The US economy seems to be muddling through at modestly positive GDP growth, supported by a still sort of high enough 8% or so govt fiscal deficit.

The year and fiscal cliff is a looming disaster but it’s too soon for markets to discount a high chance of it actually happening.

Lower oil prices are helping the US consumer and the $US.

The stronger $US works against US exports some and earnings translations a bit as well. Weaker global demand also works against US exports.

Deficit spending in the euro zone has also been rising some, and after the latest rounds of austerity and subsequent deficit increasing weakness may total something close to 7% of GDP.

That should be enough to muddle through as well. Austerity hikes unemployment and deficits to the point where the resulting deficit is sufficient to sustain things. Without another round of austerity there should be some sort of stability of output and employment.

That is, while it’s doubtful the ‘new europe’ will engage in meaningful fiscal expansion, it may not proactively raise taxes and/or cut spending in any meaningful way, either.

So as the member nations stumble their way through each successive securities auction, it won’t surprise me if their economies sort of stabilize around 0 growth or so. And then begin to pick up a tiny bit. All supported by the current, higher levels of deficit spending.

And the lower euro could help their exports some as well.

Yes, there will be all kinds of credit related vol, but under it all there will be sales and profits taking place. The businesses that are still around are the survivors who know how to get by in this kind of economy, where, while slower than it ought to be, there is still about $40 trillion worth of goods and services getting bought/sold in the US and Europe. GDP growth has gone to near 0, but not GDP itself.

The discount rate cut doesn’t actually do anything for the economy- growth or inflation- but does show their concern.

And the relatively low Q1 state lending is showing the actual continuing policy constraint.

As previously discussed, China has what they consider an inflation problem, and there are precious few, if any, examples of inflation fights that didn’t cause hard landings.

Ch Headlines:

China to lower reserve requirement ratio
Q1 GDP slows in 29 provinces, regions
China 2012 Growth Forecast Cut to 8.1%, Citigroup Says
China 2012 Growth Outlook Revised to 8% From 8.2%, JPMorgan Says
China Growth Seen at 13-Year Low by Pimco as Banks Cut Forecast

President Obama’s ‘Fairness’ Vision Would Bankrupt Nation

April 11 (IBD) — Economy: In two recent high-profile policy speeches, President Obama has struggled to make a case for his big-government, high-tax vision for the economy. But his comments reveal just how bankrupt his vision is.

Last I read, he’s actually reduced govt head count for maybe the first time in history, and spending as a % of GDP is up only because of transfer payments due to the recession, with taxes as a % of GDP reaching extremely low levels as well.

It’s ironic that President Obama would make two speeches this week in Florida about “fairness,” sandwiched as they were between $10,000-a-plate fundraising dinners. But that’s the level of hypocrisy coming from the White House these days.

To be polite, most of the comments Obama makes these days about the economy, taxes and, especially, “fairness” stretch all credibility. Hearing the large number of outright falsehoods and partial truths he uses to support his argument, it’s impossible not to believe it’s simply a ploy to get votes from those who envy the rich and the successful.

A full unpacking of Obama’s whoppers would require a much larger space than we have here. Here are just a few examples:

“I believe the free market is the greatest force for economic progress in human history.”

If he believed that, he would not have signed the $787 billion stimulus bill.

That helped the private sector and ‘free markets’ even though I didn’t like the details.

He wouldn’t have imposed onerous new green regulations on businesses.

Without federal pollution regulation the states get into a race to the bottom where whoever allows the most pollution gets the most businesses.

He wouldn’t have taken over the auto and banking industries.

Banking with FDIC deposit insurance makes banking a 90/10 public private partnership. And he didn’t take over banking in any case.

Nor would he seek massive new tax hikes on businesses, or use the frightening power of government — including thousands of new IRS agents to enforce ObamaCare — to pursue his utopian vision of “fairness.”

First, I’m against corporate taxes in general. But even so, he cut payroll taxes for business and the proposed increases were about closing loopholes. And Obamacare took 500 billion out of medicare to give to insurance companies- hardly pro govt/anti business.

If Obama truly believed in the free market,

And remember, there is no ‘free market’ as by definitions markets operate only within institutional structure including contract law and enforcement.

he’d eliminate Fannie Mae, Freddie Mac, the EPA, the Energy Department and many other federal departments and agencies that distort free markets.

All govt and all taxation necessarily distorts markets. All govt works on coercion. Nor are there competitive markets when there is limited competition and monopoly power, which means some form of govt regulation is required.

He would roll back thousands of costly, ineffective regulations that estimates say cost the U.S. $1.8 trillion a year.

I’d have to see the specifics, which the rest of this article makes me doubtful of.

“The gap between those at the very, very top and everybody else keeps growing wider and wider and wider and wider.”

In fact, the top 1% have a lower share of total household income than they did in 1920 — just after World War I.

So maybe 1920 was a particularly high year because of the war? Don’t know his point, except pointing to 1920 is a smokescreen to disguise the fact that the share of income has been rising dramatically for a long time.

Though the top 1% have recently boosted their share, that’s largely due to the tech boom of the 1980s, 1990s and 2000s, which made all Americans richer.

I thought it was the financial sector??? But even so, a tech boom doesn’t necessarily do that to income distribution. It doesn’t explain why the football coach earns $10 million while the professor who cured cancer gets $100,000. It’s all about institutional structure.

Even so, the so-called Gini Coefficient — the federal government’s own measure of income inequality — is today lower than it was during the Clinton era.

“At the beginning of the last decade, the wealthiest Americans got two huge tax cuts, in 2001 and 2003.”

The rich, with everyone else, did get their top tax rates cut. But the actual taxes they paid rose sharply.

Right, because their incomes rose that much more. This is out of context writing throughout, laced with lies of omission.

Don’t believe it? Just before those tax cuts were passed, the top 1% earned 18% of all adjusted gross income and paid 34% of all federal taxes.

Only because they conveniently don’t include FICA when they talk about taxes like this. But they do include it when it’s going up or down- tax cut or tax hike. And it’s something approaching half of all federal income taxes.

By 2009, the last full year for which there are data, the top 1% share of AGI had fallen to 17%, according to IRS data. But they paid 37% of all taxes.

Not including FICA

As for the bottom 50% of income earners: In 2009 they took home 13% of income but paid less than 3% of federal income taxes. And today, nearly half of all Americans don’t pay taxes at all.

Not including FICA which is 7.6% of income from dollar one, with a cap at something like $105,000. Including FICA it could be something like 30% paid by lower income earners.

In short, during the 2000s, top earners took home a smaller share of the income pie but paid a larger share of the taxes. Is that what Obama means by “fairness?”

Does leaving out FICA count as fairness?

As for the so-called Buffett Rule that Obama wants, it would impose a minimum tax of 30% on millionaires to make them pay their “fair share.” It’s premised on investor Warren Buffett’s assertion that he pays a lower tax rate than his secretary.

Nonsense. Those with incomes over $1 million pay about 30% in taxes on average, about twice the average for those with middle incomes, like Buffett’s assistant.

Not counting FICA.

Simply put, this is class warfare. The tax would only raise $47 billion over the next decade — a drop in the bucket compared to the $45 trillion in spending and $9.6 trillion in deficits under Obama’s budget.

And just under $1 trillion per year of FICA taxes

Unfortunately, by raising the capital gains tax from 15% to over 30%, it would kill millions of American jobs and send small business creation into a tailspin.

Any tax hike can reduce aggregate demand. And not having income taxes and cap gains at the same rate merely causes income to shift to the lowest taxed category, and provide massive fees for the accounting firms and financial sector as well.

Who would that help?

“We tried (free market economics) for eight years before I took office. … We were told the same thing we’re being told now — this is going to lead to faster job growth, it’s going to lead to greater prosperity for everybody. Guess what? It didn’t.”

Obama has repeatedly suggested all the economy’s problems are due to President Bush.

But Bush, like Obama, entered office during a recession. Not only did he take over after the biggest stock market crash since the Depression, but the Fed had more than doubled interest rates, killing growth.

The Fed doubled rates from very low levels after the economy started growing from the combo Bush proactively expanding the deficit and from the up leg of the sub prime adventure. It ended with the shrinking of the deficit and the down leg of the sub prime adventure.

Worse, within eight months of entering office, the U.S. was hit with the 9/11 terrorist attacks — the first on the American homeland since World War II. Within the space of just 90 days, a million jobs were lost.

Jobs were lost because private sector credit expansion ended after being stretched past it’s limits during the late 90′s, with the govt budget surplus draining off hundreds of billions of dollars of net financial assets as well.

Obama’s right. President Bush did cut tax rates. What was the result? We had 52 straight months of job growth, with 8 million new jobs over six years.

Propelled by the larger deficit and the expansion phase of the sub prime adventure.

For Bush’s entire presidency, the unemployment rate averaged 5.3%. Under Obama, it’s not been below 8%.

Yes, because the deficit is too small, and both sides want to make it smaller. Good luck to us…

Real after-tax income per person rose more than 11% under Bush, while real GDP from 2000 to 2007 grew $2.1 trillion, or 17%. In 2007, the deficit fell to $162 billion — roughly 1% of GDP.

Yes, not large enough to support aggregate demand after support from the sub prime expansion phase ended.

Does Obama really want to compare himself to that? Since he’s entered office, we’ve lost 1.7 million jobs, and unemployment has averaged over 8%.

His deficits have averaged $1.4 trillion — about 8% of GDP, a record. On his watch, debt has soared from $10.7 trillion to $16 trillion. America now has more debt than the entire euro zone and Great Britain — combined.

And still not nearly enough to restore aggregate demand.

Under Obama spending has surged. The federal government now accounts for 25% of the economy, vs. the long-term average of 20%.

Due mainly to automatic counter cyclical transfer payments, not expanded regular spending.

Through his big-government policies, Obama took a bad recession and made sure our recovery would be the worst ever — and then blamed it on everyone but himself.

Meanwhile, get ready for “taxmageddon” — the $494 billion tax hike that hits in 2013 as the Bush tax cuts expire, something Obama is doing nothing about.

Wasn’t it the opposition trying to not allow the extension this year?

Our economy, in short, will never regain its old vitality until a new president is elected, and Obama’s top-down, government-centered policies are laid to rest.

I’ve been a harsh critic of Obama’s policies all along, but this is all a pile of intellectually dishonest propaganda.

>   
>   (email exchange)
>   
>   The following houses have lowered Q1 GDP:
>   
>   BAC, GS, Barclays, Noumura, DB, MS… most to just above 2% (2.1% for GS from 2.3%) or
>   just below ( Nomura 1.9% from 2.1%). Barclays lowered their estimates by a full 0.4%
>   to 2% flat.
>   

• Austerity everywhere keeps domestic demand in check and export channels muted
• Non govt credit expansion pretty much stone cold dead in the US and Europe
• Rising oil energy prices subduing global aggregate demand
• US federal deficit just about enough to muddle through with modest GDP growth
• Rest of world public deficits also insufficient to close output gaps, including China which has calmed down considerably
• Zero rate policies/QE/etc. in the US, Japan, and Europe doing their thing to keep aggregate demand down and inflation low as monetary authorities continue to get that causation backwards
• All good for stocks and shareholders, not good for most people trying to work for a living
• Europe still in slow motion train wreck mode, with psi bond tax risk keeping investors at bay and ECB waiting for things to get bad enough before intervening

So still looking to me like a case of

‘Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan’

The only way out at this point is a private sector credit expansion, which, in the US, traditionally comes from housing, but doesn’t seem to be happening this time. Past cycles have seen it come from the sub prime expansion phase, the .com/y2k boom, the S&L expansion phase, and the emerging market lending boom.

But this time we’re being more careful of ‘bubbles’ (just like Japan has done for the last two decades). So I don’t see much hope there.

Still watching for the euro bond tax idea to surface, which I see as the immediate possibility of systemic risk, but no real sign yet.

And not only no change in fiscal policy, but more of same. As the carpenter said about his piece of wood, ‘no matter how much I cut off it’s still too short.’

Fertile ground for the ‘bond tax’ (PSI) for the next round of austerity, to reduce the need to further cut public services and raise domestic taxes.

Karim writes:

This data should certainly push up the probability of an ECB policy rate cut in May or June.

Willing To Work, Not Looking

By Sean Higgens

(Investor’s Business Daily)

A Record 2.81 Million Including this group, jobless rate is 9.9% vs. the official 8.3% figure

The official unemployment rate has improved, but the number of jobless Americans at the fringe of the workforce has never been greater. The gap between headline and alternative joblessness is the highest on record, according to an IBD analysis of Labor Department data.

The jobless rate is 8.3%, still high but down from 9.1% last August and 9.9% in April 2010. But many don’t think that gives an accurate picture. The official number excludes a record 2.81 million discouraged or other “marginally attached” people out of work that aren’t currently looking but are willing and able.

Factoring these people in, unemployment is a much higher 9.9%, 1.6 percentage points above the official rate. That’s the widest gap on record going back to 1994. It never rose above 1.1 points during the Bush administration.

That means the official rate has been falling in part because an unprecedented number of people are taking a break from searching for work.

“The labor market has weakened so much you’ve just had more and more people falling into that group,” said Heidi Shierholz, labor market economist with the liberal Economic Policy Institute.

Some lawmakers say it is time that the government started paying more attention to them.

Rep. Duncan Hunter, R-Calif., plans to introduce a bill soon that would force the Labor Department to include the marginally attached in the official number.

“Guys like me want a way to know what the unemployment rate really is. It is that simple. The unemployment rate is not really the 8.3% figure,” Hunter, a member of the Education and Workforce Committee, told IBD.

Labor already tracks at least half a dozen variations in the jobless rate publicly released each month.

‘Marginal’ Workers Left Out

The official rate is called the “U-3” number. The one including the marginally attached is the “U-5.” That one also includes: “discouraged workers, plus all other persons marginally attached to the labor force.”

The “marginally attached” are defined as those that want to work and have sought employment within the prior year but are not currently looking.

Hunter’s bill would just make U-5 the official number. “I don’t think most people even know there is an alternate way of calculating unemployment,” he said.

Economists of all stripes agree that it is arbitrary for U-3 to be the official rate. A sound case could be made for any of the others, though most argued that no one figure should be spotlighted.

GOP lawmakers may have political motives to cast President Obama’s economic record in the worst possible light.

But Wayne Vroman, senior fellow at the Urban Institute, notes that the idea of changing the statistic to the U-5 number has a bipartisan pedigree.

“A lot of advocates from the left side of the political spectrum also would want to give (the higher statistic) more prominence because it shows distress among a group that doesn’t get as much attention,” Vroman said.

Surprisingly little is known about the marginally attached. With less than two decades of data, few economists can say much except that the group is very diverse, with many reasons as to why they drop out. Some may have other means or a working spouse, or are retiring early.

Many have quit looking after months or years out of work. Average duration of unemployment was 40.1 weeks in January, just below November’s record 40.9 weeks.

The labor force participation rate has fallen to multi-decade lows even as hiring has slowly improved in recent months.

That may reflect baby-boomer retirements in part, says James Sherk, a labor economist with the conservative Heritage Foundation. But even taking that into account, “the labor force participation rate has fallen even more than you would expect.”

As previously discussed, all policies seem to be ‘strong euro’ first.

And the ‘success’ of the euro continues to be gauged by its ‘strength’.

The haircuts on the Greek bonds are functionally a tax that removes that many net euro financial assets. Call it an ‘austerity’ measure extending forced austerity to investors.

Other member nations will likely hold off on turning towards that same tax until after Greece is a ‘done deal’ as early noises could work to undermine the Greek arrangements, and take the ‘investor tax’ off the table.

Like most other currencies, the euro has ‘built in’ demand leakages that fall under the general category of ‘savings desires’. These include the demand to hold actual cash, contributions to tax advantaged pension contributions, contributions to individual retirement accounts, insurance and other corporate ‘reserves’, foreign central bank accumulations euro denominated financial assets, along with all the unspent interest and earnings compounding.

Offsetting all of that unspent income is, historically, the expansion of debt, where agents spend more than their income. This includes borrowing for business and consumer purchases, which includes borrowing to buy cars and houses. In other words, net savings of financial assets are increased by the demand leakages and decreased by credit expansion. And, in general, most of the variation is due to changes in the credit expansion component.

Austerity in the euro zone consists of public spending cuts and tax hikes, which have both directly slowed the economies and increased net savings desires, as the austerity measures have also reduced private sector desires to borrow to spend. This combination results in a decline in sales, which translates into fewer jobs and reduced private sector income. Which further translates into reduced tax collections and increased public sector transfer payments, as the austerity measures designed to reduce public sector debt instead serve to increase it.

Now adding to that is this latest tax on investors in Greek debt, and if the propensity to spend any of the lost funds of those holders was greater than 0, aggregate demand will see an additional decline, with public sector debt climbing that much higher as well.

All of which serves to make the euro ‘harder to get’ and further support the value of the euro, which serves to keep a lid on the net export channel. The ‘answer’ to the export dilemma would be to have the ECB, for example, buy dollars as Germany used to do with the mark, and as China and Japan have done to support their exporters. But ideologically this is off the table in the euro zone, as they believe in a strong euro, and in any case they don’t want to build dollar reserves and give the appearance that the dollar is ‘backing’ the euro.

And all of which works to move all the euro member nation deficits higher as the ‘sustainability math’ of all deteriorate as well, increasing the odds of the ‘investor tax’ expanding to the other member nations that continues the negative feedback loop.

Given the demand leakages of the institutional structure, as a point of logic prosperity can only come from some combination of increased net exports, a private sector credit expansion, or a public sector credit expansion.

And right now it looks like they are still going backwards on all three.

Comes back to the idea that resolving solvency issues in the euro zone doesn’t fix the economy.

And with negative growth the solvency math doesn’t work for any of the euro members.

And what’s with the ECB threatening to back away on liquidity support for the banking system?

So looks to me like the Greek resolution is not the end of the solvency issues, but that the focus simply moves on to the next weaker sister.

And, as previously discussed, the risk remains elevated that if Greece gets to haircut its obligations and gets funding, others will ask for the same, triggering a general, global, catastrophic financial meltdown.

My first order proposal remains an ECB distribution on a per capita basis to the euro member nations of maybe 10% of euro zone GDP per year to put the solvency issue behind them. Along with relaxed budget rules, maybe allowing deficits up to 6% of GDP annually, further supported by the ECB funding a transition job at a non disruptive wage to facilitate the transition from unemployment to private sector employment. I might also recommend deficits be increased by suspending VAT as a way to increase aggregate demand and lower prices at the same time.

Alternatively, the ECB could simply guarantee all national govt debt and rely on the growth and stability pact for fiscal discipline, which would probably require enhanced authorities.

And rather than trying to bring Greece’s deficit down to current target levels, they could instead relax the growth and stability pact limits to something closer to full employment levels. And, again, I’d look into suspending VAT to both increase aggregate demand and lower prices.

Meanwhile, elsewhere in today’s world news:

The likes of Ford adding to pension funds makes the point of the increasing and ongoing demand leakages putting a damper on GDP.

And oil prices have now crept up enough to materially cut into aggregate demand as well.

Nor are banks adding to capital to meet expanding demand for credit, which remains anemic.

Headlines:

Data Suggests Euro Zone May Slide Back Into Recession
German Manufacturing Slows as New Export Orders Fall
China’s Factory Activity Shrinks for Fourth Month
ECB Preparing to Close Liquidity Floodgates
Ford Pours $3.8 Billion Into Pension Plan
Oil Could Turn to Headwind as Dow Flirts With 13,000
UBS to Issue More Loss-Absorbing Capital
Iran ‘Winning’ on Oil Sanctions: Top Trader
Greek Bailout Puts Focus Back on Credit Default Swaps
Iran Fuels Oil-Price Rally—And Prices Could Keep Rising

Good report!
Additional notations below:

Karim writes:
U.S. GDP growth in Q4 a bit weaker than expected at 2.8%

Perhaps the FOMC had word of this, explaining the unexpected dovishness?

1.9% of that growth accounted for by inventories. Other contributions: (consumer spending 2%, fixed investment 0.4%, government spending -0.9%, net exports -0.1%).

Rebuilding post earthquake supply lines probably now complete.
Govt spending continues weak, as revenues increase some and the federal deficit falls some.
Imports rise quickly with any increase in consumer spending.

In growth terms: (consumer spending 2%, fixed investment 3.3%, government spending -4.6%, exports 4.7% and imports 4.4%).

So stripping away inventories, growth was below trend. Plus savings rate fell back to 3.7% from 3.9%.

Domestic savings down with spending up indicates increasing consumer debt.
The question is whether this is ‘wanted’ as per increased desires to buy on credit,
or because the decline in govt deficit spending ‘forced’ more consumer debt for ‘essentials’

And, core PCE slowed from 2.1% to 1.1%.

Also explains FOMC dovishness as they see risk as asymmetrical, fearing deflation more than inflation.

In sum, will keep QE3 talk very much alive

And somewhat moot, even as Q1 GDP forecasts are being revised down some, as most don’t think QE matters much for the real economy.

What’s becoming understood is that while there is ‘more the Fed can do’
for all practical purposes there is nothing they can do to further support the real economy.

Euro money and lending data shockingly weak in December.

Might partially explain how some banks apparently got the balance sheet room to buy more national govt debt?

In particular, record single month decline in lending to the non-bank private sector (74bn). Of that, 37bn decline in lending to non-financial corporates and 8bn drop in lending to households.

This should be very supportive of additional ECB rate cuts over the next few months.

I may have mentioned that for the size govt we have we are grossly over taxed?
;)

Real GDP is growing, but weakly compared with the postwar average recovery.

The recovery from the 1980 recession was even weaker at this stage, but that reflected a double-dip recession in 1981.

The economy would have to grow at a 7.6 percent annualized rate in order to catch up with the average postwar recovery by the end of 2012.

The consensus forecast for 2012 growth as reported by Bloomberg is 2.1 percent, up just slightly from a forecast of 2.0 percent as of last October.



Soft home prices have been central to the weakness of the recovery.

The continued weakness of nominal home prices is a postwar anomaly.



In every previous postwar recovery, the stock of household debt has risen as the recovery has begun.

In the current recovery, the collapse in home prices has severely damaged household balance sheets. As a result, consumers have avoided taking on new debt.

The result is weak consumer demand and, hence, a slow recovery.



The slow recovery is obvious in the labor market, where job growth remains painfully sluggish compared to the average recovery.

The recent uptick at the end of the Current Recovery linev(red) is the result of encouraging payroll data announced on January 6th 2012.



Because of the depth of the recent recession, one might expect stronger-than-average improvement in industrial production.

Despite the predicted snapback, the increase in industrial production during this recovery is actually slightly slower than in the average postwar case.



Capacity in manufacturing, mining, and electric and gas utilities usually grows steadily from the start of a recovery.

However, during the current recovery, investment has been so low that capacity is actually declining. Plants and machinery are depreciating faster than they are being installed.



The growth in world trade exceeds even the best postwar experiences.

However, this reflects the depth of the fall during the recession.


The federal deficit since the start of the recovery has been much higher than in previous postwar cases.

Although the deficit has shrunk slightly, its level creates significant challenges for policymakers and the economy.



The traditional American enthusiasm for the road has been dulled by a combination of weak recovery and high fuel prices.

When compared to other postwar recessions, total vehicle miles traveled in this current recovery has not only lagged the average, but has registered no growth whatever.

Imagine being on the FOMC and in the mainstream paradigm

In 2008 you moved quickly to make sure the US would not become the next Japan

You cut rates to 0, even faster than Japan did.

You provided unlimited liquidity to the dollar money markets,
both home and abroad.

You did trillions of QE, sooner than Japan did.

You announced you expected rates to stay down for two years.

etc. etc. etc.

And what do you have to show for it, 3 years later?

GDP marginally positive, much like Japan
Inflation working its way lower to Japan-like levels, especially housing and wages.
Employment stagnant a la Japan.

And now, after 3 years of 0 rates, and trillions of QE, the dollar is going up, much like the yen did.
After the Fed has done all it could think of to reinflate, and then some.

And all just like MMT suspected.
And for what should be obvious reasons.

It was pretty lonely forecasting those kinds of GDP numbers several months ago!

While the 8% budget deficit keeps it all muddling through at modest levels of growth, it’s still a far cry from being ‘acceptable’ in my book, as it’s just barely enough to reduce the output gap.

And letting FICA go up at year end or somehow paying for continuing the current level could trim quite a bit of Q1 aggregate demand.

Karim writes:

Although still likely, FOMC may have a lively debate on extending ‘conditional commitment’ beyond mid-2013.

As previously discussed, GDP looks to be growing sequentially, and should do fine next year if fiscal policy doesn’t tighten.

But still not so good for people working for a living, pretty good for corporate earnings.

And risks remain- Europe, China, Super Committee, etc. etc.

And look for a relief rally if Europe all agrees the ECB writes the check,
followed by a sell off due to the austerity that accompanies it.

Karim writes:

This makes me sleep a lot better…

November 15, 2011

Dear Warren,

On Nov. 11-12, I spoke at the Caixin Summit 2011 in Beijing on the subject of who will solve the debt crisis. My comments pertained to the euro area and to the rest of the world, and I stated that, in Standard & Poor’s view:

• External imbalances are as much at the root of the current crisis as fiscal imbalances;
• Better coordination among international policymakers can help to attenuate these external imbalances;
• Prior domestic economic reforms will facilitate coordination;
• Generally, a high level of financial claims is more of a symptom of past failures to reform than the disease itself;
• If international cooperation and economic reform come up short (which is not our base case), global growth could sputter, public and private sector indebtedness could remain high, and some speculative-grade sovereigns could resolve their fiscal difficulties through default.

Standard & Poor’s believes that what is taking place in the euro area, in several respects, is a microcosm of what is happening globally.

To read my full comments, please click here to access the article.

Please contact me with any comments or questions.
Sincerely,

John Chambers
Chairman of the Sovereign Ratings Committee

May as well call it the Sarcophagus plan.

It’s all they know how to do.
And again, like the carpenter said of his piece of wood,
no matter how many times I cut it it’s still too short.

France Unveils New Budget Savings as Growth Slows

By Alexandria Sagr

November 7 (Reuters) — France will announce about 8 billion euros of budget cuts and tax hikes for 2012 on Monday, imposing more pain on voters to protect its credit rating and curb its deficit in a gamble for President Nicolas Sarkozy six months from an election.

Sarkozy’s center-right government says extra savings are urgently needed to keep France’s finances from going off the rails, since it cut its growth forecast for next year to 1 percent from 1.75 percent last week.

The announcements could be make-or-break for Sarkozy as he tries to reassure financial markets and ratings agencies without costing him his re-election chances with French voters.

The measures, to be unveiled by Prime Minister Francois Fillon, come on top of 12 billion euros in savings announced just three months ago.

Le Monde newspaper said he would flag cuts totaling up to 17 billion euros by 2016.

We’re all saved!!!

*DJ Italy Will Pledge To G-20 To Start Cutting Debt Ratio In 2012
*DJ Italy Will Pledge “Rapidly Declining” Debt/GDP Ratio To G-20

As discussed last week, the latest euro package just announced is unravelling quickly as markets again realize there is no actual substance, and no operational path with regards to carrying any of it out. So things will deteriorate as described until markets again force further ‘action.’

At the same time, the austerity continues to weaken the euro economies, with Q4 potentially going negative, driving deficits that much higher in the process.

The ‘answer’ remains the ECB writing the check, which they’ve sort of seemed to recognize, but they remain (errantly) concerned that reliance on the ECB is inherently inflationary, and thereby violates the ECB’s mandate for price stability. So it won’t happen until things again get bad enough to force it to happen.

The catastrophic risk remains a failure, when push comes to shove, to allow the ECB to write the check as they have been doing to allow it all to muddle through.

The range of outcomes couldn’t be wider. Write the check and not much happens, don’t write the check and there is unthinkable collapse.

Meanwhile, the 1% running the US looks to be trying to take the lead in the global austerity race to the bottom as the Democrats in the super committee on deficit reduction have led off by proposing a $4 trillion deficit reduction package.

Toss in West Texas crude prices heading to Brent levels of about $110/barrel as the strategic petroleum reserve release winds down over the next three weeks and the looks to me like the US consumer crawls back into his foxhole just in time for the holiday season.

Not to mention Japan now darning the torpedoes and buying dollars to take back a bit of the export market they lost by kowtowing to former tsy sec paulson’s demands to not be a ‘currency manipulator’ in the context of still weakening global demand in general.

The number one threat to world order remains a failure to sustain demand. The good news is sustaining aggregate demand is a simple matter once the monetary system is understood. The bad news is there seems to be no one of authority who doesn’t have it all backwards.

Well stated MMT based narrative.

The Problem With The Deficit? It’s Not Big Enough