Daily Archives: February 8, 2012 @ 5:21 pm (Wednesday)

Overlooked in last week’s employment report

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Karim writes:

Average hourly earnings reached a new all-time low on a y/y basis of 1.5%.
One of the strongest historical arguments as to why deflation is unlikely is downward nominal wage rigidity.
i.e., its easier to negotiate wage growth from say 4% to 3%, then 1% to 0%, or certainly a wage cut.
But, high unemployment and high duration of unemployment will test that theory.
A move much lower from here will stoke the fears of those Fed members worried about deflation.
Of course the flip side is that this is quite likely a positive for corporate profits.

participation

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Consumer borrowing rose $19.3 billion in December

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With the federal deficit coming down it takes more consumer and business borrowing to keep GDP (modestly) growing.

And note that student loans are reportedly responsible for half the gain.

Looks to me like it’s going to take a lot more consumer debt growth just to start lowering the output gap.

The largest gains are traditionally to be had in housing, but still no sign of that sector materially improving.

Nor is a proactive fiscal relaxation in the cards.

If anything there’s risk of taxes going up and more spending being cut.

Consumer borrowing rose $19.3 billion in December

Feb 25 (AP) — Americans accelerated their borrowing in December for the second straight month, running up more credit card debt and taking out loans to buy cars and attend school.

Consumer borrowing rose by $19.3 billion in December after a $20.4 billion gain in November, the Federal Reserve said Tuesday. The two increases were the biggest monthly gains in a decade.

Total consumer borrowing is now at a seasonally adjusted $2.5 trillion. That nearly matches the pre-recession borrowing level. And it is up 4.4 percent from the September 2010 post-recession low.

The rise in borrowing could be a sign that Americans are more confident in the economy. But consumers are also borrowing more at a time when their wages haven’t kept pace with inflation.

The outlook for hiring has improved, which could help boost consumer spending.

In January, companies added 243,000 net jobs, and the unemployment rate fell to 8.3 percent, the lowest in three years.

Still, without higher pay, many could pull back further on spending. Consumer spending was flat in December, and the savings rate fell. Consumer spending is important because it accounts for 70 percent of economic activity.

Americans borrowed more on their credit cards in December, likely to buy holiday gifts. A measure of that debt increased by $2.8 billion.

But the bulk of December’s increase was because consumers took out more auto loans and student loans. The category that includes both rose by $16.6 billion.

Ellen Zentner, an economist at Nomura Securities in New York, said that half the gain in that category came from higher student loans. That suggests the weak economy is persuading more people to go back to school.

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China Should Weigh Fiscal Boost if Euro Crisis Deepens

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Must be a student of MMT?

China Should Weigh Fiscal Boost if Euro Crisis Deepens

Feb 8 (Bloomberg) — China should consider fiscal stimulus if Europe’s sovereign-debt crisis sparks a recession there that affects the U.S., Asian Development Bank Managing Director-General Rajat Nag said.

“The European crisis is a major cloud on the horizon,” Nag said in an interview at the ADB’s Tokyo office today. “Countries, particularly China, have to consider the possibility of coming in with necessary fiscal stimulus if the euro zone crisis becomes more serious and if the effects of that spillover into the U.S.”

The International Monetary Fund said two days ago that a worsening of Europe’s debt turmoil could almost halve China’s growth rate, which the lender projects at 8.2 percent in 2012. Fitch Ratings said yesterday that a “hard landing” for the nation was a key risk for the global economy.

“Our assessment is that the situation will probably not be a hard landing,” Nag said. “If the euro zone crisis resolves itself in an orderly fashion, China could still grow at over 8 percent in this calendar year.

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Greek options

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There is probably not much voter support for returning to the drachma.

The voters would probably rather have the Germans run their finances than their own leaders.

They’ve seen past drachma financial dramas, with interest rates spiking for everyone, not just the govt, rampant inflation, and a collapsing currency as well as high unemployment.

With the euro none of that happened, so it’s not obvious the currency is the problem.

What does seem obvious to them is that their leaders are the problem.

So I expect the austerity measures to pass, as the alternative is 0 deficit spending.

And if discounts are ‘granted’ the politics quickly move towards same for the rest of the euro member nations.

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Portugal Union Leader Wants Debt Renegotiation

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Yes, as previously discussed, the obvious political move is to demand the same discounts as Greece.

Especially with the pending Greek ‘restructure’ and ECB check writing to support the banking system seemingly making the euro stronger and not causing inflation.

And the ‘sustainability maths’ is just about the same for all of them as well, particularly given the current slowdown.

Once the markets realize the politics are moving in that direction, all euro member nation bonds again become suspect and the crisis enters the next stage, resulting in the ECB pretty much funding everything, one way or another.

It’s just a question of how it all gets from here to there.

Portugal Union Leader Wants Debt Renegotiation

By Axel Bugge and Daniel Alvarenga

Feb 7 (Reuters) — Portugal must renegotiate its debts rather than impose harsh austerity measures to overcome its economic crisis, the head of the country’s largest trade union said on Wednesday, threatening to step up strikes if the government pushed on with cuts.

Armenio Carlos, head of the CGTP union, told Reuters Portuguese workers would take a stand against attacks on labor rights, which he said were part of the government’s sweeping economic reforms promised under a 78 billion euro ($103.29 billion) bailout.

“What we defend is the renegotiation of debts, in terms of deadlines, in terms of interest and in terms of the amount,” Carlos said in an interview, adding that the country’s bailout had made it impossible to meet its obligations.

Portugal’s debt currently equals about 105 percent of gross domestic product.

“We are being confronted with a neo-liberal attack on workers’ rights,” he added, saying the government’s recent labor reform, making it easier to hire and fire, could spark a growing wave of protests.

The union leader, a former electrician and an ex-Communist lawmaker who took over as head of the CGTP a week ago, warned that with the austerity policies demanded by the bailout, Portugal was heading down the same road to ruin as Greece.

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