Category Archives: Italy

Macro update

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First this, supporting what I’ve been writing about all along:

Here’s Proof That Congress Has Been Dragging Down The Economy For Years

By Shane Ferro

Oct 8 (Business Insider) — In honor of the new fiscal year, the Brookings Institution released the Fiscal Impact Measure, an interactive chart by senior fellow Louise Sheiner that shows how the balance of government spending and tax revenues have affected US GDP growth.

The takeaway? Fiscal policies have been a drag on economic growth since 2011.


Full size image

And earlier today it was announced that August wholesale sales were down .7%, while inventories were up .7%. This means they produced the same but sold less and the unsold inventory is still there. Not good!

Unfortunately the Fed has the interest rate thing backwards, as in fact rate cuts slow the economy and depress inflation. So with the Fed thinking the economy is too weak to hike rates, they leave rates at 0 which ironically keeps the economy where it is. Not that I would raise rates to help the economy. Instead I’ve proposed fiscal measures, as previously discussed.

Fed Minutes Show Concern About Weak Overseas Growth, Strong Dollar (WSJ) “Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector,” according to the minutes. “Several participants added that slower economic growth in China or Japan or unanticipated events in the Middle East or Ukraine might pose a similar risk.” “Several participants thought that the current forward guidance regarding the federal funds rate suggested a longer period before liftoff, and perhaps also a more gradual increase in the federal funds rate thereafter, than they believed was likely to be appropriate given economic and financial conditions,” the minutes said.

The case for patience strengthens yet further by a consideration of the risks around the outlook. Across GS economics and markets research, we have recently cut our 2015 growth forecasts for China, Germany, and Italy, noted the continued weakness in Japan, and made a further upgrade to our already-bullish dollar views. So far, our analysis suggests that the spillovers from foreign demand weakness and currency appreciation only pose modest risks to US growth and inflation. But at the margin they amplify the asymmetric risks facing monetary policy at the zero bound emphasized by Chicago Fed President Charles Evans. If the FOMC raises the funds rate too late and inflation moves modestly above the 2% target, little is lost. But if the committee hikes too early and has to reverse course, the consequences are potentially more serious given the limited tools available at the zero bound for short-term rates.

Germany not looking good:

German exports plunge by largest amount in five-and-a-half years (Reuters) German exports slumped by 5.8 percent in August, their biggest fall since the height of the global financial crisis in January 2009. The Federal Statistics Office said late-falling summer vacations in some German states had contributed to the fall in both exports and imports. Seasonally adjusted imports falling 1.3 percent on the month, after rising 4.8 percent in July. The trade surplus stood at 17.5 billion euros, down from 22.2 billion euros in July and less than a forecast 18.5 billion euros. Later on Thursday a group of leading economic institutes is poised to sharply cut its forecasts for German growth. The top economic priority of Merkel’s government is to deliver on its promise of a federal budget that is in the black in 2015.

UK peaking?

London house prices fall in Sept. for first time since 2011: RICS (Reuters) The Royal Institution of Chartered Surveyors said prices in London fell for the first time since January 2011. The RICS national balance slid to +30 for September from a downwardly revised +39 in August. The RICS data is based on its members’ views on whether house prices in particular regions have risen or fallen in the past three months. British house prices are around 10 percent higher than a year ago, and house prices in London have risen by more than twice that. Over the next 12 months, they predict prices will rise 1 percent in London and 2 percent in Britain as a whole. Over the next five years, it expects average annual price growth of just under 5 percent.

British Chambers of Commerce warns of ‘alarm bell’ for UK recovery (Reuters) “The strong upsurge in manufacturing at the start of the year appears to have run its course. We may be hearing the first alarm bell for the UK,” said British Chambers of Commerce director-general John Longworth. The BCC said growth in goods exports as well as export orders for goods and services was its lowest since the fourth quarter of 2012. Services exports grew at the slowest rate since the third quarter of 2012. Manufacturers’ growth in domestic sales and orders slowed sharply from a record high in the second quarter to its lowest since the second quarter of 2013. However, sales remained strong in the services sector and confidence stayed high across the board.

Not to forget the stock market is a pretty fair leading indicator.

Some even say it causes what comes next:

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today’s observations

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Not much sign of any move towards higher deficits today. Just talk of more bank liquidity, which doesn’t matter, and more to weaken the euro, which doesn’t work either.

Hard to say why the euro has been going down, but it’s not ECB policy per se which, while meant to weaken the euro, instead continues to be ‘strong euro’ biased. So must be portfolios selling euro, maybe in response to Russia’s actions.

“French Prime Minister Manuel Valls called for more action from the ECB to lower the value of the euro.Mr Valls said: “the monetary policy has started to change”. While he called the ECB’s package of measures taken in June a “strong signal,” he also said that “one will have to go even further.”

German Finance Minister Mr Schaeuble said deficit-fueled growth leads to economic decline, signalling discord with Italy and France as euro-area policy makers seek ways to avoid deflation and spur growth. Euro-area countries that pursued austerity policies in return for sovereign bailouts are “doing much better than all the others in Europe,” Schaeuble.

ECB’s Coeure says ready to adjust monetary policy if needed: In an article published in Greek daily Ta Nea, ECB’s Coeure said that ECB’s measures so far, have contributed to stability in the euro zone while its recent decisions have ensured a particularly accommodative direction in monetary policy in the single-currency bloc. “The ECB will provide additional liquidity to banks on the condition that they increase credit directed to the real economy, and it is ready to further adjust the direction of its monetary policy, if needed,” Coeure said (Ta Nea, Reuters) ”

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Time to say goodbye? Schauble Calls on Italy to Pursue Structural Reform

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Schäuble Calls on Italy to Pursue Structural Reform

By Andrea Thomas

July 16 (WSJ) — German Finance Minister Wolfgang Schäuble called on Italy to pursue its ambitious structural reform efforts if it wants to boost its economic-growth prospects. “Especially since growth forecasts for Italy have been reduced recently, it’s important to reform and cut the debt level convincingly,” he said. Italian Prime Minister Matteo Renzi has presented ambitious and broad-based reforms, he added. “The Stability and Growth Pact is the foundation for politico-economic cohesion in Europe,” said Mr. Schäuble. “The Stability and Growth Pact provides sufficient flexibility. It’s doesn’t stand in the way of structural reforms; quite the opposite, it promotes them.”

This is a direct response to Prime Minister Renzi who asked for what can be described as a minuscule amount flexibility with the deficit rules. (Note that Schauble didn’t even say said reforms would boost growth, only ‘growth prospects’, whatever that means.)

The problem is that for any given level of govt spending (a political decision) tax liabilities are too high to allow ‘savings desires’ to be accommodated. And ‘the debt level’ is best thought of as the ‘money supply’ (deposits at the CB) that’s the euro ‘savings’/net financial assets of the non govt sectors.

Said another way, the currency itself is the EU’s public monopoly, and the mass unemployment is necessarily the evidence that the monopolist is restricting the ‘supply’ of net financial assets demanded by the economy.

Said another way, for all practical purposes said reforms don’t increase aggregate demand. At best they address what I call distributional issues.

My proposal is for Italy to deliver an ultimatum to the EU giving them 30 days to relax the 3% deficit limit and eliminate the 60% debt/GDP limit.

If the EU refuses, Italy has two choices:

1. Do nothing as the destruction of their civilization continues,

2. Begin taxing and spending in ‘new lira’ with fiscal policy that promotes output and employment.

And note that if they do go to ‘new lira’ and retain their now constitutionally mandated balanced budget requirement, it will all get even worse.

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QE is a Tax

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QE is a Tax

By Chris Mayer

May 2 — QE is a tax.

That’s an odd thing to say about the Fed’s bond-buying stimulus program, known as quantitative easing, or QE. But the reality of QE is different than what most people think…

To talk about this, I sought out Warren Mosler, a former hedge fund manager and now trailblazing economist. (I first introduced Mosler to you in your February letter, No. 120. See “How Fiat Money Works.”) So on one Sunday afternoon, with Mosler in Italy and me in Gaithersburg, Md., we chatted on Skype about the Fed and its doings.

Mosler was also a successful banker, and he talks about this stuff with the ease that comes from deep familiarity with the plumbing of the system. The U.S. system, importantly, is one of floating exchange rates and a nonconvertible currency. Meaning the government does not fix the price of the dollar against anything (contra what is done in Hong Kong, where they peg their currency to the dollar). And it is not convertible into anything except itself. (You can’t present your dollars to the Fed and demand gold, for instance.)

With those parameters, we started with a simple question: What would the natural rate of interest be if the government didn’t try to interfere in the interest rate market? (“Natural rate” in this context means the risk-free, nominal rate of interest.)

“In some sense, QE is undoing what the Treasury has done.”

Well, before we can answer that, think about the ways the government interferes in the interest rate market. There are two ways, Mosler points out. The first is that the government pays interest on bank reserves, which are essentially checking accounts held at the Fed. Currently, that rate is 25 basis points, or 0.25%.

The second is to offer “alternative accounts at the Fed called Treasury securities.” These are essentially savings accounts and pay higher interest than the checking accounts (or reserve accounts).

“If we eliminated these things, there would no interest paid on reserves, and there would be no securities,” Mosler says. “So the natural rate of interest would be zero.” Like in Japan for 20 years.

Note this doesn’t mean there would be no interest rates. It means absent these interventions, the market would determine interest rates based on credit risk, etc. But there would be no floor — no risk-free rate, no natural rate — put in place by the government.

“Not that you should do it that way,” Mosler says, “but that’s the way to look at it. The base case is zero. Then the Treasury comes in and offers $17 trillion in securities. And that’s a distortion, to some degree. If the Fed did QE and bought them all back, it would put you back to where you started. In some sense, QE is undoing what the Treasury has done.” When the Fed buys securities, it is as if the Treasury never issued them in the first place.

Or as Mosler puts it in a tidy, eight-page paper (more on that in a bit):

It can be argued that asset pricing under a zero interest rate policy is the “base case” and that any move away from a zero interest rate policy constitutes a (politically implemented) shift from this “base case.”

In other words, the government doesn’t have to pay 3% on a 10-year note, as it does today. It doesn’t have to issue bonds at all. It creates dollar deposits (money) in member bank reserve accounts when it spends. By issuing securities/offering alternative interest-bearing accounts, the government pays a lot of interest to the economy.

“So in that sense,” Mosler says, “issuing securities means paying higher rates than the overnight rate. It is a spending increase and has an inflationary bias by adding net financial assets to the system.”

The mainstream view says that when the government sells Treasury securities, it is taking money out of the system, that it’s a deflationary thing to do and it offsets the inflationary effect of deficit spending. “Not true at all,” Mosler says. “Selling Treasuries does not take money out.” What’s happening is akin to a shuffle between checking accounts and savings accounts.

Let’s turn back to the case of QE, where the Fed buys securities. In this case, the economy loses the interest income from those securities.

“QE takes money out of the economy,” Mosler says, “which is what a tax does.” Hence, as noted above, QE is a tax.

“The whole point of QE is to bring rates down,” Mosler says. “If it does bring rates down, that means the rest of the securities the Treasury sells pay less interest too. So it lowers government interest expense even more. Because the government is a net payer of interest, lower rates mean it pays less interest.”

But does it help the economy? Hard to see how it does. Mosler has an interesting take here. I’ll paraphrase as best I can.

Let’s say people ask why the Fed is buying securities. Well, to help the economy. So now people have to think about whether that policy will work or not. If it’s going to work, that means the Fed’s going to be raising rates, because the economy will be getting stronger. The only time QE will bring rates down is if investors think the policy won’t work. It’s a policy that works through expectations, and it works only if investors think it won’t work.

“It’s a disgrace,” he says.

“On top of that, most investors don’t understand it,” Mosler says. “You’ve got the Chinese reading about how the Fed is printing money. And they go and buy gold. There are knock-on effects all over the world, and portfolios are shifting based on perceptions.”

QE, then, because it costs the private sector interest income and doesn’t add money to the economy, is not inflationary. “The evidence is that it is not inflationary,” Mosler says.

Let’s look at it another way. The bank of Japan has been trying to create inflation for 20 years. The Fed’s been trying to create inflation as hard as it can. The European Central Bank too. “It is not so easy for a central bank to create inflation,” he says, “or you’d think one of these guys would’ve succeeded.

“People act like you have to be careful because one false move on inflation expectations and, bang, you have hyperinflation,” Mosler chuckles. “If you know what that false move is, tell Janet Yellen [the current Fed chief], because she’s trying to find it.”

Though he no longer runs a hedge fund, Mosler is still involved in financial markets. He has a portfolio he runs for himself and for other people. I asked him if he fears interest rates going up.

“It could happen,” he says. “It’s a political decision where rates go.”

And that’s a good place to leave it. Because it brings us back to the beginning. Without the government wading into the interest rate market, the base rate would be zero. And everybody would be working off that. But instead, we have the Fed trying to find monetary nirvana.

As Mosler says, it’s a disgrace.

These are challenging ideas, I know. If you want to read more, look up “The Natural Rate of Interest is Zero,” a tightly reasoned, accessible eight-page paper by Mathew Forstater and Warren Mosler. You can find it free online.

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factory orders and Italy

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U.S. factories flex muscle after severe winter chill

March 17 (Reuters) — U.S. manufacturing output recorded its largest increase in six months in February. Factory production increased 0.8 percent in February after a 0.9 percent January drop.

Quite the bounce- not even back to where it was.

Motor vehicle output rebounded 4.8 percent last month after tumbling 5.2 percent in January, the Fed said in its report.

Same.

There were also notable gains in the production of machinery and fabricated metal products. Mining output rose 0.3 percent last month, but utilities production fell 0.2 percent. The rise in manufacturing and mining output helped to lift overall industrial production 0.6 percent in February. It had slumped 0.2 percent in January. The amount of industrial capacity in use increased to 78.8 percent in February from 78.5 percent. Still, it remained 1.3 percentage points below its long-run average.

Renzi tells Merkel Italy will respect EU budget rules

March 17 (Reuters) — Italian Prime Minister Matteo Renzi on Monday assured German Chancellor Angela Merkel that he aimed to accelerate growth while respecting deficit spending limits.

:(

Renzi last week announced a sweeping package of tax cuts, including 10 billion euros ($13.9 billion) in income-tax reductions, to help spur consumer demand, saying spending cuts and extra borrowing would fund the measures.

Since spending cuts tend to be higher multiple than tax cuts, doesn’t seem all this is likely to help, and might hurt.

“Italy is not asking to exceed treaty limits,” Renzi told reporters after his a meeting with Merkel in Berlin.

They are still a bit above the 60% debt/gdp limit…

On top of the income-tax cuts, Renzi said he would reduce a regional business tax and increase hiring flexibility for companies. Renzi said Italian debt has risen as a percentage of output in recent years even though spending has been kept in check because growth has been stagnant. Domestic demand has “collapsed,” he said.

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A few comments on overnight news

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The threshold may be high but there is one somewhere up there:

Fed should be ‘very patient’ in cutting stimulus: Rosengren (Reuters) The high number of part-time workers who would rather work full-time, the still-high unemployment rate, and very low inflation suggest significant “slack” in labor markets and “call for a very patient approach to removing monetary policy accommodation, particularly given the softness in recent economic data,” Boston Federal Reserve Bank President Eric Rosengren said. Rosengren said that it has been difficult for economists to determine whether weak employment reports for the past two months have been influenced bad weather or if they reflect an economic slowdown, and predicted that harsh winter weather will make the February jobs report similarly difficult to interpret. “In my view, this uncertainty provides an additional strong rationale for taking a patient approach to removing the monetary policy accommodation that the Federal Reserve has been deploying.”

These are closings from contracts signed months earlier:

New home sales hit five-and-a-half year high in January (Reuters) Sales of new U.S. single-family homes jumped 9.6 percent to a seasonally adjusted annual rate of 468,000 units. December’s sales were revised up to a 427,000-unit pace from the previously reported 414,000-unit rate. Sales in the Northeast soared 73.7 percent to a seven-month high, while the South recorded a 10.4 percent rise in transactions to a more than five-year high. Sales tumbled 17.2 percent in the Midwest last month, while rising 11 percent in the West. New home sales rose 2.2 percent compared with January 2013. For all of 2013. Last month, the supply of new houses on the market was unchanged at 184,000 units. The median price of a new home last month rose 3.4 percent to $260,100 from January 2013. At January’s sales pace it would take 4.7 months to clear the supply of houses on the market.

I still suspect some of the q4 activity was ahead of expiring tax credits:

Hope on Horizon for Home-Supply Crunch: Builder Borrowing Picks Up (WSJ) Data released Wednesday by the Federal Deposit Insurance Corp. show that the outstanding balance on loans for land acquisition, development and construction rose in the fourth quarter to $209.9 billion, compared with $206 billion in the third quarter. Last year, the average price of a new U.S. home was $322,100, up 10.2% from 2012. The latest increase in construction lending “is an encouraging signal,” said David Crowe, chief economist for the National Association of Home Builders. But lending remains far from peak, as outstanding land and construction loans topped out at $631.8 billion in the first quarter of 2008. According to the FDIC, outstanding loans solely for construction of homesexcluding development, land acquisition and commercial projectsincreased to $43.7 billion in the fourth quarter, up from a recent low of $40.7 billion in last year’s first quarter.

This helps support prices but doesn’t directly add much to GDP apart from commissions etc. unless it’s new construction:

Foreign appetite for US properties remains strong (FT) Last year the US maintained its position as the top destination for direct commercial property investment by foreigners with $38.7bn pouring into the country, according to a report from brokerage Jones Lang LaSalle. The total was up 44 per cent on 2012. Canadian, Chinese and Australian investors led the charge, with investors targeting top-tier areas such as Manhattan, Los Angeles and Chicago as well as secondary markets including Houston, Dallas and Seattle. Almost half all investments were in office buildings, 16 per cent in apartment blocks, 15 per cent in retail, while hotels, industrial properties and land development made up the rest. Foreign money comprises about 10 per cent of all capital for commercial property investment in the US, which JLL has said could accelerate if international investors expand beyond core assets to riskier deals that deliver higher returns.

The lack of domestic credit expansion and only very modest export growth leaves only govt. to spend more than its income and they keep pressing the wrong way on that as well:

Euro zone lending contraction compounds ECB headache (Reuters) Loans to the private sector fell by 2.2 percent in January from the same month a year earlier, ECB data released on Thursday showed. That compared to a contraction of 2.3 percent in December. Euro zone M3 money supply grew at an annual pace of 1.2 percent, picking up slightly from 1.0 percent in December. The ECB has set out two scenarios that could trigger fresh policy action: a deterioration in the medium-term inflation outlook and an “unwarranted” tightening of short-term money markets. Before the ECB gets to quantitative easing a cut in interest rates is one option for dealing with low euro zone inflation, or tight money markets. Another option the ECB has discussed is to suspend operations to soak up the money it spent buying sovereign bonds under its now-terminated Securities Markets Programme (SMP) during the euro zone’s debt crisis.

6.8% unemployment considered a successful economy?
whatever…

Lowest number of Germans out of work in Feb since Sept 2012 (Reuters) The number of people out of work in Europe’s largest economy decreased by 14,000 to 2.914 million, data from the Labour Office showed. That meant there were fewer unemployed people in Germany than at any time since September 2012. It was the third consecutive monthly drop in joblessness. Separate data from the Federal Statistics Office on Thursday showed employment climbing to a record high of almost 42 million. Berlin expects private consumption, which boosted growth in 2013, to increase by 1.4 percent as workers benefit from an increase in employment to an expected record of 42.1 million this year and a nominal 2.7 percent jump in earnings. The jobless rate held steady at 6.8 percent, its lowest level since German reunification more than two decades ago.

Germany’s wealth distribution most unequal in euro zone (Reuters) Private wealth is more unevenly distributed in Germany than in any other euro zone state. While the richest one percent of people in Germany have personal wealth of at least 800,000 euros ($1.09 million), over a quarter of adults have either no wealth or negative wealth because of debt, the study by Germany’s DIW think tank showed. According to the study, Germany’s Gini coefficient, a measure of income inequality, was 0.78 in 2012. That compared with 0.68 in France, 0.61 in Italy and 0.45 in Slovakia. A score of 0 indicates minimal inequality and 1.0 maximal inequality. Germans have total net assets worth 6.3 trillion euros, with land and real estate accounting for 5.1 trillion euros, and the average German adult has net assets worth around 83,000 euros, according to DIW. In the study, private wealth includes owned real estate, financial assets, valuables and debt.

French jobless total rises to record in January (Reuters) The number of people out of work in France rose by 8,900 in January to reach a record, as President Francois Hollande’s goal of taming unemployment eluded him yet again. Labour Ministry data showed on Wednesday that the number of people registered as out of work reached 3,316,200 in mainland France, up 0.3 percent over a month and 4.4 percent over a year. Hollande’s popularity has plummeted to record lows. He struggled and ultimately failed to live up to a pledge to get unemployment falling by the end of last year. With that promise in tatters despite at least 2 billion euros ($2.73 billion) spent on subsidized jobs, Labour Minister Michel Sapin said earlier on Wednesday that the jobless total should fall this year. Hollande offered last month to phase out 30 billion euros in payroll charges that companies have to pay, in exchange for committing to targets to create jobs.

Spanish Economic Growth Slower Than Expected (WSJ) Gross domestic product grew by 0.2% in the fourth quarter compared with the third, the country’s national statistics institute INE said Thursday. The figure was lower than the INE’s and the government’s preliminary reading, which had pegged quarterly growth at 0.3%. Public spending fell 3.9% compared with the third quarter. Household consumption was up 0.5% in the same period. Strong export growth helped Spain’s economy emerge from a nine-quarter recession in the second half of 2013, but the recovery has so far been anemic, because households remain highly indebted, unemployment still stands around 26% and the government can’t raise public spending because it is struggling to lower its budget deficit. According to the INE, economic output shrunk by 0.2% in the fourth quarter of 2013 compared with the fourth quarter of a year earlier.

Private rental surge hits benefits bill (FT) Englands housing market is seeing a seismic shift towards private rented property and away from home ownership. Figures from the official English housing survey published on Wednesday show the number of households living in the private rented sector overtook those in social housing for the first time last year. Almost 4m households now live in privately rented homes, and a quarter of the tenants are now subsidised by housing benefit, according to the annual survey. Private renting is now the second-largest tenure in England, behind home ownership. Under two-thirds of households now own their own home down from 71 per cent a decade ago. The number of households in the private rented sector receiving the benefit has risen by two-thirds in the past five years, with 390,000 more households in this category beginning to claim, the English housing survey found.

Does China want their currency to adjust to the yen the way other EM currencies have done?

China dismisses concern over sudden renminbi fall (FT) The recent movement of the renminbi exchange rate is the result of market players adjusting their near-term renminbi trading strategies, the State Administration of Foreign Exchange, an agency under the central bank, said. It added that the currencys movement was nothing unusual: The degree of exchange rate volatility is normal by the standards of developed and emerging markets. There is no need to over-interpret it. China faced immense capital inflows at the start of this year, according to data published on Tuesday by the central bank. Banks bought a net $73bn of foreign currency in the onshore market from their clients who wanted renminbi in January, the biggest monthly amount on record. Inflows have been accelerating since the middle of last year when Chinas mountain of foreign exchange reserves grew $500bn to $3.8tn.

China’s Central Bank Engineered Yuan’s Decline (WSJ) China’s central bank engineered the recent decline in the country’s currency to shake out speculators as it prepares to allow a wider trading range for the tightly tethered yuan, according to people familiar with the central bank’s thinking. In the past week, the People’s Bank of China has been guiding the yuan lower against the dollar. It has done so by setting a weaker benchmark against which the yuan can trade. It has also intervened in the currency market by directing state-owned Chinese banks to buy dollars, according to traders. China’s central bank and commercial banks purchased nearly $45 billion worth of foreign exchange in December, the fifth consecutive month of net purchases. The PBOC decided to tamp down expectations for one-way appreciation in the yuan and curb speculative trading during two-day currency-policy meeting that ended on Feb. 18, the people said.

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What a good economy should look like

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What a good economy should look like

Warren Mosler, from a talk in Chianciano, Italy, on January 11, 2014 entitled Oltre L’Euro: La Sinistra. La Crisi. L’Alternativa.

What a good economy should look like

I just want to say a quick word about what a good economy is because it’s been so long since we’ve had a good economy. You’ve got to be at least as old as I am to remember it. In a good economy business competes for people. There is a shortage of people to work for business. Everybody wants to hire you. They’ll train you, whatever it takes. They hire students before they get out of school. You can change jobs if you want to because other companies are always trying to hire you. That’s the way the economy is supposed to be but that’s all turned around. For one reason, which I’ll keep coming back to, the budget deficit is too small. As soon as they started tightening up on budget deficits many years ago, we transformed from a good economy where the people were the most important thing to what I call this ‘crime against humanity’ that we have today……

So what you do is you target full employment, because that’s the kind of economy everybody wants to live in. And the right size deficit is whatever deficit corresponds to full employment…

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Morgan Stanley on eu

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German IFO, GDP & Eurogroup: After last month’s drop to 107.4, MS Research expects the IFO business climate to decline by further 0.4 points to a reading of 107.0 in November. They would expect both business expectations for the next 6 months and current business conditions to have corrected, with the expectations component losing more. The drop in sentiment underscores the fragile nature of the economic recovery and the rising concerns of business leaders about the economic policies likely to be pursued by the Grand Coalition. The PMIs yesterday confirmed that growth in the euro area has stalled in 2H. That said, a surprise shock to the downside will further strengthen case for further ECB measures. We also have the release of Q3 GDP where MS research expects growth to have decelerated materially, with headline growth declining from 0.7%Q to just 0.3%Q. On the policy front, Eurogroup finance ministers will discuss the European Commissions recommendations on the 2014 draft budgets. Market participants are likely to pay close attention to France, Italy and Spain.

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Housing Market index down a bit

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I imagine the Fed is concerned about mortgage rates that have come down some but remain elevated from earlier in the year. About all that’s left is ‘unconditional forward guidance’ which has yet to be considered, at least not in public.

Also, while I was away impersonating an economics professor in Italy ;), where I stated that all the regulations sprouted from Brussels :( and reminding Cliff about the merits of lateral motion (congrats again to Cliff!), and getting past a pink grip on a tennis racket Francis loaned me, several posts were not emailed but can be viewed at www.moslereconomics.com

NAHB Housing Market Index

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