify the “justice” that needs to be done for those people? What ever happened to the right to a fair and speedy trial and all that constitutional judicial mumbo-jumbo stuff? LOL I mean seriously I can’t conceive of any argument to defend this proposition for the banks that still upholds the rule of ORIGINAL law set and laid down for this country that is meant to protect and defend the great and fair people here. In fact I am shocked this type of thing needs to even be illustrated further. To me that is just more evidence that we really are getting what we deserve with our reps these days and THAT to me is the scariest thing of all.

    In this vein now, I feel obliged to quote the sonorous, final lines of one of the greatest American essays ever written, “Self Reliance” by Ralph Waldo Emerson. An essay that today seems all the more germane as the days blunder onward.

    He who knows that power is inborn, that he is weak because he has looked for good out of him and elsewhere, and so perceiving, throws himself unhesitatingly on his thought, instantly rights himself, stands in the erect position, commands his limbs, works miracles; just as a man who stands on his feet is stronger than a man who stands on his head.

    So use all that is called Fortune. Most men gamble with her, and gain all, and lose all, as her wheel rolls. But do thou leave as unlawful these winnings, and deal with Cause and Effect, the chancellors of God. In the Will work and acquire, and thou hast chained the wheel of Chance, and shalt sit hereafter out of fear from her rotations. A political victory, a rise of rents, the recovery of your sick, or the return of your absent friend, or some other favorable event, raises your spirits, and you think good days are preparing for you. Do not believe it. Nothing can bring you peace but yourself. Nothing can bring you peace but the triumph of principles.

  5. Adam (ak) says:

    My hypothesis is that the second tech bubble has started bursting after the departure of Steve Jobs.

    Facebook, Groupon and the others are not worth these zillons of dollars. At least Apple even without Jobs will still be a leading industrial design and patent trolling company.


    Adam (ak) Reply:

    @Adam (ak),
    I have to admit that I was utterly wrong at least in regards to the timing. The whole event of Steve Jobs departure as the CEO or rather the “apotheosis” was carefully choreographed and didn’t dent the price of shares – he has shown his master skills once again.


  6. Mario says:

    July durables -1.5% ex-aircraft and defense (up 4% headline)
    But the core measure was revised from -.4% to +.6% for June and from 1.7% to 1.9% for May
    Shipments (matters more for current quarter GDP) up 0.2% ex-aircraft and defense (2.5% headline)
    Core shipments for June revised from 1% to 1.9%
    3mth annualized rate for core shipments up from 11.1% to 13.6%

    so much defense/military spending.

    What exactly is the logic of ONLY using public purpose to protect a nation from outside invaders all the while that same nation is rotting/starving/struggling within the nation’s bounds? Sounds sick and perverse and all bass ackwards to me.

    What you didn’t think I was talking about the USA did you? Oh of course not! I was talking about North Korea!!! Shame on you for thinking the USA was doing such things!!! How unpatriotic of you!! We would of course have hyper-inflation and the destruction of our great and grand free markets if we did anything differently…


    Mario Reply:


    interestingly too…considering just how insanely China has been lending through its “banks” PLUS having a current account surplus with a currency peg that keeps their dollar down…it just goes to show that it would take SOOO MUCH federal spending in order to even come close to any real hyperinflation. Seems to me that in the USA we could likely spend double of what any leftist politician/economist is saying and still be well within the mark of manageable inflationary trends.


  7. John Zelnicker says:

    I agree with Mike and Rodger. I think Cullen’s “muddle through” is also an optimistic scenario, although I hope you and he are correct. I fear that the Congressional circus will end up making real reductions in the deficit for the near term.


  8. mike norman says:

    I disagree. Any shrinking in the deficit from current levels will cause unemployment to rise. The deficit of $1.5 trillion “stabilized” the unemployment rate at about 9%. The CBO is predicting a contraction in the deficit.


    Rodger Malcolm Mitchell Reply:

    @mike norman, I agree with you, Mike. This graph tells the story: http://research.stlouisfed.org/fredgraph.png?g=1Me

    Note what precedes those nasty gray bars.

    Rodger Malcolm Mitchell


    Gary Reply:

    @Rodger Malcolm Mitchell,

    this only shows that private investors seek government bonds during recessions, and that they sell them during economic growth.
    So according to that graph – we are in the economic growth period. It does not say how long will it last…


    Keith Newman Reply:


    I don’t follow the point made in the graph either. Private investors accumulate treasuries at a decreasing rate after a recession, presumably because deficits drop during the recovery, but the trigger for a new recession is not clear.

    In 2001 it is more clear in that treasuries were actually being liquidated for several years in the run-up to the recession, as a result of the surpluses I guess. But this took a full decade to happen and occurred after an extreme event: several years of surplus.

    Currently a large quantity of treasuries continue to be accumulated. The large drop-off very recently reflects the purchase of treasury securities by the Fed during QE2 it seems to me.

    Gary Reply:

    @Keith Newman,

    exactly – except in a few points in the graph (~1974 and ~1996-2001) the private public was always net-accumulating federal debt according to this graph. The federal debt accumulation sped up radically during recessions (especially last one) and that is not surprising.

    Unforgiven Reply:


    It’s more about deficit spending falling prior to recessions.

    Mario Reply:


    also one difference between this time and all the other times on that graph is that upon exiting the recession every other time, deficit spending shot up at least initially, and then slunk back down at some point thereafter.

    That initial drive up in debt would be wealth accumulation in the private sector, which the economy could ride on for a while before the next recession hit, causing a more “range-bound” economy if you will. This time however we aren’t getting any of that “buffer” debt (at least yet anyway) with not too much hope of any coming soon either (in fact it’s probably only going to get worse…just you wait for that “super committee” in november…our santa claus rally could easily get smothered by those idiots). This could also mean that the economy is already pretty “dried up” at this point without that post-recession buffer debt and could indicate that any further drop in federal debt might break through living standard “support levels” that our economy has been “ranging” in for decades.

    Don’t know until it happens, but just another way of looking at it.


    During recessions deficit spending and the reserve balances thus created go up
    Holders of reserve balances welcome the opportunity of alternative securities accounts called tsy secs

    Zaid Reply:

    @Rodger Malcolm Mitchell,

    By my calculation, net financial assets are still growing. With the Fed now paying interest on excess reserves, much of the growth in net financial assets is accounted for in reserve balances. In the last year, reserve balances grew by $580 billion, currency in circulation by another $87 billion, and debt held by the public by more than $1.1 trillion. Of course it’s not that simple because you also have to subtract out all the Fed’s horizontal activities, which have been contracting during the last year. For example, Fed’s holdings of mortgage-backed securities contracted by $222 billion; that’s also a source of NFA for the private sector because it reduces the private sector’s liability to the Fed by the same amount.


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