Knowledge@Wharton- not

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Wonderful, and the others aren’t much better. All seem to agree that in the long run deficits are counterproductive:

Dear President-elect Obama: Here’s How to Get the Economy out of the Ditch

Wharton management professor Heather Berry notes that in his campaign, Obama “offered tax cuts for working class families, expanded health care coverage and investing in clean energy technologies as priorities. However, he inherits a deficit that will make multiple priorities difficult to achieve…. Obama will need to figure out not only which programs and legislative initiatives are most important, but also how to pay for these programs. One issue that Obama will have to face in his first year is middle class tax cuts given that the Bush tax cuts were temporary and will need to be extended in 2009.”


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Re: Unilateral Fiscal Policy is more Beneficial than a Coordinated Response

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Dear Philip,

Yes, there is a general shortage of aggregate demand.

However, if any one nation uses a fiscal adjustment to restore demand it will be that much better off if the rest of the world does not increase its aggregate demand.

Fiscal adjustments, much like imports, provide benefits and not costs.

Any unilateral fiscal response will restore both domestic output and employment as well as increase imports from nations who continue to suffer from a lack of aggregate demand.

The idea that there is a need for international coordination is continued evidence of a lack of understanding of the world’s monetary systems.

All the best,

Warren

>   
>   On Thu, Nov 13, 2008 at 4:27 AM, Prof. P. wrote:
>   
>   Dear Warren,
>   
>   Many thanks.
>   
>   What you suggest is very true. But not just in the US. Here in the UK
>   and practically everywhere else in the world this is very urgent and a bit
>   overdue. Do you not agree? Would anything along these lines come out
>   from the meeting of the G20 over the weekend, I wonder.
>   
>   Best wishes, Philip
>   


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Re: Fed comment on currency swaps

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(email exchange)

Yes, thanks, seems he doesn’t fully grasp what the swaps are about?

Seems none of them do.

With oil going down the US will spend less on imports making USD harder to get overseas, keeping the USD relatively strong and exacerbating the foreign sector USD squeeze.

>   
>   On Wed, Nov 12, 2008 at 10:44 PM, J A wrote:
>   
>   In his speech, Mr. Kohn said some special lending facilities, such as a
>   program for the commercial-paper market, “are clearly emergency
>   operations only” and would be wound down. Some of the Fed’s
>   temporary lending programs such as currency swaps with other central
>   banks and auctions for credit at the Fed’s discount window might
>   become permanent, he said.
>   


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Paulson text

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“During the two weeks that Congress considered the legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed on October 3rd that we needed to act quickly and forcefully, and that purchasing troubled assets—our initial focus—would take time to implement and would not be sufficient given the severity of the problem. In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.”

He knew this before the bill was signed and didn’t mention it?


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2008-11-13 USER

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MBA Mortgage Applications (Nov 7)

Survey n/a
Actual 11.9%
Prior -20.3%
Revised n/a

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MBA Purchasing Applications (Nov 7)

Survey n/a
Actual 260.90
Prior 303.10
Revised n/a

 
Up some, but still very low.

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MBA Refinancing Applications (Nov 7)

Survey n/a
Actual 1075.40
Prior 1489.40
Revised n/a

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MBA TABLE 1 (Nov 7)

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MBA TABLE 2 (Nov 7)

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MBA TABLE 3 (Nov 7)

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MBA TABLE 4 (Nov 7)

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Trade Balance (Sep)

Survey -$57.0B
Actual -$56.5B
Prior -$59.1B
Revised n/a

 
Slowly falling as crude prices came down.

Karim writes:

  • Trade deficit improves from -59.1bn to -56.5 bn,
  • BUT, real trade balance actually worsened by about 3bn due to underlying price moves (so negative impact on real GDP)
  • Also, exports down 6% m/m and imports down 5.6% m/m

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Exports MoM (Sep 8)

Survey n/a
Actual -6.0%
Prior -1.7%
Revised n/a

 
Exports and imports (below) down as world economy slows.

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Imports MoM (Sep 8)

Survey n/a
Actual -5.6%
Prior -2.2%
Revised n/a

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Exports YoY (Sep 8)

Survey n/a
Actual 8.8%
Prior 16.3%
Revised n/a

 
Exports and imports (below) still up year over year but probably not for long.

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Imports YoY (Sep 8)

Survey n/a
Actual 6.9%
Prior 13.6%
Revised n/a

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Trade Balance ALLX (Sep)

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Initial Jobless Claims (Nov 8)

Survey 480K
Actual 516K
Prior 481K
Revised 484K

 
In to recession territory as expected.

Karim writes:

These are truly awful numbers

  • Initial claims rise from 484k (revised up from 480k) to new cycle high of 516k
  • Continuing claims rise from 3832k (revised down from 3843k) to new cycle high of 3897k
  • These reflect step-up in layoffs and continued lack of hiring

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Continuing Claims (Nov 1)

Survey 3825K
Actual 3897K
Prior 3843K
Revised 3832K

 
Moving into recession levels as expected.

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Jobless Claims ALLX (Nov 8)


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Re: Uncle Sam’s Credit Line Running Out?

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(email exchange)

>   
>   On Wed, Nov 12, 2008 at 10:31 AM, John wrote:
>   
>   Here is support for recent reviews and portfolio positions.
>   

Yes, thanks, and ridiculous, of course. Comments below:

Uncle Sam’s Credit Line Running Out?

By Randall W. Forsyth

The yield curve and credit-default swaps tell the same story: The U.S. can’t borrow trillions without paying a price.

Not saying that at all!

What was once unthinkable has come to pass this year: massive bailouts by the Treasury and the Federal Reserve, with the extension of billions of the taxpayers’ and the central bank’s credit in so many new and untested schemes that you can’t tell your acronyms or abbreviations without a scorecard.

Even more unbelievable is that some of the recipients of staggering sums are coming back for a second round. Or that the queue of petitioners grows by the day.

But what happens if the requests begin to strain the credit line of the world’s most creditworthy borrower, the U.S. government itself? Unthinkable?

Yes, government spends first, then borrows.

Trillions are no hyperbole. The Treasury is set to borrow $550 billion in the current quarter alone and $368 billion in the first quarter of 2009. “Near-term pressures on Treasury finances are much more intense than we had thought,” Goldman Sachs economists commented when the government announced its borrowing projections last week.

Define ‘intense’ please…

It may finally be catching up with Uncle Sam. That’s what the yield curve may be whispering. But some economists are too deaf, or dumb, to get it.

The yield curve reflects anticipated Fed funds rate targets plus ‘technicals’ which can include misguided risk perceptions.

But the Treasury has not needed to issue longer term maturities. It can do it all in 3 month bills or even shorter maturities.

Treasury securities function to ‘offset operating factors’ and provide interest bear accounts as alternatives to the interest rate now paid on excess reserves.

And any constraints on government spending are self imposed.


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UK’s Brown on the pound

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Europeans worry a lot more about inflation from falling currencies than the Fed does.

>   
>   On Wed, Nov 12, 2008 at 7:19 AM, Milo wrote:
>   

  • BOE’s King says he has No Desire for ‘Sharp’ Drop in Pound
  • BoE Signals Rate Cuts Needed as Economy Contracts
  • U.K. Jobless Claims Rise 36,500, Most Since 1992
  • Brown signals imminent tax cuts
  • British retail sales fall for 1st time since 2005
  • U.K. Housing Sales Drop to Record Low as Prices Fall, RICS Says
  • U.K. Banks Pared Mortgages 13% After Rate Cut

BOE’s King Says He Has No Desire for ‘Sharp’ Drop in the Pound

The following are comments by BoE policy makers on inflation, economic growth and interest rates. Governor Mervyn King and colleagues made the remarks at a press conference following the central bank’s inflation report.

“Clearly if sterling falls far enough this will be a concern and it will have an impact on inflation. It’s not surprising that it’s fallen in the past year. We started by going into this with a significant trade deficit. We are seeing a rebalancing of the world economy.”

“That can be a helpful part of rebalancing the economy, provided it doesn’t affect our ability to meet the inflation target. It’s something we keep a very careful eye on. We have no wish to see it fall very sharply.”

“We have to accept that some fall back from the level we saw in 2007 is part of the rebalancing. Central bankers are prepared to worry almost every day, and I’m prepared for that.”

Regarding the current value of the pound, the bank’s Chief Economist Charles Bean said:

“That very considerable stimulus from the exchange rate should help to pull the economy out of its slow period.”


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2008-11-12 USER

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ICSC UBS Store Sales YoY (Nov 11)

Survey n/a
Actual 0.4%
Prior 0.9%
Revised n/a

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ICSC UBS Store Sales WoW (Nov 11)

Survey n/a
Actual -1.0%
Prior 0.6%
Revised n/a

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Redbook Store Sales Weekly YoY (Nov 11)

Survey n/a
Actual -1.0%
Prior 0.3%
Revised n/a

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Redbook Store Sales MoM (Nov 11)

Survey n/a
Actual -1.2%
Prior -1.2%
Revised n/a

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ICSC UBS Redbook Comparison TABLE (Nov 11)


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Chain Store Sales

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Doesn’t look as bad as many would expect.

Maybe it’s being supported by lower fuel prices.

TABLE-US chain store sales fell 1.0 pct last week-ICSC

(Reuters) The International Council of Shopping Centers and Goldman Sachs on Tuesday released the following seasonally adjusted weekly data on U.S. chain store retail sales.
 

WEEK ENDING INDEX 1977=100 YEAR/YEAR CHANGE WEEKLY CHANGE
(percent) (percent)
Nov 8 477.2 0.4 -1.0
Nov 1 482.0 0.9 0.6
Oct 25 479.3 1.3 0.5
Oct 18 477.0 0.9 -1.6

 
The ICSC weekly U.S. retail chain store sales index is a joint publication between ICSC and Goldman Sachs Group Inc. It measures nominal same-store sales, excluding restaurant and vehicle demand, and represents about 75 retail chain stores.


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