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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Saudi oil output

Posted by WARREN MOSLER on August 5th, 2014

Still price setter after all these years.

Posted in Oil | No Comments »

wealth gap slowing the economy

Posted by WARREN MOSLER on August 5th, 2014

It’s always about unspent income.

S&P: Wealth gap is slowing US economic growth

Posted in Uncategorized | No Comments »

Recent charts

Posted by WARREN MOSLER on August 4th, 2014

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Notice that the govt deficit and savings rate more pretty much together?

Car sales off of last months pace, but forecasts for this year are for a slower rate of growth than last year:


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No sign of ‘consumer acceleration’ here?


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Manufacturing continues chugging along at it’s usual 4% rate of growth:

PMI Manufacturing Index:


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And Consumer Sentiment continues to bob around at levels that were the pretty much the lows of prior cycles:


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Slipping a bit after the year end surge to beat expiring tax credits?

Bank lending flattening some after growing to fund unsold Q2 inventories?

Q2 could be revised to anything over the next couple of months, seems, as was Q1.

But at least for now the chart is what it is:


Highlights
The second quarter rebounded more than expected from the adverse weather impacted first quarter. While there were a number of strong components, the rebound was led by inventory growth.

Posted in Credit, Employment, GDP, Housing | No Comments »

GDP

Posted by WARREN MOSLER on July 31st, 2014

A few charts/comments below. More after the first revision to Q2 come out. Looks to me like the macro constraint narrative is still intact.

Just a word here about state and local govt spending adding to GDP. Yes, there was an increase in spending. But tax receipts also went up, which subtracts from private spending. The thing to watch is net state and local spending, including borrowing to spend. I don’t have any charts, but anecdotally state and local budgets are said to be ‘improving’ which means less net spending.

GDP


Highlights
The second quarter rebounded more than expected from the adverse weather impacted first quarter. While there were a number of strong components, the rebound was led by inventory growth. The advance estimate for the second quarter posted at a healthy 4.0 percent annualized, following an upwardly revised decline of 2.1 percent in the first quarter (previously down 2.9 percent). The median forecast was for 3.1 percent. Today’s release includes annual revisions.

Final sales of domestic product rebounded 2.3 percent after dipping 1.0 percent in the first quarter. Final sales to domestic purchasers gained 2.8 percent in the second quarter, compared to 0.7 percent in the first quarter.

Turning to components, inventory investment jumped $93.4 billion after rising $35.2 billion in the first quarter. Importantly, personal spending posted a robust 6.2 percent gain, following a 1.0 percent rise in the prior quarter. Durables PCEs were particularly strong with nondurables healthy. Services posted on the soft side.

Residential investment rebounded notably in the second quarter and nonresidential investment was healthy. Government purchases were up but soft and net exports worsened notably.

On the price front, the chain-weighted price index firmed to a 2.0 percent increase, up from 1.3 percent in the first quarter. The core chain index increased 1.8 percent in the second quarter from 1.2 percent in the prior quarter.

Turning to annual revisions, 2013 on an annual average basis was revised up to 2.2 percent versus the prior estimate of 1.9 percent; 2012 revised down to 2.3 percent from 2.8 percent; and 2011 revised down to 1.6 percent from 1.8 percent.

Overall, the second quarter numbers point to a return to forward momentum after the deep freeze first quarter. While inventories led second quarter growth, this should not be disconcerting as the lack of production in the first quarter meant that significant inventory rebuilding was needed. Additionally, other GDP components (net exports being the key exception) were healthy.


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Average basic monthly wage posts 1st gain in June in over 2 years

July 31 (Kyodo) — The average basic monthly salary at companies with at least five employees rose 0.3 percent in June from a year earlier to 243,019 yen, marking the first rise in two years and three months, the labor ministry said Thursday. This year’s “shunto” spring labor offensive resulting in many unions winning a pay-scale increase pushed up the figure, according to the Health, Labor and Welfare Ministry. The total monthly average, including bonuses, increased 0.4 percent to 437,362 yen. Nonscheduled cash earnings, such as overtime compensation, grew 1.9 percent to 19,058 yen. Real wages, adjusted for inflation, decreased 3.8 percent, down over 3 percent for the third consecutive month following the consumption tax hike in April.

Posted in Deficit, GDP | No Comments »

Mtg purchase apps, Case Shiller

Posted by WARREN MOSLER on July 30th, 2014

Seems both apps and price growth both peaked around the same time?

MBA Purchase Applications

Highlights
The housing market is flat, evident in the purchase index which is little changed for a second week at plus 0.2 percent in the July 25 week. Year-on-year, the index is down 12.0 percent. Refinancing is also flat, down 4.0 percent in the week. Rates have been very steady, unchanged for the third straight week at 4.33 percent for 30-year conforming mortgages ($417,000 or less).


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S&P Case-Shiller HPI


Highlights
Home-price appreciation is slowing rapidly, actually going into reverse in May at a seasonally adjusted minus 0.3 percent for Case-Shiller’s 20-city index. This is the first negative reading since January 2012.

Year-on-year, both adjusted and unadjusted, home prices are at plus 9.3 percent, down substantially from 10.8 percent and 12.4 percent in the two prior months.

The weakness is very apparent in the 20-city breakdown with 14 cities in the negative column for the month. Atlanta shows the steepest monthly decline, at minus 0.9 percent, followed closely by Chicago and San Francisco.

Posted in Housing | No Comments »

Japan- currency depreciation policy ‘bad’ inflation for households, good for exporters

Posted by WARREN MOSLER on July 29th, 2014

Japan’s household spending falls 3.0% in June

July 29 (Kyodo) — Average Japanese monthly household spending fell a price-adjusted 3.0 percent in June from a year earlier to 272,791 yen. The average monthly income of salaried households came to 710,375 yen, down 6.6 percent in real terms. Household spending rose 1.5 percent in June from the previous month in seasonally adjusted terms, reversing the contractions seen in April and May. Retail sales fell 0.6 percent in June from a year ago, faster than a 0.4 percent decline in the year to May. The pace of decline was slower compared with 1997 when the sales tax was last raised, the trade ministry said.

Posted in Currencies, Japan | No Comments »

Pending home sales and why housing matters

Posted by WARREN MOSLER on July 28th, 2014

NAR: Pending Home Sales Index decreased 1.1% in June, down 7.3% year-over-year

By Bill McBride

From the NAR: Pending Home Sales Slip in June

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 1.1 percent to 102.7 in June from 103.8 in May, and is 7.3 percent below June 2013 (110.8). Despite June’s decrease, the index is above 100 – considered an average level of contract activity – for the second consecutive month after failing to reach the mark since November 2013 (100.7).

The PHSI in the Northeast fell 2.9 percent to 83.8 in June, and is 3.2 percent below a year ago. In the Midwest the index rose 1.1 percent to 106.6, but remains 5.5 percent below June 2013.

Pending home sales in the South dipped 2.4 percent to an index of 113.8 in June, and is 4.3 percent below a year ago. The index in the West inched 0.2 percent in June to 95.7, but remains 16.7 percent below June 2013.

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in July and August.

So manufacturing is chugging along at it’s usual 4% rate of growth, jobs are chugging along at a 1.9% rate of growth, and for the most part all the surveys are looking pretty good.

Yet GDP year over year looks to be trending down, with the consensus 2014 forecast now down less then 2%.


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So why does housing matter?
Can’t spending simply go elsewhere?

The problem is the oldest of all macro constraints-

If any agent spends less than his income, another must spend more than his income for all of the output to get sold.

It’s also been expressed as ‘the paradox of thrift’- decisions to not spend income and to instead ‘save’ cause sales and income to fall with no increase in net savings.

And it shows up in this discussion- ‘if the banks charge interest, where does the economy get the money to pay it?’ With the response ‘the banks spend the interest income’.

And if the banks don’t spend their income it’s the same unspent income problem as with any unspent income.

Unspent income is also known as a demand leakage.

And in the normal course of business, the US has all kinds of demand leakages going on, many due to tax advantages, including pension contributions (and pension fund earnings), additions to IRA’s, insurance reserves, bank reserves, foreign central bank dollar reserves,
etc. etc. etc.

This means that much output won’t get sold unless other agents spend more than their incomes. This includes the US govt spending more than its income (the dreaded deficit), as well as corporations spending more than their earnings, and consumers borrowing to spend more than their incomes.

Which is where housing comes in. Historically it’s been the engine of ‘borrowing to spend’ to offset the demand leakages, driving the economy even as the automatic fiscal stabilizers work to bring down the govt’s deficit spending. This includes the borrowing to spend that turned into the sub prime fiasco, the Clinton housing boom that combined with the .com and y2k borrowing to spend, and the $1 trillion+ S and L financing/fraud that drove the Reagan years back when that was a lot of money.

Yes, the business sector can materially borrow to spend to close the output gap. It falls under ‘investment’, including construction, and many would argue it’s the preferred way to go. And this would include new equity issues as well as borrowings ‘further up the credit stack’, as long as it’s ‘borrowing to spend’ on real goods and services- the output- GDP. So yes, there’s some of that going on, which is encouraging, but not nearly enough to overcome the demand leakages they way it did in the late 90′s.

So again, historically, it’s been new housing that has been the prime channel for private sector agents to spend more than their incomes.
Yes, they can spend on other things, but it’s highly problematic for that spending to result in anything near the mortgage debt of prior cycles.

That is, instead of a 200,000 mortgage on a house, the same family would have to borrow 200,000 to spend elsewhere to similarly support the economy/accommodate the savings desires of those wishing to spend less then their incomes. Buying a car does some of that, and maybe a few appliances, or a student loan.

But overall, seems to me that kind of thing can’t ever be enough to ‘close the output gap.’

And with the politicians measuring success by their deficit reduction efforts, the macro constraint of unspent income only gets worse.

So housing matters a lot as it looks to be the only available avenue for the economy to spend more than its income in sufficient quantities to overcome the demand leakages.

Posted in Credit, Government Spending, Housing | No Comments »

whatever…

Posted by WARREN MOSLER on July 27th, 2014

Posted in Uncategorized | No Comments »

Donation information and new home sales chart

Posted by WARREN MOSLER on July 24th, 2014

Also, I’ll be in NYC Friday and Saturday if anyone wants to get together for anything, or play some tennis. Trying to stay fit on the road.

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Starting to look like maybe the mortgage purchase applications is in line with home sales:

New Home Sales

Posted in Uncategorized | No Comments »

A few credit related charts

Posted by WARREN MOSLER on July 21st, 2014

Maybe just a bounce from a dip/shift from/to bank lending. We’ve been here before and turned down. And in the last cycle growth was much higher and lagged the end of the cycle:


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Year over year- a relatively small blip up at the end, but in general looks boring to me:


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Same here. The latest blip up looks like just a bit of vol.

And also note that it tends to go up before a recession?


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Not much happening here, either:

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Seems to be a macro constraint on income:

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Posted in Credit | No Comments »

Consumer sentiment, expectations, and current conditions

Posted by WARREN MOSLER on July 18th, 2014

This series continues to struggle to get to even the lows of prior cycles:

Expectations:


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Current conditions:


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Posted in Uncategorized | No Comments »

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

Posted by WARREN MOSLER on July 18th, 2014

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.

Posted in Currencies, EU, MMT, Proposal | No Comments »

Housing and Philly Fed

Posted by WARREN MOSLER on July 17th, 2014

Note the Nov/Dec mini spike to capture year end tax credits (my story) followed by familiar down for the winter, then up, then back down some pattern.

Yes, you can have a low output gap without housing, and yes, manufacturing is chugging along nicely. But overall the charts show declining monthly growth rates of retail sales, industrial production, and housing starts, as what’s looking more and more like the macro constraint of the relentless demand leakages continue to take their toll.

Housing Starts



Highlights
Fed Chair Janet Yellen was right to worry about the housing sector during Congressional testimony this week. Starts in June disappointed sharply, declining another monthly 9.3 percent after decreasing 7.3 percent in May. June starts came in at 0.893 million units annualized, up 7.5 percent on a year-ago basis. Expectations were for 1.026 million units.

The fall in the latest month was led by the multifamily component but closely followed by the single-family component. Multifamily family starts dropped 9.9 percent after falling 14.7 percent in May. The single-family component declined 9.0 percent in June, following a 2.6 percent dip the prior month.

Building permits also lost ground. Permits declined 4.2 percent after decreasing 5.1 percent in May. June’s 0.963 million units annualized was up 2.7 percent on a year-ago basis. Analysts forecast 1.038 million units for June.

The housing sector still needs propping up by the Fed. This sector is losing steam instead of improving. Recent NAHB HMI have pointed to start weakness with weak numbers on traffic.


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Posted in GDP, Housing | No Comments »

Microsoft to cut 18,000 jobs

Posted by WARREN MOSLER on July 17th, 2014

So do you think most of these people will find higher or lower paying jobs?…

Microsoft plans to slash up to 18,000 jobs

Posted in Employment | No Comments »

Industrial production, mtg purchase apps charts, homebuilder’s index

Posted by WARREN MOSLER on July 16th, 2014

Slowed in Q1, rebound in Q2, H1 about the same old 4% rate IP usually grows at as previously discussed:

Industrial Production



Highlights
As suggested by production worker hours, industrial production was soft in June. Industrial production slowed to a rise of 0.2 percent, following a jump of 0.5 percent in May. Expectations were for a 0.4 percent boost. The manufacturing component decelerated to a modest 0.1 percent gain after jumping 0.4 percent the prior month. The median market forecast was for 0.4 percent. Mining was healthy with a 0.8 percent increase, following a 1.1 percent surge in May. Utilities declined 0.3 percent, following a drop of 0.4 percent in May.

Manufacturing excluding motor vehicles increased 0.2 percent in June after a 0.3 percent rise in May.

Within manufacturing, the production of durable goods increased 0.4 percent in June and rose at an annual rate of 8.8 percent in the second quarter. In June, the gains were broad based among durable manufacturing industries, with increases of 1.0 percent or more in the indexes for nonmetallic mineral products, for primary metals, for fabricated metal products, for aerospace and miscellaneous transportation equipment, and for furniture and related products. The production of nondurable goods moved down 0.3 percent in June. In June, the output of petroleum and coal products fell 2.7 percent, in part because of a disruption at a major refinery; the production of apparel and leather declined 1.3 percent, and the index for food, beverage, and tobacco products moved down 0.6 percent.

The overall capacity utilization rate in June held steady at 79.1 percent. The latest number came in slightly lower than the consensus projection for 79.2 percent.

For the second quarter as a whole, manufacturing production rose at an annual rate of 6.7 percent after increasing 1.4 percent in the first quarter, suggesting that second quarter GDP will rebound nicely from the first quarter freeze shock.

We are seeing some volatility in manufacturing numbers recently. But on average, growth is healthy.

Mortgage purchase apps still way soft:

MBA Purchase Applications

Highlights
The purchase index fell 8.0 percent in the July 11 week, more than reversing a 4.0 percent gain in the prior week. The refinance index was little changed, down 0.1 percent in the week. Rates were little changed in the week with the average 30-year rate for conforming loans ($417,500 or less) up 1 tenth to 4.33 percent. Watch for the housing market index later this morning at 10:00 a.m. ET.

MBA purchase applications:


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National Association of Home Builders index up:


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Posted in GDP, Housing | No Comments »

Retail sales, credit expansion review, Empire manufacturing

Posted by WARREN MOSLER on July 15th, 2014

Still looking like a macro constraint/fading aggregate demand. Strong auto sales, for example, coincides with less of something else:

And this is the so called retail sales ‘control group’ that excludes food, gas, building materials and autos:

This market for loans overall remains subdued indicating banks getting a share of what was the ‘shadow bank’ business.

And the growth rates are generally well below prior cycles:

Meanwhile, manufacturing, a relatively small part of the economy, keeps chugging along, with overall output/industrial production most often growing at about 3-4% year over year:


Highlights
Manufacturing activity is accelerating sharply, at least in the New York region based on the Empire State index which is at a very strong 25.60 in the July reading. New orders are very strong at 18.77, up from an already strong 18.36 in June, as are shipments at 23.64. Employment is a special positive, at 17.05 vs 10.75 in June.

Other readings, however, are less favorable with unfilled orders in contraction at minus 6.82. Price readings show some pressure with input prices at plus 25.00 and finished prices up about 2.5 points to 6.82. Optimism is also down as the 6-month general conditions index fell more than 10 points to 28.47.

Posted in Credit, Economic Releases | No Comments »

Consumer debt ratios

Posted by WARREN MOSLER on July 14th, 2014

Circled are the credit expansion from the ‘regrettable’ S and L expansion (over $1 trillion back when that was a lot of money), the ‘regrettable’ .com/Y2K credit expansion (private sector debt expanding at 7% of GDP funding ‘impossible’ business plans), and most recently the ‘regrettable’ credit expansion phase of the sub prime fiasco.

All were credit expansions that helped GDP etc. but on a look back would not likely have been allowed to happen knowing the outcomes.

So the question is whether we can get a similar credit expansion this time around to keep things going/offset the compounding demand leakages that constrain spending/income/growth.

Japan, for example, has been very careful not to allow a ‘regrettable’ private sector credit expansion since the last one came apart in 1991…

So yes, debt ratios look low, but without some kind of ‘regrettable’/fraudulent/etc. impetus this is about all we can expect given the demand leakages, etc?

And not to forget this an average of higher and lower income earners, with income being skewed upwards to those with lower propensities to spend. I had suspected the consumer would make a move, somewhat as in past cycles, but then FICA and sequesters took away a large chunk of the income/ammo needed to support it, while the demand leakages continued.


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Posted in Credit, Deficit | No Comments »

Federal government tax receipts

Posted by WARREN MOSLER on July 14th, 2014

Federal government current tax receipts: Personal current taxes


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Federal government current receipts: Contributions for government social insurance


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The automatic fiscal stabilizers got some help from the FICA hike to cut net govt spending and throw a wet blanket over growth and maybe take a year or two off the duration of this cycle.

Lots of indicators looking very late cycle to me now.

This year’s deficit is now running less than 3% of GDP- about the same as the EU.
:(

Posted in Deficit, Government Spending | No Comments »

Consumer credit, cpi adjusted

Posted by WARREN MOSLER on July 10th, 2014

Posted in Credit | No Comments »

IMF’s Lagarde hints at world growth forecast cut – Reuters

Posted by WARREN MOSLER on July 7th, 2014

And remains ‘part of the problem’ vs ‘part of the solution’

Reuters noted comments from IMF chief Christine Lagarde, who said that global economic activity should strengthen in the second half of the year and accelerate through 2015, although momentum could be weaker than expected.

She said that central banks’ accommodative policies may only have limited impact on demand and that countries should boost growth by investing in infrastructure, education and health, provided their debt is sustainable.

She highlighted that the IMF’s update of its global economic outlook, expected later this month, will be “very slightly different” from the forecasts published in April. In addition, she noted that the US economy was rebounding after a disappointing first quarter, while it did not anticipate a brutal slowdown in China but rather a slight slowdown in output.

Posted in Deficit, Government Spending | No Comments »