Category Archives: Deficit

NYC 2006 acquisition of Stuyvesant Town

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Thanks, looks like we could use a full payroll tax holiday and a lot of per capita revenue sharing ASAP.

Pretty much as expected, GDP muddling through around flat or modestly positive, supported by the automatic stabilizers and a bit of proactive fiscal support dribbling in, but not enough to keep unemployment from rising as GDP gains lag productivity gains.

This can be ok for financial markets and equities, which are now well off the bottom, but depressing for most of the voters.

NYC is dynamic and seems to adjust relatively quickly. Finances are getting reorganized, and prices are adjusting to current market conditions, as life there moves on and doesn’t look back.

Tishman Speyer’s 2006 acquisition of Stuyvesant Town for $5.4 billion apparently is about to turn terminally sour. The “biggest deal for a single American property in modern times” which never managed to be profitable from day one, is on the verge of completely exhausting reserve accounts tied to $3 billion of securitized accounts.The premise – take the 11,227 rent-stabilized u,nits apartment complex and convert them to market-rate. Alas, the timing could not have been worse due to an implosion in the NY rent market, coupled with legal difficulties – to date only 4,350 of the units have been converted to market rate, while the remaining rent-controlled units will likely increase in number due to a recent court ruling.

According to RealPoint the original reserve fund which had a balance of $650 million in 2007 when Stuy Town’s debt was first securitized is down to a meager $49.7 million. The origianal reserve fund set consisted of a $190 million general reserve as well as a $60 million replacement reserve, both of which have been depleted, as well as a $400 debt-shortfall service fund, which has now declined to just over 10% of its initial balance.

The reserve fund was drawn down by $7 million month to date, versus $13.3 million in July and $19.6 million in June, with an average decline in the reserve fund of $11.3 million per month. At this rate Stuy Town’s reserves will be completely wiped out in four months, sometime in December.

To demonstrate what a colossal failure Tishman and Blackrock’s assumptions have been from the very beginning, the property has a $23.8 million monthly debt service, while on the revenue side, according to first quarter data, the property generates $136.5 million in annual cash flow, or $11.4 million monthly, a $12.4 million monthly shortfall (a cap rate of about + infinity).

And to demonstrate just how bad (and getting progressively worse) real estate in New York is, midtown’s Dream Hotel, owners Hampshire Group have notified special servicer LNR Group, that it wold not make any more payments on the $100 million loan against the property. According to CREDirect, in 2008 the property’s cash flow dropped 11 percent to $7.8 million as occupancy fell 3% to 84%, with a DSCR drop from 1.41x in 2007 to 1.26x. Things have since deteriorated, not just for the now defaulted Dream, but for a vast majority of all other New York hotels who have been struggling with declining bookings and room rates.


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WSJ–economists on stimulus

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Mainstream economics is largely a disgrace

Economists Give Fiscal Stimulus Mixed Grades

Jon Hilsenrath

August 22 (WSJ) — Economists at the Federal Reserve’s Jackson Hole Symposium in Wyoming gave the Obama administration’s fiscal-stimulus program a mixed review, saying it wasn’t as well targeted as it could have been and pointing to the challenges of balancing stimulus against long-term deficit worries.

In a paper being presented Saturday at the conference, Alan Auerbach of the University of California at Berkeley and William Gale of the Brookings Institution noted problems the U.S. had in the 1930s and Japan had in its 1990s “Lost Decade” making fiscal policy work.

“The remarkable fact is that sustained fiscal policy expansion was not attempted in either episode,” the economists wrote, in part because policy makers were focused on balancing budgets even as they tried to pump money into the economy.

The U.S. government, for instance, raised taxes in 1932, as did state governments, and a round of fiscal restraint hit in 1936 and 1937. “By the end of the decade, even with output well below potential and the unemployment rate at 17%, the contribution of fiscal policy to aggregate demand in 1939 was 0.6 percentage points larger than in 1929,” they note. In Japan, spending was often offset by tax increases, in part due to concerns about the fiscal outlook.

They spend less time detailing their specific criticisms of the 2009 stimulus plan, but offer up several critiques: tax cuts will stimulate demand but could have been designed better, they say. Research has shown that lower-income, liquidity-constrained households have a higher tendency to consume after getting tax cuts than higher income households, but the authors don’t detail how the program could have been pointed more in their direction. Moreover, the authors write, spending wasn’t well-targeted. “Government investments were part of a longer-term Obama agenda and are probably not best characterized solely as stimulus,” they say.


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French Non-Farm Payrolls Fall Less Than Expected

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Proactive fiscal measures, exports, and very ugly automatic stabilizers seem to have slowed the decline in employment, coupled with productivity increases that are supporting output with lower levels of employment.

French Non-Farm Payrolls Fall Less Than Expected as Slump Eases

August 14 (Bloomberg) — French companies cut fewer jobs than expected in the second quarter as the euro area’s second-largest economy exited its worst recession since World War II.

Payrolls, excluding government employees, farm workers and the self-employed, dropped by 74,100, or 0.5 percent, to 15.65 million, the Paris-based Labor Ministry said today. That was less than the 0.8 percent drop forecast by three economists in a Bloomberg News survey, and compared with a loss of 168,300 jobs in the first quarter.

“The current weakness of domestic demand and excess production capacity account for both the weakness in companies’

pricing power and the continued deterioration of the labor market,” said Caroline Newhouse-Cohen, an economist at BNP Paribas, in a report yesterday. “A lot of uncertainties are still weighing on the French economy.”

The French economy returned to growth in the second quarter as exports rose and 30 billion euros ($42.8 billion) in government spending and tax cuts introduced by President Nicolas Sarkozy helped consumer spending. Companies cut investment at a slower pace than in the two previous quarters.

Rising joblessness in France is curbing government revenue and boosting welfare spending, pushing up the budget deficit.

The budget shortfall will soar to 8.3 percent of gross domestic product next year, more than the 7 percent to 7.5 percent the government expects, according to the Organization for Economic Cooperation and Development.

France’s jobless rate hit a three-year high of 9.4 percent in June, the European Union statistics office said on July 31.

On Aug. 11, Adecco SA, the world’s largest supplier of temporary workers, reported a surprise second-quarter loss and said it will deepen cost cuts as sales decline because fewer companies are hiring. The company, based in Zurich, cut about 2,000 jobs in the quarter and told workers in France that an additional 350 jobs will be cut and 100 branches merged in 2009.

The number of temporary workers in France fell 3.7 percent in the second quarter from the first and 32.1 percent from a year earlier to 419,600, the Labor Ministry said. French monthly wages rose 0.4 percent in the second quarter from the first, when they climbed 0.8 percent, the Labor Ministry also said today. From a year ago, wages rose 2.2 percent.


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valance chart review

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Not a lot to say in this short review.

Looks like credit worthiness is on the mend thanks to federal deficit spending.

While what’s been done hasn’t been my first choice for public policy, it nonetheless has added net financial assets to the non govt sectors and helped bring down debt ratios.

As they used to say, when Detroit sneezes the economy catches a cold.

The Great Mike Masters Inventory Liquidation that began in July ended around year end.

The weakening economy caused the federal deficit to rise the very ugly way via the automatic stabilizers.

By year end the deficit was high enough to turn the tide.

The rising federal deficits added to savings of net financial assets and began easing debt ratios.

Headwinds remain, including US domestic loan loss issues and China looking like markets could take a breather with talk of government action to slow credit expansion, but as long as US federal deficit spending persists at sufficiently high levels, it looks like the worst is behind us for US GDP, with unemployment likely to peak later this year at about 10%.

This is creating unwelcome social tensions for the administration, with the apparent winners being banks, corporations, the investor class in general, and higher income earners.

State and local governments are also in a bind, as they lay off essential employees while funding a few ‘shovel ready’ federal infrastructure projects.

Health care reform held the promise of adding to aggregate demand but it now looks like the final bill will be ‘revenue neutral.’


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Federal Deficit as a % of GDP

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Looking very much like the automatic stabilizers turned the tide around year end, and subsequent fiscal adjustments are helping firm things up as well.

But there was a lot of work to do to add back the financial assets to the government lost during the surplus years of the late 90’s, so we may linger here a little longer than in previous cycles while the non govt sector’s net financial assets are restored to levels sufficient to support growth and employment.


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Deficit Myths doing real damage

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While I much prefer my proposal for health care, Increasing the size of the deficit during this period of deficient aggregate demand should not be the reason for rejecting or accepting the proposed health care act.

Deficit myths have moved the discussion off point.

Scrap Health Care Reform If It Adds To Deficit

August 5, 2009 – Scrap Health Care Reform If It Adds To Deficit, U.S. Voters Tell Quinnipiac University National Poll; Voters Disapprove Of Obama’s Handling Of Health Care

American voters, by a 55 – 35 percent margin, are more worried that Congress will spend too much money and add to the deficit than it will not act to overhaul the health care system, according to a Quinnipiac University national poll released today. By a similar 57 – 37 percent margin, voters say health care reform should be dropped if it adds “significantly” to the deficit.


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SZ News: Leading Indicators Rise, Signaling Slump Is Abating

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Yes, seems to be world wide.

The combined global fiscal measures both pro active and ‘automatic’ seemed to have halted the slide.

Depressions are highly improbable with non convertible currency and floating fx policies.

Swiss Leading Indicators Rise, Signaling Slump Is Abating

By Klaus Wille
July 31 (Bloomberg) — Switzerland’s leading economic
indicators rose more than economists forecast in July, adding to
signs the worst economic slump in three decades is bottoming
out.

The KOF’s monthly aggregate of indicators that aims to
predict the economy’s direction about six months ahead increased
to minus 0.99 points from a revised minus 1.49 in June, the
Zurich-based research institute said today. Economists had
forecast that the index would rise to minus 1.45 from an
initially reported minus 1.65, based on the median of 13
estimates in a Bloomberg News survey.

Switzerland’s economy is moving toward a recovery after a
0.8 percent contraction in the first quarter, reports this month
showed. The UBS consumption indicator increased for the first
time in three months in June and the slump in manufacturing
eased. In the euro area, the biggest buyer of Swiss exports,
confidence in the economic outlook rose to an eight-month high.

“This figure is still low, meaning that Swiss gross
domestic product is likely to continue declining significantly
over the coming months relative to the previous year,” KOF said
in the statement. “However, the current barometer trend
indicates that the GDP growth rate should bottom out soon.”

The Swiss National Bank forecasts that the Alpine country’s
economy will shrink as much as 3 percent this year, which would
be the steepest decline since 1975.


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CBS “EVENING NEWS” INTERVIEW WITH OBAMA

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There is something you can do about this self destructive government.
Both sides have it dead wrong, and we and our children are already paying the price.

Go to www.mosler2012.com and send in your contributions in now, thanks!

All funds go to help get the word out and save us from ourselves.

(I’m doing all I can with my remaining personal finances.)

House Votes to Strengthen Anti-Deficit Budget Rules

By Brian Faler

July 22 (Bloomberg) — The U.S. House voted to toughen its often-ignored budget rules that require lawmakers to offset any new spending initiatives and tax cuts with savings to avoid adding to the federal deficit.

The chamber voted 265-166 for legislation that would put Congress’s so-called paygo rules into law and impose automatic budget cuts when lawmakers spend too much. Currently, legislators can vote to waive those rules.

Democrats said the bill, endorsed by President Barack Obama, would help put the government’s books in order after the annual deficit is projected to quadruple this year to more than $1.8 trillion.

“We have a moral responsibility not to heap mountains of debt onto our grandchildren,” said House Speaker Nancy Pelosi, a California Democrat.

Obama praised the House’s action and said, “It is time to stop the practice of passing today’s costs onto future generations.”

Republicans scoffed at the plan, saying it included too many loopholes and that Democrats frequently ignore the paygo rules adopted when they took over Congress in 2007.

“This is PR politics,” said Representative Paul Ryan, the top Republican on the House Budget Committee. “This is not a bill to get Congress to live within its means. This is a bill to give congressmen and congresswomen an ability to put a press release out to make it look like they’re being fiscally responsible.”


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