Power Point I did for a conference discussion.
Financial Architecture Fundamentals
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Category Archives: Obama
ISM/Fed
Karim writes:
Overall, manufacturing still contracting, but at a slower rate. Rebound in orders likely due to credit supply not being as sharp a constraint as it was in Q4 and inventory drawdown. Increase in backlogs suggests production may actually stop contracting in next couple of months. But with employment basically unchanged, it seems that this relative improvement is viewed by manufacturers as unrelated to longer-term timing and scope of recovery. Anecdotes below all over the place.
Looks to me like evidence the deficit spending is doing its job of relieving fiscal drag.
- “Some amount of havoc is about to erupt, with companies pushing for increased capacity when suppliers have taken capacity offline.” (Computer & Electronic Products)
- “Business is actually better than plan.” (Food, Beverage & Tobacco Products)
- “Realistically, we don’t see any of our major customers looking to place business until mid-2010 at the earliest.” (Machinery)
- “April was flat on sales. May looking better.” (Primary Metals)
- “Business still trending downward, but not as fast.” (Chemical Products)
| May | April | |
| Prices paid | 43.5 | 32.0 |
Moving up with crude prices as reluctantly anticipated.
| Production | 46.0 | 40.4 |
Back towards ‘nuetral’ levels for flat GDP
| New orders | 51.1 | 47.2 |
Orders expanding some from a low base as expected.
This is enough for GDP to muddle through at modest positive levels
| Backlog of Oders | 48.0 | 40.5 |
Same
| Employment | 34.3 | 34.4 |
This will continue to stagnate as productivity gains will be sufficient to meet output demands
| Export orders | 48.0 | 44.0 |
Will move back up from depressed levels
| Imports | 42.5 | 42.0 |
Will move up with prices
This is good for financial markers/bad for obama vision — modest growth with continuing downward pressure on wages
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Niall Ferguson: No One Has The Faintest Idea When The Economy Will Recover
Harvard AND Oxford Professor, thank you!
Niall Ferguson: No One Has The Faintest Idea When The Economy Will Recover
by Niall Ferguson
May 29 (FT) —He thinks Obama’s economic forecasts are as much of an outlier possibility as another Great Depression. He’s also concerned, as we are, that there’s just not enough money in the world to finance all the borrowing the U.S. and other big countries will be doing over the next few years.
Barron’s: Is the worst over for the global stock markets and the economy?
Ferguson: It may look that way, but appearances can be deceptive. The stock market has actually tracked almost perfectly its downward movements between 1929 and 1931. Now that doesn’t mean that we are going to repeat the Great Depression. I don’t think we will, because the policy responses have been different. It would be excessively optimistic, however, to conclude from a relatively small set of green shoots in the economic data that we are all going to live happily ever after. It is certainly way too early to say the Obama administration is right that the economy is going to grow at 3% next year and 4% in 2011. I find that scenario as implausible as a rerun of the Great Depression…
When will the recovery come?
Nobody has the faintest idea what next year is going to look like. It isn’t clear yet that this is just a common recession. This is probably more like a slight depression. We won’t see a big V-shaped bounce. Much of the consumption growth in the decade up to 2007 was fueled by things like mortgage-equity withdrawal. That game is clearly over. Strip that out, and you are looking at an annual economic-growth rate in the U.S. closer to 1½% to 2% than 4%.
What is your disagreement with New York Times columnist and Princeton professor Paul Krugman about massive government borrowing?
This is one of the most interesting questions of the moment. The view of Keynesians, their Econ. 101 textbooks and the Nobel laureate at Princeton is that the world has an excess of savings over investments and therefore the deficit can be almost any size and it will be financed.
That is the problem with violating ‘Lerner’s Law’ and making the argument in the wrong paradigm. It invariably gets shot down like this:
My sense is that if the U.S. government tries to borrow $1.8 trillion in a year, that is an awful lot of bonds to sell at the same time [as] all the other major governments. It looks to me like a supply-and-demand story, and what tends to happen in those stories, regardless of the macro environment, is that the price of bonds tends to fall. The U.S. 10-year Treasury rate has moved up more than 100 basis points [one percentage point] since January. There is a problem in Britain, where the Bank of England had to protest about fiscal stimulus because it was causing a huge interest-rate problem. It is also happening here.
It is the blind arguing with the blind.
With this attitude it very well may take a world war to generate enough deficit spending to restore output and employment.
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Obama – “US out of money”
After a fiscal package that may or may not be sufficient to bring down unemployment, the president is now directly telling us that the next move is to dampen aggregate demand by reducing health care spending (and letting tax rates go higher.)
In a sobering holiday interview with C-SPAN, President Obama boldly told Americans: “We are out of money.”
C-SPAN host Steve Scully broke from a meek Washington press corps with probing questions for the new president.
SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?
OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we’ve made on health care so far. This is a consequence of the crisis that we’ve seen and in fact our failure to make some good decisions on health care over the last several decades.
So we’ve got a short-term problem, which is we had to spend a lot of money to salvage our financial system, we had to deal with the auto companies, a huge recession which drains tax revenue at the same time it’s putting more pressure on governments to provide unemployment insurance or make sure that food stamps are available for people who have been laid off.
So we have a short-term problem and we also have a long-term problem. The short-term problem is dwarfed by the long-term problem. And the long-term problem is Medicaid and Medicare. If we don’t reduce long-term health care inflation substantially, we can’t get control of the deficit.
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Geithner takes the pledge
Score one for the deficit terrorists
This is one of the largest risks to the recovery:
Geithner Pledges to Cut Deficit Amid Rating Concern
by Robert Schmidt
May 21 (Bloomberg) — Treasury Secretary Timothy Geithner said the Obama administration is committed to reducing the federal budget deficit after concerns rose that the U.S. debt rating may eventually be threatened with a downgrade.
“It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,†Geithner said in an interview with Bloomberg Television. He added that the target is reducing the gap to 3 percent of gross domestic product or smaller, from a projected 12.9 percent this year.
The dollar, Treasuries and American stocks slumped today on concern about the U.S. government’s debt rating. Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. “eventually†will lose its AAA grade.
Geithner, 47, also said that the rise in yields on Treasury securities this year “is a sign that things are improving†and that “there is a little less acute concern about the depth of the recession.â€
Benchmark 10-year Treasury yields jumped 17 basis points to 3.37 percent at 4:53 p.m. in New York. The Standard & Poor’s 500 Stock Index fell 1.7 percent to 888.33, and the dollar tumbled 0.8 percent to $1.3890 per euro.
Gross’s Warning
Gross said in an interview today on Bloomberg Television that while a U.S. sovereign rating cut is “certainly nothing that’s going to happen overnight,†financial markets are “beginning to anticipate the possibility.â€
Britain saw its own AAA rating endangered earlier today when Standard & Poor’s lowered its outlook on the nation’s grade to “negative†from “stable,†citing a debt level approaching 100 percent of U.K. GDP.
It’s “critically important†to bring down the American deficit, Geithner said.
Ten-year Treasury yields have climbed about 1 percentage point so far this year, in part after U.S. economic figures indicated that the worst of the deepest recession in half a century has passed. The yield on 30-year bonds has jumped to 4.31 percent, from 2.68 percent at the beginning of the year.
The Treasury chief said it’s still “possible†that the unemployment rate may reach 10 percent or higher, cautioning that the economic recovery is still in the “early stages.â€
‘Very Challenging’
“The important thing to recognize is that growth will stabilize and start to increase first before unemployment peaks and starts to come down,†he said. “These early signs of stability are very important†although “this is still a very challenging period for businesses and families across the United States.â€
Initial claims for unemployment insurance fell by 12,000 in the week ended May 16 to 631,000, according to Labor Department statistics released today. Still, the number of workers collecting unemployment checks rose to a record of more than 6.6 million in the week ended May 9.
As of April, the unemployment rate was 8.9 percent, the highest level since 1983. The economy has lost 5.7 million jobs since the recession started in December 2007.
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Obama Again Sides with the Deficit Terrorists
It’s for real – Obama’s in the deficit terrorist camp, using the communication skills he learned in his rhetoric 101 class.
Obama Says U.S. Long-Term Debt Load ‘Unsustainable’
by Roger Runningen and Hans Nichols
May 14 (Bloomberg) — President Barack Obama, calling current deficitspending “unsustainable,†warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.
- It’s domestic budget surpluses that are unsustainable- they remove savings.
- Interest rates are set by the Fed, not the market or the deficit. Japan’s deficits have been triple ours and their rates lower for decades, for just one (unnecessary) example.
- The US government is not dependent on borrowing from other countries in order to spend.
“We can’t keep on just borrowing from China,†Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.â€
That’s a load of inapplicable rhetoric for the purpose of terrorizing uninformed Americans.
Holders of U.S. debt will eventually “get tired†of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.â€
Interest rates are set by the Fed, not by those who elect to buy Treasury securities.
The president pledged to work with Congress to shore up entitlement programs such as Social Security and Medicare and said he was confident that the House and Senate would pass health-care overhaul bills by August.
“Most of what is driving us into debt is health care, so we have to drive down costs,†he said.
Whatever costs he’s got in mind (insurance, drug company markups, etc.) should be minimized in any case.
It’s not about the ‘debt’.
The biggest risk to our economy is the risk of Obama succeeding in enacting measures to reduce the deficit.
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Obama video White House Correspondent’s Dinner
Obama Video from the White House Correspondent’s Dinner
May 9 (C-SPAN)
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Obama Serious About Balancing the Budget
Yes, it’s early, but seems he’s serious about his campaign promise to balance the budget.
The economy won’t see the drop in demand until it actually happens.
But valuations can adjust to rising tax rates long before GDP does.
Obama Proposes New Taxes on Dealers, Life Insurance
by Ryan J. Donmoyer
May 11 (Bloomberg) — President Barack Obama proposed raising money to pay for his health-care overhaul by imposing $58 billion in new taxes on securities dealers, life insurance products and Americans with valuable estates.
The eight new proposals, outlined in budget documents released today, are in addition to more than $1 trillion in tax increases over the next decade the president wants to impose beginning in 2011. Those would include higher rates for top earners and restrictions on tax-avoidance techniques commonly used by U.S.-based multinational corporations.
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Obama on Energy and Food
(email exchange)
This will drive up prices of food and energy longer term.
Still no plan to quickly bring down crude demand to offset declines in supply side incentives.
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> Obama doesn’t buy the idea that US tax credits encourage oil and
> gas production. His FY-2010 budget would delete eight such tax
> breaks – start importing Brazilian ethanol.
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Re: Globe & Mail – Canadian Propaganda
(email exchange)
Yes, thanks.
I just saw a replay of the Obama comedy routine of a few days ago.
It wasn’t at all clever or funny, but sarcastic, mean spirited, cheap shots and arrogant self glorification, etc. and delivered as such. The shots against Clinton, Summers, and Biden- who I criticize perhaps more than anyone- were particularly cruel and tasteless, and unthinkable that their ‘boss’ would publicly humiliate them like that unless he intended to fire them. And the hostile undertone was similar to that of his attacks on the Chrysler secured lenders and corporations with legal untaxed offshore earnings.
The progression is getting worse. Wouldn’t surprise me if he starts losing support from some of the more intellectual Democrats before the end of the year.
>
> More on the theme of who could have predicted that a mainstream Canadian
> newspaper could be on this side of the debate ?
>
Amid the rhetoric, a profound threat to capitalism
by Avner Mandelman
May 9 (Globe and Mail) —
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