The 10th Plague

Several years ago I began using the analogy of the 10th plague of the Old Testament, the idea being that the EU wouldn’t move away from austerity until it brought down Germany itself. It’s looking like that day is getting a whole lot closer, as austerity has not only damaged Germany’s export markets in the rest of the EU, but has also caused the rest of the EU to become more competitive vs Germany in the external markets, which have themselves been weakened by their own austerity policies.

German industry output plunges most in over 5 years

Oct 7 (Reuters) — German industrial output fell far more than expected in August and posted its biggest drop since the financial crisis in early 2009, Economy Ministry data showed on Tuesday, the latest figures to raise question marks about Europe’s largest economy.

The 4.0 percent month-on-month drop missed the consensus forecast in a Reuters poll for a 1.5 percent decrease and came short even of the lowest forecast for a 3.0 percent fall. It was the biggest drop since a 6.9 percent fall in January 2009.

Posted in Germany, Government Spending |

WRKO interview

Warren Mosler on the Economy

Posted in Uncategorized |

EU Commission- more of same


Latvia’s Dombrovskis Brings Fiscal Hawk Record to EU Commission

By Mathew Dalton

Oct 5 (WSJ) — The budget hawk who steered Latvia out of economic collapse with a bruising austerity program is poised to get one of the EU’s top economic-policy jobs as Europe is heading toward a clash over austerity.

Former Prime Minister Valdis Dombrovskis is nominated to join the European Commission, the European Union’s executive arm, as one of its top economic policy makers. When he appears before the European Parliament for his confirmation hearing on Monday, one of the main questions will likely be whether he plans to bring the tough policies he used in Latvia to a much bigger stage.

A host of Europe’s deep-seated economic problems await him. They include anemic growth, high unemployment and the threat of deflation, all of which may haunt the region for years to come.

The 43-year-old Mr. Dombrovskis, whose portfolio will include oversight of national budgets, will be at the center of the debate now raging in Europe about whether tight budgets will exacerbate those problems and fuel the rise of extremist, anti-EU political parties.

His most immediate problem will be how to bring the finances of the French and Italian governments back in line with the EU’s budget rules. Paris and Rome argue the dismal shape of their economies means they should be granted more time to hit EU budget targets.

Wielding degrees in economics and physics, Mr. Dombrovskis brings formidable technical skills to the debates that lie ahead, say people who have worked with him, along with a free-market—some would say right-wing—economic philosophy and a direct personal style. “He’s very focused on fiscal rigor,” said Olli Rehn, a member of the European Parliament and the EU’s previous economics commissioner, who worked with Mr. Dombrovskis on an international bailout for Latvia in 2009. “He’s quite blunt and quite straightforward. I don’t know if that is being right-wing or not.”

Under Mr. Dombrovskis’s leadership, Latvia adopted sharp spending cuts to win emergency loans from the EU and the International Monetary Fund. His government kept the Latvian currency pegged to the euro, a measure that many economists say deepened the country’s pain.

The economy ultimately shrank by 25%. Poverty soared, as did emigration. The IMF sometimes chided Mr. Dombrovskis’s government for not doing enough to shield poorer Latvians from the hardship of the crisis.

Mr. Dombrovskis said that Latvia had no other choice but to cut deeply and that he wouldn’t necessarily recommend the Latvian solution for other countries. “I don’t think we can say that something is mechanically applicable from one situation to another,” he said.But he does argue that cutting the budget deficit quickly, as Latvia did in 2009 and 2010, is the best way to stabilize government finances. That puts him at odds with some economists and European officials, who have argued that sharp cuts can actually widen the deficit by throwing the economy into a deep recession. Mr. Dombrovskis also sought to temper his image as a hard-core budget hawk: “I see my task as balancing the economic and financial side, with the social side,” he said.

Einars Repše, Mr. Dombrovskis’s finance minister, said that Mr. Dombrovskis often mediated between competing forces in the government on budget questions.

“I recollect him being more on the cautious side than myself,” Mr. Repše said. “I was much more a supporter of radical and immediate consolidation.”

Starting in 2011, Latvia posted some of the highest growth rates in the EU. Its bailout program has been hailed a success by officials in Brussels and Washington, burnishing Mr. Dombrovskis’s international profile. Yet the unemployment rate is still 11% and many of the country’s younger and better-educated workers have emigrated, facts that often go unmentioned by Latvia’s boosters.

“There is still much more to do in Latvia,” Mr. Dombrovskis acknowledges.

In the next commission, with Jean-Claude Juncker as president, Mr. Dombrovskis is expected to be the hawkish foil to Pierre Moscovici, the dovish former French finance minister with whom he will share decision-making powers over national budgets. Mr. Rehn said the turmoil of the Latvian bailout, when his government occasionally came to the brink of collapse, should serve him well as he navigates the commission’s internal debates.

“He has cool nerves and strong composure,” Mr. Rehn said, “and he can intellectually handle difficult situations under pressure.”

Posted in CBs, ECB |

Talking points for 11am WRKO radio interview

Jobs: Just keeping up with population growth- 59% three months in a row, not at all ‘recovering’ as in prior cycles. So seems the extra jobs are from underestimating population growth?

Spending- working its way lower after the tax hikes and sequesters. Q3 201313 was supported by unsold inventories, Q4 13 by expiring tax credits, then down for Q1 2014 as inventories were reduced and cold weather hurt some, and a Q2 bounce that resulted in only 1.2% growth for the first half of this year:

You can see how in the previous cycle the large drop in the growth rate was followed by a rebound to much higher rates of growth. The current cycle saw a much larger decline in GDP that was followed by lower rates of growth that now seem to be further declining:

You can see the persistent shift down after the last recession that didn’t happen in prior cycles:

Inflation? 6 years of 0 rates, over 4 trillion of QE, and the Fed still can’t hit it’s 2% target? Maybe it’s not so easy to inflate as most think? And just maybe the Fed has it all backward, and 0 rates and QE are deflationary?

Like the hairdresser said, “no matter how much I cut off its still too short”:

Posted in Employment, GDP |

Weekly credit update

Turned down this week as ‘leveling off’ continues:

No great shakes and leveling off:

Nothing happening here either:


The Fed believes this stuff causes inflation if it goes up, disinflation when it goes down:

Posted in Credit |

Employment report

A lot better than expected, and markets reacting accordingly, and the narrative about the 1.2 million people losing benefits at year end ‘inflating’ the jobs number seems not material based on the numbers so far released:

Employment Situation

The labor market improved in September for the most part. Job growth topped expectations, The unemployment rate declined. However, wage inflation is oscillating but remaining on a low trajectory.

Nonfarm payroll jobs gained 248,000, after a 180,000 rise in August and 243,000 increase in July. Net revisions for July and August were up a sharp 69,000. The median market forecast for September was for a 215,000 gain.

The unemployment rate declined to 5.9 percent from 6.1 percent in August. Expectations were for 6.1 percent.

Going back to the payroll report, private payrolls advanced 236,000 in September after a 175,000 boost in August. Expectations were for 236,000.

Average hourly earnings were unchanged in September after a 0.3 percent rise the month before. Average weekly hours ticked up to 34.6 hours versus 34.5 hours in August and expectations for 34.5 hours.

Overall, job growth improved while wage inflation remained soft. The Fed still has many options for policy.

While there were more net new hires, seems the working age population went up quite a bit as well, as the % of the population working remained at relatively low 59% for the third month:

Posted in Employment |

Warren Mosler again on RT America

Posted in Uncategorized |

Household incomes

>   (email exchange)
>   On Thu, Oct 2, 2014 at 3:36 PM, wrote:
>   I feel like you can officially say “Told ya so”


And that’s household income- generally 2 people working!

Incomes are much lower than you think

Posted in Uncategorized |

Mortgage Apps, Saudi oil output

Not good!

MBA Purchase Applications

Mortgage activity was steady in the September 26 week, unchanged for the purchase index and down 0.3 percent for the refinance index. The purchase index remains depressed compared to last year, down 11 percent. A move lower in rates during the week didn’t help activity. The average 30-year conforming mortgage ($417,000 or less) fell 6 basis points to 4.33 percent.

Still strong demand for Saudi crude as they set price and let quantity adjust.

The question is what price they set.

Full size image

Posted in Housing, Oil |

Construction spending, ISM Manufacturing, ADP

Came in less than expected and the chart looks bad as well, having topped out prior to year end as tax credits expired:

Construction Spending

Recent History Of This Indicator
Construction spending saw a broad-based gain in July. Construction spending rebounded 1.8 percent after a 0.9 percent dip in June. While all broad categories advanced, July’s increase was led by the public sector-up 3.0 percent, following a 1.8 percent decrease in June. Private nonresidential spending rebounded 2.1 percent in July after slipping 0.8 percent the month before. Private residential outlays gained 0.7 percent, following a 0.4 percent dip in June.

ISM manufacturing less then expected but still at reasonable levels:

ADP Employment Report

ADP’s estimate for private payroll growth for September is 213,000 vs the Econoday consensus for 200,000 and vs a revised 202,000 for August. The corresponding consensus for Friday’s jobs report from the government is 215,000 vs August’s 134,000.

ADP contracted with Moody’s Analytics to compute a monthly report that would ultimately help to predict monthly nonfarm payrolls from the Bureau of Labor Statistic’s employment situation.

ADP used to report it’s payroll number, but a while ago ‘switched’ to using its internal numbers to try to forecast Friday’s non farm payroll report, so now we don’t see their actual payroll numbers, just their forecast for Friday

It’s all looking more and more like the ‘unspent income’ is winning, as happened in Q1, and it’s all on the verge of going into reverse.

Posted in GDP, Housing |