U.S. and Eur Data/GDP Downgrades

Posted on November 23, 2011 @ 4:46 pm (Wednesday) by WARREN MOSLER

Karim writes:

U.S. data on the soft side (October)

Most notable is core durable goods orders (capex has been gwth leader of late) falling 1.8% and 3mth annual rate slowing to 4% from 7.3%

Core shipments (more important for current quarter growth) down 1.1%

Personal spending up 0.1%.

Personal income up 0.4% (mostly via wages) and savings rate up from 3.3% to 3.5%

Headline Price index-0.1% and core unchanged, so reasonable increase in real incomes. Core PCE Index now 1.5% 3mth annualized vs 2% last month

EUR Composite PMI ‘surprises’ to upside in November, rising from 46.5 to 47.2

Interesting that manufacturing (more volatile and more of a leading indicator) much weaker than services.

Also, German new orders fall 2.6pts to 42.6

Q4 GDP estimates in U.S. being shaved 0.25-0.50% on the data. Current range 2.5-3.25%.
Failure to extend payroll tax cut would have impact almost entirely in Q1 2012 (annual withholding ceilings typically reached early in the year)-about 1% on GDP.

European estimates are about -1.5% annualized for both Q4 and Q1. Germany among the weakest (due to manufacturing) with estimates in the -2.5% area.

PMI data in Europe has had a very good track record signaling ECB policy rate changes. This data pretty much cements another rate cut next month.

China News

Posted on November 14, 2011 @ 9:47 am (Monday) by WARREN MOSLER

Reads to me like policy is moving back towards growth and ‘inflation?’

I don’t expect runaway inflation but enough to continue to fundamentally continue to weaken the currency.

China’s currency has been fundamentally weakened for the last couple of years, while being supported vs the dollar by foreign investment, speculation, and what looks to me like the indirect expenditure of dollar reserves. Should the currency starts falling against the dollar it will tell me those factors have run their course.

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China’s Imports Rise Sharply, While Export Growth Slows
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Former China Banking Regulator Says China 2011 Growth Above 9%
China’s economy on right track: IMF
IMF See Little Decrease in Incentives for Saving in China
Former PBOC Adviser: China’s Economy May Grow 8%-8.5% Annually Over Next 10 Years – Report
China’s Property Market Experiencing ‘Soft Landing’, Fan Says

France Unveils New Budget Savings as Growth Slows

Posted on November 7, 2011 @ 9:41 am (Monday) by WARREN MOSLER

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.

Berlusconi Insists Italy’s Economy is Prospering

Posted on November 4, 2011 @ 1:07 pm (Friday) by WARREN MOSLER

Berlusconi insisted that Italy’s economy was broadly prospering.
“The restaurants and vacation spots are always full, nobody thinks there is a crisis,” he said.

DJ Italy Will Pledge To G-20 To Start Cutting Debt Ratio

Posted on November 3, 2011 @ 12:05 pm (Thursday) by WARREN MOSLER

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

Early Holiday Cheer…

Posted on November 1, 2011 @ 8:13 am (Tuesday) by WARREN MOSLER

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.

Crude Oil Update

Posted on October 26, 2011 @ 8:18 am (Wednesday) by WARREN MOSLER

Still seems to me that the idea that WTI appreciates to Brent as the Strategic Petroleum Reserve release winds down over the next few weeks is playing out as previously discussed. The WTI discount depends on a serious glut condition persisting, and the wind down of the approx 3.8 million barrels a week being delivered from the strategic petroleum reserve will work to reduce the glut by that amount.

If so, WTI is marching towards $110/barrel which seems to me could trigger substantial market reactions.

And about the same time the super committee deficit reduction talks will be in full swing, euro financing stresses elevated, exacerbated by confirmation of the 0 gdp growth forecasts hit the headlines, and further slowdown news from China complicating things as well.

The ‘answer’ remains as simple as it is further away from political reality than ever, even though the right policy responses couldn’t be more attractive to both sides:

The US budget deficit is too small.

China Extends Crackdown on Off-Balance-Sheet Loans

Posted on July 5, 2011 @ 7:19 am (Tuesday) by WARREN MOSLER

Cutbacks now will further slow things:

China Extends Crackdown on Off-Balance-Sheet Loans

July 4 (Reuters) — China’s bank regulator has cracked down on off-balance-sheet lending by the country’s banks, sources told Reuters on Monday, its latest step to prevent over-zealous and risky lending from hurting its financial system.

China Banking Regulatory Commission (CBRC) has ordered banks to check all their deals in discounted commercial bills after discovering misconduct among some banks, two sources said.

Chinese banks have in the past year taken to off-balance-sheet lending, or keeping loans outside balance sheets after authorities clamped down on bank loans as part of their fight against inflation.

Last week the regulator tightened control on sales of wealth management products to ward off potential risks, and the regulator had earlier told banks to include all their loans extended via trust investment programs into their account books.

Discounted bills, an important source of financing for firms with no access to formal bank loans, accounted for about 2.5 percent of the 49.5 trillion yuan ($7.7 trillion) of total outstanding loans at the end of March, according to data from the Chinese central bank.

The regulator’s latest move comes after discovering that some rural credit cooperatives and banks in the central Henan province were issuing loans through discounted commercial bills and keeping them outside their loan books.

Under China’s banking laws, banks’ deals in discounted commercial bills should be reflected on their balance sheets.

Banks have been asked to investigate all deals linked to discounted commercial bills and submit their findings by Monday, sources said.

Under the review, banks were ordered to verify that bills issued were based on real transactions, and were ordered to track how extended credit was spent, they added.

Banks were also instructed to stop discounting bills that they issued to get funds for property and stock investments.

Analysts welcomed the move towards stringent regulation, which would also boost transparency.

“There is some concern that some borrowers were using these discounted bills as collateral for further borrowing,” said Mike Werner, a China banking analyst with Sanford Bernstein.

“So the idea that the CBRC is going to increase diligence covering this area of the market is not surprising.”

The regulator said bank branches found with serious misconduct would be barred from the discounted commercial bill market entirely, the sources added.

CBRC was not immediately available for comment when contacted by Reuters.

As China tightens policy and rein in lending to tame 34-month high inflation of 5.5 percent, many companies are struggling to get loans.

For these firms, discounted commercial bills are an important source of financing. They let companies bring bills or drafts to banks and request for money to be disbursed before they mature.