The latest QE policy removes ECB ‘conditionality’

Several years ago Mario Draghi announced the ECB would do what it takes (within the rules) to prevent national govt defaults, which immediately reversed the climb of national govt rates, bringing them down to where they are today. But it also came with ‘conditionality’ regarding fiscal policy, where a violation of the fiscal rules carried the threat of the removal of ECB support.

This time it’s different. As part of this broad based fight to reverse the current deflationary forces, the national CB’s will now be buying their own nation’s debt, thereby, for all practical purposes, eliminating default risk. And with no mention of fiscal conditionality. Taken at its word, this means the latest QE policy has removed the ECB’s leverage over national govt fiscal policy, as the ECB did not tie it’s securities purchases to fiscal compliance.

Therefore Greece and Italy, the two members desiring fiscal expansion, are operationally free to do so without the threat of default driving up their interest rates. They may face EU penalties, etc. but those are a very different matter than the prior default risk.

So the door is now open to anyone bold enough to step through. However they probably don’t know it and probably wouldn’t go there if they did…

And, as previously discussed, QE per se is a deflationary/contractionary strong euro bias in the process of making a very bad situation that much worse.

Posted in ECB |

rental income from oil and gas

Looks to me like about $200 billion of annual income comes from increased oil and gas revenues over the last few years, just looking at the change in ‘slope’ and the difference between where it is now and where it would have been had the prior slope continued.

And I also suspect most of that increase is in the process of vanishing…

From the BEA:

Rental income of persons with capital consumption adjustment is the net income of persons (except those primarily engaged in the real estate business) from the rental of real property, the imputed net rental income of owner occupants of dwellings, and the royalties received by persons from patents, copyrights, and rights to natural resources.



I just got a note from a friend who did a lot more work on this than my simple extrapolation and he believes oil and gas revenue increases added about $65 billion last year. Still a very substantial figure but short of my $200 billion guestimate. He attributes much of the difference to an increase in owner equiv. rent, which I had simply assumed would grow as indicated by the prior slope, as anecdotally home building has remained depressed and the increases in owner equiv. rents used in the CPI calculations have been relatively small.

Posted in Oil |

Kelton in the news

Some errant criticism and cheap shots, but that goes with the territory.
It’s happening!

(And note my comment at the end…)

A Socialist Sets the Budget

By Martin Longman

Posted in MMT |

ECB, Jobless Claims, Sea Container Counts, Housing Starts, Purchase apps, Architecture Billings, miles driven, Redbook sales, my take on consequences of $50 oil

Like the carpenter with the piece of wood “no matter how much I cut off it’s still too short”

Draghi has yet to realize rate cuts/QE/etc. are a deflationary/contractionary bias:


Jobless Claims
Jobless claims have been inching higher and are not pointing to increasing strength for the January employment report. Initial claims did fall 10,000 in the January 17 week but to a 307,000 level that is just outside the high end of the Econoday consensus range (289,000 to 305,000).

The January 17 week is the sample week for the monthly employment report and a comparison with the December sample week shows a sizable 18,000 increase. The current 4-week average at 306,500 is up 6,500 from the prior week for the highest reading since way back in July. A sample-week to sample-week comparison for the average shows a 7,750 increase this month.

Continuing claims, which are reported with a 1-week lag, have also been on the increase. Continuing claims for the January 10 week rose 15,000 to 2.443 million with the 4-week average up 9,000 to 2.427 million. This average has also been on the rise and is up 8,000 from the month-ago comparison. The unemployment rate for insured workers is unchanged at 1.8 percent.

December 2014 Sea Container Counts Continue to Show Softness in Trade

By Steven Hansen

Export container counts continue to weaken, which is usually awarning that the global economy is slowing. Export three month rolling averages continue to decelerate – being in negative territory year-over-year. However, there are serious labor issues at all West Coast ports, and it is hard to understand the effect on the container counts. One should also consider that exports have been decelerating most of 2014 – well before the labor disputes.

Housing Starts

Permits lead housing:

MBA Purchase Applications

This isn’t going anywhere:
Miles driving per capital even worse than this:

This isn’t supposed to be soft with the consumer saving so much on gas and oil:
So here’s the latest ‘back of the envelope’ mainstream take on oil:

Consumer saves $200 billion, but
Capex down by $100 billion =
Unambiguous Net Gain of $100 billion

Except they all left out the fact that if the consumer is saving $200 billion other agents are losing $200 billion of income.

And that foreign capex that totaled over $500 billion in 2014 is being cut back as well, with some of those cutbacks translating into reduced US exports.

Not to mention the US consumer only spends part of that $200 billion saved, and what is spent on imports doesn’t add to US GDP.

So my back of the envelope remains:

Consumers who save $200 billion spend only $120 billion on domestic output. Agents who lose $200 billion of income cut spending on domestic output by $120 billion That all nets to 0, consistent with weak December retail sales, for example.

Additionally, US capex falls $100 billion, and US exports fall $50 billion, both also supported by recent data releases.

Therefore $50 oil is an unambiguous negative for the US economy.

Posted in ECB, Employment, Housing, Oil |

credit check, oil capex

A zig down here often means a similar increase in bank lending as one substitutes for the other:



Steepest Oil-Rig Drop Shows Shale Losing Fight to OPEC

Posted in Uncategorized |

My Tuesday New School presentation has been postponed until May

Posted in Uncategorized |

Jobs, Philly Fed

This tick up might mean nothing,
but could also be the start of a move up due to the fall off in oil capital expenditures:

Jobless Claims
Jobless claims jumped sharply in the January 10 week, up 19,000 to a 316,000 level that’s the highest since September. The 4-week average is up 6,750 to 298,000 which is about even with the month-ago comparison.

This tick down might mean nothing, but could also be the start of a move down due to the fall off in oil capital expenditures:

Philadelphia Fed Survey
Abrupt slowing is the signal from the manufacturing report of the Philly Fed whose general conditions index for January fell to plus 6.3 from December’s plus 24.3 (revised from 24.5). Growth in new orders, however, does remain solid at plus 8.5 though down from December’s plus 13.6. The 6-month general outlook also is a positive, at a very strong 50.9 vs December’s 50.4.

Now the weak readings led by shipments, which are in contraction at minus 6.9 vs December’s plus 15.1, and employment, now also in contraction at minus 2.0 vs December’s plus 8.4. Unfilled orders also are in the negative column, at minus 8.6 vs plus 2.7 in December. Price readings are soft with input price inflation moderating further and output prices now in modest contraction.
Empire did a bit better.

This came out before the Philly Fed 6.3 print so add that last data point to the red line on the chart:

Posted in Uncategorized |

retail sales, import and export prices, business inventories, airline stocks, ECB QE comment

This is not supposed to happen with falling gas prices…

Retail Sales
Retail sales disappointed for December. Retail sales in December fell 0.9 percent after posting a 0.4 percent gain in November and a 0.3 percent rise in October. Expectations were for a 0.1 percent decline. The December decrease is the largest negative since January 2014. Both November and October were revised down. Excluding autos, sales decreased 1.0 percent after rising 0.1 percent in November. Analysts expected a 0.1 percent decrease. Excluding both autos and gasoline sales declined 0.3 percent after advancing 0.6 percent in November. Expectations were for a 0.6 percent boost.

The motor vehicle component was weak as expected from the unit new auto sales report. Motor vehicles dipped 0.7 percent in December, following a 1.6 percent gain the month before. Gasoline station sales fell again on lower prices. Sales dropped a sharp 6.5 percent after a 3.0 percent drop in November.

Within the core weakness was broad based, led by miscellaneous store retailers (down 1.9 percent), building materials & garden supplies (down 1.9 percent), electronics & appliance (down 1.6), and general merchandise (down 0.9 percent). Notable gains were seen in furniture & home furnishings (up 0.8 percent) and food services & drinking places (up 0.8 percent).

Today’s retail sales report is a surprise on the downside. But it also is a quandary. Consumer confidence is up and discretionary income is up with gasoline prices down. It is possible that more money is going to services which do not show up in the retail sales report. Probably the biggest positive in the report is the boost in food services & drinking places which is a very discretionary spending item-suggesting a positive mood for the consumer. But looking at the numbers technically, fourth quarter GDP forecasts likely are being shaved.

‘Control Group': Retail Sales ex food, gas, building materials, auto dealers:

Retail Sales decreased 0.9% in December

The decrease in December was well below consensus expectations of a 0.1% decrease. Both October and November were revised down.

This was a weak report even after removing the impact of lower gasoline prices.

Import and Export prices:

For November:


Airlines not flying as high as expected either:


Posted in GDP |

a couple of ramifications of the 0 rate policy

This traditional source of total personal income growth hasn’t been there this time around due to Fed
‘easing’. The economy is a net receiver of interest, the govt. a net payer:


And net interest income hasn’t been growing much for banks, for example:


Posted in Fed |

Brazil inflation

Maybe somehow the higher interest rates set by the CB support the higher rates of inflation?

Brazil’s Inflation Rises Even Amid Low Growth (WSJ) Brazil’s official IPCA consumer-price index rose 6.41% in 2014. The IPCA rose 5.91% in 2013. Annual inflation was driven up by an 8% increase in food prices and a 8.8% surge in housing-related prices. Inflation also accelerated in December, with the IPCA rising 0.78% versus 0.51% rise in November. The central bank raised its benchmark interest rate, called Selic, to 11.75% in December, the latest in a series of increases since April 2013, when the rate was 7.25%. The Central Bank of Brazil has a tolerance band for annual inflation of between 2.5% and 6.5%.
Posted in Uncategorized |